REPO-01
Brennan, Diana Olick, Wilford Frost, Julia Boorstin, Steve Liesman, Susan
Li>
Technology; Transportation; Consumers; Economy; Housing; Real Estate>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Dramatic selloff. Stocks slid sharply on concerns about the health of a major bank. But it`s not a U.S. bank. This one is German.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Deadly commuter crash. It happened during the morning rush at a major New York area transit hub. Now the focus is on a high tech safety system that trains are not yet required to have.
HERERA: Slowing down. Homebuyers retreated in August and high prices and few choices may be to blame.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, September 29th.
MATHISEN: Good evening, everyone, and welcome.
Drama in the markets today. A quiet morning didn`t stay that way. A couple of hours into trading, stocks dropped sharply. At one point, the Dow Jones Industrial Average was off 250 points. It finished down 195, at 18,143. The NASDAQ fell 49. And the S&P 500 was off 20.
The reason for the swoon, a Bloomberg report that some hedge funds cut their exposure to Germany`s Deutsche Bank. That sent shares of Deutsche Bank to an all-time low and rippled into the U.S. financial sector. That`s because the report was reminiscent of the financial crisis, when investors sold on news of counterparties pulling business with banks like Lehman Brothers and Bear Stearns. And that nervousness seeped then into the broader market.
Bob Pisani explains why.
(BEGIN VIDEOTAPE)
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The markets were fairly quiet midday when a report from Bloomberg on Deutsche Bank dropped the markets. They reported some hedge funds that cleared derivatives trades with the banks and withdrawn some positions. It`s a possible sign of concern about doing business with the bank.
It`s not much of a story, but it did revive long dormant memories of 2008. Deutsche Bank dropped 7 percent on this. European banks that trade in the U.S. dropped about 3 percent. U.S. banks dropped, JPMorgan (NYSE:JPM) dropped 1.5 percent. The S&P dropped nearly 20 points before recovering some those losses.
Now, wait a minute, what possibly does Deutsche Bank have to do with JPMorgan (NYSE:JPM)? On the surface, there`s not much. But in the post- financial crisis world view, it doesn`t take much.
The concern is if Deutsche Bank did go under, it would cause a crisis of confidence in Europe. Never mind the chances are small that that would happen. It`s small but it`s not zero.
And problems with one bank could lead to higher credit costs and slower economic growth in general. Remember, markets hate uncertainty. Traders losing confidence in your viability as a bank, that was a big issue in 2008.
What about rest of the market? Why, for example, did Whirlpool (NYSE:WHR) drop $2 on this? Well, the simple answer is that today`s trading action is dominated by traders who will pull their bids when there`s market uncertainty.
When you have heavier volume, fewer bids, prices dropped to attract the buyers. You trend momentum guys, and that will more than adequately explained how stocks that are not correlated could drop together.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
(END VIDEOTAPE)
HERERA: So, should we be worried about the health of the U.S. banks or are today`s fears overblown?
Jack Micenko is the banking analyst at Susquehanna Financial Group. He joins us now to discuss.
Jack, welcome, always a pleasure to have you with us.
What did you make of today`s actions, specifically as it referred to Deutsche Bank?
JACK MICENKO, SUSQUEHANNA FINANCIAL GROUP BANK ANALYST: So, the Deutsche Bank news is really reminiscent of what happens in `08, as Bob said. When customers stop doing business with their brokers, it becomes a self fulfilling prophecy and a crisis of confidence. And I think people, you know, memories are short, and I think the weakness in the broader financials today was then an extrapolation to say, look, this will have a bad impact on the rest of the economy, when those firms went down, and I think that was being priced in to some extent today.
MATHISEN: You know, a lot of people sell and ask questions later. So, let me ask the questions. Is Deutsche Bank in trouble? Are any U.S. banks going to be struck by any kind of contagion?
MICENKO: Well, any time you hear of clients pulling back, that`s a concern, because that creates more concern from incremental plans and it becomes sort of a snowball effect. Deutsche Bank is also a high lever now. I do cover Deutsche Bank. I do cover the U.S. banks. And there are very little parallels to make to the U.S. banking system.
The quality of the U.S. banks is pristine. It`s better than it`s been in a decade. Loans are growing. You know, housing is doing very well, even though we had a down number in August.
On a year to year basis, housing continues to grow very nicely. And we`re just not seeing any of those kind of issues. In fact, you know, for some of the banks in the U.S. with market exposure, you know, customers pulling back from Deutsche Bank may create an opportunity for names like JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), to do more with those customers, they take share.
HERERA: In other words, it might help the U.S. banks, because of the pristine balance sheets and because of the perception of more safety?
MICENKO: Absolutely.
HERERA: What about the Fed? Does this type of an event, especially if the selling continues, have any impact on whether or not they feel less comfortable or more comfortable moving on interest rates?
MICENKO: I would speculate that it makes them feel less comfortable right? Uncertainty is never a good thing. If Deutsche Bank does suffer some sort of event and Germany doesn`t step in, whatever may come, you know, could that weigh on economic growth? Could it cause, you know, corporate America to pause and further hold back, hold off on capital spending, hiring, those types of those?
Well, those things would roll up into a slower GDP growth rate, and that would potentially cause the Fed to hold off. I think there have been some enthusiasm coming out of the September meeting that the Fed could raise rates, and banks responded to that. This obviously calls that into a question a little bit.
HERERA: All right. Jack, thank you so much for joining us.
MICENKO: Thank you.
HERERA: Jack Micenko with Susquehanna Financial Group.
MATHISEN: If you`re one of the millions of Americans who commute to work by train, this story hits home. A crowded NJ transit commuter train, operating in the third largest transit system in the country, plowed into the Hoboken station during the morning rush. It smashed to a barrier at the end of its track, knocking out pillars, killing at least one, injuring numerous others.
Courtney Reagan reports tonight from the site of the accident.
(BEGIN VIDEOTAPE)
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was the height of rush hour this morning when a New Jersey transit commuter train crashed at the Hoboken terminal here behind me. The Hoboken terminal is just one stop away from New York City, where you have to transfer to get all the way into the city from here. Governor Chris is calling it a tragic accident and says it`s too early to speculate exactly what the cause was or whether or not it could have been prevented.
GOV. CHRIS CHRISTIE (R), NEW JERSEY: We don`t know what the cause of the high rate of speed was. Therefore, we cannot answer the question as to whether or not any other apparatus or systems could have slowed the train down or not based on that. So, we`re not going to speculate on that.
REAGAN: Hoboken, New Jersey, is a major commuter town. New Jersey Transit says that on average, 3,900 passengers could have been on board on an average day, by the time the train arrived here in Hoboken. Governor Chris Christie does not have an estimate for when the train station will be up and running again. Commuters are urged to look into other options to make their way into New York City.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Hoboken, New Jersey.
(END VIDEOTAPE)
MATHISEN: A team of safety inspectors arrived at that crash site today. Morgan Brennan has reported extensively for us on the railroad industry and legislated safety changes. She joins us now.
Morgan, there is a safety system called, what is it, PTC, Positive Train Control --
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: That`s right.
MATHISEN: -- that governs speed. And might -- had it been installed here -- have averted this accident. Why has it been so slow to be taken up?
BRENNAN: Yes. So, Positive Train Control is actually -- it was mandated by Congress in 2008 that all railroads, passenger, freight, and commuter railroads have to install this high tech technology that basically would prevent trains that are going at high speeds from crashing into other trains or crashing into stations. It basically overrides the operator to slow the train down or bring it to a stop.
So, it`s still an investigation that`s active. We still don`t have all the details. If it turns out that PTC could have prevented this, it`s certain going to draw attention to this technology that was supposed to be in place by the end of 2015 and then had that deadline extended to 2018.
HERERA: Yes. So, why is New Jersey in particular so far behind? Because some states have been -- have been able to upgrade in a much more efficient manner.
BRENNAN: Yes. So, this is an estimated cost to install this for all the railroads in the country, is $10 billion. It`s very detailed technology, New Jersey, specifically, New Jersey transit, none of their trains have it yet. They`ve been a bit slower, as you mentioned, to adopt this technology.
And a big part of that is because New Jersey transit just doesn`t have all the funding it necessarily needs. About a fifth of its budget is actually on hold because of disputes within the state around fiscal budget topics, including that. But it`s been very expensive and a lot of railroads have been having a hard time installing it.
MATHISEN: I know you could wonk out on this if you really wanted to. But has it worked? Don`t wonk.
BRENNAN: OK. I`ll try to do this is that couple of sentences.
So, Positive Train Control, it basically automates the train system, the railroad network. It uses airwaves, radio airwaves to connect the trains to transmitters along the tracks, so that the folks that oversee these networks know where every train is, how fast it`s moving. The trains can sense where other trains are.
It basically automates the train system, the railroad network. It uses radio airwaves to connect the trains to transmit along the tracks, so that the folks that oversee these networks know where every train is, how fast it`s moving. The trains can sense where other trains are. It basically automates the railroad system
MATHISEN: And it slows the train down if it`s going too fast.
BRENNAN: Exactly. So it can override an operator if they`re moving the train too fast.
MATHISEN: Morgan, thanks a lot. Morgan Brennan reporting.
HERERA: Well, the nation`s economy grew just a little bit faster in the second quarter than originally thought. And although it was better, it`s certainly wasn`t great. Gross domestic product, the broadest measure of goods and services produce across the country expanded at a 1.4 percent annual rate. That`s up from 1.1 percent it reported last month. That report showed that growth in exports, which adds to GDP, outpaced gains for imports. It also highlighted an improvement in business investment.
MATHISEN: Now to housing, which may be showing some signs of cooling off just a bit. Buying slowed yet again in August with fewer people signing contracts to buy existing homes. It is the third straight drop in so- called pending home sales.
And as Diana Olick reports, realtors blame it on a lack of supply which is hurting affordability.
(BEGIN VIDEOTAPE)
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: First time home buyers Tyler and Marysia Mullen are doing the final walk through before closing on their two-bedroom D.C. home. They knew they wanted it as soon as they saw it, so they wasted no time making an offer. Eight months of house hunting taught them that.
TYLER MULLEN, HOME BUYER: It was a bit shocking when you`re trying to find a place within the price range and as soon as you start looking at it, it`s gone.
OLICK: The number of listings have been dropping for 15 straight months nationally. Realtors say it`s the primary reason for falling sales and rising prices.
LAWRENCE YUN, NATIONAL ASSOCIATION OF REALTORS: Perhaps the buyers are exhausted. They are not excited by the low inventory choices. And furthermore, home prices consistently rising above people`s wages. People are getting just knocked out.
OLICK: One quarter of U.S. housing markets are now less affordable than their long term historical norms. And nearly two thirds of U.S. counties are seeing home affordability worsen compared to a year ago, that according to Adam Data Solutions. While some hot markets like San Francisco are starting to see prices ease, other markets in Texas and Colorado are seeing double digit gains.
The markets simply need more homes. But homebuilders are the no ramping up production enough to meet demand, and only now are they starting to turn to starter homes. That will help first time homebuyers down the road, but not today.
MARYSIA MULLEN, HOME BUYER: I think that`s what we found to be the most surprising, is we saw a place listed on a Wednesday, and we were scheduled to go see it on Saturday, and by Saturday morning, we got a phone call that it was already under contract.
The Mullens` advice, if you want to move, move quickly.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
(END VIDEOTAPE)
HERERA: Deutsche Bank wasn`t the only bank in the news today. The CEO of Wells Fargo (NYSE:WFC) back in Washington as shares of that bank fell to multiyear lows. This time, John Stumpf faced questions from house lawmakers over his bank`s fake account scandal. And members of Congress were just as angry this week as they were last.
Wilford Frost reports from Capitol Hill.
(BEGIN VIDEOTAPE)
WILFROD FROST, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wells Fargo (NYSE:WFC)`s CEO, John Stumpf, faced his second hearing on Capitol Hill in just nine days, coming also two days after he agreed to forfeit $40 million of his pay. His challenge today, to provide more detail and convince people he was sorry.
JOHN STUMPF, WELLS FARGO CEO: May I respond to that, please?
UNIDENTIFIED MALE: We`ll give the witness an opportunity to respond.
STUMPF: As I said before, I`m sorry that we didn`t get this right. I take this very seriously. I`m not in denial. And we will get this right. We will fix this.
FROST: As for the details, we did get it -- the 2 million fake accounts number could be as much as 75 percent lower based on the latest investigation. He also said the full board is being investigated internally, not just company executives like him. And the House committee does plan to investigate the regulators as well as the company on whom there was mixed opinion.
But the focus once again was the tone of the hearing as opposed to the content. Lawmakers still angry and wanting more.
REP. GREGORY MEEKS (D), NEW YORK: The whole board needs to go, if they`re going to allow someone to be in charge when time after time, you just talked about you fired 5,300 employees, when you found out they were doing something wrong, they were fired because they were doing something wrong. Well, something is going wrong at this bank. And you are the head of it.
So, shouldn`t the board -- from your own admission, if the buck stops with you, as you came out here and said, "I apologize, the buck stops with me," and you have to also admit that criminal activity was going on in your bank, then you should be fired because it stops with you.
FROST: The other big takeaway, this week, was the rising pressure for other banks to be dragged into what so far has been a single company issue.
REP. BRAD SHERMAN (D), CALIFORNIA: We have institutions that are too big to fail. In 2008, we found they were too big not to bail. The -- Eric Holder has told us they are too big to jail, saying that he fears for putting them -- for bringing a criminal indictment. We now learn that they`re too big to manage, too big to regulate. It`s time to break them up.
FROST: Thus, the other banks will be keeping an eye on developments.
So, to sum up, the CEO John Stumpf performed much better today than he did nine days ago in front of the Senate hearing. But the issue rumbles on for Wells Fargo (NYSE:WFC).
For NIGHTLY BUSINESS REPORT, Wilford Frost in Washington.
(END VIDEOTAPE)
MATHISEN: Still ahead, why some say Viacom (NYSE:VIA) and CBS (NYSE:CBS) are better if they get back together.
(MUSIC)
MATHISEN: The FCC has delayed a vote on the controversial set-top box proposal. The measure would have opened up the cable box marketplace to competition by requiring TV providers to make their shows and movies available through free streaming apps. But regulators pulled the proposal because not all of the issues have been sorted out. The measure has faced stiff opposition from cable and content providers.
HERERA: The Redstone family which owns a majority of both Viacom (NYSE:VIA) and CBS (NYSE:CBS) called for the two companies to get back together. Viacom (NYSE:VIA) and CBS (NYSE:CBS) used to be part of one company until Viacom (NYSE:VIA)`s assets were spun off about a decade ago. Shares of Viacom (NYSE:VIA) and CBS (NYSE:CBS), I should say, both rose in trading today.
Julia Boorstin takes a look at why these companies might want to reunite.
(BEGIN VIDEOTAPE)
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sumner and Shari Redstone`s holding company, National Amusements, today proposing that the companies they CBS (NYSE:CBS) and Viacom (NYSE:VIA) re-merge, saying a combination of the two companies might offer substantially synergies to respond more aggressively to the changing entertainment landscape.
Now, whether this deal happens is really up to CBS (NYSE:CBS) CEO Les Moonves. He said that he`ll only do this deal if it`s beneficial to his shareholders. And while CBS (NYSE:CBS)`s market cap is $23 billion to Viacom (NYSE:VIA)`s $14.5 billion, CBS (NYSE:CBS) would likely draw a big premium in the proposed all-stock transaction to make that deal happen.
Analysts have raised concerns about Viacom (NYSE:VIA)`s cable network, struggling ratings and higher than average costs weighing on CBS (NYSE:CBS)` growth. But there would be cost savings, and greater scale could give CBS (NYSE:CBS) more power in negotiations for distribution and more content for its digital apps.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin.
(END VIDEOTAPE)
MATHISEN: Snacks and water help Pepsi`s earnings pop, and that`s where we begin tonight`s "Market Focus".
The food and beverage giant beat estimates, thanks to strength in North America of its Frito-Lay and noncarbonated drinks like Propel Flavored Water. That helped offset a continued decline in soda. Revenue surged in some of the company`s key overseas markets, leading Pepsi to raise guidance for 2016. Let`s take a look shares. They rose a fraction at $107.76.
And sticking with snacks, Conagra, whose brands include Slim Jim and Ready Whip, don`t mix the two, posted better than expected earnings, thanks to price hikes and less discounting. But revenue did slip a bit. The company CEO says Conagra wants to refocus its business on healthier products to keep up with consumer preferences. Shares of Conagra up, though, 7 percent, $46.25.
Fitbit shares hard hit following an analyst downgrade. Pacific Crest Securities cut the fitness device maker to underweight, which is essentially a sell signal, from neutral, saying sales of the company`s latest product were off to a slow start. The fitness tracking ban was seen as a flagship holiday product. Fitbit`s share finished the day down 11 percent at $14.81.
HERERA: Qualcomm (NASDAQ:QCOM) may reportedly acquire NXP Semiconductors (NASDAQ:NXPI). "The Wall Street Journal" says Qualcomm (NASDAQ:QCOM) is in talks with the chip maker over a deal that could take place in the next three months. The takeover could be valued at more than $30 billion. Shares of NXP Semiconductors (NASDAQ:NXPI) were up nearly 17 percent to $96.12, while Qualcomm (NASDAQ:QCOM) was up 6 percent to $67.45.
A district sales manager at Insys Pharmaceuticals was arrested on charges he took part in a scheme to pay doctors kickbacks in exchange for prescribing the company`s opioids spray. This is just the latest in a string of charges brought against company employees dealing with the drug. You may remember, we aired a series about the Insys scandal last year. Insys shares were off 5 percent to $12.08.
MATHISEN: Critics of the Federal Reserve have been out in force, some say it hasn`t moved fast enough on interest rates. Others accuse it of playing politics, and some want to know why it didn`t do more to weed out the bad behavior at Wells Fargo (NYSE:WFC). Now, there`s another issue.
Steve Liesman reports tonight from Kansas City.
(BEGIN VIDEOTAPE)
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Fed has been criticized by Republican nominee Donald Trump for being political and keeping rates too low, and by investors for confusing communications.
But a gathering wave of criticism has received less publicity -- the lack of diversity of the Central Bank. It became a topic this week when the Fed chair faced Congress.
REP. JOYCE BEATTY (D), OHIO: We`ve had no African-American presidents. We`ve had zero Latino presidents out of 134. So I want to make sure that we stay focused on that. I think we can do better than that.
JANET YELLEN, FEDERAL RESERVE CHAIR: We`ve made some progress but we need to do better. At the level of presidential appointments, I would very much like to see, I would very much hope that we can see greater diversity in the FOMC.
LIESMAN: In an effort to address these concerns, the Kansas City Fed held the first ever banker`s conference this week in an attempt to identify potential banking leaders who could one day be policymakers. Yellen addressed the audience today and hinted at possible changes to come.
Rose Washington is deputy chair of the Kansas City Fed, involved in economic development lending in Tulsa, Oklahoma.
ROSE WASHINGTON, TULSA ECONOMIC DEVELOPMENT COPORATION: All money is green but people are different. I bring a unique perspective to this organization, to the monetary policy discussion, because of the community that I serve, because of the community where I work every day, where my ear is to the ground, collecting data from minority businesses, from small businesses, from small manufacturers located in low income census tracks.
LIESMAN: The issue of diversity at the Fed came to the fore in Jackson Hole this year when activists met several Fed officials and call for greater inclusion on the Federal Open Market Commission.
ALDEN MCDONALD, LIBERTY BANK PRESIDENT & CEO: The Fed has done a pretty good job in balancing things over the years. But I think more diversity on the Fed board will bring more insight into what`s happening in the urban communities in America.
LIESMAN: Amid calls for greater diversity, the Fed`s first test will come not here in Kansas City but in Atlanta, where the Fed`s President Dennis Lockhart has announced he`ll retire next year. The campaign has already begun to seek out a minority to fill the post.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Kansas City.
(END VIDEOTAPE)
HERERA: Coming up, change of plans. Why some families are rethinking their fall and winter vacations to the tour-dependent tourism-dependent Sunshine State.
(MUSIC)
MATHISEN: It took months, but Congress approved more a billion do fight the Zika virus. It was included in part of the spending bill we told you about yesterday that will keep the government fro shutting down. It comes as families rethink their fall vacations to states that are dependent on tourism like Florida.
Susan Li has our story.
(BEGIN VIDEOTAPE)
SUSAN LI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Sunshine State, Florida, is the second most-visit in the U.S. after California, welcoming in over 106 million out of town and international tourists last year, accounting for $90 billion, according visit Florida. This August, the tourism sector took a hit after the CDC, the Centers for Disease Control, slapped a travel warning on two neighbors in Miami-Dade County. That includes the hot spot of Miami Beach and a neighborhood of Wynwood and that is meant a change in travel plans for some Americans over the peak fall and winter seasons.
DANIEL DURAZO, ALLIANZ GLOBAL ASSISTANCE: Allianz Global Assistance just did a survey of 500,000 travelers who were planning to go to Florida this year as opposed to last year. And then we found that overall travel to Florida during the peak season, which is about mid-November to mid-April, is going to be down about 15 percent.
LI: Travelers booked 30 percent fewer trips to Miami, 32 percent fewer flights to Tampa, and over 15 percent less flight to West Palm Beach.
According to the CDC as of last week, there were 43 locally acquired cases of Zika in Florida. The state`s efforts to battle the spread also claiming a victory last week, the CDC lifting the travel advisory to the Wynwood area after no new cases of the illness were reported in the last 45 days. Relief for Miami operators that have experienced some lost business.
BILL TALBERT, GMCVB CEO & PRESIDENT: We have 53,000 hotel rooms county- wide and, you know, groups meet in hotels. And there have been the cancellations have been in the hotels, small groups.
LI: Most major tourism businesses operating in Florida say they haven`t seen any major effects from Zika, including Disney (NYSE:DIS), which operates theme parks in Orlando. The company said earlier this month that the virus was having no real impact on cancellations or future bookings. Also, cruise lines that operate out of Miami`s ports.
ARNOLD DONALD, CARNIVAL CORP, CEO AND PRES.: I think on the Zika concerns, it really didn`t impact us very much. The reality is every year there is something, Zika this year, Ebola, those things come up.
LI: Booking for trips to Florida may have been down in the month of August, according s new survey, but like the battle to control the Zika virus, the state`s tourism sector is also hoping fortunes turn around soon.
