Transcript: Tuesday, January 14, 2014

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you in part by —

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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Rebound. Stocks snapped back from yesterday`s steep drop, as investors focus on earnings from two of the nation`s biggest banks and what they say about the future growth.

Who controls the Internet? Those who own the pipes like Verizon (NYSE:VZ) and Time Warner (NYSE:TWX) Cable, or the content providers like Netflix (NASDAQ:NFLX) and YouTube? A legal ruling today could impact everyone who clicks and logs on.

And the next hot stock. Biotechs are risky but can be very rewarding. Now, there`s a way to find out which companies are working on potentially ground-breaking new treatments.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, January 14th.

Good evening, everyone. Tyler`s on assignment tonight.

Well, what a difference a day makes. Stocks surge higher today, rebounding from Monday`s selloff. Investors were encouraged on news of stronger than expected retail sales in December, and that lifted shares of some of the nation`s biggest chain stores.

Also powering the rally, better-than-expected earnings from two of the nation`s biggest banks, JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC). That gave a boost to financial stocks. We`ll have more in just a moment.

By the closing bell, the Dow added 115 points, the NASDAQ jumped almost 70, regaining all of Monday`s losses and more. And the S&P was up about 20 points. That`s its biggest gain for the year so far.

More now on JPMorgan (NYSE:JPM) Chase and Wells Fargo (NYSE:WFC). Both banks posted quarterly earnings that beat analysts` forecasts.

JPMorgan (NYSE:JPM) earned $5.3 billion. Its net income would have been higher if the bank didn`t have to pay billions in legal fees and settlements for past wrong doings.

Profits at Wells Fargo (NYSE:WFC), meanwhile, shot up 11 percent, to a record $5.4 billion on the modest beat of a dollar per share.

Now, even though mortgage lending was cut in half cue due to rising interest rates, interest income from a boost in customer deposits rose sharply.

The bank`s chief financial officer is optimistic about the future.

(BEGIN VIDEO CLIP)

TIM SLOAN, WELLS FARGO CFO: What we`re seeing is good growth reflecting an improving economy and our ability to go ahead and take share from many of our competitors.

(END VIDEO CLIP)

GHARIB: Well, despite the upbeat comments, shares of Wells Fargo (NYSE:WFC) and JPMorgan (NYSE:JPM) were both relatively flat today. Now, tomorrow we hear from Bank of America (NYSE:BAC) and then later this week, Citigroup (NYSE:C), Goldman Sachs (NYSE:GS) and Morgan Stanley (NASDAQ:NBXH) (NYSE:MS).

Well, here to give us a more analysis on those bank earnings and a look ahead to next week is Fred Cannon. He`s director of bank research at the firm Keefe, Bruyette & Woods.

So, Fred, let`s start with JPMorgan (NYSE:JPM). It`s been going through a tough time. It had all those legal problems, settlements, write-offs. As you look ahead to 2014, are things going to be better? And what does it mean for the bank and the stock?

FRED CANNON, KEEFE, BRUYETTE & WOODS DIRECTOR OF RESEARCH: Look, I think on JPMorgan (NYSE:JPM), things are going to get a little bit better. But it`s still a tough road for them ahead. I think we have to look at the results today and say yes, they beat but remember, after the third quarter, earnings estimates have come down for the company.

So, yes, I think it was a solid quarter. I think overall, though, revenue environment for these big banks is still pretty challenging.

GHARIB: But you are recommending JPMorgan (NYSE:JPM). It is one of the stocks on your buy list. If someone puts in fresh money at $57 a share, how will they do this year?

CANNON: I think they`ll do just fine. I mean, we don`t think it`s necessarily the biggest grower in terms of stock price across our universe, but it should be solid because what`s happening is that the dark cloud that`s been over JPMorgan (NYSE:JPM) for about a year and a half now is beginning to break up. It`s not going to be clear skies, but it will be less cloudy.

GHARIB: What about Wells Fargo (NYSE:WFC)? Clear skies for that bank? It reported a big drop in mortgage activity. What`s the outlook there?

CANNON: The outlook for Wells Fargo (NYSE:WFC) is to grow earnings 10 percent a year no matter. What I think they`ve proven they can do it again. It`s a very diversified company, very strong in the U.S. While it has the same issues in many ways as the big banks like JPMorgan (NYSE:JPM), it has less of them and doesn`t have those big derivative exposures that face increasing regulatory hurdles this year.

So, Wells Fargo (NYSE:WFC) should be just fine.

GHARIB: Give us a little bit of a preview of what to expect from some of these other banks. As we just mentioned, Bank of America (NYSE:BAC) reports tomorrow, Citi on Thursday. What`s going to be the tone from their earnings? Pretty much the same of what we heard today?

CANNON: I think they`ve basically gotten the estimates. The companies have kind of gotten analysts down to where they want them.

After the third quarter, remember, earnings estimates came down two reasons. Number one is what you mentioned, Susie, is mortgage — under a lot of pressure as rates rise fuel refinancing. Secondly, the capital market activity.

Never — fourth quarter is never a big time for trading. A lot of guys go on vacation especially with that Wednesday Christmas holiday. But I think expectations are pretty much in line with what they should deliver.

GHARIB: Tell us about Citi. It is on your buy list. Why do you like it at $54 a share?

CANNON: We like it because it is building book value. And it`s trading right at book value. It`s excellent restructuring story led by this management team. They`re reorganizing the company to reinvest where to make money, make it simpler, make it smaller.

And we think they`re going to get some good news from the government on capital return this year that should be a big benefit to stock.

GHARIB: Now, you also like some smaller regional banks. It would be nice to go over those real quickly. You say they have a lot going for them. We have a list here.

Why do you like, like Signature and Silicon Valley Bank and Pac West? What`s the — you know, what`s the upbeat on this.

CANNON: We encourage investors to not look at those big banks, because we think the banks under $50 billion in assets not household names but still very strong banks as being where you can really get some revenue growth.

Remember those top-line guys, they`re making money but they`re not really growing revenues. Signature and Silicon Valley Bank out in California, signature right hour in New York, they`re growing loans 20 percent plus a year. You don`t hear anything like that at the big banks.

So, that`s unique. Some other ones are prosperity in Texas and Pac West out in California. They`re able to do mergers and acquisitions that are very accretive to earnings.

GHARIB: All right. Fred, thank you so much. Always a pleasure having you on the program.

CANNON: Great to be on, Susie.

GHARIB: Fred Cannon from Keefe, Bruyette & Woods.

Time Warner (NYSE:TWX) is rejecting rival Charter Communications` $61 billion bid. But Charter isn`t giving up. It`s going hostile, taking the offer directly to shareholders. Charter`s CEO says combining the companies would create value through joint sales and marketing as well as cost savings and technology consolidation.

(BEGIN VIDEO CLIP)

TOM RUTLEDGE, CHARTER CEO: We`re not there at the moment. We`re making this offer to shareholders and asking shareholders to get involved. All of our options are open.

But we think if shareholders look at the offer that we have and ask management to engage, the shareholders will recognize that the offer is a good offer and that it actually creates more value than the alternative.

(END VIDEO CLIP)

GHARIB: Time Warner (NYSE:TWX) Cable did say it would consider an offer of $160 a share from charter. That`s far more than the current bid of $132.50.

A court ruling today could impact those cable TV and Internet operators over something called Net Neutrality. A panel of judges said that not all Internet Traffic should be treated equally.

Julian Boorstin explains.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The federal appeals court ruled the FCC may not block or limit certain kinds of Internet traffic or tell Internet service providers how to prioritize the data they send over their pipes. The court siding with Verizon (NYSE:VZ), which argued that the rules mandating Net Neutrality violated its constitutional rights.

This is a win not just for Verizon (NYSE:VZ), but all Internet service providers, including AT&T (NYSE:T), Time Warner (NYSE:TWX) Cable and Comcast (NASDAQ:CMCSA) (NYSE:CCS). The losers, companies like Netflix (NASDAQ:NFLX), YouTube and ESPN, which stream a lot of content online. They may have to pay more to get their content to subscribers. And customers may have to pay more to Internet providers or ISPs for premium services, like video streaming or Skype.

MICHAEL WEINBERG, PUBLIC KNOWLEDGE VICE PRESIDENT: This ruling is bad for consumers because it allows the company connected to the Internet to pick winners and losers online. They get to decide which services you get to visit and which ones work and which ones you don`t get to visit, and which ones don`t work very well.

BOORSTIN: The issue is complicated and the battle is far from over. The FCC, which is considering appealing today`s ruling fears consumers will have higher broadband bills and start-ups will be at a disadvantage.

Representing YouTube, Netflix (NASDAQ:NFLX) and others, the Internet association issued a statement saying it, quote, “supports enforceable rules that ensure an open Internet, free from government control or discriminatory anti-competitive actions by gatekeepers, saying it will work with the FCC and policymakers.”

Comcast (NASDAQ:CMCSA) (NYSE:CCS) says the court`s ruling won`t impact this approach in the near term. As part of its deal to buy NBC Universal (NYSE:UVV), it agreed to abide by the open Internet rules until 2018, regardless of modification by the courts.

Verizon (NYSE:VZ) says today`s decision won`t impact customer`s ability to access and use the Internet, saying it`s committed to providing competitive choices.

We`ll see what customers say when those choices include a pricier option.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

GHARIB: Comcast (NASDAQ:CMCSA) (NYSE:CCS), as Julia just mentioned in her story, is the parent company of CNBC, which produces NIGHTLY BUSINESS REPORT.

Well, some of those same Internet providers have joined a growing list of tech companies both big and small, aiming to take over your living room and now, looking to control your entire home.

Jon Fortt has more.

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JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): First, there was the personal computer, then the iPod, smartphone and tablet. Now, are we entering the era of the smart home?

Google (NASDAQ:GOOG) CEO Larry Page seems to think so. His company just announced plans to buy Nest Labs, which makes futuristic thermostats and smoke detectors for $3.2 billion in cash. Nest`s CEO Tony Fadell comes to Google (NASDAQ:GOOG) as part of the package. Fadell is best known as an Apple (NASDAQ:AAPL) executive who oversaw development of the iPod and iPhone.

TONY FADELL, NEST CEO: We`re trying to reinvent unloved products, products that you use every day or you may ignore every day and try to bring them into a modern era.

FORTT: Nest isn`t alone trying to crack the code for the connected home. At the consumer electronics show in Las Vegas last week, other start-ups including Smart Things showed off do-it-yourself technology. For locking doors, controlling lights, even setting your coffeemaker to brew you a cup when you wake up.

But are all these smart sensors putting privacy at risk?

WALT MOSSBERG, RE/CODE CO-CEO: In terms of your home or office where you put these sensors, we`re going to flood our world with sensors. So, are you personally in your house? Is somebody else? Is your wife? Is your — maybe somebody that your wife would rather you didn`t have in the house there? Could be — where are your children?

There`s all kinds of privacy implications for this.

FORTT: The question is whether Nest or any other company is truly close to figuring out how to make home appliances not only smarter but easier to use.

Samsung, Apple (NASDAQ:AAPL) and others are also interested in moving beyond smartphones.

(on camera): So chances are, over the next few months there will be quite a few tech heavyweights knocking on your door.

For NIGHTLY BUSINESS REPORT, I`m Jon Fortt.

(END VIDEOTAPE)

GHARIB: Two U.S. senators want some answers from Target (NYSE:TGT) about its massive data breach during the holidays. Senators Claire McCaskill of Missouri and John Rockefeller of West Virginia are asking the retailer to provide details from its own internal investigation about the hacking of millions of debit and credit customer accounts.

As we told you last night, General Motors (NYSE:GM) was close to announcing a dividend. Well, now it`s official. Starting in March, the automaker will pay a quarterly dividend of 30 cents a share to stockholders of record as of March 18th, 2014.

And still ahead on the program, 14 states will hike the minimum wage this year, putting more cash in the pockets of some workers. Who are the winners and the losers? That`s coming up next.

(MUSIC)

GHARIB: U.S. lawmakers are a step closer to approving a more than $1 trillion federal budget, a bipartisan deal would keep the lights on in Washington and finance federal agencies everywhere through the end of September.

John Harwood joins us now from Washington with more on all of this.

You know, John, one Democratic senator said that this deal shows American people that we can compromise.

So, in the spirit of this compromise, what did the Democrats get out of this in terms of sweeping changes and what did the Republicans like?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, nobody got sweeping changes in this legislation. What we got is a return to normal governance. The benefits that Democrats can point to the most are the relief of some of those sequester cuts that they found so harmful to some of their domestic priorities, as well as some defense priorities.

What Republicans can claim is while giving some relief, the spending revenues are still lower than what President Obama and Democrats wanted. So, it is a meet in the middle kind of a result that stops the drip toward deeper and deeper cuts within the budget, at a time when the economy is recovering. But it hardly returns to the spending, the free spending ways that many Republicans have been concerned about.

GHARIB: But there`s still always something to complain about. What got left out in this deal?

HARWOOD: Some Republican ideologues are upset because policy dictates that were included in an earlier version of the negotiated deal, things that would impair the Obama administration`s ability to pursue its Obamacare goals, to pursue its environmental goals. Those were stripped out as too controversial.

And what Democrats are complaining about, they simply think there isn`t enough funding for priorities they think are important. There isn`t money for example for the president`s universal preschool initiative, something he announced in his State of the Union Address last week. And, of course, the deal also did not include the extension of unemployment benefits, something they`re still arguing about on Capitol Hill.

GHARIB: Yes, always something to argue about. But it does sound like they are going to approve deal. What are the next steps here?

HARWOOD: Well, the next step is to get it through both the House and the Senate. It sets the stage for the big decision, Susie, on whether or not going to lift the debt ceiling without a crisis.

Most signs indicate that they are. We`ll believe it when we see it.

GHARIB: Absolutely. John, thanks so much. John Harwood reporting from Washington.

Well, the minimum wage has gone up in more than a dozen states since the start of the year. The hope that workers at the lowest income levels would have more money to spend.

But how might those wage increases impact companies?

Sara Eisen reports.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: On January 1st, 13 states boosted the minimum wage. New Jersey workers got the biggest raise, 14 percent, to $8.25 an hour.

In California, the minimum goes up to $9 an hour in July. And in Los Angeles, the city council may propose a measure that would force hotels to pay workers at least $15 an hour. So, where does that money go? One analyst says beer, energy drink, and tobacco sales should see a bump. And a company like Lorillard (NYSE:LO) which makes Newport (NASDAQ:NEWP) Cigarettes stands to gain.

But it`s not all good news because higher labor costs may force some companies to raise prices.

NIGEL TRAVIS, DUNKIN` DONUTS CEO: We believe the minimum wage will go up. So there`s no point fighting that.

EISEN: Listen closely to Dunkin` Donuts CEO Nigel Travis.

TRAVIS: Overall, you`d expect like a 1 percent increase in prices. But we are going to put it on differentiated products where we`re clearly different and certainly breakfast sandwiches are one example.

EISEN: Other CEOs are focused on the positive. More money in consumers` wallets.

JOHN MILLER, DENNY`S CEO: The more income, the more eating out. Obviously, we`re sensitive to how our cooks and servers and employees are doing.

EISEN: How much will lower income consumers have to spend? Congress already cut back food stamps, still debating long-term unemployment benefits. Now, add higher prices to the mix and you can see why minimum wage is such a hot topic.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We want to make sure that every American is able to benefit.

EISEN: The president continued his steady drum beat today, backed up by economists including seven Nobel Prize winners, calling for Congress to approve the Fair Minimum Wage Act which raises the minimum wage by 95 cents a year for the next three years, to $10.10 an hour by 2016.

About 17 million workers would see salaries grow from about $15,000 a year to $21,000.

ROBERT WOLF, 32 ADVISORS CEO: We have to get to the right minimum wage in this country where people can live a decent life for the hard work they do. But it`s clear to me that today`s number`s not working.

EISEN: For Wall Street pros and economists, there`s a fine line between adding the right amount of spending power to the economy on the one hand and forcing businesses to draw back any hiring plans they may have on the other.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen.

(END VIDEOTAPE)

GHARIB: Turning now to tonight`s “Market Focus” segment we begin with Boeing (NYSE:BA) on news it has another battery problem. Japan Airlines grounded one of its 787 Dreamliners in Tokyo after white smoke was spotted outside the plane and warning lights indicated a possible battery problem.

Boeing (NYSE:BA) said the problem was discovered during maintenance. The incident comes after Boeing (NYSE:BA) had six battery issues that led to previous fires. Shares fell a fraction to $140 a share.

There are reports out today that Microsoft (NASDAQ:MSFT) is ditching its Windows 8 operating system and releasing a brand-new Windows 9. The 8 software was introduced a year ago and suffered from heavy criticism by consumers. Reportedly, the new version will be announced in April.

Shares rose more than 2 percent to $35.78.

Intel (NASDAQ:INTC) got an upgrade from JPMorgan (NYSE:JPM) to overweight from neutral, and the firm more than tripled its price target on the stock. The analyst said he was quote making a leap of faith on P.C.s in the year 2014, and the chip maker`s new CEO. That lifted shares almost 4 percent to $26.51.

Tesla shares motored higher today. The automaker delivered 6,900 Model S sedans in the fourth quarter. That`s 20 percent more than estimates. The company expects global sales and service locations to double this year. Tesla stock rose nearly 16 percent to $161.27.

Shares of GameStop took a major hit today after the company warned of a profit miss because of weak holiday sales. The video game chain blamed the declines on the switch to next generation consoles like the Xbox One and PlayStation 4. That weighed down sales of old games. The stock plunged almost 20 percent to $36.31.

Well, it was a different story for Regeneron pharmaceuticals. Its stock surged today on news it`s timing up with Bayer to develop a treatment for one of the most common forms of age-related blindness. The drug would work in combination with another treatment called Eylea, which the two companies developed for the same condition. That drug is already the company`s top-selling product. Regeneron closed at $300 and change, a gain of 12 percent.

Well, biotech firms like Regeneron often find themselves at the mercy of regulators and their tough approval process before new medications can reach the market. But the Food and Drug Administration has now set up a separate system to fast track the approval of priority drugs in the pipeline, benefitting the companies along with the potential patients.

Morgan Brennan has more.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The U.S. Food and Drug Administration has special high priority pipelines for drugs in development that could be potentially ground-breaking. They are geared towards getting patients promising treatments faster and the approval rates can be higher for these fast track drugs.

Analysts say these high priority pipe lines have become increasingly important to investors, especially those looking to find the next big biotech breakout.

HOWARD LIANG, LEERINK PARTNERS: For larger companies, obviously, it`s not quite as meaningful. But for smaller companies, this becomes more and more important. It gives you an early read of FDA`s impression of the drug which is very helpful for investors.

BRENNAN: Perhaps no designation has become more important than break-through therapy. Since the FDA introduced it in 2012, Leerink Partners say 37 drugs have been granted the designation.

Cancer treatments represent the largest group in the category, followed by drugs focused on rare so-called orphan diseases and anti-infectives that treat infections.

The company is garnering the most breakthrough designations, Johnson & Johnson (NYSE:JNJ), GlaxoSmithKline and Novartis.

(on camera): A number of promising drugs have also recently entered high priority programs. Among them, an immunotherapy drug tied to lung cancer by Peregrine Pharmaceuticals (NASDAQ:PPHM). Cubist Pharmaceutical`s new investigational antibiotic, and Genzyme`s oral therapy for an uncommon genetic disorder called Gaucher disease.

And last week, GlaxoSmithKline was granted accelerated approval for a combination melanoma treatment.

(voice-over): Still, as more drugs enter the FDA`s expedited review programs, especially those breakthrough therapies, some worry these pipelines could strain FDA resources.

LIANG: One thing to keep in mind is the FDA resources in helping these drugs. This could still be especially an issue or something to watch.

BRENNAN: And, of course, entrance into one of these programs does not guarantee a drug success. If prioritized drug doesn`t get a green light to move forward, it can sometimes fuel a steep selloff in the drug maker`s stock — a risk especially inherent for the smaller, less diversified biotech companies.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

GHARIB: Coming up, it`s just two weeks into the year. The New Year, how many of you have already given up on your financial resolutions? We`ll show you how to make them stick.

(MUSIC)

GHARIB: And finally tonight, Fidelity Investment says more than half of consumers plan to make a financial resolution this year, the most ever. Most people want to save more. Others want to pay off debt. And one in five plan to spend less.

But other studies have shown that after six months, fewer than half of those resolutions were kept.

Sharon Epperson has some advice on how you can turn your financial resolutions into reality.

(BEGIN VIDEOTAPE)

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Many Americans start the New Year making promises.

UNIDENTIFIED FEMALE: My New Year`s resolution is to save for retirement.

UNIDENTIFIED MALE: Try to cut back on the spending.

UNIDENTIFIED FEMALE: Try to stay away from the computer. I buy way too many things online.

EPPERSON: But these promises can be more difficult to keep as the year progresses.

BRITTNEY CASTRO, FINANCIALLY WISE WOMEN FOUNDER & CEO: People have these goals, these resolutions, but then they never put a plan in place and therefore they never take action. Therefore, never really reaching these goals.

EPPERSON: Whether your goal is to save more, spend less or pay down debt, to create a financial plan you can stick to, you need to know where you stand. And that means focusing on expenses and earnings.

CASTRO: First, sit down and start tracking your expenses and get clear about how much money you need every month to support your current lifestyle and also save for your financial goals. Then, you can go out and make sure you make that amount in income.

EPPERSON: Your income is likely your greatest financial asset. Like other assets, you want it to appreciate over time. The key to increasing your salary, say career experts, is to make yourself indispensable at work.

CAROLINE CENIZA-LEVINE, CAREER EXPERT, SX FIGURE START: Your company has to need you. Your industry has to need you. Your customers have to need you.

So, you want to be that person where if restructurings happen, if cuts need to be made, if they need to select something for something high profile, they`re going to say, we need to have you on that team.

EPPERSON: Take these concrete steps to make that happen. To get noticed, volunteer to lead a project, or speak at an event. Keep your expertise up-to-date by reading industry blogs and strengthen your network. Meet with a new colleague or reconnect with an old one at least once a month.

(on camera): To keep other financial goals on track, some advisers suggest scheduling a money date — spend an hour updating your budget, reviewing your expenses and talking about your financial goals with your significant other or your kids. That will help you stay committed to the plan you put in place.

For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson.

(END VIDEOTAPE)

GHARIB: For more tips on how to keep your financial resolutions, go to our Web Site, NBR.com.

And that is NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Have a great evening, everyone. We`ll see you back here tomorrow.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2014 CNBC, Inc.

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