Transcript: Monday, May 5, 2014

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


SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: In the bull`s-eye. Target (NYSE:TGT)`s CEO is out. The board calls for new leadership following the massive cyber attack. How vulnerable are other CEOs?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Too big to jail? The U.S. attorney general sends a warning to financial institutions. Even the biggest banks are not too big to jail.

GHARIB: And still going strong. At 83, Warren Buffett is a superstar for advice on everything from his company, the market and the business world.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, May 5th.

MATHISEN: Good evening, everyone.

We begin tonight with a change at the top at Target (NYSE:TGT), the nation`s number three retailer. Gregg Steinhafel, the company`s chairman and CEO, stepped down today five months after a massive data breach that put at risk personal and financial information belonging to millions of customers. The resignation is effective immediately.

Steinhafel had been with Target (NYSE:TGT) 35 years and is arguably the first major company CEO to lose his job to a cyber crime.

The news rattled investors, Target (NYSE:TGT) shares fell 2.5 percent, one of the biggest decliners in the S&P 500.

So, what`s next for Target (NYSE:TGT) and will it change in the corner office restore trust in the company after it put so many customers at risk?

Courtney Reagan has more on today`s ouster and the battered change search for a new leader.


GREGG STEINHAFEL, TARGET FORMER CEO: As time goes on, we are going to get down to the bottom of this. We are not going to rest until we understand what happened and how that happened. Clearly, we`re accountable and we`re responsible, but we`re going to come out at the end of this a better company and we`re going to make significant changes.

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): That`s what Target (NYSE:TGT) CEO Gregg Steinhafel said in January about the holiday data breach, perhaps foreshadowing his own firing and a note to the company`s board, Steinhafel says the last several months have tested Target (NYSE:TGT) in unprecedented ways. With several key milestones behind us, now is the right time for new leadership at Target (NYSE:TGT).

Target (NYSE:TGT) CFO John Mulligan is stepping up as interim CEO while the retailer and search firm Korn/Ferry undergo a search for a permanent chief executive.

(on camera): Steinhafel`s departure itself wasn`t entirely unexpected, though the timing took analysts by surprise. The holiday season`s data breach has been a huge black eye for Target (NYSE:TGT), the retailer`s last earnings release and subsequent updates suggested it was mostly in the rear-view mirror, hinting the reasons behind the CEO`s firing go beyond the data breach.

(voice-over): Target (NYSE:TGT)`s expansion into Canada has been quite disappointing. Sales and traffic has weakened and the company was late to the e-commerce game likely costing it valuable market share.

JEFF SONNENFELD, YALE SCHOOL OF MANAGEMENT: Could be just one too many straws, but still the abruptness makes it seem like either something really devastating happen in an interchange in the board or some catastrophic information, and that`s we see in the stock drop on this news rather the sort of pop we`ll often see.

REAGAN: Target (NYSE:TGT) has a history of promoting CEOs from within company ranks. But Wall Street thinks it has to be an outsider with a fresh perspective that takes over.

Though, the big question is who? There aren`t a lot of strong retail CEOs available, a problem for a retailer in need of a leader.



GHARIB: The Target (NYSE:TGT) management shake-up raises the question how vulnerable are CEOs when things go wrong?

Davia Temin advises companies in crisis. She`s CEO of a New York crisis management firm, Temin & Company.

So, Davia, you know, is Target (NYSE:TGT) CEO really responsible for this data breach? I mean, some people would say that, you know, it was an accident and he shouldn`t be held responsible as CEO.

DAVIA TEMIN, TEMIN & COMPANY PRESIDENT & CEO: Well, Susie, I think that we now know that data breaches will happen all of the time. They have happened all of the time and they probably will continue to. I think the thing that`s at issue here is how quickly he responded and what that response looks like as soon as they knew about it.

And that was way too long. It took too long to let people know. So, I actually think that the issue is not a data breach, but a breach of trust.

MATHISEN: Davia, I don`t mean to strain the parallels too much, but why does Mr. Steinhafel lose his job as a victim of potentially largely of a cyber crime and Jamie Dimon get to keep his when that company has paid billions, tens of billions in settlements, fines and other judgments?

TEMIN: You know, Tyler. So I don`t work with either of these two firm, but I can tell you that it must have to do with the internal equity that they both have built up and in the internal ways that they have dealt with this, not only the external ways they`ve dealt with it.

But I will say that I think Dimon actually fessed up, came forward, started some solutions with far more alacrity than Steinhafel did, and that`s the real issue, is how quickly in this transparent age can you step up to it?

GHARIB: Right. So, David, where do CEOs get training for this? Who is a role model CEO who has done it right?

TEMIN: You know, there really aren`t that many people that have done it completely right, Susie, because the situation is changing even as we`re sitting here. News moves at the speed of an electron, as you guys know and it takes on more and more power as it goes over social media.

So I think everybody is wanting to catch up.

I actually think that Mary Barra as a brand new CEO has been doing quite well in how she`s been stepping up to something that was not done on her watch. She was lucky it was not done on her watch. But therefore, she can be part of the solution.

For the current Target (NYSE:TGT) CEO, it was done on his watch. So, it`s harder for him to be part of the solution.

MATHISEN: Yes, they — it took them five or 10 days to really come to grips with what was going on, it seems to me. Your argument here, Davia, is that in the era of social media, executives do not have several days. They may not have several hours to fess up to a problem.

TEMIN: That`s exactly right. You know, usually they say that Tylenol was the best case for crisis management. If that were done today, it would be a dismal failure because they waited five full days.

Today, I think you have to say something within an hour. Now, you can`t say that you know everything, but you can say this is what we know. We will keep you updated. We will keep you safe to the best of our ability and we are on it.

GHARIB: Right.

Davia, we have half a minute. So, real quick answer to this. If you were advising Target (NYSE:TGT) now on who they would be recruiting for this new job, what would you tell the board?

TEMIN: A grand communicator who can build trust.

GHARIB: That was a short answer. OK, we`ll take that.

MATHISEN: We`ve got another 20 seconds, Davia.


TEMIN: And knows tech, too. How about that?

GHARIB: OK, great. Davia, thanks so much. Davia Temin with Temin & Company.

TEMIN: Thank you.

MATHISEN: And stocks got off to a weak start today. The Dow was down as much as 135 points on jitters about escalating violence in Ukraine and disappointing manufacturing from China, but the markets rebounded after a pickup in activity in the services sector of the U.S. economy in March. It grew at the fastest pace since last August.

After an up and down session the Dow ended 17 points higher. The NASDAQ up 14 and the S&P 500 added three. The yield on the 10-year Treasury note rebounded a little bit today after hitting a 2014 low on Friday.

GHARIB: Now, the biggest decliner in the Dow today, Pfizer (NYSE:PFE) on disappointing quarterly earnings and revenues. Shares fell 2.5 percent after the world`s biggest drugmaker reported a 15 percent drop in profits that stung by cheaper generic medications and the loss of its patent on Viagra overseas. Revenues tumbled 8.5 percent.

MATHISEN: JPMorgan (NYSE:JPM) Chase was another blue chip decliner today, shares fell almost 2.5 percent after a late Friday regulatory filing showed the bank expects its bond and stock trading revenue to drop 20 percent this quarter. Meantime, the bank won preliminary approval from a federal judge to settle claims for $280 million over misleading investors about the risks of billions of dollars worth of mortgage-backed securities that later went bad.

GHARIB: Despite that deal, the Justice Department announced it`s pursuing a criminal investigation into some of the world`s biggest banks for their roles in the financial crisis, saying that no bank is too big to jail.

In a video release, Attorney General Eric Holder says he`s personally monitoring ongoing investigations into big financial institutions and says he`s resolved to see those probes through.


ERIC HOLDER, ATTORNEY GENERAL: There is no such thing as too big to jail. Some have used that phrase to describe the theory that certain financial institutions, even if they engage in criminal misconduct, should be considered immune from prosecution due to their sheer size and their influence on the economy. That view is mistaken. And it is a view that has been rejected by the Department of Justice.


GHARIB: And late today, there are reports that Credit Suisse is close to settling with the Justice Department for aiding tax evasion. The amount, according to Dow Jones, is expected to exceed $1 billion.

MATHISEN: Good news for burned investors who lost money to the swindler Bernie Madoff. The latest announced payoff to victims from the wind-down of the Ponzi schemer`s investment firm is $350 million, that according to Irving Pickard, the court-appointing trustee liquidating Madoff`s holdings. That means a total of about $6 billion have been given back to more than 2,000 Madoff victims.

GHARIB: Still ahead on NIGHTLY BUSINESS REPORT, could an unlikely corporate alliance shake up the video game industry and threaten the market for consoles? That story is next.


MATHISEN: Amazon (NASDAQ:AMZN).com is teaming up with Twitter to make it easier than ever to buy things online. A new service called Amazon (NASDAQ:AMZN) Cart lets customers add products they see on tweets right into their Amazon (NASDAQ:AMZN).com shopping carts without ever leaving Twitter. That could mean downloading a song from a performer you follow on Twitter, buying a movie that a friend saw or maybe ordering some clothing a celebrity like Susie is tweeting about.

GHARIB: We`ll see about that. The consumer battle over which is the best video gaming console may finally be settled and the winner will be Sony (NYSE:SNE)`s PlayStation, the Nintendo Wii or Microsoft (NASDAQ:MSFT)`s Xbox.

Morgan Brennan reports.


UNIDENTIFIED MALE: Defend, attack, score!

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: A potential new agreement could shake up the video game industry, disrupting the way video games are purchased and played. The unlikely culprit, Comcast (NASDAQ:CMCSA) (NYSE:CCS) Corporation. The cable giant is in talks with game maker Electronic Arts (NASDAQ:ERTS) to bring popular titles like “Madden NFL” and “FIFA Soccer” to Comcast (NASDAQ:CMCSA) (NYSE:CCS)`s X1 cable box system.

Sources say that after two years of testing, a deal is expected to be struck in the coming months. They`re able to download a selection to EA`s games in much the same way you`d order a pay-per-view movie. More casual, family-friendly fare would be offered including “FIFA”, “Madden”, “Monopoly” and “Plants Versus Zombies.”

Analysts say this would create a new distribution model allowing a company to not only compete in space dominated by tech companies like Sony (NYSE:SNE), Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN), but bypass their devices altogether. It`s also a big step for Electronic Arts (NASDAQ:ERTS).

MICHAEL PACHTER, WEDBUSH SECURITIES ANALYST: If EA can get an extra couple hundred,000 people to spend money, their average revenue per user is probably around 10 bucks a month for the people who spend money. So, a couple thousand people is a couple hundred bucks enhancement to their mobile games revenue.

BRENNAN: Comcast (NASDAQ:CMCSA) (NYSE:CCS)`s X1 service, which has apps, voice control and Cloud storage, has been a bright spot for the cable company, fueling video subscriber growth in recent quarters after years of declines. And if it`s merger with Time Warner (NYSE:TWX) cable goes through, as many as 30 million households could eventually have access to X1 and with it, EA video games.

Still, there are drawbacks. Tens of millions of living rooms already sport gaming and video streaming consoles, and competition is fierce.

PACHTER: Comcast (NASDAQ:CMCSA) (NYSE:CCS), Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) are slugging it out and I`m waiting for Apple (NASDAQ:AAPL) to come up with something and they will, too. I mean, everybody wants to own the living room.

BRENNAN: And Comcast (NASDAQ:CMCSA) (NYSE:CCS) subscribers will use smart tablets as controllers. Convenient, perhaps, for casual users but sure to keep the more serious gamers away.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Los Angeles.


GHARIB: And Comcast (NASDAQ:CMCSA) (NYSE:CCS), as discussed in Morgan`s story, is the parent company of CNBC which produces this program.

AIG posted earnings that trumped estimates, but revenue missed and that`s where we begin tonight`s “Market Focus.”

The insurer says higher catastrophe losses at its core property and casualty insurance businesses hurt its quarterly profit. But CEO Robert Benmosche says he`s focused on the long term.


ROBERT BENMOSCHE, AIG CEO: We`re in here for the long haul. We want to make sure that over time we continue to do better and if you`re in a little side, cut a corner or not worried about some of the risks that you`re taking on now, you can get yourself in trouble down the road and we just don`t want to do that.


GHARIB: AIG shares fell initially after hour, but during the regular session, the stock was up a fraction to $52.72.

The French government has opposed General Electric (NYSE:GE)`s $13.5 billion bid for Alstom. The regulators there are now suggesting that G.E. work on a balance partnership with Alstom, which is France`s largest industrial conglomerate. G.E. maintains a proposal is good for everyone involved and is open to further discussions. G.E. shares fell slightly to $26.58.

Shares of Tyson Foods (NYSE:TSN) tumbled after the company came up short in its latest earnings report. The nation`s biggest meat producer also gave a cautious full-year outlook partly because of a virus that`s sweeping hog farms and may cut pork production.

The stock fell almost 10 percent to $38.44, making it the biggest decliner in the S&P 500 today.

Orbitz Worldwide (NYSE:OWW) posted a first quarter loss, blaming it on a charge from an income tax provision. The online travel agency did see higher overall bookings and an increase in revenue from a recent acquisition. It also forecasts revenue for the current quarter above analyst estimates, but investors just couldn`t ignore that loss and shares fell almost 2.5 percent to $7.24.

MATHISEN: An engineer at General Motors (NYSE:GM) has retired in the wake of the company`s delayed ignition recall. GM says the retirement has nothing to do with the switch debacle which has been linked to 13 deaths, an employee who worked for the automaker for nearly 36 shares. Shares of GM off slightly today $34.75 is where they finished.

Walgreens saw its same store sales rise more than 7 1/2 percent in April, lifted by a later Easter holiday that masked weaker pharmacy sales hurt by the introduction of new generic drugs. Shares were up almost 1.5 percent to $61.85.

Humana (NYSE:HUM), WellPoint and Monsanto (NYSE:MON) all got a lift after Larry Robbins of Glenview Capital said the stock was well-placed for growth. Robbins whose hedge fund is over $7 billion said at the annual Ira Sohn investment conference today that Humana (NYSE:HUM) could see 30 percent to 40 percent growth. He was also excited about Monsanto (NYSE:MON) saying that stock is cheap.

All three of those names are up more than 1 percent. Humana (NYSE:HUM) was up $110.12. WellPoint at $102.44. And Monsanto (NYSE:MON) at $114.85.

GHARIB: And shares of Berkshire Hathaway (NYSE:BRK.A) were down today despite an upbeat annual meeting with Warren Buffett over the weekend. Berkshire stock was just one of many topics Buffett talked about with some 40,000 shareholders who converged on Omaha to hear the latest words of wisdom from the billionaire investor.


GHARIB (voice-over): Warren Buffett doesn`t appear to be slowing down much. At 83, he`s one of the Fortune 500`s oldest CEOs, but that doesn`t stop him from outpacing throngs of female reporters.

(on camera): Did you train for this?

WARREN BUFFETT, BERKSHIRE HATHAWAY: No, no, just healthy eating and lots of exercise.

GHARIB (voice-over): With his usual boundless energy, he made the rounds at Berkshire Hathaway (NYSE:BRK.A)`s annual meeting, sampling his favorite Berkshire May treats.

BUFFETT: This is like Clark Kent going into a telephone booth when this happens.

GHARIB: Playing games with his buddy, Bill Gates.

BUFFETT: OK, Bill, my house against your house! Ooh!

GHARIB: Hanging out with a supermodel doing something he could cheer about.

Challenging his partner Charlie Munger to a face-off, 2 bucks for the Buffett bottle of ketchup, $1.50 for Charlie`s.

UNIDENTIFIED MALE: Right now, Warren is selling about two-thirds, Charlie, one-third.


UNIDENTIFIED MALE: So, you`re winning it in a landslide so far.

BUFFETT: Make sure that`s coming on. Notify me!


GHARIB: And even posing for one selfie after another.

But it turns out the super human Buffett may actually be mortal particularly when it comes to investing. Since 2009, Buffett`s beloved Berkshire has underperformed the broader market, suggesting the investment god may finally be losing his Midas (NYSE:MDS) touch.

In four of the last five calendar years, he`s lagged his favorite benchmark, the S&P 500, by significant margins, and this is the first time in his 50-year investment career that he`s logged such a lengthy losing streak.

(on camera): What happened?

BUFFETT: In the last five years, I think we`ve done pretty well. But we`ve been in an up market and we do better relatively in down markets than we do in up market. But we`ve done pretty well in the up market.

GHARIB (voice-over): Still, at this weekend`s capitalist carnival, few shareholders question Buffett`s track record.

UNIDENTIFIED FEMALE: I don`t think he`s lost his touch. I think things happen in cycles and you have to stay committed to an investment you make for the long term.

UNIDENTIFIED MALE: If I can buy the class A Berkshire shares at $180,000 when they`re really worth $230,000, that`s a great opportunity for me.

GHARIB: Professional money managers feel the same way.

MARIO GABELLI, GABELLI ASSET MANAGEMENT: This is a terrific investment. It continues to be. Anybody that sold it for the last four years, it was dumb and dumber because it underperformed.

JAY GELB, BARCLAYS CAPITAL: Buffett`s winning streak is far from over. I still think there`s a lot of great opportunity for upside, for Berkshire shares, as well as the earnings powers of the company.

GHARIB: And no one seemed betrayed by recently disclosed news that Buffett has advised his wife to invest in a low-cost index fund after he`s gone.

WHITNEY TILSON: If you`re lucky enough to find a Warren Buffett and invest with him early in your career, you can do a lot better than an index funds, but it`s probably pretty sound advice.

GHARIB: At every turn, Buffett was giving lots of advice.

BUFFETT: If the U.S. grows 2 percent a year, that means in a generation, if there`s 1 percent population growth, that means in a generation, it is 20 percent better than you do.

GHARIB: Tips on buying a home.

BUFFETT: If you live in a place for 10 years, when you live in Omaha for 10 years, I would buy a house today.

GHARIB: And how General Motors (NYSE:GM)` new CEO is handling a massive recall.

BUFFETT: I had lunch with Mary Barra just about a week ago and she`s dynamite. She is — you couldn`t have a better executive.

GHARIB: Buffett answered 65 questions from shareholders for more than five hours. The first one was the most controversial. Why Buffett didn`t vote against Coca-Cola (NYSE:KO)`s lavish executive compensation plan. As Coke`s largest investor, Buffett said, quote, “going to war over the plan would not have been productive.” Shareholders seemed satisfied.

(on camera): Most corporate annual meetings are poorly attended but this one is a massive love fest. About 40,000 people came this year. It`s a well-orchestrated event designed for Berkshire fans to bask in the glow of the Oracle (NASDAQ:ORCL) of Omaha.

Now, there may be critics of Berkshire and Buffett, but you won`t find them here.

(voice-over): Buffett tried to get what he called a credentialed bear, someone shorting Berkshire stock to come and ask tough questions, but none were grisly enough.

(on camera): It`s hard to believe. You couldn`t find a bear? I mean, there`s no critic of Berkshire?

BUFFETT: Oh, there`s plenty of critics, but they don`t want to seem to put up their money.

GHARIB (voice-over): Still, that didn`t stop shareholders from wondering about plans for Berkshire`s $50 billion pile of cash. Aside from a $3 billion Canadian energy deal a few days ago, Berkshire hasn`t made a significant acquisition since he invested in Heinz ketchup a year ago.

(on camera): How important is it to do a big acquisition and do you have something in mind?

BUFFETT: Well, I always have things in mind. And the question is, you know, I can propose, but the other person has to say yes.

GHARIB: Others say never mind about the next big deal, the real question is how long Buffett will keep up this pace, and what happens to Berkshire when he`s no longer running the show?

Buffett is typically mum on the subject. For now, he still enjoys being in the center of things and staying on the move.

(on camera): What more do you want to do?

BUFFETT: I want to — Berkshire is an unfinished painting and I`m going to keep painting it.


GHARIB: And what will be Warren Buffett`s legacy? He says he wants to be remembered for being a teacher.

And, you know, Tyler, one of the lessons from Buffett that I remember is what he calls the newspaper test. If a decision you made was written in the local paper and your family and friends read it, how would you feel? In other words, do the right thing.

MATHISEN: I wonder how he feels about the Coke decision by that standard.

GHARIB: I think he feels pretty —


MATHISEN: His shareholders seem to feel all right about it.

All righty. Coming up, the art of the deal about $2 billion worth of art is expected to sell during the spring options season. Is it a sign the art boom won`t end any time soon.


GHARIB: Some new concerns about using aspirin. The Food and Drug Administration is questioning the value of taking an aspirin every day to try to ward off a first heart attack or stroke with people who have never had heart problems. The agency is urging people to take a daily aspirin only after talking to their doctor or other healthcare provider to assess the benefits and risks.

MATHISEN: A new study may put to rest those doubts over whether going to college is worth all that money. The Federal Reserve Bank of San Francisco says that over a lifetime, the average college graduate will earn at least $800,000 more than the average high school grad and that takes into account the high cost of attending school and even the four years of lost wages while getting that degree.

GHARIB: Well, it looks like activist investor Daniel Loeb finally got what he wanted at Sotheby`s and he wasn`t bidding on any art work. A deal was reached today to give the manager of hedge fund Third Point three seats on the board of directors at the auction house by expanding the board to 15. The agreement also caps his stock ownership at 15 percent. This comes one day before shareholders were scheduled to vote Loeb`s nominees for the board.

The deal averts a decisive vote by stock owners.

MATHISEN: And finally tonight, spring has sprung in the nation`s top auction houses, are all gearing up for the big spring auction art season, which could see some record-setting prices for painting, sculptures and other works this year. Our Robert Frank has more.


UNIDENTIFIED MALE: The opening bid (ph) at $3 million.

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The art of the deal will make big deals in the next two weeks. Auction houses Sotheby`s is expected to sell nearly $2 billion worth of art during this spring sale.

(on camera): That marks an increase of over 70 percent from last year and the prices paid are likely to highlight the growing wealth for the world`s wealthy and the parabolic values of rare works of art which right now shows no sign of slowing down.

(voice-over): Christie`s is likely to get the biggest prices. A Francis Bacon triptych is expected to go for their $75 million. Now, that sounds high, but it`s actually half the price of a Bacon triptych that sold last fall for over $140 million.

A painting by Mark Rothko is expected to sell for $60 million. And a piece called “Black fire” by Barnett Newman, one of Rothko`s rivals, is expected to sell for more than $50 million.

Most to the excitement today among global collectors is around post-war and contemporary artists, but a few classics are still holding their own. One of Monet`s water lily paintings from 1907 could top $30 million.

There is no balloon dog this time around, but Jeff Koons will bring some playfulness to the sales this spring. His Popeye sculpture showing the iconic strong man with his can of spinach is expected to top $25 million.

We`ll see whether the art market can maintain its muscle in the coming days.



GHARIB: Twenty-five million for Popeye? Would you ever spend anything like —

MATHISEN: I`d pay that for the balloon dog. No, I wouldn`t do that for Popeye.

GHARIB: OK, I`m glad you got your priorities straight.

MATHISEN: Yes, I like that.

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks so much for joining us.

MATHISEN: I`m Tyler Mathisen. Have a great evening, everybody. We`ll see you right back here, we hope, tomorrow night.


Nightly Business Report transcripts and video are available on-line post broadcast at 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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