SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Center of the scandal. Hear from the man whose firm helped the world’s wealthy hide their money, now known as the Panama Papers.
Hidden money. Why not all tax havens are overseas. Some are right here in our own backyard.
Off the beaten patch.
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MIKE HANAGAN, MANZANO ENERGY PARTNERS: You don’t want to give your oil away at this rate. So, we laid our rig down about a month ago.
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HERERA: How a small New Mexico town once booming from rising oil prices is now trying to manage the fallout from crude’s crash.
All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, April 8th.
Good evening, everyone. Welcome. I’m Sue Herera. Tyler Mathisen is off.
We take you tonight to the place where one of the biggest-ever global money scandals began, Panama, and to the law firm that helped the world’s rich and powerful conceal their wealth or avoid taxes. The so-called Panama Papers, made up of more than 11 million documents has already prompted the prime minister of Iceland to resign and has others in its crosshairs.
Today, Eamon Javers spoke to the man who cofounded the firm at the center of it all, Jurgen Mossack of Mossack Fonseca.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Welcome to Marbella Neighborhood of Panama City. This is a neighborhood with a lot of law firms, small businesses and bakes. Behind me are the offices of Mossack Fonseca, that’s the law firm at that white hot epicenter of the so-called Panama Papers scandal.
Earlier today, I had an opportunity to sit down with Jurgen Mossack. He’s one of the founders of this firm, and I asked about the scandal, its impact on its business. And I also asked him whether or not he knew that so many important political figures had business dealings here.
Did you know Vladimir Putin’s aides and associates were using the services of Mossack Fonseca?
JURGEN MOSSACK, MOSSACK FONSECA CO-FOUNDER: No. When we find out names like Putin or like other heads of state, it is always through the media. It means that —
JAVERS: Did you know that eight members of the Chinese politburo were using your services?
MOSSACK: No, of course not.
JAVERS: Did you know David Cameron’s family had used your services?
JAVERS: And why not, sir? I mean, your name is on the front door here. Wouldn’t that be something that you would want to know as the business owner?
MOSSACK: Whenever we find out that there is somebody behind or that through the media, that’s how it normally happens, that could be somebody, a person, exposed person, behind a company that was formed by us for a professional intermediary, then we start investigating.
JAVERS: One of the issues that comes up in the Panama Papers scandal is just how secret should private business dealings really be, and who should have access to that business secrecy.
Here’s what Mossack had to say.
Are you proud of business you run here?
MOSSACK: I’m very proud of it.
MOSSACK: Because it’s a business that contributes to the international financial community in matters where people want privacy. And I think one needs to confirm — one needs to know that privacy is a human right.
JAVERS: Even for dictators?
MOSSACK: It is a human right for every person. No matter what they do.
JAVERS: Even gangsters?
MOSSACK: Gangsters should not — should be dealt with by the authorities and are being dealt with by authorities. We do not deal with gangsters, never have dealt with any, never have dealt with any as I said.
We have always dealt with professional clients all over the world only.
JAVERS: Jurgen Mossack said that his firm only found out about a month ago that it had been hacked and badly penetrated all their secrets out for the entire world to see. He said they think it was cyber attack and they say they have no idea who did it.
For NIGHTLY BUSINESS REPORT, I’m Eamon Javers in Panama City, Panama.
HERERA: British Prime Minister David Cameron late yesterday admitted he had profited from shares in a Panamanian-based trust set up by his late father. Cameron’s father was named as a client of Mossack Fonseca. Days after being on the defensive, when asked about his finances, Cameron said the shares were sold the year he became prime minister and that the dividends were taxed.
Well, you may think the tax havens only exist outside the U.S. but that’s not the case at all.
Dina Gusovsky explains.
DINA GUSOVSKY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Countries like Panama, Luxembourg, and Bermuda are known by the world’s power players as tax havens. And some states here are known for the same thing. Two of the biggest, Nevada and Wyoming. In fact, these two states are directly linked to the Panamanian law firm at the heart of the latest financial scandal.
Heather Lowe, legal counsel whose firm advises governments and tracks illicit financial activities around the world, explained how.
HEATHER LOWE, GLOBAL FINANCIAL INTEGRITY: In the Panama Papers, we actually see that Mossack Fonseca had offices in both Nevada and Wyoming and those were one-person operations, where they did actually register thousands of companies. I’m actually a little surprised that it’s not more.
GUSOVSKY: So what makes these states so attractive for setting up businesses and storing funds?
You can create anonymous companies pretty much anywhere in the United States. It’s extremely easy to do but Nevada and Wyoming stand out because they don’t have state corporate income taxes. So, if income can be moved to Nevada or Wyoming, it will not face state taxation, thereby reducing the tax bill.
There’s also Delaware. A majority of Fortune 500 companies are incorporated there. Delaware does have a state tax but that tax does not apply to income earned from intangible assets such as patents and trademarks. Delaware also has a legal system that is friendly towards businesses.
That’s why Duke University accounting associate professor and coauthor of this report exploring the role Delaware plays as a domestic tax haven, Scott Dyreng, said much of the appeal the states have relies on legal precedent.
SCOTT DYRENG, DUKE UNIVERSITY ASSOCIATE PROFESSOR: Nevada, Delaware, and Wyoming have gone to greater lengths to make the business formation process convenient and quick. And companies are also comfortable going there because they’re familiar with the processes there.
And the case law is strong and the courts are business-friendly. The idea of having an anonymous company is not nefarious per se. But, of course, if someone can be anonymous, they might be able to use that secrecy to move income around the world and possibly to hide it in bank accounts so that it escapes taxation from the government authorities.
GUSOVSKY: A 2012 CNBC documentary showcased how some individuals use shell companies incorporated in Nevada to hide their identities and potentially dodge taxes. Former Nevada Secretary of State Ross Miller weighed in.
ROSS MILLER, FORMER NEVADA SECRETARY OF STATE: Any time you have a volume of filings that we see in this state, second per capita behind only Delaware, you’re going to have bad some actors and people who are going to try to market your business statutes in a way that’s inaccurate and promotes illegal activities. The trick is going after those individuals and holding them accountable.
GUSOVSKY: The Justice Department said it would be reviewing reports linked to the Panama Papers. But whether or not certain individuals will be punished remains unclear.
LOWE: I think the Justice Department’s hands are going to be somewhat tied because a lot of this is perfectly illegal. I think the Justice Department will tend to be creative in ways to charge crimes. But in the end, I think one of the biggest lessons we find with the Panama Papers leaks is that there is a lot out there that is happening that should be illegal but isn’t illegal.
For NIGHTLY BUSINESS REPORT, I’m Dina Gusovsky.
HERERA: And according to the Tax Foundation, in states that do have a corporate tax rate, they run the range from about 4.5 percent in North Dakota to a high of 12 percent in Iowa.
On Wall Street today, a rocky end to a rocky week. A rise in oil prices along with comments from the head of the New York Fed that a gradual approach to rate hikes was appropriate helped lift stocks early on, but gains then were pared late on the day on concerns about global growth.
By the closing bell, the Dow Jones Industrial Average rose 35 points to 17,576. The NASDAQ added 2, and the S&P 500 gained 5. For the week, all of the major averages lost more than 1 percent. It was the worst week for stocks since February.
There was a get-together late yesterday of some of the most-powerful people in economics. And together they soothed any fears of potential recession hitting the U.S.
Steve Liesman has the story.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was the first time that the three former and current Fed chairs appeared at the same event. Call it Fed all-star night as current Fed Chair Janet Yellen was joined by her predecessors Ben Bernanke and Paul Volcker on stage and Alan Greenspan via satellite from Washington.
And they gave a qualified but generally healthy outlook to the U.S. economy, with Yellen rejecting the charge that the U.S. is in a bubble.
JANET YELLEN, FEDERAL RESERVE CHAIR: We think it’s partly transitory influences, namely declining oil prices and the strong dollar, that are responsible for pulling inflation below the 2 percent level we think is most desirable. So, I think we’re making progress there as well. And this is an economy on a solid course, not a bubble economy.
LIESMAN: You can only hope this doesn’t end up in a “Jeopardy!” question of famous last words by a Fed chair for $100. Greenspan himself was plain spoken about just how difficult it is for the Fed to forecast.
ALAN GREENSPAN, FORMER FEDERAL RESERVE CHAIR: Monetary policy is very largely economic forecasting. And our ability to forecast is significantly limited. And we have to keep the context of what we say in the context of what we know.
LIESMAN: Greenspan famously warned about the dangers of irrational exuberance in stock prices in December 1996, only to see prices soar 75 percent over the next three years.
Bernanke suggested at the beginning of ’07 that subprime problems wouldn’t hurt the broader economy or financial markets. And we all know how that ended up. Still, here’s what Bernanke said about the U.S. economy right now.
BEN BERNANKE, FORMER FEDERAL RESERVE CHAIR: Domestic U.S. economy is moving forward. Households are pretty strong, financially speaking. Housing sector is continuing to expand, so on. I don’t see any particular reason to think that a recession is any more likely in 2016 than it was in 2015 or 2014.
LIESMAN: All the Fed chairs agree with the recent emphasis of Fed policy on global risks. While Yellen said rates would be rising, she was clear the Fed would be gradual and cautious in hiking those rates.
For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.
HERERA: And still ahead, Texas, North Dakota. Two states feeling the pressure of falling crude prices. But there’s also another one that you may not be aware of.
HERERA: Oil prices rose sharply helped by expectations. Production will continue to decline and renewed optimism about the U.S. economy. Prices today gained more than 6 percent and maintained those gains after oil fields services firm Baker Hughes (NYSE:BHI) said the number of oil rigs fell for a third straight week.
But to put it all into perspective, over the past two years, the price of domestic crude has fallen more than 60 percent. When you think of big oil-producing states, probably Texas, Alaska, and North Dakota come to mind. But one of the nation’s top oil producers is also New Mexico, which has relied on oil and natural gas for as much as one-third of the state’s revenues.
And that’s not so easy when the price of oil has fallen so sharply.
Scott Cohn reports tonight on New Mexico’s state of pain and what it is trying to do to transform itself.
SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s a weekday in Hobbs, New Mexico. And it is painfully quiet.
At the Martin Boot Company Store on Broadway, there’s a trickle of customers but nothing like a couple of years ago when oil workers and their families were flush with cash.
RICHARD MARTIN, MARTIN BOOT COMPANY: The worst thing during the peak of the economy is that they didn’t have the time to spend it.
COHN: And now?
MARTIN: And now, they’ve got the time, they may not necessarily have the money.
COHN: Located just over the Texas border in southeast New Mexico, Hobbs, population a little over 45,000, is a classic oil town.
Mayor Sam Cobb says the boom was something to behold.
MAYOR SAM COBB (D), HOBBS, NEW MEXICO: You couldn’t get a hotel room. If you could get one, they’d be $250 a night. People were much like you’ve heard in North Dakota area, people were living in their cars.
COHN: Now, these hotels, newly built, are discounting rooms. Not far away, a fleet of oil trucks and equipment that would have been hard at work a couple of years ago sits idle. It’s easy to see why. At this oil field just outside of town, Manager Mike Hanagan says they’ve quit drilling new wells because the prices are so low.
MIKE HANAGAN, MANZANO ENERGY PARTNERS: You don’t want to give your oil away at this rate. So we laid our rig down about a month ago.
COHN: Unemployment in the county as low as 3.5 percent in 2014 has more than doubled. And the jobs that remain are not what the oil workers were used to.
GREGG FULFER, LEA COUNTY COMMISSIONER: Normally, where a truck driver’s been making $100,000. Now, they’re down making $40,000.
COHN: Taking a huge bite out of tax revenues here in Hobbs.
GOV. SUSANA MARTINEZ (R), NEW MEXICO: God bless New Mexico.
COHN: And in Santa Fe where the governor and legislators had to cut spending and dip into reserves to balance the state budget.
But New Mexico has seen oil busts before. After all, they’ve been producing oil here since the 1920s. So, officials like to think they were ready for this one.
Here in Hobbs, they say they socked money away during the boom. So, now, with construction more affordable, they’re spending millions on projects like a new wellness center.
The state is using the downturn as a push to diversify an economy that’s historically relied on oil and the federal government.
JON BARELA, NM ECONOMIC DEVELOPMENT DEPT.: Any state, any political jurisdiction, can’t put all of its eggs in one or two baskets. Like New Mexico has done for the last several decades.
COHN: But out in the oil fields they say, don’t count them out.
HANAGAN: I think we’re going to see $60 this year. I wouldn’t be at all surprised to see $70 next year.
COHN: That’s double the price now. Here in New Mexico, they know booms can go bust. But they also know they can boom again.
Scott Cohn, NIGHTLY BUSINESS REPORT, Hobbs, New Mexico.
HERERA: To learn more about Hobbs, new Mexico, and how it’s dealing with the decline in crude prices, head to our website, NBR.com.
A fire erupts at LyondellBasell Industries (NYSE:LYB) Refinery in Houston, Texas, and that is where we begin tonight’s “Market Focus.” The fire began earlier today at the plant’s coker unit but has been extinguished, no injuries reported as a result of that fire. The company had to cut its production rate by 25 percent and it expects it will take up to a month to repair the damage. That refinery produces more than 260,000 barrels per day. Shares of LyondellBasell were off a fraction to $83.87.
Starboard Value plans on nominating new directors to Depo Med’s board. The activist investor says the drugmaker isn’t doing enough to improve shareholder value. Starboard recently revealed it has a nearly 10 percent stake in Depo Med. Shares of Depo Med rose 13 percent to $16.95.
Chipmaker Qualcomm (NASDAQ:QCOM) increased its quarterly dividend by 10 percent to 53 cents per share, up from 48 cents. The yield on the stock is now 4.24 percent. Shares of Qualcomm (NASDAQ:QCOM) up 1 percent to $50.56.
Shares of the Gap (NYSE:GPS) took a big hit today after the clothing retailer posted March sales results that came in below estimates. Gap (NYSE:GPS) attributed those results to slow traffic and Easter’s earlier arrival. Shares of the Gap (NYSE:GPS) down nearly 14 percent to $23.85.
And now to our “Market Monitor” who is finding opportunity in some large cap stocks that he says are the best of the breed and should be in your portfolio long-term. This is his first time joining us on the program. He is Kevin Norris, president of Univest Wealth Management.
Welcome, Kevin. Nice to have you here.
KEVIN NORRIS, UNIVEST WEALTH MANAGEMENT PRESIDENT: Thanks for having me, Sue. Appreciate it.
HERERA: Let’s start overall with what you’re watching in this market. A lot of people have very low earnings expectations. I think you’re running a little counter to that?
NORRIS: Yes, well, if you take a look at the last 11 quarters, I think the expectations entering the season, the earnings season, earnings have actually outpaced them all. So, I think sometimes we shoot for the downside too far. And the results are a little bit better than expectations.
But — we could get that too this time around with oil prices stabilizing and the dollar stabilizing.
HERERA: All right. You picked out some companies that you think are the best of breed. If investors want to put their money, there’s places to do that.
Visa (NYSE:V) is the first stock. Why do you like it?
NORRIS: So probably the average investor would think of this as a credit play but it’s really not a credit play. It’s a transaction play.
I think the second — they have 50 percent of the credit card marketplace in transaction in three quarters in the debit card marketplace. So, they make their revenue and earnings through the revenue from the transactions. So, it’s not a traditional credit play.
The other thing is thematic, in that the consumer feels a little better about the economy, wages start rising. Theoretically, we’re going to see more transactions on credit cards as the consumer starts spending.
HERERA: All right. Priceline is your next pick. You partially like it because of the big network they have?
NORRIS: Big network, love the big network, they’re in reservations for hotels, cruise lines, cars, automobiles. Love that.
Another theme, though, the consumers not necessarily spending as we’ve talked about in the past on couches and TVs and things like that. But they do seem to be spending on experiences. Now, Priceline’s been knocked down by the Brussels terrorist attack of late. But we think as a long-term play, this is a — this is a good place to be for a growth company. Doesn’t pay any dividend but it’s an attractive holding right now.
HERERA: And finally, McKesson (NYSE:MCK), why do you like that stock in particular?
NORRIS: Yes, largest distributor of pharmaceuticals by revenue. They compete against AmerisourceBergen (NYSE:ABC) and Cardinal Health (NYSE:CAH), so the best of breed theme we’re following here.
McKesson (NYSE:MCK) pays a small dividend, not too much, I think the forward P/E is a little under 11, so it’s attractive from a valuation perspective, even though it’s more of a growth company. They’re expanding overseas where they’ve acquired the largest distributors which will give them more scale to put some pressure on the drug companies for better prices because this is an industry which is very razor-thin when it comes to margins.
Kevin, we’ll leave it there, thank you so much. We look forward to talking to you again very soon.
NORRIS: Thank you.
HERERA: Kevin Norris, Univest Wealth Management.
Coming up, why location, location, location is so important for a fast-growing part of the fitness industry.
HERERA: Here’s a look at what to watch for next week. On Wednesday, JPMorgan (NYSE:JPM) reports earnings kicking off a big week of results by some of the nation’s biggest banks. On Thursday, the CPI (NYSE:CPY) of closely watched gauge of consumer inflation is due out. And also Thursday, China publishes first-quarter economic growth figures amid concerns about the pace of its growth. And that’s what to watch for next week.
The battle between Apple (NASDAQ:AAPL) and the FBI shifts to New York and to Boston. Late today, a Boston judge ordered Apple (NASDAQ:AAPL) to help law enforcement examine an iPhone of an alleged gang member. In a separate case in New York, the Justice Department says it will appeal a court ruling that blocked the government from enforcing Apple (NASDAQ:AAPL) to unlock an iPhone as part of a drug case.
Yesterday, FBI Director James Comey said the method used to open the iPhone used by one of the San Bernardino shooters will not work on other models.
Ride hailing company Uber will pay at least $10 million to settle allegations by California prosecutors that it misled passengers about the quality of its drivers’ background checks. In 2014, prosecutors sued Uber saying that the company’s screening process was inferior to what taxi drivers had to undergo. Earlier this year, we reported on concerns surrounding those checks.
Two cofounders of SoulCycle have resigned from the boutique cycling chain. Elizabeth Cutler and Julie Rice will continue to serve on the board of directors. SoulCycle filed for an IPO last year and has been expanding nationally. Equinox now owns 97 percent of that firm.
And finally tonight, active millennials as well as active baby boomers are pumping more iron more often and pumping more dollars into the fitness industry. Fitness revenue, in fact, is rising fast and so are the numbers of so-called boutique fitness studios — higher priced and cropping up in some of the nation’s hottest neighborhoods.
Diana Olick has our first sweat equity story.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s hard to tell which is more powerful, the beat from the 8:00 a.m. high-intensity circuit class at the Fhitting Room on Manhattan’s West 19th Street, or the pounding of jackhammers just six blocks north in what will be the new pent house corporate headquarters of Peloton, a live streaming indoor cycling startup.
Whichever the winner, boutique fitness is winning the workout wars in Manhattan and across the nation.
JOHN FOLEY, CEO PELOTON: Fitness companies are one of the two or three biggest tenants in New York City in this area. There’s tons of boutique fitness all up and down, not just downtown but all of Manhattan.
OLICK: Not just fitness. As he said, boutique fitness.
What exactly makes something boutique?
KARI SAITOWITZ, FHITTING ROOM: I mean, it’s an interesting question. For us specifically, boutique, we really take the best aspects of a personal training session and we combine that with the best aspects of a group exercise class.
OLICK: Boutique is code for personal attention. Classes often catering to the schedules of a working clientele, with all the added amenities, even private shower rooms.
SAITOWITZ: Because we are boutique and we focus only on high-intensity training and our specific types of exercises, we can build a studio to support what we’re doing. So, you’ll notice that —
OLICK: But you’re charging more.
OLICK: A single class at the Fhitting Room is $38. Compare that to around 20 bucks a month at a big chain gym.
In Manhattan alone, studios are multiplying monthly. And nationally, of the 54 million Americans who claim to have fitness memberships last year, 42 percent said they go boutique. That’s up from 22 percent barely three years ago. And location is key.
SAITOWITZ: We wanted to be here. There’s a kind of complementary studio offering. There’s also a lot of athletic apparel shops, letter wear brands, there’s grocery, there’s healthy eateries.
OLICK: So, you’re essentially feeding off each other?
OLICK: And you can see that in the menu offerings, classes before and after work. And at lunchtime.
So, the three martini lunch is now a workout and a juice?
MELANIE ESTRIN, MEDIA ACCOUNT EXECUTIVE: I work in media, I bring a bunch of clients here, come with friends from work, we make it a weekly thing.
OLICK: Not only are boutique fitness studios eating up New York real estate, so are the tech and media companies behind them. Think Peloton, for example, spending $7 million to trick out its new corporate headquarters right in the heart of the fitness district.
FOLEY: This floor rear on right now is going to be all-employee common area. So, standup shuffle board, ping-pong, foosball, beer kegs, whiskey kegs, coffee kegs —
OLICK: Kind of like Google (NASDAQ:GOOG), right?
FOLEY: Kind of — but better, because we’re a fitness company.
OLICK: At least half a dozen fitness companies looked into space in this building alone which Peloton will anchor.
PAUL TETI, NORMANDY REAL ESTATE PARTNER: We’re seeing fitness as a theme for almost every user. So, whether it’s a boutique fitness story like Barry’s Boot Camps of the world or Peloton, it literally is coming to your living room. It’s part what was these users want to talk about.
FOLEY: We’re two blocks away from our television streaming studio where we stream 12 hours of live television content around the world every day. So, this headquarters is part of our story of being one of the special technology companies that is going to be defining the future of our category.
OLICK: A category that takes fitness to new levels and new heights.
For “NIGHTLY BUSINESS REPORT”, I’m Diana Olick in New York.
HERERA: To read more about the big business of boutique fitness, head to our website, NBR.com.
Before we go, here’s another look at the day and the week also on Wall Street. The Dow is up 35 points to 17,576. The NASDAQ added 2. The S&P 500 gained 5. But for the week, all the major averages lost more than 1 percent.
And that does it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us. Have a great weekend, everyone. We’ll see you here Monday.
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) 2016 CNBC, Inc.