Transcript: Nightly Business Report – September 28, 2016

NBR-ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Hand shake? Stocks took off late today on reports that OPEC reached a deal many thought elusive to limit oil production. But will the deal stick?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Severing ties. California took the unusual step of temporarily suspending its dealings with Wells Fargo effective immediately.

MATHISEN: And costly misclassification. Senators want to know if Mylan incorrectly classified its EpiPen to save a lot of money in payments to states.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, September 28th.

HERERA: Good evening, everyone. And welcome.

Not many saw this coming. OPEC has reportedly agreed to cut oil production. And this is something the cartel has tried and failed to do numerous before. If this deal sticks, it would be the first time in eight years that the group of oil exporters would lower output.

And with that, the price of crude took off rising more than 5 percent, its best day in five months. Big oil stocks followed. It’s not every day you see 4 percent and 3 percent moves in Dow components ExxonMobil and Chevron.

And when energy turned, so did stocks. The Dow Jones Industrial Average climbed 110 points to 18,339, the NASDAQ added 12, and the S&P 500 gained as well.

Bob Pisani has more on the oil-driven rally.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, oil popped today, its best day since April 8th on reports that OPEC had agreed to an oil production cut for its next meeting in November. It’s not clear how much is being cut, but this is reportedly a cap on total production of 32.5 million to 33 million barrels a day. They’re currently producing a little over 32 million barrels a day.

Now, it’s unclear who will be cutting and when. All of this was supposed to be addressed at a November OPEC meeting. Does that sound nebulous enough for you?

There’s lots of speculation that the cuts will more than likely come from the Saudis, because they’re already producing at record levels. Do you really think you’re going to get a production cut out of Venezuela? I don’t think so.

Big oil stocks had a big day on that news. ExxonMobil was up more than 4 percent, Chevron up nearly as much. Both pushed the Dow up about 50 points midday.

Some of the shale plays like Oasis and Whiting Petroleum were up double digits. Why? It’s mostly short covering and that makes sense. It’s unlikely there are a lot of plain vanilla mutual funds that bought oil stocks on some vague promise that the Saudis might cut production.

And no one is sure how long the rally in energy will last.

For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN: So, will an apparent deal to cut OPEC’s production stick? And if so, what will it mean for oil prices?

Kyle Cooper is director of research at IAF Advisers and he joins us now to discuss.

Were you surprised, Kyle?

KYLE COOPER, IAF ADVISORS DIR. OF RESEARCH: Not necessarily. I’ve actually been curious as to why they couldn’t at least make nice. Whether or not the production cut sticks is irrelevant to market prices in the near-term. Like you said, this is a deal that really hasn’t been finalized. There have been no concrete agreements and the details are still to be hashed out in November.

Yet, we’ve got an over $2 rally. So it’s not only been surprising to me they weren’t able to at least make nice back in April. Because obviously, when that fell apart, prices collapsed that Sunday evening.

HERERA: Right. Absolutely, they did.

If, indeed, the details get ironed out, do you think this time around with the volatility that we have seen in oil and, of course, the big drop that we saw in oil late last year and early this year, is that more of an incentive for them to work together and make it stick?

COOPER: Certainly. But then they also still have to worry about market share. The U.S. oil production number, weekly numbers, of course, falling dramatically. We’re off over 1 million barrels a day from the peak. However, the last couple weeks saw an uptick in U.S. oil production, eve though this week’s number reported by EIA this morning was down slightly.

There is already some speculation that the U.S. oil production has kind of reached a bottom. Certainly, the higher prices are not going to do anything to turn that down.

MATHISEN: So, let’s say they do proceed, and get an agreement to cut $75 barrels of oil or 900,000 barrels of oil out of their production. What will that mean for prices, and will whatever those price hikes are, will they stick? Or will U.S. producers and other producer come in and start to pump more to take advantage of the higher prices, thereby bringing more supply on and bringing prices back down?

COOPER: Absolutely. Well, so far, the details we’ve seen or the framework we have seen is for a production limit between about 32.5 million and 33 million barrels. Keep in mind that OPEC production was recently slightly above 33 million barrels.

So, we’re talking at the upper end a cut of only a couple hundred thousand. At the upper end of the cut, maybe about, like you said, 750,000 to a little more.

I personally don’t think that’s going to stick in terms of the implementation. OPEC over its history has a horrible record of agreeing to what they’ve ever announced. What I would say, though, is it would seem to me be very, very prudent. Within oil field, there is a lot of seasonal maintenance that has to occur.

It seems to me that right now, OPEC members should be planning to do some seasonal maintenance, iron out a deal in November, and then actually begin some of that seasonal maintenance to give the market the impression that truly the agreement is being adhered to. I think that could have prices up another $5 or $10.

MATHISEN: All right.

COOPER: And then by the first quarter of next year, you could see then a huge surge in OPEC production.

MATHISEN: All right. Kyle, thanks very much. Kyle Cooper with IAF Advisers.

HERERA: California is cutting business ties with Wells Fargo for one year. The state’s treasurer said he is suspending his office’s investments in Wells Fargo Securities. He’s also suspending Wells Fargo’s role as a broker/dealer with the state. And he’s barring the bank from underwriting state debt, which is significant, because California is the nation’s largest issuer of municipal bonds. That decision comes after the company admitted to opening accounts for customers without their authorization.

(BEGIN VIDEO CLIP)

JOHN CHIANG, CALIFORNIA STATE TREASURER: These sanctions will be in place for 12 months. However, should Wells Fargo fail to comply with the settlement agreements, it has reached with federal and local regulators, or evidence surfaces that they have reengaged in the same behavior, the sanctions may escalate up to and including a complete termination of our business relationship with the bank.

(END VIDEO CLIP)

HERERA: The California treasurer oversees nearly $2 trillion in annual banking transactions and manages a $75 billion investment pool.

MATHISEN: Meantime, Wells Fargo CEO will give up some of his compensation. John Stumpf will forfeit $41 million in unvested equity and temporarily forego his salary. The bank also said that Carrie Tolstedt, the former head of its community banking division, left the company and would not receive a severance payment.

Neither Stumpf nor Tolstedt would receive a bonus in 2016. The decision comes amid a probe into that company’s fake account scandal.

HERERA: Lawmakers lashed out at Fed Chair Janet Yellen today for her role as Wells Fargo’s regulator. One congressman asked how long this type of activity had to go on before the Fed takes action. Another lawmaker told Yellen to go after the bank and make their lives hell.

Yellen had this to say.

(BEGIN VIDEO CLIP)

JANET YELLEN, FEDERAL RESERVE CHAIR: Well, as pointed out, many regulators have been involved in —

UNIDENTIFIED MALE: Well, I’m going to have my fun with them too. It’s just your turn today.

YELLEN: So, we’re in the case of this institution, we’re the supervisor of the holding company. We have already instituted a review of all of the largest banking organizations, because we are very concerned with all of the compliance problems and violations of laws.

(END VIDEO CLIP)

HERERA: Yellen added that the Fed holds financial institutions to exceptionally high standards of risk management and consumer protection.

MATHISEN: Also on Capitol Hill, a sigh of relief the Senate passed a short-term government funding measure that will avoid a government shutdown before the general elections. That’s just one of the stories John Harwood is following for us tonight.

So, John, what did they agree on in order to keep the government from shutting down?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, they struck a deal on a couple things. First of all, they balanced money for flood relief in Louisiana, disaster relief, with money for Flint which has had the terrible problems with the water system. Democrats insisted on the Flint money, Republicans on the money for Louisiana.

They also agreed to put the Zika funding in, over $1 billion, to keep alive the research into a vaccine and to continue work to deal with the Zika crisis, which is especially afflicted South Florida.

And all of that as the backdrop was the presidential election, and Republicans simply did not want to — who control both the House and Senate, simply did not want to shut the government down.

HERERA: Yes, Congress also voted to override the president’s veto of the 9/11 bill, which means the families of those killed in the 9/11 attacks are now legally allowed to sue Saudi Arabia.

So, now that that’s happened, what’s the next step here?

HARWOOD: The next step is to see where the legal process takes the opening that has been provided by this bill. This was a rare bipartisan rebuke for President Obama. He vetoed this bill, arguing that it — by eroding the sovereign immunity that other nations enjoy from us, that we would also put our people and assets at risk to similar lawsuits.

The proponents say, well, there have been exceptions in the past already in law, and we’re just going to have to see what unfolds as a result of this legislation becoming law.

MATHISEN: And, John, tell us about this new survey out on the election. What does it show?

HARWOOD: It shows that by better than 2 to 1, 52 percent to 21 percent, likely voters in the country thought that Hillary Clinton won the first debate with Donald Trump. So that is a scientific poll that counters the claims that Trump has been making about nonscientific surveys that some organization, including CNBC, had put out.

It also showed that Hillary n strengthened her base, 50 percent of the Democrats say they had a stronger opinion and strengthen her specifically among women. That is a key target group for Donald Trump. Most worrisome for Trump, 69 percent of women in this survey, women likely voters, say he lacks the personally and temperament to serve as president.

MATHISEN: All right. John, thank you very much. John Harwood reporting tonight from Washington.

HERERA: Three prominent senators asking the Justice Department to investigate whether Mylan is short-changing the government. It all has to do with how the drug company classifies its EpiPens.

Meg Tirrell explains.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: The skyrocketing price of the EpiPen, up 400 percent over a decade, has sparked outrage among parents and patients with severe allergies.

But it’s another action by manufacturer Mylan that’s grabbing the attention of lawmakers. Three senators claim Mylan may have misclassified the EpiPen under made indicated rules in order to pay smaller discounts to states.

Today, asking the Justice Department to investigate, Senator Amy Klobuchar says this will cost Minnesota $4 million this year alone. And the state’s attorney general is investigating.

LORI SWANSON, MINNESOTA ATTORNEY GENERAL: The interesting thing here with Mylan is that practices are impacting both individual patients. We’ve heard in my office from patients who simply can’t afford to pay the high cost. But we also know it impacts the government.

TIRRELL: It comes down to rules under the Medicaid drug rebate program, which is put into place to make medicines more affordable for states. Companies must pay bigger discount on so-called innovative drugs, typically branded drugs with more patent protection of 23 percent. Non-innovator drugs have rebates of 13 percent.

Mylan has classified EpiPen as a non-innovator drug, and Senator’s Klobuchar, as well as Chuck Grassley and Richard Blumenthal suggest Mylan may have knowingly misclassified the product, potentially, quote, “diverting millions of dollars from U.S. taxpayers.”

Mylan says the EpiPen meets the definition of non-innovator drug and it’s been classified that way since before it acquired the product in 2007.

But the Centers for Medicare and Medicaid Services said it has, quote, “expressly advised” Mylan that their classification was incorrect. And the senators in their letter today said the company’s defense doesn’t hold, in part because Mylan has made changes to the EpiPen and received additional patent protection since they acquired it.

They also point out, Mylan has been investigated for this practice before, paying a settlement to the Justice Department in 2009. They’ve asked the Justice Department to respond to their letter by October 12th.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: Still ahead, why some federal officials are concerned about more election-related cyberattacks.

(MUSIC)

HERERA: Two federal officials in two days have warned of cybersecurity threats ahead of the presidential election. Today, FBI Director James Comey told lawmakers that over the past month, voter registration databases in states across the country have come under attack.

(BEGIN VIDEO CLIP)

JAMES COMEY, FBI DIRECTOR: Any hacking in connection with this nation’s election system is something we take extraordinarily seriously, the whole of government. And so, it is something the FBI is spending a lot of time on right now to try and understand. So, what are they up to and what does it involve and what’s the scope of it, to equip the president to decide upon the appropriate response.

(END VIDEO CLIP)

HERERA: And just yesterday, the head of the Homeland Security Department said a number of states have asked for help to secure their system.

(BEGIN VIDEO CLIP)

JEH JOHNSON, SECRETARY OF HOMELAND SECURITY: In the run up to the November 8th election, we have been working with state election officials, local election officials, to help them with their cyber security when they ask. I’m pleased that 18 states have now come forward and requested our assistance in their cyber security efforts.

(END VIDEO CLIP)

HERERA: These comments come amid increasing concerns over suspected Russian attempts to influence the upcoming election.

Eamon Javers is following the story from Washington.

So, Eamon, specifically what did we learn today about the government’s level of concern?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Sue, what we learned was that these government officials, including the head of the CIA, who spoke today at an event in Washington, are extremely concerned about the possibility of hacking into the U.S. election. They’re concerned enough to be all talking about it publicly at the same time. That’s a message you should definite read as their intentional that they’re sending in public.

What we didn’t learn, though, is exactly what they’re going to be able to do about it. The federal government itself has been riddled with hacking attacks and has the victim of several major hacks over the past couple of years. And so the question is, what if any support can the U.S. government provide to those states around the country as they gear up for this election in November?

One of the officials said today, one of the best things about the U.S. election system is it’s fairly distributed. It’s run at a state and local level. So, there’s no one central database that hacker could get into and just simply switch the results of the election. But even hacking into all those local databases is a scary enough prospect.

MATHISEN: So, 18 states have asked the federal for help. What can the feds do?

JAVERS: Well, what they have said is that they can send boots on the ground into those states. They can also help those states in scanning their own systems in terms of whether or not they have been hacked and they also want to involve them in this 24/7 operations center they’ve got here in Washington, which is designed to help them understand the absolute latest information on hack attacks as they see them coming in real-time.

That’s what they say they can do. But the maddening thing about cyber security, is you never quite know if enough is enough in terms of prevention.

HERERA: Absolutely. Eamon, thank you, as always.

JAVERS: You bet.

HERERA: Eamon Javers in Washington.

MATHISEN: A massive takeover cleared its last big hurdle. SABMiller shareholders overwhelmingly backed the more than $100 billion takeover by Anheuser-Busch InBev. Investors seemed happy, sending shares of AB InBev higher and the merge between the world’s biggest beer makers could usher in a new era for the industry.

(BEGIN VIDEOTAPE)

MATHISEN: If beer is your most popular product and you’re bringing in almost half, 46 percent, of the world’s beer-making profits, what else could you be called other than the king of beer?

Its share of global profits is four times that of its nearest competitor, Heineken. AB InBev is a brewing behemoth with high profile brands like Corona, Stella Artois, Beck’s, Japan’s Kirin and Rolling Rock. InBev will supply more than a quarter of the world’s beer.

SABMiller folds in a slew of international beers, like Fosters from Australia and American craft brews like Blue Moon. It also brings operations in 17 African companies where beer consumption is expected to grow three times faster than in the rest of the world through 2025. SABMiller is InBev’s fourth major acquisition since 2008, including Budweiser maker, Anheuser Busch, Mexico’s Grupo Modelo, and Korea’s Oriental Brewing.

To ease the fears of governments around the world hoping to maintain competition, the new company sold assets, huge names, like Miller Lite, Peroni and its interest in the world’s number-one selling beer, China’s Snow.

The Miller Lite sale to Denver Molson-Coors makes Molson Coors the number two U.S. beer-seller behind InBev.

(END VIDEOTAPE)

MATHISEN: I’m thirsty. It’s expected to take ten years to recoup the $100 billion-plus investment, if that all goes according to plan.

HERERA: Sumner Redstone’s National Amusement may ask Viacom and CBS to think about getting back together, and that’s where we begin tonight’s “Market Focus”.

Redstone’s movie theater company, which is the controlling shareholder in both CBS and Viacom, is reportedly getting ready to ask the two media giants to explore a possible merger. CBS and Viacom split from each other about a decade ago. Shares of Viacom rose 3 percent to $36.56. CBS climbed 4 percent to $54.15.

It’s the end of an era as smartphone maker BlackBerry will making its the own devices, saying it will outsource production of its handset to an Indonesian partner and focus instead on software development. The announcement was made along with its second quarter earnings which saw a net loss of nearly $400 million. But the street liked the strategy, sending shares of BlackBerry up nearly 6 percent to $8.33.

MATHISEN: The propane retailer, Ferrellgas posted four-year results that missed analysts’ expectations, saying sales were hurt by warmer weather that cut demand for propane. The company said its CEO was stepping down to be replaced in the interim by the founder, James Ferrell. Ferrellgas fell 21 percent to $13 even.

The payroll and HR services company Paychex said its quarterly earnings rose 4 percent, and revenue was up 9 percent. That sounds good, but the company trimmed its full-year earnings forecast, citing tax items. As a result, Paychex fell more than 4.5 percent to close at $57.50.

HERERA: Will robots steal our jobs one day? We all think about it. And as companies invest more in technology, we all worry about it. But should we?

Aditi Roy takes a look.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: This robot called Atlas and made by an Alphabet-owned company looks like it belongs in a sci-fi movie. But its creators say Atlas uses artificial intelligence to perform down to earth tasks, like delivering food or picking up packages.

While some fear such robots will replace jobs, a new study by Accenture reports artificial intelligence could dramatically boost economic growth and productivity. The study released today looked at 12 countries and found that AI, or technology that senses the environment, comprehends what’s happening and takes action could increase productivity by up to nearly 40 percent in 2035.

The report also forecasts economic growth in the U.S. could increase from 2.6 percent to 4.6 percent in 2035, with the adoption of AI technologies.

PAUL DAUGHERTY, ACCENTURE CTO: It automates a lot of the low-level tasks and gets them done with higher satisfaction for the people asking the questions, and it frees up employee to do things they get more satisfaction out of, which is solving more complex problems and dealing with the more complex issues that arise in the business.

ROY: The top four countries that stand to see the biggest productivity boost from AI in 2035 includes Sweden, Finland, the U.S. and Japan. Companies like Amazon, Alphabet, Intel and Microsoft have all been investing in AI, and Accenture CTO Paul Daugherty predicts it’s just the beginning.

DAUGHERTY: That will be bigger than Cloud, it will be bigger than the digital business way we’re looking at because it really stands to transform business and transform the way that humans interact with technology as consumers and workers.

ROY: But there could be a downside. A recent Forrester report found that within five years, AI power technologies will eliminate 6 percent of jobs in the U.S. Daugherty says while there might be some short term displacement, the key to minimizing job cuts is to educate workers on how to use AI so they can focus on higher-skill tasks.

For NIGHTLY BUSINESS REPORT, I’m Aditi Roy in San Francisco.

(END VIDEOTAPE)

HERERA: Coming up, follow the money. Why capital is flowing to startups in a city far from Silicon Valley.

(MUSIC)

HERERA: Startups are thriving in the City of Brotherly Love. And there are a few reasons why entrepreneurs are calling Philadelphia home.

Kate Rogers tells us why this city matters to small business.

(BEGIN VIDEOTAPE)

YASMINE MUSTAFA, ROAR FOR GOOD: Roar for Good — like I am woman, hear me roar.

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yasmine Mustafa launched her startup Roar for Good a few years ago, after traveling across South America on a solo trip. She met many women who shared experiences of assault or abuse. When she returned back to the states, her neighbor was raped and she knew she had to do something.

MUSTAFA: Women use self defense tools like pepper spray and tasers to protect themselves. But what I thought was the biggest issue is that they had to take it out of pocket or purse in order to activate it. So, why not make them wearable.

ROGERS: She designed the Athena, a wearable device that has two modes, one for safety which can alert friends and family of your location if you’re feeling uncomfortable while out. The other mode sounds an alarm and let’s your emergency contacts know you need help.

They have presold 10,000 devices already and will ship early next year, thanks in part to the DreamIt accelerator program, which focuses on different groups, including minority and women founders. They also have a fund that invested in Roar for Good last year.

KAREN GRIFFITH GRYGA, DREAMIT VENTURE FUND: The important elements for any startup company is customers, capital and community. And Philadelphia has all three of those elements. It’s a very livable city so people like being here. The community is a strong community in that people tend to be very open about meeting one another and helping one another.

ROGERS: Mustafa and DreamIt are part of Philadelphia’s thriving technology scene bolstered by colleges and universities from UPenn to Temple and Drexel, and a local government that’s dedicated to innovation. Thousands of business have been launched in the area in recent years as venture capital funding has increased.

Grads like UPenn alum Danny Cabrera are staying local to build their businesses. His start up, BioBots has designed a 3D printer that can be used to print living cells, including skin, liver and heart tissue. Big companies like AbbVie and GlaxoSmithKline are among those using this to research new drugs.

DANNY CABRERA, BIOBOTS: Pharma companies are interest in seeing how drugs affect the heart and liver. And they’re using the BioBots to print heart and liver tissues and figure out if drugs will be toxic on them.

ROGERS: Staying in Philadelphia made sense from a cost standpoint for the startup, which has raised $1.5 million so far and was able to access lab space and equipment for cheap. BioBots has sold hundreds of machines so far in 20 different careers.

Nearby, another local tech startup is finding success in the e-commerce world. RevZilla sells motorcycle gear and accessories both online and at their storefront, after launching out of an apartment in 2007. They have boot strapped their operation to hit $100 million in revenue. Launching in the City of Brotherly Love has shown them what it’s like to be part of a community.

DAVID PRICE, REVZILLA: Philadelphia is kind of the unique mix where you have a personal touch and feel, you can be part of the community, but you don’t get lost in the community, where people really support each other.

ROGERS: For NIGHTLY BUSINESS REPORT, I’m Kate Rogers in Philadelphia.

(END VIDEOTAPE)

HERERA: And to read more about the Philadelphia startup scene, head to our website, NBR.com.

MATHISEN: And before we go, here’s another look at today’s oil fuelled rally. The Dow climbed 110 points to 18,339, Exxon a big contributor. NASDAQ added 12. The S&P 500 gained 11.

HERERA: That does it for NIGHTLY BUSINESS REPORT tonight. I’m Sue Herera. Thanks for watching.

MATHISEN: Thanks from me, as well. I’m Tyler Mathisen. Have a great evening, everyone. We’ll hope to see you back here tomorrow night.

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) 2016 CNBC, Inc.

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