SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Bank on it. Three of the
nation`s biggest banks reported better than expect quarterly results. But does that mean they`re worth investing it?
You`re fired. At least that`s what Senator Warren would like the president
to say to the chair of the SEC.
`Tis the season. For earnings, that is. And our market monitor guest is
finding some investment opportunities this time around.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday,
Good evening, everyone. And welcome.
The financial sector, it`s one of most influential groups in the market.
And today, some of the country`s biggest banks showed that business is OK.
Maybe not great, but OK.
Earnings from Wells Fargo (NYSE:WFC), J.P. Morgan, and Citigroup (NYSE:C)
all beat Wall Street expectations. But profits were down across the board,
year over year.
That was enough to lift the broader market, but not shares of all the big
financial institutions. And that`s partly because questions still remain
about the fourth quarter.
And, of course, a lot of attention was on embattled Wells Fargo (NYSE:WFC),
which said customer traffic at branch was down in the wake of the fake
account scandal. And fewer checking accounts were open.
SEN. ELIZABETH WARREN (D), MASSACHUSETTS: It`s gutless leadership.
HERERA: During John Stumpf`s final quarter as CEO at Wells Fargo
(NYSE:WFC), profit dropped more than 2.5 percent. But the earning`s news
at the nation`s third largest bank wasn`t all bad. Despite charges the
bank opened as many as 2 million accounts with either fake or unauthorized
customer information, profit was still higher than expected than expected,
and revenue rose more than 2 percent, also, more than analysts predicted.
The after-effects of the sale scandal, a $185 million settlement and
Stumpf`s ouster are still to be felt.
New CEO Timothy Sloan is already looking at reduced business at Wells Fargo
(NYSE:WFC) Bank branches.
TIM SLOAN, WELLS FARGO CEO: The implications for our company and on the
trust of our custom are significant. Customer visit with bankers in our
branches, a subset of overall customer traffic, were down 10 percent in
September, compared with the year ago. The lower level of interactions in
September was driven by lower internal referrals, decreased product
offerings and reduced marketing.
HERERA: J.P. Morgan Chase said on its earnings call it too has identified
problems with its employees cross-selling. But that it does not think the
problems are systemic.
The nation`s largest bank said both profit and revenue beat expectations.
Profit was down from a year ago, mostly because of a one-time tax benefit
last year. And revenues were up more than 8 percent. In part, because of
equity trading fees, up by a third. And its investment bank had a record
quarter, with fees jumping 15 percent.
Fixed income trading was also up, a whopping 48 percent. Thanks to a rush
of activity after the U.K.`s June Brexit vote.
Citigroup (NYSE:C) is recovering from past legal scars. It too saw jumps
in trading and investment banking revenue. Overall, Citigroup`s earnings
beat forecasts for both profit and revenue. Though profit was down 2
percent from a year ago, and revenues were down 5 percent.
Still, investors tend to smile when earnings reports beat forecast.
MARTY MOSBY, VINING SPARKS: The reports have all been positive. What we
are seeing is that the money center and the capital markets revenues are
really pushing Citigroup (NYSE:C) and J.P. Morgan higher. We are seeing
the momentum of the overall just markets and the activity we`re seeing
there should rise all tides for all these money center banks today and then
next week we see further releases.
HERERA: So here to give us more analysis on those bank earnings and his
take on the sector as a whole is Eric Wasserstrom. He is senior banking
analyst at Guggenheim Partners.
Welcome, Eric. Nice to have you here.
ERIC WASSERSTROM, GUGGENHEIM PARTNERS BANKING ANALYST: Thanks having me.
HERERA: So, taken as a whole, how — were you pleased with what you saw
from the major banks?
WASSERSTROM: Well, generally, I think the news was a little bit better
than expected. I would say net-net, more good than bad. In particular,
what we saw was loan growth was stronger than we were forecasting, and I
think several analysts, including myself, thought that looking at the data
over the course of the quarter, could be uneven. And as you mentioned in
your piece there, the capital markets s were stronger than expected. And
bad loan costs were — remained low.
So, I think those are the positive points. And those things combine to
offset higher costs than most of us were looking for at these institutions.
HERERA: Does the loan growth that we saw almost pretty much across the
board, does that portend a better quarter next time around or not
WASSERSTROM: It certainly may, because to the extent that an asset is put
on a bank`s books in this period, it will continue to genera earnings over
the course of its life. But in terms of the growth rate, I would say it`s
a little bit too early to know, but certainly the initial signs were more
positive than we thought, certainly.
HERERA: Let me turn you to Wells Fargo (NYSE:WFC). I know that there is
still a lot of costs and we heard from the new officials over at Wells
Fargo (NYSE:WFC) on various news outlets today. The legal cost issue seems
to really be kind of not necessarily weighing on the share price, but it
certainly is an overriding concern.
WASSERSTROM: Yes, that`s exactly correct. And I think it isn`t just the
legal cost, but also the implications for their business model, which
clearly in some form is going to need to change inside its retail banking
business. So, I think those are the two concerns, how much ultimately will
they have to spend on litigation and regulatory response — in other words,
fines. And what does it mean for their go-forward business.
HERERA: What about the changes that they have made. Mr. Stumpf, as we
mentioned, has left. Tim Sloan is in position now. However, he`s part of
old guard. And there are those who are not satisfied with his appointment
to that particular post.
How do you feel about it?
WASSERSTROM: Well, I think that there`s — I guess I would say I share
some of those concerns. On the one hand, I think what Tim articulated
today was a very robust attempt to fully assess and remediate the issues,
and he acknowledge, I think, at leas implicitly, if not explicitly, that
this was, in fact, a systemic issue, which was a characterization that John
But I think that I shared the concern that not a single member of the
management team is — is new. They all come from inside the existing
organization, including the new head of the retail banking business. And I
think, you know, I wonder to what extent maybe new blood might be a
HERERA: Of the banks that reported today, quickly, Eric, which do you
holds the best investment opportunity?
WASSERSTROM: Well, the one that I like the best is Citigroup (NYSE:C), and
I think what you saw today was that their growth and their consumer bank,
particularly outside the states, is beginning to turn, which I think will
be a medium-term benefit to their earnings.
HERERA: All right. Eric, thank you so much for joining us. We`ll leave
WASSERSTROM: Thank you.
HERERA: Eric Wasserstrom with Guggenheim Partners.
Well, the new CEO at Wells Fargo (NYSE:WFC) was not enough for the state of
Ohio. Today, it joined a growing list of states that are suspending
business with the bank over that fake account scandal. Governor John
Kasich said he`s barring Wells Fargo (NYSE:WFC) from participating in state
debt offerings and financial services contracts for one year.
On Wall Street, stocks paired their gains after the bank-led rally lost
some steam midday. Not only did investors have to parse through bank
earnings, but they also had to decipher comments from some Fed officials.
The Dow Jones Industrial Average rose 39 points, it had been up more than
150 earlier in the day, and the NASDAQ and the S&P 500 rose just a
And despite today`s gains, all three major indexes were lower for the week.
Household spending increased in September by the most in three months. The
Commerce Department reports that sales at retail stores climbed 0.6 percent
from the prior month. That matched expectations and it follows a slight
decline in August. Auto dealers and gas stations saw the biggest gains.
Separately, producer prices rose more than expected last month, a sign that
inflation could be firming. The producer price index, which measures
changes in the prices that companies receive for their goods and services
was up 0.3 percent.
Meantime, consumer sentiment has unexpectedly dropped. It fell to a one-
year low in October, as Americans outlook for the economy turned negative.
The University of Michigan said the decline may be partly due to the
contentious presidential election. In theory, the more upbeat the
consumer, the more they will spend. And that`s important for economy,
since spending accounts for about 70 percent of economic activity.
The head of the Boston Fed says December may be an appropriate time for the
Federal Reserve to increase interest rates. Eric Rosengren favored raising
rates at the central bank`s last policy meeting and in an interview today,
said his views have not changed.
(BEGIN VIDEO CLIP)
ERIC ROSENGREN, FEDERAL RESERVE BANK OF BOSTON PRESIDENT: My hope is that
we do it slowly and gradually. But that the longer we wait, the more
likely it is that we`re going to have to do it more quickly. Obviously,
you don`t set monetary policy to one asset class. But I think it`s
symptomatic of what happens when things start to become less sustainable.
So, whether it shows up inflation or whether it shows up in asset prices,
it`s a little bit hard to determine. But that`s why I would like to have
an economy that is at a sustainable unemployment rate over a long period of
time. So, we can make sure we have as long a recovery as possible.
(END VIDEO CLIP)
HERERA: In a separate speech, the head of the New York Fed, Bill Dudley,
said that he would expect a rate hike to occur this year.
In Washington, Senator Elizabeth Warren is calling on President Obama to
replace the chair of the Securities and Exchange Commission. In a letter,
Senator Warren writes that Mary Jo White has refused to draft new rules
requiring corporations to disclose details of their political spending.
Eamon Javers is in Washington following the story for us.
Good to see you, Eamon.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi, Sue.
HERERA: President Obama is not likely to fire his top financial regulator
three months before he leaves office. So what`s behind this letter?
JAVERS: Well, Democrats in Washington are looking at the polls in the
presidential race, and they have decided that Hillary Clinton is likely to
be the next president of the United States. If that`s the case, the battle
to shape that Clinton presidency is on right now. So, think of this letter
from Elizabeth Warren more as a shot across the bow to the Clinton team
saying, hey, we on the political left, the sort of Bernie Sanders wing,
Elizabeth Warren wing of the Democratic Party, we want to make sure we`re
putting some markers down about what we want at the SEC and we don`t want
Mary Jo White to continue to be the chair.
And remember, they`re also — a lot of Democrats who really mistrust
Hillary Clinton. They think she is too close to Wall Street and think that
Mary Jo White is also too close to corporate America and Wall Street. So
there is this left versus center left debate going on within the Democratic
Party right now.
HERERA: If Mrs. Clinton is elected president in November, how much
influence would she have over the SEC and do we know anything about her
relationship, if any at all, with Mary Jo White?
JAVERS: Well, she`s going to have a lot of influence. If she gets
elected, there are typically five commissioners on the SEC. Right now,
there are only three, though, because there are two vacancies. So, that
means if you had a President Hillary Clinton in January, you would be
looking at a president who gets to a point, two SEC commissioners and
controls the chairmanship.
Typically, the chairman will resign if somebody from the other party comes
in. In this case, it would be somebody from the same party coming in. But
presumably, Hillary Clinton could lean on Mary Jo White if she wanted to.
Mary Jo White`s term runs until 2019. And Hillary Clinton and her staff
presumably right now are working through a list of transition — with their
transition team of who is going to take which position in Washington if she
You would imagine there`s a lot of deal-making being made behind the
scenes. This letter that we saw that was released at 6:00 a.m. this
morning may just be sort of a public indication of some of that behind the
scenes deal-making that we can`t see.
HERERA: All right, Eamon. Thank you so much. Eamon Javers in Washington
for us tonight.
JAVERS: You bet.
HERERA: Still ahead, will Netflix (NASDAQ:NFLX) big investment in original
content pay off for investors when it reports its earnings on Monday?
HERERA: The U.S. government has issued an emergency order that bans all
Samsung Galaxy Note 7 smartphone devices from all flights. And the order
comes as Samsung`s losses continue to mount. Today, the company put a
number on what the discontinuation of its flagship Galaxy Note 7 smartphone
will cost the company. The total? $5.3 billion.
Earlier this week, Samsung slashed its third quarter profit forecast by
more than $2 billion. Today, it forecasts a further hit of more than $3
billion for the six months through March of 2017. Samsung says it has
enough cash from other businesses to absorb the cost of that phone recall.
Netflix (NASDAQ:NFLX) is one of the major earning reports that will be
released on Monday, and investors will be watching to see if its growing
investment in original content is starting to pay off.
Julia Boorstin has more.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Just ahead of its
second earnings report, Netflix (NASDAQ:NFLX) announcing a big deal for
Chris Rock`s next two comedy specials, his first in eight years. They`ll
tape next year following his world tour.
Netflix (NASDAQ:NFLX) reportedly paying $40 million for the two shows,
which analysts Barton Crockett says is likely a record investment in comedy
BARTON CROCKETT, FBR ANALYST: Forty million dollars has to be seen in the
context of the $6 billion Netflix (NASDAQ:NFLX) is spending globally on
content. So, if you`re spending $6 billion on all kinds of shows, maybe it
can throw $40 million to Chris Rock`s way, and is it doesn`t really affect
your P&L and maybe turns out to be a good invest for Netflix (NASDAQ:NFLX).
BOORSTIN: Rock joins a number of critically acclaimed comedians on Netflix
(NASDAQ:NFLX), including Patton Oswalt, Aziz Ansari, and Chelsea Handler.
Furthering its reputation as a destination for comedy, and Netflix`s win is
a loss for rival, HBO, which has a 20-year history with Chris Rock, airing
his talk show and previous comedy specials.
This investment in Chris Rock is part of Netflix`s overall plan to have 50
percent of its content be original programming, as Hollywood Studios looks
to distribute their own content more directly.
CROCKETT: There is definitely this separation that`s happening between
Netflix (NASDAQ:NFLX) and the studios. And I think from Netflix`s
perspective, they`re trying to position as a positive in their evolution,
they`ll have unique content you can`t get elsewhere, and that`s really what
viewers are most interested in now from Netflix (NASDAQ:NFLX).
BOORSTIN: And with Amazon (NASDAQ:AMZN) and Hulu also ramping up
investment and originals, and HBO going direct to consumer, industry
watcher Barry Diller said earlier this week, he still thinks Netflix`s
strategy can pay off.
BARRY DILLER, IAC/INTERACTIVECORP CHAIRMAN: They don`t really make very
much money. But they`re going for a much bigger and so that eventually, it
will work out so that the economics work out. That`s a fantastic model.
They will — they are, quote, “winning”. I can`t see them ever losing.
BOORSTIN: We`ll see money if Netflix`s investment in originals, including
this summer`s hit, “Stranger Things,” helps lift subscriber numbers.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
HERERA: Salesforce says it will not bid for Twitter, and that`s where we
begin tonight`s “Market Focus”.
In an interview with the “Financial Times”, Salesforce CEO Marc Benioff
said that the social media company was not the right fit for the cloud
computing giant. Last week, reports surfaced of several companies dropping
their interest for Twitter, with Salesforce remaining the only potential
suitor. The news sent shares in different directions. Twitter was down 5
percent to $16.88. Salesforce popped 5 percent to $74.27.
Ariad Pharmaceuticals came under pressure after one of its treatments
caught the attention of former presidential candidate Bernie Sanders.
Sanders tweeted, quote, “Drug corporations` greed is unbelievable. Arid
has raised the price of a leukemia drug to almost $199,000 a year,” end
The drug-maker had hyped the price of the cancer medication six times since
2015. Ariad shares plunged nearly 15 percent to $11.14.
Beverage giant, PepsiCo, may be eyeing probiotics drink company KeVita.
“Reuters” says PepsiCo, which already owns a minority stake in KeVita is
nearing a deal to take over the company. A potential deal, which is not
guaranteed, could be finalized this month. PepsiCo shares rose nearly 1
percent to $106.83.
And Hershey says its CEO John Bilbrey will retire from his role at the
chocolate next summer. Bilbrey is expected to stay on as nonexecutive
chairman. Hershey shares were up 78 cents to $96.43.
As earnings picks up, a lot of attention will be paid to the industrial
sector. The group is watched closely because it sells products across a
lot of different industries in a lot of countries. And it is often viewed
as a proxy for the global economy. A handful of large global industrials
report earnings in the coming weeks and have already in some cases issued
Morgan Brennan has tonight`s “Sector Spotlight”.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Honeywell in
particular has been in the spotlight with CEO David Cote appearing on CNBC
Thursday night to elaborate on the company`s lowered sales and profit
DAVID COTE, HONEYWELL CEO: Yes, I wish I included a lot more of this
stuff. I gave credit for people understanding what our long-term profile
was. I was wrong. This is one where I could have done a significantly
better job of communicating this story. And we tried to do it in the
context of 2017 is going to be good. But it seemed to get totally lost.
BRENNAN: Honeywell has blamed a softening business jet market, as well as
oil and gas, which Cote believes bottomed last quarter. And Honeywell is
not alone. Other companies, including Dover (NYSE:DOV) and PPG, have
already lowered their financial targets, citing the weak economic growth in
softness in some of the industries that buy their products including energy
Analysts say the recent round of preannouncements has been extraordinary,
putting aerospace, automotive and construction, all areas of higher growth
for industrial conglomerates into even greater focus and drawing more
questions to the help of the global economy.
STEVEN WINOKER, BERNSTEIN SR. ANALYST: I think the most important thing
for investors to think about as we get into the thick of earnings this
quarter is organic growth, above and beyond and everything else.
A lot of other questions around margin and cash and other areas really flow
from first where is growth coming out. Is it decelerating at a faster
rate, at a slower rate, et cetera?
BRENNAN: Ahead of quarterly results, Bernstein`s Steven Winoker likes
Danaher (NYSE:DHR) and Allegion, and over the longer term, Johnson Controls
(NYSE:JCI) and for investors willing to weather the earnings fallout,
Honeywell. That company and General Electric (NYSE:GE) kick off the
sector`s creative earnings next Friday.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.
HERERA: Our market monitor tonight likes stocks that he says should pose
strong revenue growth and have increased earnings over the next year. The
last time he was on back in November, he recommended GameStop, which is
down 29 percent, JCPenney, which is up 4 percent, and JetBlue, which is
about 28 percent lower.
Joining us is Brian Peery, co-portfolio manager of the Hennessey
Cornerstone Mid-Cap 30 Fund.
Good to see you again, Brian. Welcome back.
BRIAN PEERY, HENNESSY FUNDS CO-PORTFOLIO MANAGER: Hi. Thanks for having
HERERA: Overall, you say there are select opportunities, but “caution”
remains the word of the day. Why caution?
PEERY: Well, I think that we`ve got a market that`s pretty well, fairly
valued. So, I think a lot of the large cap stocks have had some really
great price appreciation, and really have done so on the heels of really
small top line revenue growth. So, I think that there`s still some
opportunities, but you have to be really selective.
I particularly like the mid cap and small cap space. And especially ones
that are more domestically focused, that don`t have kind of — the Europe
or Chinese plays that may cause some problems in the future.
HERERA: OK. Let get right to them, because you gave us three picks that
you like. First, AmTrust Financial. You say they offer insurance on just
PEERY: Yes, they really to. Property, casualty, warranty, extended
service plans, Sue. I mean, they pretty much cover everything. You know,
this is one of those companies that still trades at a really reasonable
multiple at under 10 P/E, pays nearly a 2.5 percent dividend really, you
know, has a history of raising their dividend.
So, it`s an attractive stock, management has done a great job in kind of
keeping the growth going. I think they`ll do well this coming quarter when
they report at the beginning of November. It`s not going to be a home run
stock, for sure. But that`s a stock that we would definite purchase in
HERERA: OK. Next on the list, Dycom special contracting services to wire
line cable and telephone company.
PEERY: Yes, so as you think about the fiber coming to the house, and to
the node and as you have these wireless companies that are expanding their
4G and 5G networks, Dycom is really the service provider that` going to win
in that capability. I think that that`s a nice long-term business model
that looks really, really good. They`ve done a great job of growing
organically, and I think that that`s a trend that`s going to continue for
the next few years.
HERERA: And Lennar (NYSE:LEN) is last on the list in the housing. It`s
probably one of the best-known names to our viewers.
PEERY: Yes, that`s a great company. I mean, they were so smart in
purchasing all this land that — back in the last decline and really have
done a great job managing the business as well. They are so geographically
diverse. They have pretty good concentration in Florida, Texas and
California, which have been some really good growth markets.
But they have a great geographic diversity, really, a great company, and if
you can take kind of a longer-term view, has done a fantastic job managing
their business, and we think that those continue into the next couple
HERERA: All right. Brian, thank you so much for joining us once again.
We appreciate it.
PEERY: Thanks, Sue. Always a pleasure.
HERERA: Brian Peery, with the Hennessy Cornerstone Midcap 30 Fund.
Coming up, headache in the sky. Why complaints were up during one of
busiest months of the year for flying.
HERERA: Here`s a look at what to watch next week. Earnings will be a big
theme, 11 members of the Dow report, including IBM, Goldman Sachs
(NYSE:GS), J&J and McDonald`s (NYSE:MCD). Stanley Fischer, the Fed`s
number two, speaks on the economy and interest rates. And we`ll find out
how fast the world`s second-largest economy is growing when China releases
its third quarter GDP, and that`s what to watch next week.
Two Uber drivers won a legal ruling. They are now considered employees of
the company, making them eligible for unemployment benefits. The ruling
was made by the New York state Department of Labor, but legal experts say
this ruling may not set a precedent, because jobless benefits are
determined at the state level on a case-by-case basis.
Thousands of United Airlines passengers were delayed worldwide thanks to a
computer glitch that halted departures. The issue has since been resolved,
but passengers said they had to wait onboard planes or inside terminals.
This is the third computer glitch to hit United Continental in recent
So, you might not be surprised to hear that airline passenger complaints
were on the rise during part of the summer travel season.
Phil LeBeau has more on the Department of Transportation`s August airline
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: A bit of a mixed bag
for the airline industry in the month of August, one of busiest months of
the year for air travel. The top three airlines for on-time arrivals,
Hawaiian (NASDAQ:HA), followed by Alaska and SkyWest (NASDAQ:SKYW), all
landing more than 80 percent of their flights on time.
On the other end of the spectrum, Frontier had the poorest performance,
landing just 65 percent of its flights on time. They were right behind
Spirit and American Airlines. As for baggage handling, the industry
mishandled just 3.15 bags per 1,000 passengers, an improvement over July.
While the airlines did a better job in terms of landing on time and
handling baggage, there was a surge in the number of complaints from people
flying in August.
Not surprising, given the fact that Delta had a computer outage that caused
nearly 2,000 flights to be scrapped, and because there are more people
flying in August, there tends to be a few more complaints that usually.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
HERERA: That is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
Thanks for watching. Have a wonderful weekend. And we`ll see you back
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