Transcript: Nightly Business Report – June 27, 2017

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue
Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Policy uncertainty. The
Senate delays its vote on the health care bill and stocks immediately
slide.

Record fine. Google (NASDAQ:GOOG) is hit with a multibillion dollar
antitrust bill. Could there be more to come?

Hitting the road. Gas prices are supposed to rise this time of year, but
that`s not happening and there`s reason to believe they could go even
lower.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, June
27th.

Good evening, everyone and welcome. I`m Sue Herera. Tyler Mathisen is on
assignment tonight.

A record fine for Google (NASDAQ:GOOG). We`ll have more on that in just a
moment.

But we begin tonight with the market and the swift reaction on Wall Street
to news that the vote on the Senate health care bill will be delayed.
Leadership had been pushing for a vote ahead of the July 4th recess, but
now, that`s going to take place after that.

The president called Senate Republicans to the White House for a meeting
this afternoon as Majority Leader Mitch McConnell said extra time is needed
to get more support for the bill.

(BEGIN VIDEO CLIP)

SEN. MITCH MCCONNELL (R), KENTUCKY: We`re going to continue the
discussions within our conference, on the differences that we have that
we`re continuing to try to litigate. Consequently, we will not be on the
bill this week, but we`re still work toward getting at least 50 people in a
comfortable place.

(END VIDEO CLIP)

HERERA: Stocks dipped midday and stayed lower. The Dow Jones Industrial
Average fell 98 points to 2310, the Nasdaq was off 100, and S&P500 fell 19.

The European Union has slapped Alphabet`s Google (NASDAQ:GOOG) unit with a
record fine, more than two and a half billion dollars. The regulators
alleged that Google (NASDAQ:GOOG) is taking advantage of its dominance in
online searches to direct customers to its online shopping business.
Shares of Alphabet fell more than 2 percent, and if Google (NASDAQ:GOOG)
doesn`t stop the practice within 90 days, it will have to pay even more.

(BEGIN VIDEOTAPE)

HERERA (voice-over): Google`s don`t be evil culture is far from its
practice. According to the European Union, which announced its biggest
ever fine, more than $2.7 billion. A possible warning shot to the world`s
biggest tech companies.

The E.U. says Google (NASDAQ:GOOG) abused its position at the dominant
search engine, giving its own shopping service top billing in search
result, while relegating competitors to far less valuable real estate down
the list.

MARGRETHE VESTAGER, EUROPEAN COMMISSIONER FOR COMPETITION: They`ve used
this dominance to promote themselves and demote rivals.

HERERA: Google (NASDAQ:GOOG) considering an appeal, says competitor sites
are not harmed by its practices, claiming shoppers, quote, prefer links
that take them directly to the products they want, not to Web sites where
they have to repeat their searches, end quote.

The E.U. is basing its case on research using more than 1.5 billion
searches. It says Google (NASDAQ:GOOG) began to give an advantage to its
own service back in 2008. And since then, traffic on Google (NASDAQ:GOOG)
shopping spiked 45 times higher in the U.K., 35 times higher in Germany and
rose by factors of 29 in the Netherlands, and 19 in France.

The E.U. blames Google (NASDAQ:GOOG) for corresponding traffic drops to
certain sites, down as much as 92 percent in Germany, 85 percent in the
U.K., and 85 percent in France.

Alphabet`s E.U. problem won`t end with the fine. Separate E.U.
investigations are continuing into alleged abuses involving Google`s
Android operating system, its ad sales business, the way it handles local
travel and map searches, and how it uses copyrighted material. The E.U.
has battled the U.S. high-tech complex before. Its previous record fine
was handed down to Intel (NASDAQ:INTC) in 2009, almost one and a half
billion dollars, and a series of Microsoft (NASDAQ:MSFT) fines totaling
more than two billion began in 2004.

Today`s fine means dominant tech players like Amazon (NASDAQ:AMZN),
Facebook (NASDAQ:FB) and others will be watching to see whether Alphabet
fights the fine and what changes the E.U. can force on Google
(NASDAQ:GOOG).

(END VIDEOTAPE)

HERERA: So, let`s turn now to Timothy Lesko to talk more about how
Google`s record fine might affect other big U.S. tech companies that do
business in the European Union. He is the portfolio manager at Granite
Investment Advisers.

Welcome. It`s nice to have you here.

TIMOTHY LESKO, PORTFOLIO MANAGER, GRANITE INVESTMENT ADVISER: Thanks for
having me.

HERERA: So, Tim, this is being called by some, a precedent-setting event
and fine by the E.U. Would you agree with that?

LESKO: Oh, I would argue that perhaps the precedent for the E.U. fining
U.S.-based technology companies for their sales practices may have started
with Microsoft (NASDAQ:MSFT). But the technology we`re talking at now is
far different from the bundling of Internet Explorer a few decades ago.
So, maybe it`s precedent-setting in a world of big data, but there are —
there are a lot of interesting side currents going on in the use of big
data and search.

HERERA: Is it that the E.U. opposes the bundle or is it that the E.U. is
looking down the line at some of the now voice activated technologies that
also might put some of their companies at a disadvantage?

LESKO: Well, I think you hit the nail on the head and when you search
Google (NASDAQ:GOOG), it`s not a surprise to many, at least here, that when
you search certain site, you`re probably going to get their stuff first.

The European Union has long had a very hot button for anticompetitive
behavior. Where we here in the States, you know, keep an eye on
anticompetitive behaviors, but you`re dealing in a marketplace that has
continued to see drill prices down rather than up. So, rather than
monopolistic tendencies, it`s more anticompetitive tendencies. And I think
the E.U. will continue to take a hard look at all companies.

I don`t think they`re focusing on the U.S. particularly. We just happen to
be one of the better exporters of technology.

HERERA: Now, for Alphabet, this is not — even though it`s a big monetary
amount, for Alphabet, it is not, when you compare what they are actually
worth.

But what about for other companies? What about for a Microsoft
(NASDAQ:MSFT), for an Apple (NASDAQ:AAPL) and other tech companies that do
business or want to do business in the E.U.?

LESKO: Well, I think, well, Apple (NASDAQ:AAPL) just went through its own
slate with some tax issues in the European Union. I think you have a
situation where all of these companies are very, very large, so $2.7
billion fine for Google (NASDAQ:GOOG) whereas the headline, it looks huge.
The more difficulty would come from them is what kind of business practices
this forces them to change.

In Google (NASDAQ:GOOG), essentially, the product is the consumer, not what
Google (NASDAQ:GOOG) is really selling. So, I think what they`re really
trying to hit off in the European Union is Google (NASDAQ:GOOG) using your
data, whether it`d be your search data, your personal data or any date that
you entered into your device, whether it`d be a computer or a mobile
device, isn`t used for other purposes. And I think that`s always been a
dividing line between companies like Google (NASDAQ:GOOG) and Apple
(NASDAQ:AAPL), where Apple (NASDAQ:AAPL) actually charges you more for the
device and does not sell your data.

HERERA: Tim, thank you so much. Timothy Lesko with Granite —

LESKO: Thank you for having me.

HERERA: — Investment Advisors.

The president of the European Central Bank make some upbeat comments on
that region`s economy, saying the European economy is strengthening and
that inflation is eventually coming.

(BEGIN VIDEO CLIP)

MARIO DRAGHI, ECB PRESIDENT: All the signs now point to a strengthening
and broadening the recovery in the Euro area. Deflationary forces have
been replaced by reflationary ones. While there are still factors that are
weighing on the path of inflation, at present, there are mainly temporary
factors that typically, the Central Bank can look through.

(END VIDEO CLIP)

HERERA: And it was that word “reflation” that got the attention of
the bond market both in Europe and here in the U.S., causing yields to move
higher.

The International Monetary Fund is cutting its outlook for the U.S.
economy. The fund cited broad uncertainty on fiscal policy, including the
president`s plan to cut taxes and increase infrastructure spending. The
IMF also said the downgrade was due to an ageing American population, low
productivity growth and a labor market already back at full employment.

Consumers grew more confident in June. According to the Conference Board,
Americans expect the economy to continue expanding in the coming months,
but they do not foresee the pace of growth accelerating. And in theory,
the better people feel, the more they spend, and consumer spending maybes
up a large chunk of economic activity.

Well, the red hot housing market may be starting to cool a bit. A new
report today shows that prices are still climbing compared to a year ago,
but the pace of the gains appears to be slowing a bit, and that has many
asking if the run up in prices is sustainable.

Diana Olick takes a look.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The latest gains on
the S&P Case-Shiller Home Price Index hit a new high, but were slightly
smaller than expected. The national index rose 5.5 percent year over year
in April, down from 5.6 percent in March.

But here`s the perspective. These are prices that were recorded on closed
sales in April, so sales that were negotiated in February and March. Since
then, the supply situation has only gotten worse due to higher demand in
the spring market. Seattle, Portland and Dallas reported the highest
annual gains in prices and seven cities had bigger annual increases in
April than in March.

S&P`s David Blitzer raised the question in his release of a potential
bubble or crash. But then he knocked it down, saying that demand and
employment still support the prices for now.

We`re also not seeing the kind of housing boom at all that we saw in the
last decade.

Professor Robert Shiller told me he does not believe home prices are too
high. In fact, he shows that adjusted for inflation, they`re actually
below the peak of the last housing boom.

Still, again, these prices are a bit old. A new demand index from
Redfin reached another record high in May with 9 percent more buyers
requesting home tours and an even bigger jump in the number of buyers
writing offers.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick, in Washington.

(END VIDEOTAPE)

HERERA: Coming up, vicious virus. Companies worldwide were victim of a
new cyber attack and it seemed to spread quickly.

(MUSIC)

HERERA: A global cyber attack today hit companies and governments across
the globe. Computer systems in Europe, Russia and the U.S. were all
struck, leaving questions and chaos in its wake.

Eamon Javers has the details.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Trump
administration offering support today as this sweeping global cyber attack
continues to affect companies around the world.

Take a look at a list here of all of the different countries where
companies and entities have reported that they`ve been victims of
cyberattack, including in the Ukraine, a number of different companies and
government entities. In Russia as well, a state owned oil firm Rosneft.
In the U.K., WPP (NASDAQ:WPPGY) Advertising and DLA Piper, the law firm,
said they were hit. In the United States, Merck (NYSE:MRK), the
pharmaceutical company. In France and in Denmark, also, companies
reporting they had been hit by this cyberattack.

Here`s what the Department of Homeland Security had to say. They said
they`re monitoring reports of cyberattacks affecting multiple global
entities, and coordinating with our international and domestic cyber
partners. We stand ready to support any requests for assistance. Upon
request, DHS routinely provides technical analysis and support.
Information shared with DHS is part of these efforts, including whether a
request has been made is confidential.

So, the U.S. government offering its support here, but one of the
problems that tends to come up in a cyber attack like this in the case of
ransomware the hackers lock down the data or steal the data and demand
payment in order to get it back is that companies often do end up paying.
That`s why ransomware continues to exist.

If companies didn`t pay, there would be no ransomware. Clearly,
someone is paying and that`s often because companies view that data as so
important to their ongoing operations and so expensive to replicate that
they think paying the hackers is a better deal than losing the data. That
goes against advice from cybersecurity professionals, but, of course, those
professionals aren`t the same people who were tasked with running
businesses.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers at the White House.

(END VIDEOTAPE)

HERERA: So, how damaging is this latest cyberattack to U.S. corporations
and can they protect themselves from future attacks?

Leo Taddeo is the chief security office at the data center firm Cyxtera
Technologies, and a former FBI agent in charge of the cybersecurity
operations division in New York.

Welcome, Leo. Nice to have you here!

LEO TADDEO, CHIEF SECURITY OFFICE, CYXTERA TECHNOLOGIES: Thank you, Sue.
Thanks for having me.

HERERA: What is your perspective on that latest attack? It certainly was
wide-ranging. It was global. And I found it interesting that it wasn`t
one specific type of company or area of company. It was all sorts of
different corporations.

TADDEO: Right, so the reports on the number of victims, different types of
victims and different geographic locations point out that the perpetrators
may not have understood the exact consequences of unleashing a cyber tool
that was reportedly developed for offensive purposes.

So, what we have is the unintended consequences it appears of the
perpetrators in this case releasing something that they didn`t fully
understand.

HERERA: How prepared do you think most — and I know this is a tough
question to answer — most U.S. corporations are for this type of an
attack?

TADDEO: I think most large U.S. corporations have increased their
capability to defend against this attack. The problem that large
corporations have is they don`t have absolute control over every part of
their infrastructure.

So, despite very robust attempts to protect their infrastructure and large
spending on this problem, there remain pockets of weakness and ferreting
out those pockets of weakness to identify where the security controls need
to go is a significant challenge for U.S. corporations.

HERERA: And I see, you made a point in my notes here, that we also have
seen mergers where companies buy other companies and you inherit the
company that you bought, and their security methodology.

TADDEO: Right. So, certainly, the acquisition of a company or a set of
infrastructure from a company introduces new risk. Connecting to something
that`s not fully understood certainly presents a challenge. And this goes
for our partners as well. So, we have third party vendors that we connect
to and that we allow to connect to our networks, and we basically inherit
large part of the risk that they are facing as well.

HERERA: What about Eamon Javers` point at the end of his report about
paying ransom. Is it a good idea to do it? He made the point that
gathering this data or replicating the data that these large corporations
have is incredibly expensive, if they can even do it quickly enough. So,
they pay the ransom.

Good idea or not?

TADDEO: Well, a company has to make that decision based on the best
interests of operations.

The general advice from the FBI and other law enforcement agencies is not
to pay ransom because it funds further activity, and further research and
development. It allows these criminals to perfect the tools that they
deploy against us. So, the general advice is not to pay.

But each business has to face that decision on its own. And certainly, if
it`s a decision between operating and not operating, the business will make
the practical choice to pay the ransom.

HERERA: Leo, thank you so much. Leo Taddeo —

TADDEO: Thank you, Sue. Thank you.

HERERA: — with Cyxtera.

Darden restaurants hikes dividend and that`s where we begin tonight`s
“Market Focus”.

The parent of Olive Garden said it would raise its quarterly dividend 12-
1/2 percent to 63 cents a share. This follows the company reporting better
than expected revenue which was helped by stronger same store sales.
Profit also topped expectations and shares rose nearly 3 percent to $92.69.

Sprint is reportedly in talks with cable providers Charter Communications
(NASDAQ:CHTR) and Comcast (NASDAQ:CMCSA) (NYSE:CCS) regarding a potential
wireless partnership. According to reports, Sprint has put the brakes on
merger talks with rival T-Mobile as it continues a two-month long period of
negotiations with Charter and Comcast (NASDAQ:CMCSA) (NYSE:CCS). Sprint
shares were up 2 percent to $8.18. Shares of Charter communications were
lower as were Comcast (NASDAQ:CMCSA) (NYSE:CCS), which is the parent
company of CNBC, which produces this program.

Merck (NYSE:MRK) said its cholesterol drug during a trial significantly
lowered the risk of heart attack and death in patients who have a high risk
of cardiovascular issues. Despite the upbeat results though, Merck
(NYSE:MRK) said it`s still considering whether it will file for regulatory
approval. Its first plans to review the data with experts. Shares fell
just a fraction to $65.54.

And KB Holmes reporting a rise in sales that topped estimates. The
homebuilder cited higher average selling prices and a rise in deliveries.
Profit was also a beat and the company said it was raising its financial
targets for the full year. Shares initially rose in after-hours trading
and also ended the regular session just slightly higher to $22.82.

Are you getting away this weekend? Well, if you are, and it`s by car, you
could be in for a treat when you go to fill up. According to GasBuddy, for
the first time in 17 years, gas prices will be lower on the Fourth of July
than they were on New Year`s Day. And that`s a dramatic turn around from
previous estimates.

Jackie DeAngelis explains why and if prices might go even lower.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: For drivers, this
could be a summer to remember. Gas prices are at record lows. Just in
time for the holiday weekend. Consider the peeks of the summer driving
season.

The national average for a gallon of regular gas is $2.25. That`s down 12
cents from a month ago and 6 cents lower than it was at this time last
year. The decline at the pump coming after crude shed 20 percent of its
price in the first half of the year.

SCOTT NATIONS, CIO, NATIONSHARES: Since the beginning of the year, crude
oil prices are down just over 17 percent. Gasoline prices down just less
than 12 percent, what that means is that refiners have been fattening up
their margins, but we know that gasoline is down quite a bit and it`s all
to do with crude oil.

DEANGELIS: And experts say gas prices could drop even further.
Seasonally, this is when demand is strong and the autumn is when we see it
all off. If prices do fall from already depressed levels, it could mean
that crude could see the 30s even the 20s again.

NATIONS: This will be the first time that gasoline prices on the Fourth of
July are lower than they were on New Year`s since 2001. And so, we know
that gasoline prices are low. If you`re waiting for them to go much lower
before you fill the tank, I`m not certain I`d do that.

HERERA: While consumers can take advantage of cheaper gas, investors may
also have less to worry about. Some analysts say that lower crude prices
might not be a drag on the broader stock market. They have in the past.
That`s because big oil is doing better at managing this environment and
companies that use oil will do better as they save on a key cost.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

HERERA: Coming up, one state, two labor issues. We`ll take a trip to
California where tensions are rising.

(MUSIC)

HERERA: Just one day after an activist investor took a stake in Nestle,
the company announced plans to buy back as much as $20 billion worth of
shares over three years. Nestle will also focused its investment spending
on its high growth food and beverage business like coffee and bottled
water. Nestle says the plan is the result of a review that began earlier
this year. It did not mention the activist`s stake in its statement.

Well, the writers strike didn`t happen, but there is a chance an actors
strike might. The deadline is Friday and Hollywood could be bracing for a
major work stoppage.

Julia Boorstin has more from Los Angeles.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Action!

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Hollywood Studios are on alert after they narrowly avoided a writers strike
that could have crippled the entertainment industry. Now, the Screen
Actors Guild is inching closer to a potential strike after their contract
with media companies expires Friday night.

The guild SAG-AFTRA is asking its 160,000 members working in television and
film to authorize the strike, as it seeks to increase payment as the rise
of shows on Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) result in
shorter seasons and lower long-term compensation.

JONATHAN HANDEL, ENTERTAINMENT ATTORNEY: Actors, writers, directors get
what are called residuals, royalties when shows are rerun or reused. And
one of the concerns the actors have is, are those residuals, those
royalties, going to be sufficient in the era of Netflix (NASDAQ:NFLX)? The
formulas are different than what they were used to with network television.

BOORSTIN: The Guild writing in a letter to members, quote: We have
presented reasonable proposals to address the critical concerns facing our
members and that are integral to making a living in this industry.

(on camera): We reached out studios to the AMPTP, the alliance of studios,
which said it`s immediate blackout if negotiations continue. And
negotiations could continue past the deadline as both sides look to avoid a
strike, they could see actors walk off movie and TV sets.

UNIDENTIFIED MALE: Done!

BOORSTIN (voice-over): A work stoppage would have an immediate effect on
media companies such as CBS (NYSE:CBS), Fox, Disney (NYSE:DIS) and Comcast
(NASDAQ:CMCSA) (NYSE:CCS).

Entertainment attorney Jonathan Handel estimates a strike could cost the
industry and the local economy around $200 million a week.

HANDEL: In terms of the effect on the fall season, the broadcast season,
that`s the big question. If the strike started, it would probably be
around July 15th and you can`t go too many weeks after that without
starting to delay the full season.

BOORSTIN: While streaming services would see their show production
disrupted by a strike, their deep libraries of older content could find new
viewers if television shows are delayed on the networks

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

(END VIDEOTAPE)

HERERA: That potential strike isn`t California`s only labor issue. The
Supreme Court decision to allow President Trump`s travel ban to take
limited effect throws yet another ingredient into the debate about
immigration and its impact on business and jobs. Also in the mix, the
administration`s renewed focus on visas for tech workers, and nowhere are
they feeling it more than in Silicon Valley, where Scott Cohn is reporting
for us tonight.

(BEGIN VIDEOTAPE)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): For
Dilawar Said, this is personal.

DILAWAR SYED, PRESIDENT, FRESHOWRKS: I am spent almost a decade if not
more in the early part of my career going through various immigration
statuses and I saw firsthand the challenges, the pitfalls of our broken
system.

COHN: Today, Syed is a citizen and president of Freshworks, a software
company with 1,000 employees and a hundred 100,000 customers worldwide.
And he says he couldn`t do it without foreign workers.

SYED: It comes in the way of your ability to fill critical roles, for you
to be able to grow the business, so you could launch new products.

COHN: Silicon Valley and California in general is one of the biggest users
of so-called H-1B visas, a program to let companies specialized hire
workers from overseas. Also big users, New Jersey, Massachusetts and
Delaware.

(on camera): At a time when as many half as half of employers nationwide
and here in Silicon Valley are having trouble filling skilled positions,
companies are aggressively using foreign workers to fill the gap, but the
Trump administration has other ideas.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: From this day forward, it`s
going to be only America first.

COHN: The entire H-1B program is under review. Also apparently out, a
visa program tailored for startups. For the first time in years, the
volume of H-1B applications is down.

At the biggest incubator firm in Silicon, Y Combinator, they`re worried.

MICHAEL SEIBEL, Y COMBINATOR PARTNER: That`s a very delicate ecosystem
that creates all of these big companies that employs all of these people in
America. You start changing and negatively impacting immigration laws,
it`s very easy to change the environment here and destroy it.

COHN: But the former congressman who wrote the H-1B visa law says
companies are misusing the system, hiring cheaper workers at the expense of
Americans.

BRUCE A. MORRISON, CHAIRMAN, MORRISON PUBLIC AFFARIS GROUP: Unfortunately,
there`s a lot of double talk on this. Everybody wants to see our economy
grow. Part of having the economy grow is getting the immigration system
right without competing unfairly with Americans.

COHN: Even in Silicon Valley, most agree the system needs fixing because
one of the things these companies need most is brain power. If they can`t
get it here, they`ll get it somewhere.

For NIGHTLY BUSINESS REPORT, I`m Scott Cohn in San Jose, California.

(END VIDEOTAPE)

HERERA: And finally tonight, a birthday celebration. The world`s very
first ATM located at a Barclays branch in England turned 50 today. Since
its inception in 1967, the machine`s popularity has grown exponentially,
becoming an indispensable part of daily life. There are now 3 million ATMs
located around the world.

Can`t believe it`s 50.

That is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for
joining us. Have a great evening and we will see you right back here
tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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Media, 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) 2017 CNBC, Inc.

 

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