Transcript: Nightly Business Report – April 12, 2018

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue
Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Here come the earnings.
Stocks soar ahead of profit reporting season and it could be result from
the big banks that push the markets even higher.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Return of subprime? Those
alones disappeared after the financial crisis but now they`re back with a
new name and soaring depended.

HERERA: Let`s go shopping. Nordstrom`s opening stores while other
retailers are closing them and the company needs this strategy to succeed.

Those stories and more on NIGHTLY BUSINESS REPORT for Thursday, April 12th.

GRIFFETH: And we do bid you a good evening, everybody.

Another day, another triple digit move in the Dow. This time to the upside
as tensions between the United States and Syria ease. The cooling off
today of geopolitical tensions allowed investors to focus back on market
fundamentals and the beginning of earning season which gets under way
tomorrow.

Today, the Dow rose by 293 points, back above 24,000. The NASDAQ added 71.
The S&P was up 21 today.

HERERA: The financial sector helped list the broader market and that`s key
because some of the biggest names in the industry report their quarterly
earnings tomorrow and expectations are high.

Bob Pisani reports tonight from the New York Stock Exchange.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks were in rally
mode more than erasing yesterday`s losses after President Donald Trump
tweeted that a missile attack on Syria may not be imminent after all. Now,
a trade war fears and geo politics brushed aside, at least for the moment,
investors are eager to move on and shift their focus back to earnings and
the fundamentals. Analysts are expecting a spectacular earnings season.
That would mark the best growth for the S&P 500 in seven years.

Now, we`re waiting on the big bank to kick things off tomorrow starting
with JPMorgan (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC).
Bank earnings would be crucial to watch since financials are expected to be
one of the biggest contributors to earnings growth. There are about 15
percent of the total market capitalization the S&P 500, that`s the second
biggest group after technology.

So, they`re fairly high expectations for banks due to a combination of
positive factors. We have higher interest rate. That`s a big help for
banks. We have lower taxes. We have higher volatility that should result
in more trading posts at the biggest banks and we`ve got less regulation.

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

(END VIDEOTAPE)

GRIFFETH: Sandip Bhagat, he joins us now to talk more about what to expect
as the first quarter earnings get under way, he is chief investment officer
at Whittier Trust.

Good to see you, Sandip. Thanks for joining us tonight.

SANDIP BHAGAT, WHITTIER TRUST CIO: Glad to be here.

GRIFFETH: We talk about how high expectations are. Is it warranted this
time around do you think?

BHAGAT: I think so. Look, we were in the middle of an earnings recession
not too long ago. We have come out of that very nicely. We have
synchronized global growth, corporate profits are rising. Not a single
quarter this year is expected to produce earnings growth of less than 17 or
18 percent.

So, there is actually a lot to like about this upcoming earnings season,
and looking ahead to the rest of the year.

HERERA: So, let`s take a look if we could at who are going to be the
winners in terms of sectors and who might be the losers.

Let`s start with the good news, the winners.

BHAGAT: Look, let be careful about paying too much attention to a single
quarter, but as it stands right now consensus expectations call for the
very cyclical energy and materials sectors to be the winner. These
experience earnings growth of at significant levels, 70 percent, 40
percent. Keep in mind, they`re coming off of depressed levels. Rounding
out the list of winners are some more cyclical sectors, technology,
financials, industrials.

And I`m afraid the laggards are your more defensive sectors, utility and
consumers people are likely to produce less stellar growth in this first
quarter.

GRIFFETH: And consumer discretionary and healthcare. But retail has done
pretty well here lately. Why do you think the consumer will lag a bit
here?

BHAGAT: Yes. So this is where the vagary of a single quarter data point
comes into play. This is simply a comparison from earnings from a year
ago. For the full year, consumer discretionary stocks, that whole sector
is expected to have earnings growth at a healthy 15 percent or 16 percent
very close to the market expectation. So, I would just point that out.

Wages are going up. Remember that created the specter of inflation, but
the flip side to that is disposal incomes are going up and that should help
consumer spending.

HERERA: I tend to be a worrier, so what I worry about is that we`ve been
hearing that these earnings are going to be very good this time around.
But how much of that is already in some of those sectors and some of those
specific names?

BHAGAT: Sue, look, we`re right on the cusp of the reporting season and the
market`s job is to anticipate these good six or 12 ahead in advance. So, a
lot of the market rally in late 2017 was pricing in these expectations. To
state the profoundly obvious, the only thing missing from these
expectations are the unexpected, the so-called surprises we will see. But
going beyond the first quarter, a lot of good news may have been priced in
for 2018. But I`m not sure if the market has started to focus on 2019.

There is so much worry that this is as good as it gets, that we are at the
peak of the earnings cycle, suggesting that earnings will now begin to go
down and I don`t think that is the case.

GRIFFETH: Let`s take a moment and focus on the big group tomorrow, of
course, that may be the most anticipated of the bank`s financial that Wall
Street watches here. Should Sue be worried about them as well?

BHAGAT: I think the banks will do fine. Look, we have fretted and worried
about the higher level of will volatility. Of course, it creates an
opportunity for the banks to register higher revenues from trading
activity.

At some point of a yield curve, the difference between long-term and short-
term interest rates will normalize. It has been depressed by low, non-U.S.
interest rates. That evolution will help bank earnings. So, financials
are actually one of the most attractive sectors in the market that we see
for the next 12, 18, 24 months.

GRIFFETH: All right. Sandip Bhagat with Whittier Trust, good to see you.
Thanks for joining us tonight.

BHAGAT: Pleasure.

HERERA: General Electric (NYSE:GE) is reportedly considering a public
offering or a spin-off of its transportation business. According to “The
Wall Street Journal,” GE has been examining different scenarios for the
division. Such a move would be part of a bigger restructuring at the
company which has seen its stock fall about 25 percent this year alone.

In an interview with CNBC, CEO John Flannery discussed GE`s road ahead.
And Morgan Brennan has more.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: General Electric
(NYSE:GE) CEO and Chairman John Flannery once again reiterating his
strategy to turn around the struggling industrial company.

JOHN FLANNERY, GENERAL ELECTRIC CEO: We know we have great franchises. We
know we can run them better. All this takes cash, capital. So, there`s a
nucleus of strength and improvement that we see right in front of us. I`m
also convince that we`re — it`s just too many things at once.

My core responsibility is to make sure those businesses flourish in the
future, for the employees, for the customers, for investors. And in that
context, I`m open to any way I can make that happen.

BRENNAN: But it`s still a strategy without many details. Also, not
exactly ruling out the possibility of a broader breakup. Even though G.E.
also does a lot of business and manufacturing in China, Flannery is not
worried about a trade war between the U.S. and that country.

FLANNERY: I think, fundamentally, you know, my belief is over time, people
are rational about what is in their collective best interest. So, when I
look at that I say, this will sort out over time in a sensible way for both
parties, so will there be a lot of noise? Will there be a lot of, you
know, maybe drama along the way? Probably.

BRENNAN: G.E.`s chief executive who`s been at the helm since August
addressed the challenge of keeping good people on board, even as steep
costs cuts have resulted in tens of thousands of layoffs.

FLANNERY: Anytime you`re in a situation like this where`s there`s, you
know, stresses, change, pressure, there is — there`s an element of that
population that really rises up and says, hey, I love being in this right
now. This is like an amazing opportunity. I can help reshape an iconic
company. I can help, you know, be part of a turnaround. That is an
incredibly motivating force to people.

BRENNAN: All this has investors await restated financial results for the
past two years, thanks to new accounting rules and then first quarter
earnings which are due out next Friday, followed by a shareholder meeting
at the end of the month.

Meantime, given all of the uncertainty around the company, the stock is
down another 25 percent this year and more than 50 percent over the past 12
months.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

GRIFFETH: Elsewhere, the World Trade Organization is warning global
leaders that a trade war would damage the worldwide economy. In a new
report, the body says that the current state of trade is the strongest it
has been since before the financial crisis, but it could falter if trade
tensions escalate further. The director general of the WTO said the trade
retaliation is the last thing the world economy needs right now.

HERERA: President Trump has instructed top administration officials to
explore reentering the Trans Pacific Partnership trade pact. He pulled out
of that pact, you might recall last year. Following a meeting at the White
House, Republican Senator Ben Sasse says the 12-nation free trade deal
would be the best way to counter alleged Chinese trade abuses.

(BEGIN VIDEO CLIP)

SEN. BENJAMIN SASSE (R), NEBRASKA: Definitely the big headline coming out
of this meeting is that the president said he was deputizing Larry Kudlow
and Ambassador Lighthizer to look at reentering the TPP negotiations.

(END VIDEO CLIP)

HERERA: In an interview with CNBC back in January, President Trump said he
would reconsider the Pacific trade deal if it were, quote, substantially
better.

GRIFFETH: Well, the threat of terrorists from the U.S., of course, is
sending a chill through some of China`s businesses, including high tech
ones with global ambitions.

Eunice Yoon is in Dongguan, China, tonight for us.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The inventor of this
underwater drone never thought it would be in the crosshairs of President
Trump. Chinese start-up Qysea makes drones for drivers and companies who
might need to film underwater. Founder Belinda Zhang had expected to ship
her drones to the U.S. in June but now she`s uncertain after President
Trump announced tariffs targeting China`s high tech goods.

BELINDA ZHANG, QYSEA FOUNDER: Of course, for us, we do not think it`s fair
because we can provide good product with a low price.

YOON: We`re in manufacturing south, what`s known as China`s workshop of
the world. But as the economy here advances, the country wants to move
away from making toys and shoes and into higher tech products like drones.

To do that, China has an official program called Made in China 2025,
supporting certain technologies like drones, electric vehicles and
artificial intelligence. The Trump administration believes it`s an unfair
attempt to promote Chinese high tech with the help of the state.

Shenzhen-based start-up received around $63,000 from the government which
it spent on R&D, less than 2 percent of all the financing it raised. Zhang
unsure if her drones end up on Trump`s final list, but she is sure China
will continue pursuing its own policy.

ZHANG: For the whole industrial investment, I think it`s a good thing. If
we gather more support from the government, and we can have this technology
development very fast.

YOON: Exactly what the Trump administration fears is harming America`s
competitiveness.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Dongguan, China.

(END VIDEOTAPE)

HERERA: It is time to take a look at some of today`s upgrades and
downgrades.

Mylan`s rating was raised to outperform from market perform at Leerink.
The analyst their cites the generic drug maker`s diversified business model
and its ability to grow profit and sales over the next several years. The
price target is $52. Shares of Mylan (NASDAQ:MYL) rose 2 percent today to
$41.26.

Citi cut its price target on Bristol-Myers Squibb (NYSE:BMY) to $70 from
$78. After a meeting with Pfizer`s management, the analyst says Pfizer
(NYSE:PFE) has no interest in acquiring Bristol or entering into any other
large scale deal. The rating on Bristol remains a buy. The stock fell 2
percent to $58.84.

GRIFFETH: Bed, Bath & Beyond saw its price target cut by at least eight
firms following that disappointing earnings report we told you about last
night. One of those firms is KeyBanc, which now has a price target of $16
on the stock, one of the lowest on the street. The analyst there says
increased competition will lead to even more pain for the retailer. Shares
declined nearly 20 percent today to $17.21.

And Puma Biotech also saw its rating cut to equal weight from overweight
this time at Barclays. The analyst says at much of what has driven that
stock is now priced in. Price target cut to $70. That`s the lowest price
target on the street as well, despite the downgrade though, shares rose by
1 percent to $67.10.

GRIFFETH: Still ahead, remember subprime loans? Well, they helped fuel
the financial crisis, so why are high risk mortgages making a return?

(MUSIC)

GRIFFETH: The number of American`s filing new claims for unemployment has
now been at a record low, for a record amount of time that is. Jobless
claims decreased by 9,000 to a seasonally adjusted 233,000 in the most
recent week. Claims have now been below the 300,000 mark for 162
consecutive weeks, the longest stretch on record.

HERERA: Mortgage rates were undeterred by some of the recent moves in the
bond market, according to Freddie Mac, the average 30-year fixed rate rose
just slightly to 4.42 percent. That gives buyers a little bit of breathing
room during what`s expected to be a competitive spring selling season.

GRIFFETH: So you remember subprime mortgages? They were those faulty
loans made to borrowers with low credit and high debt, and they in part
brought down the housing and financial markets a decade ago. And now,
they`re back.

And as Diana Olick reports for us, there`s high demand for them from both
borrowers and investors.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Subprime, just the
word conjures up these images. They disappeared following the financial
crisis but now lenders are dipping back in. Just don`t call them subprime,
call them nonprime.

RICK SHARGA, CARRINGTON MORTGAGE SERVICES: We`re not going back to the bad
old days of ninja lending when people with no jobs, no income and no assets
were getting loans. That was just crazy and it was layering risk upon
risk.

OLICK: Now, Carrington Mortgage, a midsize lender that mostly does FHA
loans is expanding into the nonprime space, focusing on the estimated 20
percent of Americans who have FICO credit scores below 600. Carrington
accept borrowers with credit scores as low as 500. Today`s average
borrower is in the mid-700s. Recent credit events like a foreclosure or
bankruptcy are OK, as is a history of late payments, loans up to $1.5
million and cash out up to half a million dollars. Self-employed borrowers
can use bank statements to verify income instead of tax documents.

Carrington says there is big demand from both borrowers and investors.

SHARGA: We`re going to keep some of the loans on our books, but we`re also
going to securitize some of the loans. We believe there`s actually a
market today in the secondary market for people who want to buy nonprime
loans that have been properly underwritten.

OLICK: Properly underwritten, that`s the key to watch. Carrington claims
it will manually underwrite each alone to account for individual risk. So,
if you`re higher risk, you might have to have a higher down payment or more
cash reserves. Your interest rate will be higher.

But is that enough?

MARCUS STANLEY, AMERICANS FOR FINANCIAL REFORM: If we see regulators ease
up and loosen the rules as actually we`ve been seeing since this
administration came in, and if folks in the market haven`t learned the
lessons from the last crisis, then that could be an issue.

OLICK: And if lenders and borrowers alike look at today`s fast rising home
prices and forget that prices can fall too, that could be a costly issue as
well.

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

(END VIDEOTAPE)

GRIFFETH: And to read more about these nonprime mortgages, you can go to
our Website at the NBR.com — Sue.

HERERA: Bill, an influx of investor cash help the results over at
Blackrock, and that is where we begin tonight`s “Market Focus”. During a
period with increased market volatility, the world`s largest money manager
delivered earnings that top estimates as total assets under management saw
an uptick to more than $6 trillion. A new lower tax rate helped results as
well as did a scramble by investors to rebalance their portfolios.

(BEGIN VIDEO CLIP)

LARRY FINK, BLACKROCK CEO: You saw huge inflows and huge outflows. We had
one client who sold a big pool of money for an M&A transaction. We had
other clients were selling assets to — for more CapEx. It was a
combination of everything but nevertheless we did see consistent interest.
We`re seeing more and more interest in global investing.

(END VIDEO CLIP)

HERERA: Shares of Blackrock climbed about 1.5 percent to $533.01.

Delta Airlines (NYSE:DAL) reported higher than expected earnings and
revenue even as higher fuel and labor costs impacted its results. The
airline CEO was pleased with the performance.

(BEGIN VIDEO CLIP)

EDWARD BASTIAN, DELTA CEO: We had a great first quarter in terms of
demand. Record revenues for Delta up 8 percent, top line, driven
interestingly not just on the domestic system but for the first time in
several years internationally. In fact, our international revenues
outpaced our domestic revenues in terms of growth. Really strong quarter
and it gives us some good momentum going into the second quarter.

(END VIDEO CLIP)

HERERA: Delta shares finished higher by nearly 3 percent to $52.98.

Rite-Aid`s results were in line with Wall Street`s estimates, but its
upbeat forecast is what investors hang on to. The pharmacy chain said its
merger with Walgreens help increase earnings and sales for the year.
Shares of Rite-Aid were off a fraction to $1.63.

Bill?

GRIFFETH: Sue, GoPro has reportedly caught the eye of a Chinese company
that may be interested in making an acquisition offer. A report from the
information said that electronics maker is based in China. It has
considered buying the camera maker but it doesn`t want to overpay. GoPro
CEO has previously said that he is open to the deal. Shares were up 7
percent of the news to $5.22.

And shareholder Berkshire Hathaway (NYSE:BRK.A) says it plans to vote
against USG (NYSE:USG) Corp`s new board nominees as it pushes USG
(NYSE:USG) to reconsider that nearly $6 billion takeover offer from
Germany`s Knauf. Knauf, which also has a stake in the construction
materials company, had asked shareholders to vote against the board
nominees as part of its tactic to get USG (NYSE:USG) to accept its offer.
Shares of USG (NYSE:USG) rows by 2 percent to $40.77.

And after the bell tonight, Broadcom (NASDAQ:BRCM) said it was launching a
$12 billion share buyback program. Shares in the after-hours initially
took off on the announcement. They finished the regular session down a
fraction at $239.43.

HERERA: Well, the new tax law passed late last year was expected to hit
many in high tax states hard, and now it appears many in those same states
are looking for loopholes to limit their new tax burden.

Robert Frank has the details.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: They`re calling it
the great conversion, taxpayers turning themselves into limited liability
companies and S-corps in order to lower their tax bill under the new tax
law.

Now, the tax law that took effect January 1st allows LLCs and partnerships
to have a much lower rate than individual taxpayers and corporations get
the lowest rate of all. The question was, how many would exploit the new
loophole and the answer appears to be a lot.

Data from high tax states such as New York, New Jersey and Connecticut and
California shows a huge increase in the number of LLCs, partnerships and C
corps. In New York, there were 27,000 s created between the end of last
year and this March, a 15 percent jump. That`s much faster than the growth
rate of previous years.

Now, new businesses in Connecticut was up 15 percent and California saw a
12 percent bump. We don`t know how much of the increase was individuals
asking for better taxes or just the stronger economy, but the tax law does
have some guard rails design to prevent this. It`s harder for instance,
for lawyers, doctors and accountants to use the pass-through rate and there
is an income cap.

But the details and rules have yet to be clarified and until then a tax law
design today make taxes simpler has made it a lot more complicated and
perhaps more costly for the government.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

GRIFFETH: And coming up, bucking the trend, why Nordstrom (NYSE:JWN) is
pouring a lot of money into a brick and mortar store while others are
closing?

(MUSIC)

GRIFFETH: Here`s a look at what we are watching for tomorrow as we told
you earlier, earnings season kicks off with a number of banks reporting,
including J.P. Morgan, Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C). A
number of Fed officials will be speaking on the outlook for the economy and
the latest consumer sentiment report will show us just how the average
American is feeling about their finances and the economy.

And that`s what we`re watching for on Friday.

HERERA: State pension funding has hit a record short fall. The annual
report from the Pew Charitable Trust said that funding gap hit a record
$1.5 trillion in 2016. Pew said less money is being allocated to core
government services such as education and public safety as states try to
prop up their funds. The underfunding comes despite a nine-year bull run
for the stock market.

GRIFFETH: Sears (NASDAQ:SHLD) is closing several stores and they`ll be
selling 16 others in an online auction. The troubled retailer is shutting
locations in Chicago, North Carolina, Ohio and Massachusetts. Those stores
were not previously announced. It affects 166 locations in all. Other
properties are being auctioned off with the help of Cushman and Wakefield.
Two hundred investor groups have already expressed interest.

HERERA: And during a time when retailers are scaling back their brick and
mortar operations, Nordstrom (NYSE:JWN) is bucking that trend. Today, the
retailer opened its first department store in New York City, a risky move
that the company hopes will pay off.

Eric Chemi is there for us.

(BEGIN VIDEOTAPE)

ERIC CHEMI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Today marks a rare
first in Manhattan, the opening of a brand-new, high end retail brick and
mortar store.

Nordstrom (NYSE:JWN) today open its first full line department store
anywhere in New York City. It`s also the company`s first men`s store
anywhere in the country. It`s a 47,000 square foot facility and next year
right across the street, they`re opening an even bigger store.

In an environment where traditional retailers are going bankrupt,
shuttering stores and pivoting to online, Nordstrom (NYSE:JWN) is bucking
the trend by investing hundreds of millions to open an actual store.

JAMIE NORDSTROM, NORDSTROM PRESIDENT OF STORES: I can tell you, we spent a
lot on it. We got to do a lot of business here, but we think if we execute
well and serve the Manhattan customer the way they expect to be served,
we`re going to do a lot of business here.

CHEMI: The family-run retailer needs this to succeed. The stock is half
what it was just a couple years ago. And online commerce giants like
Amazon (NASDAQ:AMZN) are stealing share across all portions of retail.
Members of the Nordstrom (NYSE:JWN) family recently failed in their effort
to take the firm private. In the meantime, the company`s betting on the
continued growth of men`s high end fashion and that there still be demand
for people to come into a store.

UNIDENTIFIED FEMALE: I shop online, everyone shops online but I think when
you want to come in and actually touch and feel and maybe have something
that`s more of an experience, I think this will be a great place to do.

UNIDENTIFIED MALE: I prefer to be in a brick and mortar. I prefer to
touch the clothes, see the materials, try it on, versus having to go to the
post office to return it and worry if it`s going to fit or be damaged.

CHEMI: This is no ordinary store. The company is merging the two worlds,
online convenience and in-store availability. It will be open for 24/7,
have quick return kiosk, same day deliver in Manhattan and new high tech
customization tools. There are even cafes and a men`s barbershop on site.
The ultimate compliment is if other competitors start doing the same thing.
Or will this be a budget busting experiment the company never repeats
again.

For NIGHTLY BUSINESS REPORT, I`m Eric Chemi in New York.

(END VIDEOTAPE)

GRIFFETH: And it`s about time is all I can say.

HERERA: I know, I agree with you.

GRIFFETH: Before we go, here`s another look at the bounce-back on Wall
Street ahead of the earning season that starts tomorrow. The Dow is up 293
points today to 24,483. The Nasdaq added 71, the S&P 500 up 21.

HERERA: We`ll have to go shopping.

GRIFFETH: I`m with it.

HERERA: Excellent.

GRIFFETH: I`m there.

HERERA: That is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
Thanks so much for joining us.

GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.

END

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