Transcript: Monday, September 23, 2013

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you by —

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SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Tale of two techs. Struggling smartphone maker BlackBerry finds a buyer on the same day Apple (NASDAQ:AAPL) reports record sales of its new iPhone. So, where did one go wrong and the other right?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Waiting on Washington. One week away from a possible government shutdown. What the stakes are for your money.

HERERA: Real estate`s new frontier. Why this traditional industry is using a modern way to raise funds from the public on the Internet.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, September 23rd.

Good evening, everybody. I`m Sue Herera, filling in tonight for Susie Gharib.

MATHISEN: And I`m Tyler Mathisen. Welcome, everyone.

Well, we begin tonight with big news in technology. The struggling smartphone pioneer, BlackBerry, may have just received the call it`s been waiting for. The one-time tech giant getting a lifeline from a consortium led by Toronto-based Fairfax Holdings, which would take BlackBerry private in a deal worth about $4.7 billion. Fairfax already owns about 10 percent of the company`s shares and after news of the deal halted trading for about an hour, shares of BlackBerry ended 1 percent higher on very heavy volume. Still shy of the $9 a share that Fairfax agreed to pay.

Not a done deal yet, not by any means. The consortium has six weeks to conduct due diligence, while BlackBerry can shop around for a better offer if they can find one.

HERERA: Joining us now to talk more about BlackBerry is Peter Misek, he`s senior technology analyst over at Jefferies.

Peter, welcome. Pleasure to have you with us.

PETER MISEK, JEFFERIES & COMPANY SENIOR TECH ANALYST: Thanks for having me.

HERERA: What`s your take on this particular deal, it seems to me it is kind of putting a floor on the stock so that the market can`t push it any lower, certainly like it did last week.

MISEK: That is it is going to do, but also importantly, operationally, it`s going to allow them to continue to sell their services. It`s that service business, the idea of controlling and managing iPhones and Android and iPhone devices. That`s really the future of the company. And for that they really need to assure people they`re not going to go away and that they have the money to withstand. And this allows them to do that.

MATHISEN: We dangle the possibility Peter that there might be some other better out there over the horizon, do you expect that? And who could it possibly be?

MISEK: We don`t see it better for the whole company emerging. We think there are better for the services that I outlined earlier, but that would be, you know, one segment, and it would be very difficult to extricate given that you`ve already have a bid on the table, or potential bid on the table for the whole company.

HERERA: Do you see any problems with the due diligence period and with those who are going to be doing the financing?

MISEK: It`s tough to see how Prem Watsa, who`s the chairman of Fairfax, would have difficulty with due diligence. He was on the board of BlackBerry up until a month ago. He saw what was going on, he knew that business was terrible. So, it would be tough to see that.

We think in terms of how they`re going to structure it, they`re going to try and put leverage or debt on top of their services. And there we think they could probably somewhere in the neighborhood of $2.4 billion or $3.5 billion. So, it really means that Prem Watsa and Fairfax has to add $1 billion to $2 billion equity to get this deal done.

MATHISEN: Where did this company go so terribly wrong? 2008, 2009 they were kings of the world, Peter.

MISEK: Absolutely, the big mistake was sticking with the operating system that was way too old, that didn`t allow web browsing and really didn`t support apps and they ended up getting crushed. It just goes to show, you have to innovate very quickly or die and the they should launched this BlackBerry 10 devices two or three years ago. They might have a shot then, now, it`s game over in their handset world.

HERERA: You know, Peter, how do you see this company, say, two years from now? It`s going to be taken private. As you said, it will give them a chance to reorganize their business, and perhaps give those corporations who were worried about not having BlackBerry around, maybe place some orders because now they won`t be in the public eye as much. But look at one or two or three years, what do you see for BlackBerry?

MISEK: They`re going to be one of the top hybrid Cloud providers and the top mobile device management providers in the world. They will secure BlackBerrys and iPhones and iPads, and they`ll be allowing you access on your desk top in a secure fashion, and in a way that the NSA probably can`t snoop. So, you will see a lot of value to that service.

MATHISEN: Will people still carry a device branded BlackBerry in three to five years or not?

MISEK: Probably a small number of people, only those that are absolutely 100 percent wedded to just making message, small messages, emails, texting, or phone calls. Anyone that requires any apps of any kind will not be carrying a BlackBerry in the future.

HERERA: All right. Peter, thank you very much for joining us. Appreciate it.

MISEK: Thanks for having me.

HERERA: Peter Misek, senior technology analyst over at Jefferies.

MATHISEN: Well, it was a very different story today at Apple (NASDAQ:AAPL), which has regained a lot of its polish today. That`s because Apple (NASDAQ:AAPL) sold a staggering 9 million of its newest iPhones over the opening weekend, nearly doubling analysts` forecasts. The company even issues a more optimistic outlook for the current quarter.

Take a look at how investors reacted. They sent shares about 5 percent higher today, $23 higher to be exact, at $490.64.

Josh Lipton has more now on Apple`s most successful iPhone debut yet.

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JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Apple (NASDAQ:AAPL) stock moving higher in today`s trade. This after the company reported selling way more new iPhones than analysts had expected. Demand for the 5S with its new camera and fingerprint technology exceeding supplies. Also, 200 million downloads of the iOS 7, that`s Apple`s new mobile operating system.

Gene Munster of Piper Jaffray saying the report does answer some of the criticisms Apple (NASDAQ:AAPL) had faced about the pace of its innovation.

GENE MUNSTER, PIPER JAFFRAY: There`s been a lot of questions about innovation, and I think they`ve addressed a lot of that just by the demand. You know, it`s all about what`s on the column and it looks like they`ve got some good things to come over the next year and a half.

LIPTON: With such strong numbers, Apple (NASDAQ:AAPL) now telling investors to expect the higher end of its estimates for the fourth quarter on revenue and gross margins. This was a big beef for Apple (NASDAQ:AAPL).

The analysts had estimated that the company would sell around 5 million or 6 million devices.

Amid of RBC says many analysts thought there wouldn`t be too much demand for the 5C, and that supply constraints of the 5S would limit sales. But now says worries about declining profit and sales next year are out of the table. Apple`s broadest strategy he says, focusing on profitability rather than market share does seem to be working at least for now.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Jose.

(END VIDEOTAPE)

HERERA: Also basking in the glow of those blowout iPhone sales, some of Apple`s top component suppliers. Take a look at how shares of chipmaker Cirrus Logic (NASDAQ:CRUS) and RF Micro Devices (NASDAQ:RFMD) and some of those other suppliers did today, banking on strong sales of those new iPhones in the quarter ahead.

MATHISEN: Well, with so many investors focused on BlackBerry and Apple (NASDAQ:AAPL) today, it was easy to overlook a new product launch from Microsoft (NASDAQ:MSFT). Despite slow sales of its first generation tablet, the new Surface Pro 2 was unveiled today. It comes with a much longer battery life, powerful new energy-saving chips and a full version of the upcoming Windows 8.1 operating system. It retails for $899. Now, there is also a cheaper version called the Surface 2 for about half that price.

HERERA: On Wall Street, the major averages closed lower for the third session in a row. Stocks were in the sort of holding pattern as traders worry about bickering Washington lawmakers as they try to hammer out a deal on the federal budget and on a debt ceiling, all of that amid the looming threat of a shutdown of the government one week from today.

Today, the Dow fell 49 points, the NASDAQ was down nine, despite getting a lot of help of those shares of Apple (NASDAQ:AAPL), and the S&P was loser by eight.

MATHISEN: Well, as Sue just mentioned, the countdown for a possible government shutdown is now just one week away, and the big question in Washington is, are lawmakers any closer to reaching a deal that would keep the government up and running or is it looking more like a stalemate?

John Harwood joins us now from Washington.

John, where do we stand on this budget shutdown?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tyler, I don`t think we`re closer to a deal than we were before. But I do think there is an expectation that we will get a deal in the end. I say that for this reason: we`ve just had announcements today that two Republican leaders in the Senate, Mitch McConnell, and John Cornyn, say they are not going to join Ted Cruz, the senator from Texas, in filibustering that came out of the House the other day that would extend government funding and defund Obamacare.

The plan by the Democrats in the Senate to take that bill up and then strip out the Obamacare provision, extend the government funding send it back to the House and challenge them. The fact that that bill will not be successfully filibustered is a sign the bill is going to land back in the House`s lap right up around that deadline of September. And Democratic leaders in the Senate are betting at this stage that the House leaders will put that bill on the floor and will extend government funding.

We`ll see if it plays out that way. We won`t know for a few days, but that`s how they think right now.

HERERA: You know, that`s encouraging, John, because it looks like this was really going to go right down to the wire. There was so much animosity between both sides of the aisle in both houses, that I find that quite encouraging. I would think that would calm down some of the market volatility.

HARWOOD: Well, we are — either way, we`re going to go down to the wire. And even if we avoid a shutdown, that is by far the much less consequential of the two deadlines we`re facing. The more important one is the debt ceiling which is in the middle of October, and what we have seen is a two-stage Republican strategy, one to de-fund Obamacare in this bill. That`s going to fail.

Then, they`re going to try to delay the law for a year in a debt limit bill. That is also going to be resisted, doggedly by the president and Democrats. So they`re going to have to find a fallback there, too That`s going to be harder for the Republican leadership to pull off and we`ll see if we can pull this one, the more limited one next week.

MATHISEN: Very quickly, let`s say the bill goes back to the House minus the defunding of Obamacare. And then the House has to pick that up. What do they do?

And do they try and send yet another bill back with some sort of condition on it. And is there a condition that would pass the House Republican caucus that doesn`t involve doing some kind of harm to Obamacare?

HARWOOD: There are — yes. There is the potential that the House could pass the bill with a different writer on it, aside from defunding Obamacare, some tweak like attacking the income verification provisions which are lacking, or repealing one of the taxes in the law.

I don`t think the Senate would accept that. And the chances are, if they`re jammed right up against the deadline, they may have to act very quickly and extend government defunding and live to try to fight on the debt limit.

HERERA: John Harwood — John, thanks, for un-complicating a very complicated topic tonight. We appreciate it.

There was a lot of uncertainty over the Federal Reserve`s next move today, after some mixed messages from top Fed officials. William Dudley, president of the New York Fed, said the timeline for scaling back the bank`s massive stimulus plan is, quote, “still very much intact,” end quote, as long as the economy keeps improving.

But then, Richard Fisher of the Dallas Fed said the central bank`s failure to taper its bond buying last week puts the credibility into question. And he also says the White House has terribly mishandled the process for picking the next Fed chairman and calls front runner Janet Yellen wrong on policy, but said she`d still make a great chairperson.

MATHISEN: Still ahead, Wall Street pay — many believed it encouraged excessive risk-taking that led to the financial crisis. So, five years later, how have things changed if at all?

But, first, a look at the international market today.

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MATHISEN: Chrysler files for an initial public offering for up to a $100 million in common stock week. We told you this coming today in a regulatory filing late this afternoon. We also learned the IPO will take place in the first quarter of next year, and that JPMorgan (NYSE:JPM) will be the sole underwriter.

HERERA: Some good news for drivers — gas prices are heading lower. According to the Lundberg Survey, the price of a gallon of gas fell about 6 cents over the past two weeks, falling to $3.52 a gallon on average.

San Francisco has the highest price in the lower 48 states, averaging $4.01 a gallon, and Charleston, South Carolina, as if it`s not beautiful enough, has the cheapest gas at $3.14 a gallon.

MATHISEN: General Motors (NYSE:GM) is buying a large chunk of its own shares. The bailed out automaker is going to purchase nearly half its preferred shares held by the United Auto Workers Healthcare Trust, paying $3.2 billion. Now, to purchase those 120 million shares, GM plans on issuing a corporate bond offering.

Meantime, just today, Moody`s (NYSE:MCO) investor services upgraded GM debt, rating it out of junk status and moving it into investment grade status.

HERERA: It often pays to be CEO, even if your company isn`t doing all that well.

Steven Elop is the departing chief executive of Nokia (NYSE:NOK), the struggling Finland-based phone maker that was acquired by Microsoft (NASDAQ:MSFT) earlier this month. After just three years in the corner office, a time in which Nokia`s share price plummeted and its share of phone sales took a nose dive, Elop will earn $25.4 millions when the company is folded into Microsoft (NASDAQ:MSFT).

MATHISEN: Well, for many investors and regulators outraged over exorbitant Wall Street pay was the fuel that fed the fire that led to the financial meltdown. Many believe sky high paychecks for top executives encouraged the excessive risk-taking that led to the near collapse of the economy.

But just like the financial services industry since the crisis, Wall Street`s pay has been down sized and restructured.

Mary Thompson has more.

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MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It`s lunch time at Harry`s Cafe and Steak in New York City`s financial district, and business is brisk.

JEAN-BAPTISTE CAILLET, HARRY`S CAFE & STEAK: I think the mood on Wall Street is good. It`s still not where it was. I don`t know if that ever will be.

THOMPSON: A lot on Wall Street changed into financial crisis, including the spending habits of the traders and bankers general manager Jean-Baptiste Caillet says frequent the restaurant.

CAILLET: Harry is one of the best wine collections in New York. So, we would see bottles of wine at $5,000 or $8,000 for lunch. That was very common occurrence at the peak. Today, it`s rare.

THOMPSON: Wall Streeters` relatively thriftiness reflecting changes to their paychecks since the bubble.

DAVID SCHMIDT, JAMES F. REDA & ASSOCIATES: We don`t have the huge bonus potential that was there, virtually unlimited in some respects.

THOMPSON: Compensation consultant Dave Smith says that while Wall Street remains well-paid compared to Main Street, overall pay is down due to a struggling economy, weaker bank profits, or its concerns about shareholders voting down compensation packages and disclosure and reporting requirements mandated by Dodd-Frank.

The compensation firm Johnson & Associates predicts this year, it will be 39 percent below 2007`s record levels.

ALAN JOHNSON, JOHNSON ASSOCIATES: There is less tolerance for under-performance. Businesses or individuals who don`t perform just don`t get paid.

THOMPSON: Consultant, Alan Johnson, is a dean of Wall Street compensation. He says not only are Wall Streeters making less, they`re getting less of what they earn in cash bonuses, even salaries are higher. Salaries rising to make up for a greater portion total pay being issued in performance-based stock, investing a few years out.

(on camera): To critics of Wall Street pay, Johnson says the changes have addressed one of their chief concerns coming out of the financial crisis.

JOHNSON: There`s so much and there`s so much transparency. Certainly, pay today isn`t encouraging excessive risks.

THOMPSON (voice-over): Keeping checks on the paycheck paying off by limiting risks.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.

(END VIDEOTAPE)

MATHISEN: And we begin “Market Focus” tonight with a look at Citigroup (NYSE:C). According to “The Financial Times”, the third largest U.S. bank saw significant drop in trading revenue during the third quarter and that could hit its earnings. The report says Citi has the biggest exposure out of any markets, which have seen capital flight and currency fluctuations recently. The bank had no comment on the report, but the stock finished the day 3 percent lower at $49.57.

JCPenney reportedly looking to raise more money, according to reports. The struggling retailer has met with banks in recent weeks about possible fundraising options. The stock, one of the worst performing in the S&P 500, dropped more than 4 percent to $12.36.

HERERA: A rough day for shares of Pandora. The Internet radio company coming under pressure after Apple (NASDAQ:AAPL) said that over 11 million unique users have already tried its new iRadio service. One analyst believes Apple`s entry streaming radio will reduce Pandora`s current listening hours by roughly 10 percent over the next six months. The stock fell 10 percent today to $24.26.

And Isis Pharmaceuticals (NASDAQ:ISIS) rising on positive results from one of its experimental drug trials. In a mid-stage trial, the drug was able to substantial reduce blood fat in patients who suffer from a rare genetic disorder in which the body does not break down fats correctly. Investors drove the stock up almost 7 percent to $38.48.

MATHISEN: Well, starting today for the first time in 80 years, private companies including hedge funds and private equity firms can solicit investment funds directly from accredited investors. That is those with a net worth of over $1 million. And that could mean big changes in the real estate industry as it turns to a favorite tactic of start ups — crowd-funding.

Diana Olick has our story.

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DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It`s happening here in Washington, D.C.`s 8th Street corridor in Northeast, a transitional neighborhood that still has a ways to go. Areas like this are not exactly favorites among large-scale real estate investors. Smaller, local investors know their potential, but until today, were largely shut out. Now, crowd-funding real estate is about to get easier.

BEN MILLER, FUNDRISE CO-FOUNDER: We`ll help you build your real estate.

OLICK: Ben Miller has already been crow-funding commercial real estate through a tricky exemption in the law. His company Fundrise brings small local investors to projects like this soon to be D.C. restaurant and market. It was limited to locals, but starting today, he can market to investors anywhere.

MILLER: Over time, you will realize that the public is an incredible partner, incredible asset, when you democratize investment in real estate, not only do you get capital but you actually get a social power that wasn`t possible before.

OLICK: While Fundrise`s investors paid as little as a thousand for a share in the building and its revenue, the new rules allow national marketing only to wealthy investors. But that restriction is set to disappear soon, too.

MILLER: You`re going to see ways to re-finance somebody out. You can sell the property. You get distributions from cash flow. I mean, you become like a landlord, like playing monopoly.

OLICK (on camera): It may be like that, but investors may also be playing risks. Critics argue that as regulations disappear and investing in real estate becomes as easy as buying a book on Amazon (NASDAQ:AMZN), some people might not get what they paid for.

MILLER: Properties that don`t exist, that`s even more of a problem because there`s no guarantee that somebody can`t raise money and never actually see any construction take place.

OLICK (voice-over): But with the doors swinging open, developers are flooding in. Prodigy is working on a project in downtown Manhattan and realty mogul has also launched a Web site for investors. While Miller began as a developer, he is now focused on Fundrise`s web platform, which is now giving 50 developers in 16 cities the ability to crowd-fund at a click.

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

(END VIDEOTAPE)

MATHISEN: And to read more about crowd-funding in real estate, head to our Web site, NBR.com.

HERERA: Coming up, the digital revolution, which companies win and which lose as more advertising dollars flow into mobile.

But, first, how commodities, treasuries and currencies performed today.

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MATHISEN: Last week`s devastating floods in Colorado, which claims seven lives and destroyed thousands of buildings, could end up costing home owners, businesses, local governments nearly $2 billion. That`s according to Eqecat, a company that estimates the insurance industry. The firm also says that a high percentage of the losses may not even be covered by insurance. Meantime, the number of people unaccounted for are now down to just six, while recovery teams searched over nearly 2,000 miles of damaged areas.

HERERA: A planned merger in the airline industry just had its December 17th deadline extended. U.S. Airways and American Airlines are moving their planned merger expiration date back by another month, giving each carrier more time to deal with an anti-trust lawsuit filed by the Justice Department to block the merger. The trial rather is set to begin on November 25th.

The government says that the combined airline will hurt competition, leading to fewer choices and higher ticket prices.

MATHISEN: Meantime, an industry group now says airlines will make less money than predicted this year. The International Air Transport Association, which represents as many as 200 carriers, cut its profit forecast for the airline industry this year by nearly a billion to just under $12 billion. They blame slowing growth in emerging markets, the decline in demand for freight shipments and higher fuel prices.

But the IATA sees nothing but blue skies ahead for 2014, predicting a rebound in profits to total $16.4 billion, thanks to rising consumer and business confidence, and lower fuel costs.

And if you are seeing more ads when you turn on those tablets and e-readers, there is a good reason for that. At the annual advertising week conference in New York City, advertising agencies add platform and big brands who are gathering to figure out the best way right now to reach tech-savvy consumers.

Julia Boorstin takes a look at the big digital shift in advertising.

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JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The mood at Ad Week is up beat as U.S. ad spending is on the rise, driven by a surge in digital, as advertisers are drawn to the advantages of targeting and measuring ads` impact. Traditional media can`t always deliver that detail as the newspapers, magazines and network radios suffer steady declines.

GIAN FULGONI, COMSCORE: Digital is growing at a rate of about 15 percent a euro, whereas all measured media is only growing at about 3 percent. So, there is a big shift. And within digital, the two components that are going the fastest are mobile, which is up over 100 percent a year, and video, which is up about 30 percent.

BOORSTIN: That`s thanks to surging Internet use, the time people spent online grew 86 percent from June 2010 to June 2013, with more than half of Internet use now coming from mobile devices.

(on camera): And now, there is more proof that mobile ads really work. ComScore unveiling a study today that finds that people who see mobile ads are 20 percent more likely to want to make a purchase than those who don`t see the ad. The CEO of ad conglomerate Interpublic Group says the transformation is all about the explosion of valuable data on how to reach consumers.

MICHAEL ROTH, INTERPUBLIC GROUP CEO: You can buy the audiences. You can target the market the extreme. And that`s what this is all about. Our business is about communicating and messaging and telling stories.

There is goods news for digital ads platforms which specialized and targeting especially to mobile, from Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO), to Facebook (NASDAQ:FB) and Twitter, which today unveiled a new partnership with CBS (NYSE:CBS).

DAVID MORRIS, CBS (NYSE:CBS) INTERACTIVE, CHIEF CLIENT OFFICER: It`s a win, win, win situation. And I know that sounds cliche, but what can you not like about CBS (NYSE:CBS) Interactive`s ability to send out tweets in real-time on the world`s biggest and most exciting social platform.

BOORSTIN: Twitter ads are designed to work well on mobile devices. And mobile ads, despite their fast growth are still just about 10 percent of all digital ad spending, which means room for major growth.

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

(END VIDEOTAPE)

HERERA: And finally tonight, it`s the end of the road for an iconic vehicle. As of December 31st of this year, Volkswagen is ending production of the VW bus, the vehicle of choice for generations of surfers and hippies and growing families everywhere. Brazil is the last place in the world where Volkswagen still makes the van, but the company says it would be too costly to change production to keep up with new Brazilian safety regulations for air bags and anti-lock breaks. Volkswagen produced more than 10 million busses over the past 63 years, and many of them, even ones that are decades old, are still on the road.

MATHISEN: I always wanted one of those.

(CROSSTALK)

HERERA: No, I had a VW bugs but not a van.

All right. That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Susie is back tomorrow. Thanks for joining us.

MATHISEN: And I`m Tyler Mathisen. Thanks for watching. Have a great evening, everybody. We`ll 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) 2013 CNBC, Inc.

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