Transcript: Monday, March 31, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and
Susie Gharib, brought to you in part by —

(COMMERCIAL AD)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Heading to the Hill.
General Motors (NYSE:GM) says it will take a massive recall-related charge
in the first quarter. The announcement comes a day before its CEO faces
Congress. How did G.M. get to this point and what happens next?

(BEGIN VIDEO CLIP)

JANET YELLEN, FEDERAL RESERVE CHAIR: I think this extraordinary
commitment is still needed and will be for some time.

(END VIDEO CLIP)

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: And with those words
from Janet Yellen about the Federal Reserve`s low rate policy, stocks took
off with a triple-digit gain on the Dow.

MATHISEN: Cutting cholesterol. A new and promising weapon against
the fight of cardiovascular disease and the drugmakers behind it.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday,
March 31st.

GHARIB: Good evening, everyone.

The devastating problems that General Motors (NYSE:GM) has gotten a
whole lot worse. G.M. now expects to take a massive $750 million charge
this quarter for the cost of recalling and repairing 1.5 million cars with
faulty ignition switches. Now, that comes on top of a new recall for more
than 1.3 million cars that may see a sudden loss of power steering and
another late recall Friday of half a million trucks and SUVs for potential
problems with transmission coolant lines.

The automaker`s new chief executive, Mary Barra, will try to repair
to testify on Capitol Hill. Late today, Barra`s prepared remarks were
released and she says the automaker holds itself fully accountable for the
safety defect, but can`t say why it took so long to identify them. With
families of the victims expected at Tuesday`s hearing, look for tense and
emotional testimony in the House.

Meanwhile, on Wall Street, G.M. stock fell nearly 1 percent. It`s
down almost 16 percent this year.

Here is Eamon Javers with a timeline of the troubles at G.M.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
What did General Motors (NYSE:GM) know and when did the automaker know it?
Those are the questions being asked about a faulty ignition switch that has
led to at least 13 deaths.

Answers are emerging from documents released from the automaker and
from Congress. In 2001, G.M. first became aware that there was a serious
problem with select vehicles. In 2002, auto parts supplier Delphi, which
makes the ignition switch, said G.M. approved the part knowing it didn`t
meet their specifications. In 2003, a dealer technician also observed the
car stall after the ignition switched off while driving.

These dates are in stark contrast to what the automaker first
claimed, that they only knew of the defect in 2004.

Fast forward 10 years to February 2014, G.M. under new CEO Mary Barra
issues a recall for over 1.5 million vehicles, sparking regulators to
launch a formal investigation. This month, National Highway Transportation
Safety Administration demanded detailed answers to 107 questions to
determine if G.M. properly followed the legal processes and requirements
for reporting recalls.

And just last Friday, G.M. added almost 1 million vehicles to the
recall now totaling more than 2.5 million worldwide.

(on camera): Tomorrow, Barra will be on Capitol Hill. The big
question: why did it take so long for General Motors (NYSE:GM) to recall
vehicles that had a faulty part, leading to at least 13 deaths and where
were regulators all this time?

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Washington.

(END VIDEOTAPE)

MATHISEN: Joining us now to talk more about G.M. is Colin Langan.
He`s an auto analyst with UBS.

Mr. Langan, welcome. Good to have you with us.

Apart from the moral or ethical dilemmas presented by these cases,
what overall is your estimate of the total cost of resolving this situation
for General Motors (NYSE:GM), specifically the ignition defect?

COLIN LANGAN, UBS AUTO ANALYST: Yes, sure, I mean, overall right now
they just announced after the close today that there`s about a $750 million
impact for the actual repairs. The ignition is actually probably only very
small portion of that. It was really more the subsequent recall impacting
that.

I think the other major piece of this puzzle that we`ll see out over
probably the next year or so will be the potential, you know, investigation
from the Department of Justice. If you looked at the recent settlement for
criminal penalties with Toyota (NYSE:TM), it was $1.2 billion. That was
about the timeliness of notifying the regulatory agencies.

G.M. will probably face a similar risk because of the delay and
reporting these issues.

GHARIB: Colin, how do you think Mary Barra is going to do tomorrow
on Capitol Hill? She`s already apologized. She said she wants to do the
right thing.

Do you think that she can do anything to repair G.M.`s reputation
tomorrow in front of lawmakers?

LANGAN: I think she has a tough job ahead of her, but I think she`s
done a good job so far. He`s been open, responsive as much as they can be
as they are continuing the investigation. But she`ll be facing tough
questions tomorrow and quite frankly, doesn`t sound like they have all of
the answers yet, but I think doing a very good job of communicating
openness and responsiveness and really being apologetic, which I think is
very important in terms of managing the long-term brand impact here.

MATHISEN: Colin, the current General Motors (NYSE:GM) is inoculated
by its bankruptcy filing from legal liability for incidents that occurred
before 2009. But there are reports today that General Motors (NYSE:GM) may
set up a reimbursement fund of the current company, giving money back to
the stub or bankrupt estate.

Have you heard anything about that? And what do you think of that as
a way to make things, if not right, at least better?

LANGAN: I mean, it`s clearly an option. I mean, I think what you
said is mostly correct. I mean, since any incidents that occurred before
bankruptcy, which is the majority of the incidents, as far as we know, they
would not be legally liable for. So, this would really be, you know, G.M.
trying to do the right thing.

You know, we`ll see, you know, when or if they make that kind of
announcement, you know, could come, you know, with coordination from the
Department of Justice settlement or something like that. But it`s clearly
a possibility that they could do something like that.

GHARIB: You know, there are so many question marks and issues,
uncertainty hanging over General Motors (NYSE:GM) and yet, from the
investment point of view, you still like the stock. Tell us why you like
it at $34 and I understand you got a $51 target on it.

LANGAN: Yes. I mean, if you look at the stock, it`s been down 9
percent ever since the recall news happened. It`s about 5.5 billion of its
market cap. Though, if you look at the actual costs, they are probably
going to be less than $2 billion.

So, you know, I do think there`s a bit of an overreaction and quite
frankly, we like the stock quite a bit before the recall news. You know, I
think over the next few months, you`ll probably see a bit of impact on
their market share. I think they are handling it well. None of the
current products are affected by the ignition recall.

So, I do think their share will bounce back in a couple of months,
and I think they`ll be back on track, since they do have an awful lot of
new product this year.

MATHISEN: Colin, in the grand scheme of things, are these subsequent
recalls, the ones after the ignition switch, are they bigger and more
costly in some ways?

LANGAN: Yes. In my opinion, they are probably more costly recalls.
The actual ignition according to other companies is around only $2 to $5.
Labor cost is probably low.

It`s really — you know, depends on the complexity. Some of the
other recalls are more complicated. I think what G.M. is trying to do,
make sure there is no additional recall headlines lingering throughout the
rest of the year. So, I also think they`re trying and actually being
responsive to potential issues to show they really are trying to change the
way they act relative to their history.

MATHISEN: Colin, thank you for being with us tonight. Colin Langan
is an auto analyst with UBS.

LANGAN: Thank you very much.

GHARIB: On Wall Street, investors can thank Janet Yellen for closing
out the first quarter on a high note. The Federal Reserve chief made some
reassuring comments today about keeping interest rates at record low levels
for sometime to come.

The NASDAQ and S&P ended the quarter with gains. A different story
for the blue chip Dow stocks. They were up for March, but were down nearly
1 percent for the first three months of 2014.

Here is a look at today`s closing numbers. The Dow surged 134
points, the NASDAQ rose 43 and S&P added 14 and just six points shy of its
all-time high.

More now on Janet Yellen`s market moving comments and her willingness
to show a different more woman of the people-style to market watchers.

Steve Liesman reports.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Following her
speech in which she suggested the fed will keep the easy monitory policy in
place. Janet Yellen did what who no Fed chair has likely done before her,
put on a welder`s mask as she toured a job`s training facility.

It`s all part of a promise Yellen gave in a confirmation hearing in
the fall. She said she would never forget there are ordinary Americans
behind the statistics. It also appears to be part of an effort by the Fed
to ensure that its efforts to steward the economy, which became highly
controversial during the financial crisis have some popular support.

In her speech earlier today, Yellen took a page out of a politician`s
playbook, mentioning ordinary people, like a woman who have been unemployed
for a long time.

YELLEN: That`s what Doreen Pool (ph) learned after she lost her job
processing medical insurance claims just as the recession was getting
started. Like many others, she couldn`t find any job despite clerical
skills and experience acquired over 15 years of steady employment.

LIESMAN: Her predecessor Ben Bernanke pioneered the idea, among
other things, teaching college courses on monetary policy throughout the
country, but Yellen seems to be embracing the technique right from the
beginning and in a more down home way.

Yellen, of course, also made news on monetary policy.

YELLEN: I think this extraordinary commitment is still needed and
will be for sometime. And I believe this view is widely shared by my
fellow policymakers at the Fed.

LIESMAN: That sent stocks higher and bond yields lower because it
meant the Fed could keep interest rates lower for longer.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: And still ahead, Apple (NASDAQ:AAPL) versus Samsung — one
of the fiercest corporate rivalries heads back to court but in this fight,
Google (NASDAQ:GOOG) may have the most at stake.

(MUSIC)

MATHISEN: This is it, deadline day to sign up for a new health care
plan under the Affordable Care Act. That`s in time for coverage to kick in
by May 1 and — well, today didn`t go so well. With so many last-minute
hopefuls trying to enroll in the new plan before midnight, the federal
healthcare.gov Web site did what it has done previous times, it crashed.
Crashed several times, with officials working hard to fix it and reopened
the marketplace to get more people signed up.

GHARIB: Even so, with so many Americans signed up for a new plan and
more likely to enroll today, a lot of the nation`s health insurance
companies have already benefitted from the Affordable Care Act.

And as Bertha Coombs explains, they may even have more to look
forward to.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
By noon, the Healthcare.gov site saw 1.2 million visitors, a crush of last-
minute enrollees after a big push by the Obama administration with appeals
from the president on talk shows and social media to get young people to
sign up for coverage.

CECI CONNOLLY, PWC HEALTH RESEARCH INST. DIR.: Certainly, a big part
of the push has been aimed at them. Everybody wants to get them into the
pool.

COOMBS: For health insurers, a larger mix of healthy young people
lowers the risk that the industry will lose money on Affordable Care Act
plans.

CONNOLLY: The whole numbers game for them is determining what do
these new members look like? How much are they going to cost us in terms
of medical care and how do we factor that into our pricing for next year?

COOMBS: The nation`s largest insurance firm on the exchanges,
WellPoint has been optimistic about its profit outlook. Others like Aetna
(NYSE:AET), more cautious. But investors have been bullish on the sector.
While the S&P rose just over 1 percent year-to-date, insurers gained nearly
7 percent and analysts say the stock will likely see more gains.

LES FUNTLEYDER, HEALTH CARE INVESTING AUTHOR: It looks like the
insurers priced their insurance business correctly, which means that there
is probably some upside in terms of earnings potential for the rest of the
year.

COOMBS: Another positive for insurance earnings, the Medicare
Advantage Program, proposed rate cuts look lower than some had estimated.

FUNTLEYDER: Giving that we`re going into a midterm election year, I
would be surprised if there would be draconian cuts in any aspect of health
care.

COOMBS (on camera): Final Medicare advantage rates will be release
in early April, but final ACA enrolment numbers may not come for awhile,
with people experiencing glitches on sites being given up to two more weeks
to complete their applications.

Bertha Coombs, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

MATHISEN: More health news you should know about, an experimental
class of cholesterol lowering drugs, showing promise for up to 70 million
Americans suffering from heart-related illnesses and it could generate $3
billion in annual sales for the companies racing to get those new
medications to market.

Dominic Chu has the details.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The
American Heart Association says that cardiovascular disease kills more
Americans than any other disease out there. And high cholesterol is one of
the biggest risk factors. For decades, fighting high cholesterol has been
about taking statin drugs. You know them by their brand news, like
AstraZeneca`s Crestor, Bristol-Meyer`s Pravachol, and, of course, Merck`s
Zocor and Pfizer`s Lipitor.

Well, if you suffer from high cholesterol, there is a new kind of
drug that maybe in your future. Instead of statin chemicals, these new
drugs are protein-based. Statins work on curving the liver`s production of
cholesterol. These new drugs work on helping the liver removed cholesterol
from the blood stream, and companies like Amgen (NASDAQ:AMGN), Sanofi,
Regeneron and even Pfizer (NYSE:PFE) are working on them.

But there is a catch. Statins are usually pills taken orally and
they`re cheaper because generic versions are typically available. These
new drugs are meant to be taken as periodic injections, possibly using
something along the lines of an EpiPen. They could also cost a lot more
than traditional statin medications. While the concept is generating
positive chatter in medical circles, many more tests will need to be done
before it can be determined if these drugs actually help reduce the risk of
heart attacks.

BARBARA RYAN, FTI CONSULTING MANAGING DIR.: The question is, whether
in long-term outcome studies, the reductions in cholesterol that are being
reported actually translate into lower rates of heart attack and a lower
incident of stroke.

CHU (on camera): So there is a lot at stake not just for the big
drug companies, but also the millions of Americans combating high
cholesterol.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

GHARIB: And more health news here, Johnson & Johnson (NYSE:JNJ)
accepts a $4 billion offer for its blood testing unit, and that`s where we
begin tonight`s “Market Focus”.

Private equity firm Carlisle Croup made a bid for the unit back in
January and Johnson & Johnson (NYSE:JNJ) had until today to agree to the
deal. The transaction is expected to close midyear. J&J shares edged up a
fraction to $98.23.

Bill Ackman`s firm, Pershing Square, upped its stake in Fannie Mae
and Freddie Mac to more than 11 percent. The activist investor is now the
largest shareholder in both of these government-sponsored mortgage lending
giants. Shares of both companies surged about 9 percent. Fannie Mae
closed at $3.9, Freddie Mac at $3.87.

MATHISEN: Soda sales losing their fizz. Americans cut back on soda
at a faster pace last year than in many years, that according to a new
report and even diet soda sales are declining. This is the ninth straight
year of declines for soft drink sales overall.

Shares of Coke off a fraction to $38.66, PepsiCo, up a little bit,
$83.50, the close for that one.

Disney`s hit movie “Frozen” has become the topped grossing animated
film in box office history. The musical topped a billion dollars in global
sales. The impressive number surpasses the market Disney`s other big
movie, “Toy Story 3” set back in 2010. Shares of Disney (NYSE:DIS) up
nearly 1 1/2 percent to $80.07.

GHARIB: Two titans of the tech world, Apple (NASDAQ:AAPL) and
Samsung, in court again today. This time, they are battling over patented
technology use in each other`s smartphones.

But as Morgan Brennan reports, it`s Google (NASDAQ:GOOG) that could
have the most at stake in this legal scuffle.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Apple (NASDAQ:AAPL) and Samsung are at it again, facing off in court for
the second time in two years over patents. The new case revolving around
design elements and features use in the company`s smart phones, with both
alleging that their patents have been infringed.

But there is a third company that`s got a lot to lose, as well. And
that`s Google (NASDAQ:GOOG). While not named in the case, it`s Google`s
technology that`s in question, specifically its Android operating system.

MARK MCKENNA, NOTRE DAME LAW SCHOOL: Everyone expects Samsung to
argue that four of these patents that are Apple (NASDAQ:AAPL) asserting
against it licensed from Android and they expect the Google (NASDAQ:GOOG)
software engineers to testify that they have begun development of the
features before Apple (NASDAQ:AAPL).

BRENNAN: Android is used in over a billion devices worldwide,
including Samsung products like the popular Galaxy line. So, it features
like the ability to tap a phone number inside a text message and then call
it, one of the patents in question were created for the Android system by
Google (NASDAQ:GOOG), not Samsung.

(on camera): Apple (NASDAQ:AAPL) could collect $2 billion in damages
if the court rules in its favor, but that`s a drop in the bucket for the
$480 billion market cap company.

(voice-over): Instead, the bigger issue is future market share which
Apple (NASDAQ:AAPL) is already been feeding to Samsung. Last year, Samsung
was the market leader with one of every three smart phones sold. Apple
(NASDAQ:AAPL), with its higher priced phones was second.

So, a win for Apple (NASDAQ:AAPL) could impact Samsung`s devices, and
the technology Google (NASDAQ:GOOG) has created for them, forcing changes
that could push up costs.

SCOTT KESSLER, S&P CAPITAL IQ: Suddenly, you can see that they`re
not able to sell certain things they might want to sell or if they`re able
to sell them, they`re going to actually have to pay Apple (NASDAQ:AAPL) a
royalty to do so. So, the pricing goes up and guess what? It`s more
dollars in Apple`s pocket.

BRENNAN: Still, questions linger over the legality of software
patents, whether they are written too generally and a circumstances under
which they can be upheld. It`s a top pick just heard in a separate case
today by the Supreme Court and one legal experts say Apple (NASDAQ:AAPL)
and Samsung`s face-off could help decide.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Los Angeles.

(END VIDEOTAPE)

GHARIB: Caterpillar (NYSE:CAT) avoided paying more than $2 billion
in U.S. taxes since the year 2000. That`s according to a congressional
report that says the manufacturing company used an aggressive tax strategy
to shift profits overseas. The hearing will be held on the issue tomorrow.

John Harwood joins us now from Washington.

So, John, tell us — what`s the goal of tomorrow`s hearing?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Carl
Levin, the chairman of the committee has been working with Republicans,
John McCain among others, to shine a light on the tax avoidance by American
corporations. Usually perfect legal tax avoiding but things that he
regards as loopholes should be closed, and he`s going to try to spotlight
some of those with the Caterpillar (NYSE:CAT) problems.

He`s making the argument and their subcommittee did an investigation
that showed that Caterpillar (NYSE:CAT) spent $55 million on advice from
PricewaterhouseCooper that allowed it to avoid the $2.4 billion in taxes
and the subcommittee wants to argue that the IRS needs to tighten up,
Congress needs to, although that`s difficult to get anything through the
Congress given how divided it is right now.

MATHISEN: So, I guess he would say that there`s low odds that this
will lead to any kind of tax reform.

HARWOOD: Tax reform is going to be very difficult. You know, both
champions of tax reform, people I interviewed in 2013 who said that they
were going to each pass a piece of legislation in their chamber, Max Baucus
is now the ambassador to China, he quit his Senate seat and Dave Camp, the
Republican chairman of the House Ways and Means Committee just announced
today he`s retiring from Congress. That just tells you the outlook is very
bleak for any kind of bipartisan tax reform.

GHARIB: You know, John, for years, a lot of people, lawmakers in
Washington have been trying to get companies to bring their profits made
overseas to the U.S. and invest that money here. Is this at all connected
to that whole push?

HARWOOD: Yes, and what the committee is arguing is that a shell
subsidiary was created in Switzerland that didn`t have any real business
function but solely for the purpose of coming to the United States and
having taxes paid on them. This is a continuing issue, both parties don`t
like it. Both parties raised questions about it, although their solutions
are different.

And I do think, even though the near-term outlook for corporate tax
reform is bleak over the longer run, this is accelerating a conversation
that will probably play out over the next several years in Congress and who
knows, maybe within five or six years, something will get done.

MATHISEN: John Harwood, from a very nice-looking nation`s capital
tonight, where it was snowing yesterday when I was down there. John, good
to see you.

GHARIB: And coming up on the program, the banking industry has
undergone big changes since the financial crisis, but what other
transformations are in store? We`ll hear predictions from some banking
industry leaders.

(MUSIC)

GHARIB: And finally tonight, the financial crisis is behind us now,
and the nation`s big banks have a laundry list of new regulations aimed at
making sure the sector is safer than it was before. So what might the
future of the banking world look like?

Kayla Tausche takes a look.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Four years after the banking reform bill was passed in Washington, much
about the way large financial institutions are run has changed. New
capitol standards mean banks have more cash on hand and are largely
insulated for major downturns in the market. In response, Wall Street
flood from risky investments, like the subprime mortgages that brought the
U.S. financial system to its knees.

FORMER SEN. CHRIS DODD (D), CONNECTICUT: I think the financial
system is safer and sounder today than it was in `08.

TAUSCHE: But many policy makers say Wall Street hasn`t changed
enough.

SHEILA BAIR, FORMER FDIC CHAIR: It`s these very large institutions
that are highly interconnected, huge derivatives Web site. That`s the key
problem that`s too big to fail.

TAUSCHE: The Federal Reserve`s latest round of stress test may have
thorn that out. Citigroup (NYSE:C), the country`s third largest bank by
total assets failed on a straightforward mark auditing. Bernie Frank, co
architect of the Dodd Frank reform bill said that might not be bad. The
bar he says is high.

FORMER REP. BARNEY FRANK (D), MASSACHUSETTS: It shows that they have
led by the rules to toughen themselves up, and even Citi, although they
didn`t get everything they wanted in terms of dividends, et cetera, was in
better shape than it would have been years ago.

TAUSCHE: In new technologies also mean new hurdles for regulators,
innovations in online banking and payments bring new threats. Cyber
security now seen as one of the major challenges for the industry today.

THOMAS CURRY: That is a major challenge for the industry and for the
regulators to make sure that our banking system is resilient in face for
these threats.

TAUSCHE: Even as Washington works to protect consumers, regulation
always has unintended consequences.

TIM PAWLENTY, FINANCIAL SERVICES ROUNDTABLE CEO: It`s going so far
that it`s beginning to impede upon their ability to focus on innovations,
strategy, business operations and all the other elements that are necessary
for leaders and board of directors properly guided businesses.

TAUSCHE (on camera): Here at the future of national banking
conference, attendees have expressed mixed feelings how this wealth of new
regulation will be. One thing both sides agree on, we won`t know for sure
until the next financial crisis.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche, in Boston.

(END VIDEOTAPE)

GHARIB: Do we really need another financial crisis to solve these
problems? I hope not.

MATHISEN: I hope not. I hope not.

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie
Gharib. Thanks so much for watching.

MATHISEN: And I`m Tyler Mathisen. Thanks for me as well. Have a
great evening everybody. We hope to see you back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by CQRC
Transcriptions, LLC. Updates may be posted at a later date. The views of
our guests and commentators are their own and do not necessarily represent
the views of Nightly Business Report, or CNBC, Inc. Information presented
on Nightly Business Report is not and should not be considered as
investment advice. (c) 2014 CNBC, Inc.

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply