tv Nightly Business Report PBS May 11, 2012 6:30pm-7:00pm PDT
>> this is n.b.r. >> tom: good evening. i'm tom hudson. j.p. morgan's big trading loss draws attention of the securities and exchange commission. >> susie: i'm susie gharib. banking analyst dick bove says the stock is still a buy, he'll tell us why. >> tom: and jobless benefits expire this weekend for tens of thousands of americans. we'll have an update. >> susie: that and more tonight on "n.b.r."! we begin tonight with j.p. morgan. investors dumped the bank's shares today, reacting to that surprising revelation of a big trading bet gone wrong. j.p. morgan stock plunged 10%. that sell off hung over wall street today. the dow lost 34 points, the nasdaq was almost unchanged and the s&p fell more than 4.5 points.
erika miller has a closer look at the potential fallout for j.p. morgan. >> reporter: j.p. morgan's $2 billion trading loss may bring back memories of the 2008 financial crisis. but this time, most analysts think the damage will be contained. the situation today is quite different than 2008, when most big banks were massively overleveraged and had far less reserves. for that reason, there's less risk to the banking system. let's be clear: a $2 billion loss is nothing to sneeze at, but it's less than 1% of last year's pre-tax profit. so the embarrassment will likely last longer than the damage to its balance sheet. >> it's a financial hit and it's a reputational hit. the financial hit is about $2 billion and the reputational hit may linger for years. >> reporter: j.p. morgan stock got slammed today. and its rivals citigroup, morgan stanley, and goldman sachs also fell sharply. >> investors are worried about
what other banks are doing in terms of their hedging strategies. they're going to have to disclose their hedges as well and there's a lot of uncertainty out there. >> reporter: j.p. morgan says it's trying to fix its mess. but the loss is still expected to hurt earnings for the second quarter, ending in june. erika miller, "n.b.r.," new york. >> tom: still ahead, we'll take you to one of the nation's top business schools, where finding a summer job can be tougher than understanding accounting. "nightly business report" is brought to you by: captioning sponsored by wpbt >> susie: coming up, we'll have
more analysis on our top story-- that huge trading loss at j.p. morgan. noted banking analyst dick bove calls what j.p. morgan did wrong and a big mistake, but he's still recommending the stock. tom, we'll talk with him in just a moment. >> tom: susie, the securities and exchange commission is reviewing the j.p. morgan surprise. already, the loss is fueling the debate over banking regulation and more specifically the volcker rule. >> tom: that's the rule named for former federal reserve chairman paul volcker and it would stop a federally insured bank from making speculative trades for its own profit. darren gersh has more from washington. >> reporter: j.p. morgan chase c.e.o. jamie dimon has been one of washington's toughest critics. he's taken on the volcker rule, arguing its author doesn't understand markets. today, dimon's critics struck back, using j.p. morgan's trading loss as proof the bank knows less than it thinks and the law is needed to protect taxpayers. >> if you want to be the head of
the hedge fund, be the hedge fund. separate yourself from the banking community. terminate your access to the discount window, terminate your access to insured deposits and then we have no quarrel. >> reporter: the senators who helped write the volcker rule argue it should have prohibited the kind of trading strategy that cost j.p. morgan $2 billion in losses. and they used the loss to beat back the anti-volcker lobbying effort. >> wall street is spending a fortune here trying to water down the language of this law which is clear, they're trying to wriggle out of from under it, and it should not permitted by the regulators. >> reporter: critics of the volcker rule say it is still too complicated to work. and they say the $2 billion j.p. morgan loss is a small fraction of its $2.3 trillion in assets, or less than 10% of the bank's pre-tax profits. >> if anything, i think the lesson to this is that banks can take multibillion dollar losses and it's not an issue for the system. we didn't throw taxpayer money
at it, so this is a perfect example of this is how the system's supposed to work. >> reporter: that's not how many in washington will see this. j.p. morgan has lost not just money, but a lot of credibility when it comes to lecturing regulators about safe banking practices. darren gersh, "n.b.r.," washington. >> susie: joining us now, richard bove, veteran banking analyst at rock-dale securities. dick, the title on your report today about jpmorgan said, "this is demoralizing." and yet, you're still recommending the stock so tell us why. >> well, it's demoralizing because we've seen this enormous improvement in the quality of bank balance sheets over the past three years, and we see their earnings go up, their dividended go up, the stock buy-backs increase, and now all of a sudden we've been thrown right back into the swamp and we're going to deal with, you know, congressional investigations, et cetera, et cetera. so it is demoralizing. >> susie: well,un, american taxpayers and lawmakers, like you said, they're going to have hearings, want to look into why this premiere bank messed up.
so do you think that this is the beginning of some fundamental reform for banking? >> well, i think, you know, we're going to continue the fundamental reforms that were put in place. i think, you know, basically we slowed them down a bit because the regulators thought we were going too far, too fast, but now i think they'll accelerate the process and we'll be, as i say, back talking about all these issues about too big to fail, the volcker rule, a whole series of other things glue going back to the stock, though, in view of all of this, this will be a lot of controversy swirling around jpmorgan in the coming weeks and months, you still like the stock so why is that? >> well, very simply, they should earn $18 billion this year, and next year they should earn $22 billion. they've got a dividend which is well protected, which is rising, and a yield of 3.3%, given the devastation in the stock today. their book value is going up. their-- they've got a $12
billion stock buyback program. so this is a terrible event. i don't want to downplay it in any fashion. but the fact of the matter is the company has more than enough in assets and in earnings to go right through. >> susie: looking at some of the broader questions, though, so here's jpmorgan, this really top bank, and this whole incident about the bad bet didn't have anything to do with the rogue trader or anything like that. senior management knew about this trade. so it makes you wonder about the risk trading strategies at these big firms. do you think this has to change? i don't think it can change. i think that basically speaking, if you think about it, you know, the company is losing $2 billion this quarter, a billion next quarter, on a $456 billion portfolio. so it's less than seven-tension of 1%, less than one-tenth percent of the company's total assets.
it's a big market. it's a huge market in which trillions of dollars are traded every day. you cannot avoid losses, and the losses are going to be sized to the market they're dealing in. >> susie: i get what your saying on that, but it is a big, black eye for jpmorgan and the banking industry. you heard our waington report. do you think this coal verrule will make things better or are there unintend consequences that come from new rules and regulations? >> unfortunately, while the volcker rule is well intended, it's impossible to put it in place. therefore, the reason why it was pushed back for two years is because the regulators could not come up with a well-defined rule, and i don't think that's changed at all. i don't think you can create a volcker rule and, therefore, there may be a lot of conversation about it, but i don't see it happening. >> susie: all right, always nice seeing, you, dick. richard bove, of rockdale securities. >> thank you, susie.
>> tom: the drama continues surrounding the bailout of greece's failing economy. fitch ratings today warned the rest of europe, that all countries in the euro-zone could face ratings action if greece leaves the e.u. fitch says if it happens, e.u. countries will be put on watch for a possible downgrade. that warnings comes as greek politicians failed to form a new coalition government. that means they'll have one more chance to form a coalition before elections are called next month. >> tom: this weekend more than 200,000 americans will be cut off from long term unemployment insurance. a federal program providing benefits for up to 79 weeks is expiring in eight states tomorrow, because the economy is
improving and the unemployment rate has fallen below certain levels in these states. about 20,000 people in illinois will lose benefits. the unemployment rate in illinois remains stubbornly high. it's just under 9%. chicago's jane adams resource corporation trains workers for a variety of jobs. the director of job training says there's still hope for people exhausting benefits if they update their skills and want to get back to work. >> what i can't do is train someone to have a good attitude and show up everyday on time. so, if people are coming in with a good work ethic and a good attitude we're able to find them jobs if they can get the skills that they need. >> tom: diane eastabrook joins us from chicago. diane, do employers look down on job candidates who've been out of the workforce for several months? >> i think a lot of employers realize that this has been a recession unlike any that we've seen in our lifetime, at least. and a lot of people have been out of work for a very long time. and so, if someone has been unemployed for a while, they've
taken the time to go back and get retrained and they have good skills, these employers are willing to hire them. >> tom: diane, illinois unemployment rate we mentioned around 9%, the national rate closer to 8%. but still, about 40% of those folks have been unemployed for six months or more, long-term unemployed. is retraining possible? >> there are people out there who have been out of work four and five years, and some of those people have very low skills. they went from job to job, and those people may have some difficulty getting back into the workforce. and also keep in mind there are some psychological barriers out there. we have people who have maybe lost their homes. they were living with relatives. there are people living in homeless shelters. i talked to a soup kitchen this morning, and the woman who is the director there says she is seeing a lot more people coming in and getting meals because they've exhausted their unemployment benefits weeks ago, months ago. they've basically given up looking for jobs. and so those people may have a difficult time getting back into
the workforce. >> tom: good perspective there. in chicago tonight, our midwest bureau chief, diane estabrook. >> susie: tom, here on wall street it was all about banks. that big news about jpmorgan that we were talking about, and the sell-off that came with it. and other banks got dragged down as well, which i'm sure you're going to report about in the market focus. >> tom: yeah, the market focus was all on financials today because of the big surprise that came in late yesterday. they're trying to price in now the clear risk that jpmorgan had taken on and now admitted to with its admission late yesterday. susie, let's go ahead and get
updated with tonight's market focus. big banking stocks suffered the brunt of the selling today. the s&p 500 started sharply weaker, recovered by mid-day, but the buying interest waned throughout the afternoon with the index ending down a fraction. trading volume was flat on the big board with 785 million trading. nasdaq volume shrank to 1.7 billion shares. for the week, all three major indices are in the red. the dow saw the strongest selling, down 1.7% this week. the nasdaq fell by 0.8%. the s&p 500 shed just over 1% since last friday night. dragging on the market today, financial stocks. the financial sector down more than 1%. with oil prices continuing to cool off, the energy sector fell more than a half percent. material stocks saw more muted selling. the carnage was concentrated with j.p. morgan, dropping more than 9%, carving out about $14
billion of market value from the bank. its the lowest price since the middle of january. technology was finding buyers. semiconductor maker n-vidia helped improve the tone of that sector. while earnings were no surprise, its earnings and revenue outlook were strong thanks to demand for smartphones and tablet computers. shares were up more than 6%, reversing some of the selling pressure its been under since february when it warned of weaker sales. telecommunications gear maker ciena is seeing more business. verizon announced today it is using ciena gear as it expands its fiber optic network. shares were up more than 8.5%. oil prices continued cooling off as the dollar keeps strengthening over concerns about the euro. crude fell almost $1, settling just above $96 per barrel. prices were $105 per barrel at
the beginning of this month. there are mounting questions about chesapeake energy tonight. the company alerted investors it would be late with its quarterly regulatory filing. but it filed the report later in the afternoon. that report indicated it may delay some asset sales. those sales had been eyed as sources of cash to keep drilling and pay down debt. all this comes as c.e.o. aubrey mcclendon continues under fire for personally owned portions of wells owned by the company. the stock fell almost 14% on heavy volume. the selling takes shares to a new three year low. in our exchange traded fund market flash, you can see the impact of j.p. morgan with the financial sector fund falling more than 1%. the emerging markets fund also shed more than 1%. and that's tonight's market focus.
>> susie: all week we've been looking at the summer job market for america's youngest workers: teenagers. tonight, we ratchet up the age and pay grade and focus on m.b.a. students. the summer between the two years it takes to earn a graduate business degree is critical. suzanne pratt tells us why. >> reporter: at columbia business school, summer break is just days away. but, first year m.b.a. students are gearing up for summer internships, not summer fun. and, even though more firms are employing future m.b.a.s, this year than in the recent past, finding that job is no easy "a." julia werb says her search took six months from start to offer. >> i think it was a little bit
more time consuming than i anticipated, but i think the process for both students and companies is you want to find a really good fit. >> reporter: jonathan taylor was a bit luckier, getting a job in finance at a tech firm after only four interviews. >> it didn't get in the way of my studies, it definitely sort of wore on me at times, particularly for someone who was going to a nontraditional path. it took a lot of brainpower. >> reporter: for future mba students the summer internship is especially important because the majority of them get permanent job offers from the same companies. in a tight labor market that summer job can be even more valuable than a diploma. business schools says companies view the internship as an opportunity to screen for the best workers. >> the summer job, the three months of kind of trying out. they get paid for it. but, it has become the entree into the permanent job for a lot
of companies and they use it that way. it's almost like a three month interview. >> reporter: and, no wonder the vetting process is so long, after all a summer internship often means more money for students in the long run. >> if you have an internship you're more likely to land a job. and, when you land that job you're salary is likely to be higher than your counterpart, someone else in your class that didn't have a job. so internships are really key. >> reporter: of course, there are some students that are so happy to find their dream job, they'd even work for free. take rebecca kanan, who will be interning in the wine industry this summer. >> i'm getting paid. it's amazing. i can't believe someone will pay me to do something i love. it's amazing. >> reporter: that's the way it should be. suzanne pratt, "n.b.r.", new york. >> tom: fear is fogging investors decisions. that's the assessment from tonight's market monitor. duncan richardson is chief investment officer at eaton vance management.
he joining us from that firm in boston. so, what are investors so scared of? >> it seems like the same things we've been scared of the last year, even for the last three years. europe is high on the list. deflationary implications of debt. and there's fears about the economy and political uncertainty. >> tom: are any of those fears well placed in your assessment? >> i think it's been a bit overdone. i mean, some of the action in the market today with jpmorgan is indicative of that. some of the concerns are being reflected, particularly in the bond market, that the notion that the 10-year treasury is selling at the yield is really suggesting a fairly deflationary action is already being priced in. >> tom: so with that in mind, then, is that how this fog is manifesting itself? investors have an attraction to the return of their capital, not just on their capital? >> yeah, the fogginess seems to be-- the fear is driving people to do some funny things. there's been a tremendous flow
of assets into fixed income securities over the last three years. over the last three years, somewhere close to $1 trillion has gone into fixed income funds. that's all with the 10-year treasury below 4%. that may be not so good if we actually get inflation taking hold. we stabilize, and start seeing a rise in rates. >> tom: stock fundamentals, meantime, we're just coming out of the first quarter earnings and look ahead to the rest of the year. profits have been pretty healthy, a lot more healthy than we anticipated just six weeks ago. >> yeah, the fundamentals-- and people aren't really focusing on that. when the fear goes down, the fundamentals will take more of a roll. and with almost 90% of the companies reporting earnings, something like two-third of them have exceeded want expectation. we see a lot to like particularly in the fundamentals. >> tom: we saw the move into technology today, in part a reaction to jpmorgan, as you mentioned here. you like this sector somewhat.
what tractus to technology? we'll use the exchange to illustrate that. what attracts you to technology with this environment? >> we particularly like the valuations there and the higher growth prospects. i think we probably are facing a little bit slower economic growth worldwide. the recession in europe may weigh on u.s. growth. but in technology, you can grow companies' revenues and earnings greater than the economy. that's an area that is interestingly an increasing source of dividend, too. we saw apple pay a dividend in the last quarter and that's the area year over year that has been the most percentage increases is dividended initiation. a lot-- apple followed the example of a lot of companies over the last eight years that have changed their dividend policies and paying out more of their cash. there are very cash-rich balance sheets in the technology sector. >> tom: you also like health care, an area that is defensive in nature, no doubt, and has kind of benefitted to some
degree from some of the fear in the market over the past several months. >> yeah, we've liked that. it does have some defensive characteristics. there's an awful lot of income there. there are very strong companies generating strong cash flow. they're increasingly using that cash flow to buy back stock and increase the dividends. that's an area where you've got twice the dividend yield of the market itself. and throughout the market, the s & p 500, oaf half the stocks within the market pay a dividend yield greater than 2%, which is where 10-year treasuries are. >> tom: the last time we caught up with you was in december of last year. you also liked health care then and added energy. they have been splitinmance. obviously, you like health care. how about energy? >> energy has underperformed a little bit. that's another attractive area for yield. it will be a big upbit more volatile area. we think in the long run there's a lot to like in some of the energy stocks, particularly the big innovators at this point. >> tom: we used the e.t.f.s
to ill stray the sectors. do you have positions in fund? >> woo don't in the e.t.f.s but certainly in the underlying stocks. >> tom: great, glad to see you and hear update, duncan richardson. >> thanks for having us on. >> susie: next week on "n.b.r.", the agriculture economy. monday, we head to cattle country and visit omaha steaks to find out how it's dealing with rising food costs. we'll get a read on the american consumer, from april's retail sales numbers, to earnings at wal-mart and home depot. and we could see facebook's i.p.o. as early as next week. we'll be tracking it's path to becoming a publicly traded company. when it comes to selling a product or service, some of the best sales reps might not work for the company. tonight, lou's been thinking about customers as sales people. >> one evening, after a long day of travel, i decided to treat myself to hotel room service.
the young man who came to my door a few minutes later was as much a showman as he was a waiter. he motioned me to the table near the window, snapped open a white table cloth, draped a napkin across my lap and served the food with a flourish and a smile. he stepped back like he was in a fine restaurant and asked if he could do anything else for me. "no," i said, "this is wonderful." "would you do something for me, then," he asked. "we're trying to improve our service and would appreciate it if you filled out this survey." wow! but here's the rest of the story: some months later i was hired to speak at several conferences and one was in the city where the waiter had dazzled me. the meeting planner called me and asked: we haven't chosen a hotel yet for our five-day meeting. any ideas? in an instant, i become their non-commissioned sales person. if you are involved in business today, ask yourself: are you serving your customers when you could be dazzling them? are you asking customers for ideas to improve? are you doing what author tom peters called managing by wandering around so that you know what the customer experience really feels like from that side of the desk or
counter or table? all organizations need good salespeople. i just wonder if we have been ignoring some of our best ones because they aren't officially on our payroll. i'm lou heckler. >> susie: lou's also online at nbr.com. and tom, you'll be in las vegas next week at the money show. we'll be looking forward to your reports from there. meanwhile, have a fantastic weekend, everyone. >> tom: good night, susie and everyone. we'll see you online at nbr.com and back here next week. "nightly business report" is brought to you by: