Market briefing---Lane (medium)
Freddie Mac---Carmen (fast)
NYSE---Deb (fast)
>> and welcome to “world financial report”. i’m lane bajardi in new york. we have breaking stories here. first of all, we have word that h. carl mccall is quitting the board of the new york stock exchange. more details on that as they become available. he was taking the role as the lead director before john reed was named as the interim chairman there. now, we also have a major earthquake in japan. a strong quake with the preliminary magnitude of 7.8 rocked the northern japan island of hokaido early friday morning knocking out power and starting a fire in an industrial area. this is a live picture of tokyo right now, what we see at the moment. the government warned local residents to avoid coastal areas due to the possibility of a tidal waive. it rocked buildings on the island and strong enough to rock buildings and shake books and other objects off of shelves. japan’s public broadcaster reported that at least several people had been injured and a fire had broken out in the city of tomakomai. black smoke and flames could be seen leaving the industrial area. in this live shot looking at tokyo, we do not see that type of situation. we’ll be keeping you updated on that. we’ll try to head to tokyo as well, find out what’s happening. looking at what’s happening here currency-wise, the yen, of course, moving lower initially on word of this earthquake. you can see how the trading is going right now. it seems to be a bit of a rebound from the low following that earthquake and the tsunami warning. executives from fannie mae and freddie mac testified on capitol hill as congress tries to tighten regulation of the two government charter qums following freddie mac’s announcement three months ago accounting errors led it to understatement income by 4.5 billion. it’s delaying until november the restatement of those earnings which may exceed the $4.5 billion estimate. carmen roberts has been following the story. she joins us with the latest.
>> freddie mac and fannie mae getting lots of attention because they own or guarantee 42% of the $7 trillion mortgage market, a market essential to housing and the u.s. economy. so when the accounting errors of freddie mac came to light it sent jitters through the government and the markets. freddie mac’s presiding director wants to reassure congress and investors.
>> freddie mac’s franchise is rock solid. our exposure to credit risk and interest rate risk remains extremely low.
>> today’s two congressional hearings focused on freddie mac’s accounting errors and a proposal to shift regulatory powers to two government sponsored enterprises from housing and urban department to treasury department. james dodi heads the investigation into freddie mac’s misstated earnings.
>> while we found misapplication of accounting principals we did not find rampant criminal product, we did not find miss appropriation of funds for personal gains or other wrongdoing.
>> dodi says its investigation found no evidence of fictitious profits or freddie mac? any financial trouble. those accounting errors have generated more calls for changing the way the two gse’s are regulated. treasury secretary john snow proposes create ag new regulatory office in his department, an idea supported by fannie mae and freddie mac at least to an extent. fannie mae c.e.o. franklin raines says it must avoid excessive or intrusive regulation. regulation in treasuries’ hands would be a positive move.
>> if the reg ray tore is perceived as weak then their debt would trade poorly in the marketplace and cost them more to raise money which they would be forced to pass along in the form of higher mortgage rates. so you take the other side of that if the regulator is perceived as strong and their debt trades well in the marketplace and can be issued at favorable rates, then that will benefit the consumer in the form of lower mortgage rates.
>> and or balk who does not own shares of freddie mac or fannie mae says congress would most likely approve the switch which would be a positive.
>> the company’s strong business model and their double digit growth potential supports his outperform rating on the stocks . credit suisse first boston has a banking relationship with freddie mac and fannie mae.
>> we’re getting more details onh the h. carl mccall and his resignation from the new york stock exchange where he was appointed in place of richard grasso. john reed named interim chairman said this week the board of the stock exchange should have 10 to 12 members instead of the current 27. mccall has sent out a letter that he sent to reed. he comments in the letter that he wants reed to move forward unencumbered here. he says disclosure is a good thing and that he urges reed to do whatever is necessary for new york stock exchange integrity. it’s a very long letter. he goes through it. he’s going to preside over the next meeting coming up on monday the 29th of september. and then that is going to be it for his tenure on the board of the new york stock exchange. of course, one of the questions that comes up now is who else is set to go? is h. carl mccall the first of several on the board who will decide to resign? that remains to be seen. we’ll be keeping an eye on the situation as we have been. stay tuned to bloomberg television for more. now, in the meantime demand for homes remains at record levels. consumers are still taking advantage of low mortgage rates here. sales of existing homes shot up 5.5% in august. this is a much bigger rise than economists had expected. resales account for 85% of the residential real estate market. separately the national association of realtors says sales of new homes last month rose 3.4% to an annual rate of 1,150,000. analysts had expected a slight decline from the july reading which was instead revised downward. with more now on how that impacted home building stocks , deborah kostroun joins us from the new york stock exchange. deb.
>> well, lane, for most of the session we did sehome builders performing quite well today. however, when we saw the market really selling off in the last hour, home builders really kind of went with it. so we did see by the end of the day home builders lower. in fact, you can see down .23%. just some minor losses there. if you look at some of the stocks , also closing lower, however, year to date i should mention this is one of the best performers year to date, the bloomberg home building index. year to date it is still up 47%, so well outperforming the rest of the market. and as we look at today’s session and also yesterday’s, you combine them. we have quite a bit of losses kind of stacking up, 150 points yesterday off the dow, 81 points today. eric thorne, he helps manage $1.7 billion at bryn mawr trust in pennsylvania. he says their basic view is that the market will likely be in a bit of a trading range between now and the end of the year as he also says it needs to consolidate and the good fundamentals need to catch up with the market. he also says, of course, the market goes up before the economy goes up, and also basic materials and industrials definitely areas that will likely do well. he also says that the market kind of needs a catalyst. and a couple of those catalysts likely could be job numbers and also energy prices would be two catalysts. remember, of course, opec yesterday cutting their production, sending crude oil prices higher. of course, we’ll get more insight into those job numbers next friday when we do have the unemployment report that will be released. back to you in the studio.
>> deborah kostroun at the new york stock exchange. now, kodak stock saw its biggest one-day drop in three years after the company announced its first dividend cut. kodak is responding to three years of falling sales which hurt its ability to pay debt and invest in its digital business. five years ago it was trading at $85 a year. it will stop invest nothing consumer film and use that money and dividend savings to invest in acquisitions and in digital photography, its new focus. chief executive officer daniel carp, met with investors today in new york to sell the companies new strategy.
>> we’ll redirect a good cash flow out of our business as the historic business tails off toward our investments in the future, with an objective of growing the company to about $16 billion by 2006.
>> critics seiko daked estimated the popularity of digital and failed to make up for a dropoff in consumer film sales. after the company’s announcement standard & poor’s cut its rating on kodak bonds to the lowest investment grade rating. bob bowden with more on kodak coming up in our next half hour of the “world financial report”. before that, stocks fell for the fourth day in five. the question is should investors expect more days like today. we’ll take a look at where stocks may be headed with joseph zock of capital management associates right after this. stay with us.
