Market Briefing---Bob (medium)
Winners and losers---Lane (medium)
NYSE---Deb (fast)
>> welcome back to world financial report. i am bob bowden. recapping the day on wall street it was red arrows across the board, the dow down 1.4%, 127 points down to 9,072. s&p 500 down 1.5%, down 14 points to 981. the nasdaq was down 2%, the biggest percentage loser of the three, down 34 points to 1,610. checking most active shares, lucent down 15 cents, tenet healthcare slashed their profit estimate saying the profits in april and may were only two cents a share, analysts expected 34 cents for the whole quarter. so earnings two cents in two thirds of the quarter is the announcement that tenet had. pfizer shares down 19 cents on the day. investors this week are focusing on the federal reserve’s two-day meeting on interest rates that ends on wednesday. most economists expect a rate cut. the question is how big? no matter what, there will be winners and losers in the financial services industry. lane bajardi has that story.
>> low interest rates orchestrate bid alan greenspan and the federal reserve have helped boost profits at many banks since early last year. now, though, some bankers say another rate cut would have the opposite effect.
>> lower interest rates from this point on would have a negative impact. i mean there is just no―there is just no way around the fact that we see some compression in our net interest margin.
>> montana based glacier bancorp isn’t alone. analysts say other regional banks and thrifts that depend on consumer loans have the most to lose if rates fall further.
>> falling rates actually hurt their profitability. most of them have core checking accounts and savings accounts which they can’t lower the rate on very much at all. their loans are variable rate in nature, and when they have to drop prime rates, it hurts their margins and their profitability.
>> analysts say the impact is already lowering net interest margins. the difference between what a bank earns and pays in interest. lehman brothers says the net interest margin for regional banks fell twice as much in the first quarter as last year’s second quarter. national commerce financial, north fork bank and su novus financial all saw margins fall in the first quarter. analysts and investors say retame brokerage charles schwab is also vulnerable to falling rates because of its money market business which accounts for an estimated 20% of revenues. they say lower interest rates could make money market yields less attractive to investors. in order to prevent an outflow of funds, analysts say schwab may cut its management fees on its money market funds. analysts estimate another 1/4 point cut in interest rates may cause schwab to reduce fees by 1/10 of 1%, resulting in what could be as much as a 20% drop in annual e.p.s. wall street firms with big bond businesses by contrast, are expected to benefit if rates fall.
>> i think the fixed income will stay strong for a long time unless rates go up quickly which i don’t think is going to happen.
>> analysts say bear stearns and lehman brothers are best positioned because of their large exposure to fixed income trading and underwriting. shares of both companies are up about 30% this year. analysts expect the strength to continue if interest rates moved lower. lane bajardi news.
>> lane berg, a spoxz man for charles schwab said the company would consider lowering management fees if the fed were to cut rates by more than a half point. a quarter point cut should have no impact on their earnings. for more on what traders will be looking for from the fed on wednesday we’ll go to the new york stock exchange where deborah kostroun is standing by. what’s the feeling like over there?
>> bob, i was talking to jim maquire of le branch specialists today. he said the market today, we were a little lower. he said some of the things we are kind of watching and waiting until wednesday afternoon until we glet a real read on interest rates and what the fed is going to do. he said we are in a vacuum now between now and when earnings start coming out, because the market really wants to see results, they want to see these earnings come in. he also says there is a lot of anticipation of whether companies will deliver to that bottom line. he also expects we are going to see a selloff and some pretty light volume with some choppy nervous trade between now and wednesday e also says a lot of other things coming up. in fact next monday is june 30th. we have the rebalancing of the russell 2000 also next week is a very short week in trading. so once we get to the end of the quarter, the end of the half year and also that rs el rebalancing likely to be not a whole lot going on after next monday’s trade before the july 4th holiday. obviously today we did see declines outpacing advancers here at the new york exchange by a three to one margin. 90% of the s&p 500 stocks falling today, about 87% of the 1.35 billion shares traded here at the exchange were lower. so in fact we saw our broadest decline since march 24th, and a lot of traders and even investors kind of looking at whether the fundamentals are going to be catching up to the valuation of the overall market. that obviously another theme in today’s session. pharmaceuticals at the top of the list for the losers in the s&p 500. big concern about merck and the u.s. attorney in philadelphia planning to su merck’s medco unit, this over pushing more expensive medications and cancelling orders to meet some deadlines. we heard about express scripts already under investigation. we heard that last week from the new york attorney general. so this is the second of the farm see benefits managers under investigations. healthcare distributors also sharply lower. these were among some of the biggest net losers here at the new york stock exchange. also financials in the spotligh spotlight. as we are talking about a fed rate cut, fannie mae, the big story was in the “new york times” citing money managers and accountants saying the company may have lost billions of dollars when interest rates dropped last year because of the complexity of their accounting. and, of course, fannie mae and freddie mac have been under the spotlight since freddie mac ousted three of their top executives. also bank stocks among some of the biggest losers in the s&p 500 ahead of this rate decision by the fed. of course really we didn’t see that many winners in today’s market, as it was obviously a lower day. back to you in the studio.
>> thanks, deb. deborah kostroun at the big board. shares of bellsouth rose in extended trading after the third largest u.s. local telephone company boosted its quarterly dividend by 9.5%. the company raised its quarterly payout by two cents up to 23 cents a share after the government cut taxes assessed to investors on the payments. dividend is payable august 1st.
