Focus: Morgan Stanley & Warren Buffet
>> ford revising its profit forecast saying that for the second quarter is expects to earn from zero to 15 cents a share. previously, the company said the forecast was zero to a 15-cent losso the company, for the second quarter, revising the forecast higher. ford’s new forecast, it says, is due to earlier receipts of a tax refund. the full-year forecast remains unchanged at $1.25 to $1.55 per share. the company saying the new forecast is due to an earlier receipt of a tax refund. in the meantime, morgan stanley chairman and c.e.o. phil purcell making its first public presentation today since appointing awe new management team in march. he told investors at a u.b.s. financial services conference in new york that morale at the firm is good. allan dodds frank joins us now with the story.
>> phil purcell told investors that he tried to minimize breakage when he installed a new management team at morgan stanley in march. today, the new two co-presidents and firm’s chief financial officer helped purcell assure investors that morgan stanley is on track. since some high-ranking former morgan stanley officials began publicly attacking his eight-year reign, purcell has been on the defensive. after purcell came under attack; the board eliminating a bylaw that required a 75% vote to remove him. here, purcell talks about the impact of the spinoff.
>> it has been a source of earnings and capital to the consolidated firm and high returning business in its own right so we will feel the impact of the spin on all of those fronts. however, we believe that all the steps we’ve taken to integrate our securities business and align our management structure will ultimately result in returns above our peers.
>> purcell also cautioned that the operating environment in the second quarter could be% difficult and that the firm’s margins in the brokerage business need work. we spoke with two investors whose firms hold morgan stock.
>> we reaffirmed my faith in their global franchise because i think that’s where the futures and i think they clearly have the right strategies overseas and that’s going to be one of the key drivers of the business in the future.
>> he basically glossed over the criticisms at the meeting and in the next year, you will―he glossed over underperformance and turnover and low moraleund you’ll know in the next 12 to 24 months when stock markets pick pick up and deal making picks up, they’ll fall behind and it will be gleerl in earnings releases.
>> purcell’s presentation ended just before the market opened. during the day, the stock was down as much as $1.40 and closed down about 2.6% or $1.33 a share.
>> thanks so much. also making news today, warren buffett’s general re faces growing pressure from regulators. the securities and exchange commission will probably pursue lawsuits against several executives of berkshire hathaway’s reinsurance company according to a person familiar with the probe. su keenan follows the story and joins us now.
>>. su?
>> federal regulators are trying to find out if executives in general re helped a.i.g. misstate finances with a type of reinsurance used to smooth earnings. emory university’s al hargraves, adviser to the enron bankruptcy examiner, says the investigation is unique.
>> you have a company that is normally a reinsureer buying reinsurance from a company that normally buys reinsurance coverage so one could say it’s bass ackward so general re is playing the role you would expect a.i.g. to play and vice versa and that in itself probably piqued the interest of investors.
>> persons familiar with the probe say a.i.g.’s former chief and former vice president received the wells notice. former law professor at columbia says the s.e.c. uses such a document to inform people a lawsuit is likely.
>> all of these cases involved a familiar pattern of plea bargaining, starting low and working up. i think the government is at a high level at general re but what it chiefly wants is testimony against both mr. greenberg at a.i.g. and others who may still be holding high managerial positions at a.i.g. that seems to be the number one target.
>> general re, nation’s biggest reinsurer, is owned by warren buffett’s berkshire hathaway. last month, the company said buffett had no knowledge of wrongdoing. an attorney who previously worked on the s.e.c.’s enforcement division says regulators may be preparing for the next move.
>> one question that opens up is whether the corporation itself, general re, will be subject eventually to s.e.c. action. the more senior managers you have involved in improper conduct, the more likely it is for the corporation itself to be sued by the s.e.c.
>> according to the person familiar with the investigation, a number of current or former executives are likely to receive notices. the story we’ll continue to follow.
>> thank you very much. when we return, a close look at oil.
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Listen Market briefing --- Ellen (slow)
Cisco --- Bob (fast)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)
i’m ellen braitman. cisco reporting fiscal third-quarter earnings about an hour ago. bob bowden is breaking down the numbers and joins us now. bob?
>> thank you, ellen. the headline is isat cisco reported operating earnings of 23 cents a share, up 21% from the 19 cents a share in the same period a year ago. it’s the seventh straight quarter of at least 20% profit growth. most investors said -- 10% improvement over the same quarter a year ago. the 6.19 was 30 million over the analysts’ estimates. as far as comments in the press release, cisco offered this -- we are maticle mon says he hopes he will hear on the conference call what cisco will do to make effective use of the cash. gross margin reported 66.7%, down 2% from a year ago. we’re seeing right now cisco systems shares up 14 cents at $18.35. checking networking stocks, there’s a rally, particularly in 3com, up 17 cents. tellabs, up four cents. a program note, c.f.o. dennis powell of the company, cisco systems c.f.o. dennis powell will appear on bloomberg television at 10:00 a.m. new york time tomorrow, the wednesday edition of bloomberg’s morning program.
>> certainly a lot of news today, besides anticipating cisco stocks ending the day lower. the closing numbers for the major indexes, dow, s&p and nasdaq all trading lower. the drop in stocks helping to push bonds higher. another reason treasuries rose. demand at an auction of $22 billion in 3-year notes surged, coming in at highest since the government resumed sales of the security in 2003. the 10-year note up 19/32, yield at 4.2%. on the shorter end of the curve, the gain of 5/32. stock indexes closing near session lows with concern on higher oil prices and hedge fund activity.
>> hedge funds may be taking on it too much risk, a wild card in the market moves today. michael driscoll telling us there are serious concerns. there are 9,000 hedge funds out there and there aren’t that many smart people in the world. all 24 groups tracked on the s&p 500 declined as the price of oil remained in focus, moving above $52 a barrel. investors are concerned economic growth may be slower than forecast. higher oil prices take a bite from corporate profits and has some investors worried that the market ‘s three-week rally may end.
>> i think we’ve quoten to the―gotten to the point that it’s more evident that higher energy prices are with us.
>> among loser, delta air lines falling 14%. higher fuel costs hurting delta and other airlines. delta may i have to file for bankruptcy.
>> all the airlines are having problems and higher oil prices exacerbates those problems. you’re really going to have to go through a period of consolidation or some of the players will have to leave the market to make it a more profitable business.
>> shares of priceline.com fell as much as 14%. the online travel company said second-quarter sales will be less than forecast. piper jaffray says growth is declining for the ont travel market . the pharmaceutical group saw earnings shortfalls. bristol-myers squibb closed down after the company set aside more money to settle lawsuits. bristol-myers squibb closed down near 1.5%. technology bellwether cisco affecting trading sentiment tomorrow.
>> indeed, thank you very much. to get more on the trading action today, here’s a report from deborah kostroun at the big board.
>> three things impacting the market today. that was oil, the economy and also speculation about hedge funds. all 24 industry groups in the s&p 500 were lower. looking at how the best gainers in the s&p 500 fared. best gainers lower, as well. real estate a little bit lower. autos and household products, some of the best performers. look at the lagars in the -- laggards in the s&p 500, insurance and diversified financials and energy wreaking havoc. concern that oil prices hovering above $52 a barrel and may slow economic growth more than forecast. oil was above $53 a barrel but ended the day above $53.10. speculation that hedge funds may be taking on too much risk, weighing on share prices throughout most of the day. there was talk that hedge funds may be trading on stocks because of trading decisions gone awry earlier this year. michael driscoll saying people are waiting for a blowup but conjecture out there today with serious concerns. remember, there are 9,000 hedge funds and not all of those people may be smart. delta air lines, biggest drop on the s&p 500 on the day. the number three u.s. carrier said in a filing to the s.e.c. that they may not be able to generate enough cash from operations to meet their needs for this year―the last nine months of this year. boeing at its highest level in four years. we’ve been talking about boeing for the past several days, hitting on all these new highs. this is the best gainer in the dow jones industrial average and one airline agreeing to buy 16 aircraft. i’m deborah kostroun at new york stock exchange for bloomberg news.
>> at the nasdaq, transports led the decline. robert gray has details from the nasdaq marketsite.
>> concern over higher fuel prices sending the nasdaq composite lower. concern that oil prices closing above $52 a barrel could slow economic growth more than forecast, a double whammy for transports, hit with higher fuel costs and the possibility of fewer goods to ship. sending transports lower, worst performing group in the session, down nearly 2%. it was a wide selloff. also tech-related shares falling. financials and insurance stocks lower. basically, all of the groups except for the nasdaq and biotech index falling. one of the worst performers in the group, e.g.l. falling on a profit disappointment. the company managing freight shipments for other companies. concerns over valuation weighing on this market . barry ritholtz with maxim group saying he’d rather see the market cheaper, stocks less expensive and stocks have been more sold off even than they have been before he would be aggressive and change the bearish stance. nasdaq composite falling nearly 1% today. x.m. satellite radio falling, saying its largest u.s. pay radio company saying american honda motor will sell as much as 12 million shares from its stake and receive $27 per share once the sale is settled. priceline.com falling on earnings and revenue. they sell discount travel services. first-quarter revenue coming in below the average analyst estimates. first-quarter net income falling 2.2% as they spent more to promote its european and hotel travel business. also seeing shares of emmis rising in the session as the company which owns radio stations in new york, l.a. and chicago hiring the blackstone group to evaluate the potential sale of its 16 television stations.
>> we have headlines crossing on fannie mae. representative richard baker of louisiana is saying president bush supports the house bill on a regulator for the government-sponsored enterprises―fannie mae, freddie mac. he says a full house vote is likely on the regulator by august. also requesting a pay review for fannie mae’s harold raines. in the meantime, morgan stanley embattled chief executive telling investors to focus on the company’s successes. are they listening?
