Interview: Chief Executive Juergen Schrempp on North American factories
>> we looked at the decline in oil prices and impact on stocks. let’s look at the specific trade. keep in mind, the decline of 1% takes crude oil from a six-week high, again, down 1% to 54.49. there is speculation there will be enough oil to meet demand from refineries dealing with surging fuel consumption. this is particularly closely watched as we are in the summer driving season. among the other energy movers, gas futures down 1.8% today. however, heating oil as well as natural gas futures on the rise. heating oil up 1% and natural gas futures up 3.5%. daimlerchrysler said it will invest $40 billion in north american factories in the next five years. chief executive juergen schrempp spoke in washington today, saying the move was designed to promote its commitment to america.
>> now and most importantly as chrysler succeeds and it is reinvesting tens of billions of dollars to update plans in existing communities across industrial america from which it will produce a virtual avalanche of exciting new product.
>> schrempp did not disclose specific details but the investment will include improvements and training for the chrysler, freight liner and mercedes-benz unit. schrempp is trying to shore up earnings after the first-quarter profit fell. the shears at the close show little change. coming in extended hours were earnings from bob evans, the restaurant company saying fourth-quarter earnings per% -share were 16 cents.% saying earnings may improve later in the year. however, the company did say it sees first-quarter earnings down significantly, it sees reducing to 20 the new bob evans’ unit openings for fiscal year 2006. those shares down 7.6%. also in extended hours, we did get earnings from cmgi. the company said third-quarter profit came in at four cents a share, third-quarter operating loss, $1.9 million and the company saying third-quarter profit, if you exclude items, $4.4 million. banc of america securities chief investment strategist tom mcmanus recommended investors reduce u.s. stock holdings, giving two reasons. he expects pressure on earnings and anticipates interest rates will rise. he lowered his weighting of stocks to 55% from 60%. the increase of allocation for cash was to 30% and his weighting on bonds is unchanged. fed chairman alan greenspan takes centerstage this week, speaking tonight via satellite to a brookings institution panel about chinese banking and then greenspan heads to capitol hill on thursday to testify on the state of the economy. he will likely suggest the 10-year yield is much lower than it should be. the last time he testified to congress, he called the low 10-year yield a conundrum. that was back in february when the yield was about 4.1%. by the end of march, yields climbed to nearly 4.7%. however, look at what we have now, below 4%, 3.95% is the yield on the 10-year treasury, trading near one-year lows. some investors saying they’re reluctant to buy this week when greenspan testify it’s economy. taking a check of currencies right now, if we can bring it up for you. we’ll bring you an update instead on the european union’s constitutional vote. the u.k. has defended its referendum on the european union constitution. foreign secretary jack straw telling members of parliament in london today he would not press ahead with planned legislation to hold a referendum. the u.k. defying calls from germany and france for the ratification process to continue after boat french and dutch voters rejected the treaty. here’s that check of currencies. the dollar traded lower today. the yen, in fact, now up about 1.7% against the dollar since june 1. it does come on speculation japanese economic growth is picking up. also making news, the securities and exchange commission may have belt tightening ahead. the agency’s budget shortfall will force the agency to cut back on hiring by 10%. that is according to the head of the securities and exchange commission’s los angeles office. the commission expects to be underfunded by $48 million this year. it comes after it misjudged security as well as construction costs. its budget will also be reduced 3% next year. the s.e.c. also looking to save money by limiting travel. in the meantime, mutual investors will foot the bill for following rules, prompted by the trading scanned scandal in the industry. many funds are passing on compliance costs to shareholders. p.n.c. financial services itid the survey found this to be the case with small and mid sized companies. 29% of fund companies have passed on the new compliance bills to customers and another 30% are considering toing the same. the rules came after the s.e.c. uncovered improper trades at a number of firms. steve jobs switching to intel chips for apple. june grasso has the story coming up.
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the move is made so washington mutual can enter the credit card business. first, let’s bring you the closing numbers for the stock market where the day ended with gains, bouncing between gains and losses before rebounding to end higher as oil prices retreated in the final two hours of trading. more details in a few moments. an executive at berkshire hathaway’s general re unit will plead guilty to charges stemming from a reinsurance transaction with american international group. according to his attorney, john holds worth reached an agreement with the department of justice and securities and exchange commission admitting to one count of conspiring to misstate a.i.g.’s financial statements. houldsworth is the first to face criminal charges in the federal and state probe of a.i.g. the plea may increase pressure on other individuals involved in the 4-year-old deal which triggered the ouster of a.i.g.’s chief executive hank greenberg back in march. for more on the stock market , deborah kostroun at the big board.
>> a lot of questions about where the economy is right now, specific given friday’s weaker-than-expected payroll report. a.g. edwards strategist scott wren saying investors seeking clarity on growth. he says growth is slowing and inflation is higher. he says typically there is a lot of confusion about the outlook for stocks at each stage of the economic cycle and seeing confusion there and actually, in fact, we don’t have a lot of economic reports this week. however, we have greenspan testimony before that congressional committee on the state of the economy. looking at oil, in fact, oil, what we did see, integrated oil stocks generally higher. kerr-mcgee a little lower but we did see a reversal on oil on the day, closing down at $53.47 a barrel. oil services generally higher, a few laggards, though in the session. best performers in the s&p 500 on the day, that was retail. also, wal-mart, one of the biggest leaders in the dow jones industrial average. dow laggards on the day, general motors, i.b.m. and hewlett-packard. of course, general motors, that was lower ahead of tomorrow’s meeting. in fact, they are holding their annual investor meeting tomorrow, biggest drop in the dow jones industrial average. also, i.b.m. falling on reports that apple computer, which has used i.b.m. microchips for 21 years, will start using chips made by intel. ford motor company, their offer to bail out visteon, was approved by employees represented by the united auto workers. ford to take over 21 plants from visteon. pfizer looking at a new use for viagra. pfizer won u.s. approval to sell viagra to treat pulmonary arterial hypertension. i’m deborah kostroun at the new york stock exchange.
>> and over at the nasdaq, google shares rose to yet another record and that helped lift the composite in today’s session. robert gray is standing by at the nasdaq marketsite with the report.
>> google shares rising to a new record in today’s session. r.b.c. capital markets raising their 12-month forecast to $330 per share for google. the previous forecast had been $280 a share. google has already eclipsed. that google trading to a new intraday high and closing at a new record, as well, in the session. u.s. web ad spending rose 26% in the first quarter according to a study by pricewaterhousecoopers and the interactive advertising bureau. staying in the internet group, ebay rising on a “barron’s” cover story, saying shares of the world’s largest internet auctioneer may rebound as the company reinvagueerates growth by earning more from electronic payments and drawing more shoppers online. that stock is down 30% year to date but up more than 20% from its lows on april 26. one of the big stories today, apple computer. apple changing from i.b.m. and freescale chips over to intel. the switch to intel for its macintosh computers may lead to cheaper laptops and extend gains in market share. also announcing today, c.e.o. steve jobs at their developers conference said they would be adding pod casting audio reports that users download into ipod from the itunes website. you see the effect on i.b.m. and freescale, as well. staying in the chip group, a.t.i. technologies falling on its forecast. it’s a graphic chips maker used in the xbox 360, cutting the third-quarter revenue forecast 5% below the low end of its revenue range and those shares falling. sandisk shares also falling. world’s biggest maker of flash memory cards for consumer electronics. merrill lynch cutting it to neutral from a buy on concerns oversupply will lead to a “sharper-than-expected price decline” and those shares falling on the day, as well. teva pharmaceutical falling. the world’s biggest maker of generic drugs said in an email statement it was reducing its second-quarter profit forecast four cents a share after an illinois court barred it from selling a slow-release version of abbott labs antibiotics, i haveaxin.
>> details in the banking industry, washington mutual buying providian financial for $6.45 billion in cash and stock, a 4% premium from providian’s closing price on friday. washington mutual, getting into the credit card business, but raising concerns.
>> not everyone in love with the deal. analysts say the nation’s biggest savings and loan is looking into the credit card business to reverse its year-long decline in profit. rising interest rates have hurt demand for mortgages which are washington mutual’s primary source of income. providian shareholders will get the equivalent of $18.71 a share, roughly 90% in stock with the rest in cash. credit card interest payments helped boost providian’s return on equity by more than 50% last year and that stock is up 20% in the last 12 months as a result. still, as you can see in the five-year chart, providian shares are far below the record highs from 2000 after its profits plunged. it’s also trading lower on the news of today’s deal, down from 2.5%. richard bove says there’s good reason for shareholder concern.
>> this is not a riskless acquisition. clearly, providian is a lower quality credit card company with a history of bad loans and you have to imagine that companies like citigroup, wachovia, j.p. morgan, looked at this deal and didn’t do it and therefore that’s the reason for the small premium on the acquisition because this is not, if you will, a high-quality purchase at this moment.
>> this is the biggest purchase for washington mutual in seven years, almost doubling its customer base, adding an additional 9.5 million households. the new york-based analyst at creditsights was also critical of the combination, saying “we don’t think washington mutual has the capital strength and liquidity strength to fight the credit card worse.” what asset management’s robert stovall, however, has a different view, he owns shares of washington mutual and likes the deal.
>> the consumer is now 70% of the u.s. economy, most of my career has been 60% and 65% and now the consumer is 70% and they do deal with credit-risk prone people on the side but i think it will add to volume and earnings.
>> shares down on the day. the merger to be completed by the fourth quarter.
>> that chart you brought up showed shares down 63% over the past five years. we want to bring in the bloomberg terminal to illustrate how that compares to competitors as well as the broader market . this is a five-year chart. the line in the middle is the s&p 500 down 18% over the past five years. credit cards caps the day -- capital one up 52% over the past five years, seen in green. mbna shares, in yellow, also up. but the line on the bottom of the screen with a 63% decline is providian. the company’s former chief executive failed to anticipate how many of the company’s lower income consumers would be affected by the slowing economy in 2001. his replacement, chief executive, joseph saunders, fought off federal regulators in early 2002 by signing an agreement to sell proceeds from $8.2 billion in credit card loans. while the move revived the company’s profit, the loans represented about 1/4 of the business and with the most credit-worthy customers and one% -of the concerns today among analysts and investors. we also have the biggest real estate deal of the year. prologis buying catellus development in a deal worth $4.9 billion, representing a 16% premium to friday’s closing price. as you see, prologis shares down 3%. coming up, as far as oil is concerned, all about inventories and demand from refineries. we will have details.
