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Quest Means Business
Toyota Recalls Millions of Vehicles
Aired January 28, 2010 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Tonight, accelerating problems, Toyota recalls millions of vehicles from around the world.
The weakest link, the Greek prime minister tells speculators, we'll not be forced out of the Euro Zone. The finance minister says there will be no default.
And on this program, PepsiCo's chief executive tells me her new healthy food, it is time for a root and branch change.
It is snowing Davos, at last! I'm Richard Quest, I mean business.
Good evening. Live from Davos, I'm Richard Quest, QUEST MEANS BUSINESS.
Toyota, tonight, has recalled millions more cars to fix safety messes. Not only in the United States, it has uncovered problems with vehicles in Europe and seemingly, also, in China. Toyota says that in Europe it is still working out how many cars and what models it needs to put right. It is warning that accelerator pedals on certain vehicles can jam open, which of course, as you don't need me to point out, is a potentially disastrous problem. According to several reports, 75,000 Toyotas are being recalled in China. The RAV4 is the vehicle affected there.
And in the U.S. it is 1 million more Toyota owners that are being advised to bring their cars back to be fixed. That is due to a separate problem, in which floor mats are reported to have caused the gas pedal to stick. Late last year Toyota recalled more than 4 million vehicles to deal with the same problem.
We might not know yet exactly how many Toyota sales will be affected, the share price is telling us that investors fear a major impact. Possibly $500 million minimum. Shares in Toyota fell nearly 4 percent in Japan on Thursday. All together they have dropped 15 percent since the company said it was recalling 2 million cars in the United States less than a week ago.
In the dog-eat-dog business world bad news for one company means good news for another. Could Toyota's woes drive profits to other automakers? Automakers that may have problems of their own in terms of growth and restructuring? I put that to the chairman and chief executive of Renault, Nissan, Alliance Carlos Ghosn.
(BEGIN VIDEOTAPE)
CARLOS GHOSN, CHAIRMAN & CEO, RENAULT NISSAN: It is going to be short-lived. It is going to be on the short term. Probably some other car manufacturer can be engaging into it, we won't.
QUEST: Why not? Let's face it, if someone is down, give'em a kick?
GHOSN: You know what, I think the-our strategy in the U.S is a long- term strategy. You know, trying to get advantage of three or four weeks opening is not part of the tactics that we use.
QUEST: Let's talk about then what your tactics are, more generally, because the fascinating part is that China is not the largest single automobile market in the world. Now, even though one can expect the U.S. to recover the numbers and perhaps take that precedent, it does presage for the future a very different form of business.
GHOSN: No doubt about it, that in China it is going to be, anyway, one of the two largest car markets in the world. And this is a car market which is very recent. That means Chinese consumers are discovering new brands, they are discovering new cars. So, it is an open book. I mean, you can write the story now, in China.
QUEST: But when you write the book, does it necessarily-I mean, you can't write the end chapter, yet, though as to who will be the big players, the product that they want, and whether the product that sells well elsewhere will sell good in China?
GHOSN: Yes, well, you see, when I say that we are writing the book that means that the Chinese consumers are not deciding out of memory. They are deciding out of what they see in front of them. So it gives the chance for all the car manufacturers which are innovating and bringing new products, you know, to start on a, playing field, level.
QUEST: So, everybody starts from square one.
GHOSN: Exactly. Exactly.
QUEST: Which is a good and a bad?
GHOSN: It is good for Nissan.
QUEST: It's good for Nissan.
GHOSN: Yes.
QUEST: Let's talk about Europe. If there is ever one particular part of the world that has too much capacity.
GHOSN: Yes.
QUEST: That has too many cars chasing too few consumers, on a long- term basis it has to be Europe.
GHOSN: It is Europe.
QUEST: So, what are you going to do?
GHOSN: Well, you know, first you are going to have to continue to work on your capacity to reduce them. You want to reduce them by shutting down plants, by reducing them by reducing the capacity inside existing plants. And you want to make sure also, that at the same time you are doing this, you are supporting other markets, Middle Eastern market, African market, Eastern European market, by building plants in these markets.
So, longer term, does that mean fewer plants or does it mean a better use of the same plants?
GHOSN: I think it means a better use of the same plants, because I don't think anybody, any car manufacturer is going to be facing shutting down plants in Europe. In fact, there are plenty of opportunities to do it and nobody did it. And nobody did it for a very good reason, is it is the cost of shutting down plants in Europe would be very high.
QUEST: One of the big issues here in Davos has been the future of capitalism. So what is your definition, your vision of the future of capitalism?
GHOSN: Well, it is very simple. The future of capitalism is bright as long as you allow people to take risks and take responsibility for those risks. The future of capitalism is bleak if/or you don't allow people to take risk, or you allow them to take risk, but you don't hold them responsible and accountable for the risk that they're taking.
And I think the crisis that we are facing today-that is why there are so much question about it-is there is a perception that people took risks, recently, and they were not held responsible for the consequences of the risk that they were taking.
(END VIDEOTAPE)
QUEST: Both the news of the day and the big issues from Carlos Ghosn, of Renault, Nissan, Alliance.
A footnote to Toyota's problems. The gas pedals used in its cars isn't the only one found in Toyotas. Ford says it stopped Chinese production of a variant of the transit commercial vehicle, in China, after learning that the gas pedal comes from same supplier. Now, Ford may have had a bit of grim news on that, but there were reasons to smile otherwise. It reports its first full-year profits since 2005, Alan Mulally will like that. He pretty much forecast that. It settled on $2.7 billion last year. It expects to be profitable again this year.
You are up to date with one of the top business stories of the day. Still to come on QUEST MEANS BUSINESS, we'll be hearing from the Greek finance minister about the rumors of China. We need to catch up with news headlines, Max Foster is at the CNN News Desk.
(NEWSBREAK)
QUEST: We have much more on the program. We'll bring you up to date with how Wall Street is trading. The Greek finance minister on the problems of debt. And later, as well, Barney Frank from the U.S on what he can expect with bank regulation. QUEST MEANS BUSINESS, we're live at Davos.
(COMMERCIAL BREAK)
QUEST: In Europe stocks took a heavy tumble throughout the session; a bit like going down the mountains without skis, or with skis that have decided to break. Banks stocks bore the brunt. Traders are grappling with worries over national debt in the Euro Zone. We'll talk about that in a second.
Negative comments from Standard & Poor's about the U.K. banking sector, rattled. Shares in AstraZeneca fell hard in London after the drug maker disappointing earnings. AstraZeneca says it will slash its workforce by 8,000. The German industrial group, Zeeman's also said its cutting 2,000 jobs.
In the U.S. stocks also taking another tumble. Technology were the main decliners. Look at the numbers! We had profit warnings in the chip and telecom sector. Drag in the Nasdaq spreading to the broader markets, down 110, 10,125. I keep saying this all the time, that 10,000 is a little bit dodgy. At the moment we're off 1 percent.
QUEST: We need to put some perspective into this. Joining me now to discuss this, Howard Lutnick, the chairman of the brokerage firm, Cantor Fitzgerald.
Howard, always good to see you.
HOWARD LUTNICK, CHAIRMAN & CEO, CANTOR FITZGERALD: Great to see you.
QUEST: Look, the market is down. We can see that. The question we need to understand is whether it-is this a correction, is it a fissure, is it a crack?
LUTNICK: I think it is just going to bounce around. There really isn't good news out there to drive the markets much better. I mean, last year it was all about recovery? What are you talking bout this year? Fragile, worried, grief, there is so much out there it is just going to bounce around, slightly lower.
QUEST: With this in mind then, let's just put this in-you have also got Bernanke's vote, with the Senate. You factor in Obama's weakness on the jobs question. And for good measure a bit of bank regulation.
LUTNICK: A bit of uncertainty coming every where you look. So, there is just nothing out there that is going propel stocks higher. You have huge deficits everywhere in the world. It is just too fragile, so we're going to just drift lower. It is just going to continue.
QUEST: Well, hang on. Drift lower, or drift side to side?
LUTNICK: Well, I think it is got a downward pressure on it, but not huge. Nothing like it has been in the past, but just slowly, as it has been. I mean, how has the last week been? Slowly going down. Maybe even a little quickly going down.
QUEST: See the worrying part about that drip, drip, drip, is the earnings numbers that we've seen in the fourth quarter of last year. They weren't that bad. They were quite strong. There was good money being made by most companies.
LUTNICK: Yes, not bad earnings, but are you're not seeing the big revenue growth? Right?
QUEST: Yes.
LUTNICK: You are seeing loss, you are really seeing them get it in the back end, right?
QUEST: Yes.
LUTNICK: They're taking it in the back, by doing it cost-cutting, not big revenue growth.
QUEST: Talking about Davos. Now, come on, you have got your fingers well and truly on the New York financial pulse. Here, the bankers are out in force. And they are out trying to do whatever they can to convince regulars not to be as nasty as they can be.
LUTNICK: Right, I think actually the regulators and the bankers have come to an understanding that what the kind of capital they need; the kind of business structure that will work. And they have been working on that for a while. It is the political side that I think is catching the banks off guard. You know, the compensation issue is just not going away.
QUEST: What don't they understand about don't pay large-what are you doing in your firm? What is your philosophy on this compensation?
LUTNICK: Well, we pay percentages of what people produce. It is not very hard. If you make money for us, we pay it to you. But the problem the banks have is very simple, if they don't pay their talent-the hedge funds who are not in this law, and the private equity firms who are not in it, are going to take their talent from them.
QUEST: Is that realistic? Do you really believe that will happen in this environment? If the banks all basically say none of us are going to pay these ridiculous bonuses?
LUTNICK: Well, you've heard, right? People are saying all these banks are really substantially hedge funds. So, now you've seen substantially hedge funds, who is going to take their talent? Hedge funds.
QUEST: How damaged, weakened-I'm trying not to be too pejorative-in all of this, is President Obama, at the moment. Is he walking wounded?
LUTNICK: Well, obviously, you know, he's reeling from losing Massachusetts. So he comes back, does the populist thing. A stronger president, right, would lead, not follow the populists. So, you follow populism when? When you are little weak.
QUEST: Is Greece going to default?
LUTNICK: Not anytime soon. Not anytime soon. Nothing this year, nothing next year.
QUEST: Howard, we're going to talk Greece now. We're on to that one. Many, thanks, indeed. Safe journey back to New York.
LUTNICK: Thanks, Richard.
Let's talk Greece. Greece is insisting it will put its house in order and plug a huge hole in its finances all by itself. The Greek Prime Minister, George Papandreou told the World Economic Forum he would not ask the EU for a bailout. There was no question of Greece leaving the single currency area.
Finance markets have been signaling growing skepticism that Greece can get back on an even keel. Mr. Papandreou said investors have delivered a solid vote of confidence. A sale of Greek government bonds earlier this week was over subscribed, albeit at a higher rate. He dismissed a damaging report that Greece was sounding out China for a loan. Certain interests were using Greece to attack the Euro Zone.
(BEGIN VIDEO CLIP)
GEORGE PAPANDREOU, PRIME MINISTER OF GREECE: The problem we have, I see it as home-made. So we, Greeks, are responsible for putting our house into order. The Euro Zone will help us, in creating the necessary discipline to do so, and give us the motivation to do so. At the same time, what I also have seen, from this experience of the last few months, is that there is, as Mr. Zapatero said, an attack on the Euro Zone by certain other interests, political or financial. And that often countries are being used as the weak link, if you like, of the Euro Zone. So we are being targeted.
(END VIDEO CLIP)
QUEST: Those bond market vigilantes, those targeters, that Greek house is in need of some serious renovation. The root of the problem is that gaping hole in the budget. The government is simply spending far more than it has got coming in. The overspend was equal to nearly 13 percent of the entire economic output of last year. Look more at these numbers.
The financial markets, where government turned to borrow money, is making lending to Greece look a pretty poor bet. Several credit rating agencies says Greeks debt is low-grade investment. The knock on a bet is that household bills are going up, the cost Greece more to borrow funds. The government says it will narrow the deficit by spending less. A strict program of austerity, but that means, precious little to spend on comforts like public sector wages.
I spoke to George Papaconstantinou, the Greek finance minister, and asked him about the report which claimed that Greece was going cap in hand to China?
(BEGIN VIDEOTAPE)
GEORGE PAPACONSTANTINOU, FINANCE MINISTER, GREECE: Well, first of all, we had a very successful bond offering a couple of days ago. Went out in the market, expecting 3 to 5 billion, the book order went to 25 billion, we are now taking 8 of that, at the price, which could have been less, but that is what we have to pay at the moment to finance our debt. So, that is what really happened.
Now, what didn't happen, is we never asked, nor did we mandate anyone to ask for us, for any Chinese investors to buy Greek government bonds. I really don't where that story came from. And frankly, I have been forced, even today, to answer to a Chinese analyst saying that China is not willing to buy Greek bonds. We've never ask.
QUEST: Should you have asked?
PAPACONSTANTINOU: Every country is looking at diversifying its borrowing requirements. In that sense, and I have said, and I've said this for months now, we'll be visiting New York on a road show, I'll be doing the same in Asia. But that is part of any responsible government's diversification effort. That is where the story ends.
QUEST: So, no China, either interest, or lack of interest?
PAPACONSTANTINOU: Nothing that has been done, nothing has been asked for, nothing that-that has been on the cards.
QUEST: The price that you've had to pay for the financing operation, you say it is higher, and obviously it is higher because of the situation. That is an indication, isn't it, of the seriousness of your position. You are paying over the odds.
PAPACONSTANTINOU: Yes, we are paying over the odds. And that is because markets still not seen the implementation of our program. In a certain sense, our European allies, and the European Commission is convinced that we are moving in the right direction, markets are waiting to see the concrete steps. We actually started taking concrete steps. I think that Greek government bonds at the moment are a good buy for many people (ph).
QUEST: The spreads have widened considerably to almost, what, to the highest that they have been since the Euro Zone came into existence. Now, that is to be expected and is perhaps not unusual, but the bond market vigilantes are out to get you. It is as simple as that.
PAPACONSTANTINOU: That is a statement of fact. I will not refute that. There is-there is some speculation going on out there. It's clear.
QUEST: If you take the argument that everything is on the table, is default one of the options on the table?
PAPACONSTANTINOU: Absolutely not. It is not. It is absurd. I will not even entertain the idea. And that is for a very simple reason, we are doing what needs to be done.
QUEST: The market just doesn't accept or believe that it is possible to cut a budget deficit that far in that period of time.
PAPACONSTANTINOU: Well, we seem to be convincing the European Commission. We seem to be convincing our European partners. We have a very detailed program, with very specific measure. And you know what? The European Union has no guarantee against people defaulting. But what it does have is a guarantee of performance. Because it puts aside next-for each country that isn't in trouble, like we are, a clear implementation mechanism. It will be monitoring exactly what we do, month by month, people would know whether we are hitting our targets or not. So, we'll be clear. Either what we are seeing is just empty words, or we are doing the job. And I think we will be doing it.
QUEST: Finally, where Greece has been, others will no doubt follow, in the fullness of time, within the Union. It may be Greece today and it could be Spain tomorrow. And Ireland has budgetary problems as well. When you are sitting in that chair-
PAPACONSTANTINOU: The list could go on.
QUEST: Please, do. Tell me who else.
PAPACONSTANTINOU: Well, there are other countries which also have problems.
QUEST: Latvia, Lithuania?
PAPACONSTANTINOU: The main difference that we have, compared to all those countries, we have credibility problem. And that is what drives a lot of the movement in the market. Once we are dressed up and we're doing it. Then things will improve dramatically in terms of the way people are looking at it.
But it is a broader issue. It is a broader problem. And Euro Zone needs to stick together. And I don't mean by that, help in monetary terms. I mean, helping in monetary, helping encouraging countries to do the right things. Address deep, deep-rooted structural problems, like we are doing at the moment.
(END VIDEOTAPE)
QUEST: Across the Euro Zone you can see countries still struggling with the after affects of the downturn. Latvia and Spain face crippling unemployment as a result of the financial crisis. The leaders of both nations appeared alongside Mr. Papandreou of Greece, here in Davos. When Spain's prime minister said this was no time to quit the single currency.
(BEGIN VIDEO CLIP)
JOSE LUIS RODRIGUEZ ZAPATERO, PRIME MINISTER OF SPAIN (through translator): Nobody is going to be leaving the euro, I would like to insist. On the contrary there will be more countries within the Euro Zone and the Euro Club is a strong club, with strong ties of reciprocal support.
(END VIDEO CLIP)
QUEST: Well, I wish I could say there was an ending to this story. But tonight there is no further news of where this one will end up.
Just when you thought the public image of financial institutions couldn't get any lower, there is a grim new assessment of the U.K.'s banks. We'll have that next, on QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
QUEST: Welcome back.
Banks in Britain were dealt a new blow. Standard & Poor's said the banks are no long amongst the most stable and low-risk lenders in the world. Bank stocks reacted badly. RBS, Barclays, HSBC, ended down, heavily, after being higher in early trade. The U.K. chancellor of the exchequer said breaking up the biggest banks, which is President Obama's proposal, would not necessarily make them safer. Alistair Darling said it is the connectedness of major institutions that cause the problems.
London's future as a pre-eminent international financial center has been questioned more than ever in the past few months. The problems, of course, are not only those of bankers bonuses and bank levies, but also one of infrastructure and political uncertainty.
Stuart Popham is with me, senior partner at the law firm of Clifford Charles and heads up TheCityUK, representing Britain's financial services industry. I suspect you're bristling even as I do that introduction.
STUART POPHAM, CHAIRMAN, THECITYUK: It's not necessarily the one I would have asked you to -- to use. Certainly there's been difficult times over the last couple of years. But it seems to me, Richard, we need -- it's a complex equation. We -- we want banks to be successful. We want them to pay taxes. We want them to employ people and we want them to help us restore the economy and to facilitate trade.
But the balance, I think, has to be achieved also by those banks being seen to be responsible, reliable, for the trust to be restored. And that will require some regulation, but I think it needs to be international...
QUEST: So are you...
POPHAM: ...as well as in the U.K.
QUEST: Are you in favor of the Obama proposals?
POPHAM: I have to say I'm not, personally, but then they are at a very general level at this stage. I'd like to see the specifics. Certainly, regulations that have an international application that the E.U. could follow, that China and Japan will follow, could be the answer. But we need to know the details.
QUEST: The real problem, surely, Stuart -- and you're a lawyer.
POPHAM: Yes.
QUEST: The real problem is the people don't trust the city -- the bankers. They don't trust the institutions. And they are -- they -- they want some form of firm regulation involved.
POPHAM: I think you're right that the public at large haven't really fully understood what's been happening in the financial crisis.
QUEST: Oh, wait a second. Oh, no. Oh, no, no, they -- no, no. I disagree with you. They've understood jolly well what's happened. They're going to be paying higher taxes at lower public services for the foreseeable future.
POPHAM: I -- I don't think we can necessarily put that entirely at the door of the banks. But I had said -- and there is a need for that balance to be restored. And it is something -- banks will only work and financial services only work when there's trust in the marketplace and people need a reliable, foreseeable environment and regulation plays a part in that.
So we need to make sure it's the right regulation.
QUEST: I have to -- I -- I feel I'm putting you unfairly on the spot here but...
POPHAM: But you will.
QUEST: But I...
POPHAM: So try.
QUEST: No, no, no. No, no, no. When we (INAUDIBLE). Let's talk about the business that's being done...
POPHAM: Yes.
QUEST: ...before Clifford Chance is one of -- one of the largest, indeed...
POPHAM: Right.
QUEST: ...in the world. So -- so are your clients now doing deals -- the sort of deals they were doing pre, in terms of dollar amounts?
POPHAM: Yes. Certainly business is moving again.
QUEST: Yes?
POPHAM: It tends not to be that of the sort of financial engineering that we've seen. But it's -- it's at the deep corporate base that my fund has been acting, for example, for -- for Kraft on the acquisition of Cadburys.
QUEST: Congratulations.
POPHAM: Thank you.
QUEST: I'll be that...
POPHAM: And congratulations (INAUDIBLE).
QUEST: I'll bet that's good fees.
POPHAM: Well, it -- I'm sure they've -- they're good value.
QUEST: Oh, yes.
POPHAM: We can talk about that.
QUEST: Yes.
POPHAM: But -- but that is indicative of the fact that businesses are back in business. It -- I don't think we're suggesting of a normality. And, indeed, I don't think 2007 was normal. But business is carrying on. International trade is carrying on. The Asian economies are doing very well. And we I in the U.K., the service businesses, are assisting there. So there is activity. There's much more than last year.
QUEST: I -- I just wonder, on this point, do you think 2010 turns out to be a better year than it seems at the moment?
POPHAM: I believe it will, yes.
QUEST: You believe it will? Many thanks, indeed.
POPHAM: OK.
QUEST: Lovely to see you.
POPHAM: And good to see you.
QUEST: And, indeed, here at Davos. Many thanks.
Now, QUEST MEANS BUSINESS is teaming up with our colleagues our friends, at "CONNECT THE WORLD". We're going to bring you Davos, right to your desktop. Friday, Becky and myself will host a live web chat, from the World Economic Forum. Becky is in London. I'll be here. And we want to know has the recession ended for you? For your business? For your country? Join in the discussion. It is Friday 15:00, in London, 16:00, CET. CNN.com/connect for the details.
2010, you just heard, interesting views from Stuart, things are looking better. Well, a day after the Federal Reserve said it was holding interest rates at historic lows, the Chairman Ben Bernanke will shortly hear if he's got a job for another few years. That, in a moment.
Also:
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: The principle is very clear. We need to pay, but we need proper pay for proper performance.
(END VIDEO CLIP)
QUEST: The chairman of HSBC, banks must be able to decide their own pay levels. Is this more regulatory mismanagement? In a moment, Davos after the break.
(COMMERCIAL BREAK)
QUEST: Good evening.
I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN.
Hours after they listened to President Obama deliver his State of the Union speech, lawmakers in Washington are debating whether to keep Fed Chairman Ben Bernanke in his post. The markets are paying close attention.
Susan Lisovicz joins us with more on that and what's behind the jobs sell-off that we're seeing at the moment -- Susan, let's begin with Mr. Bernanke.
SUSAN LISOVICZ, CNN CORRESPONDENT: Well, you know, Richard, Washington has been a real big theme on Wall Street this week. We have, you know, the president's State of the Union Address. We have the Federal Reserve making a decision on interest rates. And we do have Ben Bernanke, who's basically charged with trying to save the economy with saving his own job. We have a vote scheduled to take place in under an hour and it's expected to be tight.
Meanwhile, the president is putting the focus for the year on job growth.
Let's share a little bit of what the president said.
(BEGIN VIDEOTAPE)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: After two years of recession, the economy is growing again. Retirement funds have started to gain back some of their value. Businesses are beginning to invest again and slowly, some are starting to hire again.
But I realize that for every success story, there are other stories of men and women who wake up with the anguish of not knowing where their next paycheck will come from, who send out resumes week after week and hear nothing in response. That is why jobs must be our number one focus in 2010 and that's why I'm calling for a new jobs bill tonight.
(END VIDEO CLIP)
LISOVICZ: And, you know, and jobs is also one of the themes here on Wall Street today, with one of the major economic reports out today, Richard.
We saw a decline in initial jobless claims, but Wall Street expected a bigger decline. And so it just sort of spooks investors at a time when we know they're already spooked -- Richard.
QUEST: Susan, whenever -- whichever way we look at it -- and we were talking to (INAUDIBLE) a while ago -- whichever way we look at it, it doesn't matter the reason, the market is unhappy, isn't it?
LISOVICZ: Yes. And, you know, it goes through stages. You know, you get into a funk. Well, we know that the market got into a funk big time last week. And when you have information coming at us as fast and furious as we do this week, sure, some of it's bound to be disappointing. We're in the thick of earnings season.
So let's just check out Qualcomm, for instance. This is a company that is a huge supplier of chips in the mobile phone market. Well, its shares are down 15 percent.
Why?
It cut its sales outlook. Its -- its executives are saying that it sees a weak economic recovery.
You have Steve Jobs on stage, you know, this week with the new iPad, calling it magical.
Well, guess what?
Investors don't think it's so magical now that they've had a chance to really think about it and say, well, why isn't there a camera or why does it have low battery life?
Its shares are down 4 percent. Microsoft's shares are down ahead of its earnings report.
QUEST: Right.
LISOVICZ: And we also had another economic report today, big ticket items known as durable goods. We saw just a fractional increase when the market was expecting much more. You know, the bar is set higher now. So, you know, investors are going to react accordingly.
QUEST: Susan Lisovicz, who is at the New York Stock Exchange, where it is a jolly sight warmer than here in Davos.
Many thanks, indeed.
President Obama's plans for the banks have already received a very cold shoulder, not only by the banking community, but by several other countries. Now, the U.S. administration and the U.S. government is seeking international support for some consensus on regulation.
One high ranking congressman is here in Davos to try and drum up some consensus.
Barney Frank is the chairman of the powerful Financial Services Committee.
He's discussing the financial regulation with his counterparts.
I asked him what he hopes to achieve during a Davosian visit.
(BEGIN VIDEOTAPE)
REP. BARNEY FRANK (D), MASSACHUSETTS: We are determined to do much tougher, thoughtful regulation of the entire financial industry, not just the banks, in the U.S. So, clearly, money is mobile. And if we were to have much tougher rules than some other countries, we could see business move, etc.
So I'm here talking to other regulators in particular, to make sure that we're moving in the same general direction. We can't all have the same law. We don't all have the same government and we don't want one, but I -- I am trying to make sure that we are moving in the general same direction.
QUEST: But the lack of support internationally for going the same way that President Obama has proposed on banking regulation suggests that you may have your work cut out for you. Very few people have signed onto it.
FRANK: As of now, that's true. But, for instance, if you look at Mervyn King, the governor of the Bank of England, he makes President Obama look like a toady of the banks. He's been even tougher. And the French are that way. So I think there is more agreement with the European Union. I spoke today to Joaquin Almunia, who is the monetary commission, outgoing, encouraging this. I think we are closer to being in the same direction than -- than some people think.
QUEST: What does an internationally coordinated regulatory reform look like?
FRANK: Well, first of all, it is still individually sovereign. You don't have -- except, of course, for the EU, which is a multi-sovereign operation. It says that you have higher capital standards for banks. It says that you have -- and I specifically talked today, for instance, to people from the European Union about what we call risk retention. A big part of this problem has been people make loans and then sell the loans and don't care if anybody pays them.
We want to hold back. And, yes, I talked to one of the English people today. He said, yes, we're going to be doing the same thing, a securitization requirement from 5 to 10 percent.
QUEST: The most interesting, perhaps, aspect of one of the things your -- the U.S. proposals is this idea of no escape hatch -- no place.
So you are prepared, in U.S. law, to penalize those banks...
FRANK: Yes.
QUEST: ...who choose to go to a less restrictive regime?
FRANK: To penalize countries. I believe -- but that wouldn't work if it was the U.S. alone. But I think. You're going to see the European Union, the United Kingdom, Japan, Canada and the U.S., at the very least, in the same situation. And we are then ready to say to smaller countries, including our host country right here, Switzerland, if you hold yourself out as an escape hatch, we will prohibit banks from your companies -- countries doing business in the U.S.
QUEST: Do you have any feeling for who is going to be the escape hatchees?
FRANK: No. Well, yes, we do, but we're not going to tip ourselves off. And, by the way, I would say it's not an idle threat. We have been imposing sanctions, for example, against Iran. And if people think we can't impose those sanctions, I just made you a (INAUDIBLE) example. Talk to the Iranian banks, who have been denied access to the American financial system, to their disadvantage.
So we know how to do that. It's obviously a very different cause, but it's the same procedure.
(END VIDEO TAPE)
QUEST: Congressman Barney Frank with the U.S. position.
The banks are adamant. They recognize that there needs to be change and new regulation. The devil is in the details.
Stephen Green is the chairman of HSBC.
He told me that he concedes it's time to make changes.
(BEGIN VIDEOTAPE)
STEPHEN GREEN, CHAIR, HSBC: Everybody I know recognizes there is a need for reform. There is a need to learn the lessons from the crisis and a determination to work with the -- the authorities to get the right answer, because everybody -- I mean everybody recognizes that this is important for us all, not just for the banks, not just for officialdom, but actually for the real economy, too.
QUEST: You see recognizing it and acting upon it -- because whilst putting the fire out of the crisis was the -- there was a -- an agreement to do it quickly, there's no agreement on which is the way forward.
GREEN: I don't think that it's true that there's no agreement. I think there are a lot of real issues to debate and there are some emerging principles -- indeed, the G20 has enunciated some principles, some rather very important principles.
On the basis of those principles, we now need to translate that into detailed rules on capital adequacy requirements, detailed rules on leverage, detailed rules on liquidity and so forth. And that's where the devil is, if you will. And that's where it is important to get it right rather than doing it quick.
But -- but not doing it quick doesn't mean taking 10 years or five years or even three years over it. This year is a very important year. The BIS put out its proposals just before Christmas. They're very detailed proposals. They're now being analyzed in terms of their impact on banks by the official sector, as well as by the banks themselves. And in the wake of that, I think some important decisions will get made in the second half of this year.
QUEST: There's only one problem. President Obama's proposals are lot more sexy, aren't they -- split the banks off, tie one bit there. It's a lot easier for people to latch onto those plans.
GREEN: Well, the issue is the detail of it, actually. I actually don't think it's a good idea to separate out proprietary trading in the way that was proposed. And, indeed, I think when you start to think through exactly how you define proprietary trading, it will become evident what the difficulties are.
Much more important, the right way forward is to make sure that the range of activities that banks do has a useful service to provide to the real economy, A; and, B, to make sure it's properly supported by the right amounts of capital.
QUEST: We wouldn't be an interview with (INAUDIBLE) if we didn't at least touch on compensation and bonuses.
What's the message that you have sent out to your bank to bear on the issue and the policy and the principles of morality that you will accept on the bonus questions?
GREEN: I think the principle is very clear. We need to pay, but we need prepare pay for prepare performance. We need to take account of the market. At the level of the industry generally, we need to make sure that the market is not distorted in the way that I believe it has been, if you look backward.
And I believe that official -- the official sector has sent out some guidelines. There are, again, principles on the G20 level. In the case of the U.K., the FSA code, which is mandatory on the U.K. banks, forces the structure of compensation to -- to be aligned with the interests of the shareholder and the wider community.
(END VIDEO TAPE)
QUEST: Stephen Green of HSBC.
Still to come on this program, yes, the weather forecast yesterday was right. It is snowing -- and I mean snowing -- in Davos.
And, also, we will hear from the chief exec of PepsiCo -- a company that actually makes things.
(COMMERCIAL BREAK)
QUEST: Corporate reform is on the lips of everyone here at Davos. Again, like the banks, the chief execs accept some sort of shake-up is coming, and, more often than not, they'll tell you what it should look like.
Perhaps, though, in this case, it's not so much regulation, but conceptual change, both from chairmen, chief and boardroom.
Earlier, I spoke to PepsiCo's chairman and chief executive, Indra Nooyi.
She believes the time is ripe for a little less conversation and a little more action.
(BEGIN VIDEOTAPE)
INDRA NOOYI, CHAIRMAN, PEPSICO: Too often companies, as typified by what happened with Wall Street last year, focus too much on making the almighty buck as opposed to focusing on all of the stakeholders that have a true stake in the corporation. And we can't forget that corporations are limited liability enterprises that operate with a license from society.
And we've forgotten that. And it's very important that we go back to those roots and say, look, if we are operating with a license from society, we owe that society a duty of care.
QUEST: If we look at what you're doing with your own company, particularly the -- the health initiatives, is that -- can that be seen -- I mean you're -- you're spending more on R&D. You are -- you've set a very ambitious target for where you expect to see revenues for more healthy options.
Can that be seen in this same idea of paradigmic shift?
NOOYI: Well, that's an example of a truly responsible corporation, because we saw changes in society, changes in lifestyles. And we said, let's start making the changes ourselves.
So we took transfats out of our products. We went to heart healthy oils. We started reducing sodium levels, sugar levels, because we felt that's what a responsible company has to do.
So now if all companies were responsible, we wouldn't be in the mess we are in.
QUEST: President Obama's State of the Union last night, the focus on jobs once again, if that is the case, what more do you think companies and government can do, if anything?
NOOYI: Well, companies, along with governments, can be engines of job creation. And I don't think...
QUEST: Real jobs, though, not...
NOOYI: Real jobs.
QUEST: ...not manufactured jobs.
NOOYI: No, real jobs. I mean, look, we have -- we are going to quickly be $63 billion once we close on our bottling transactions. We actually have 300,000 real people working in PepsiCo. And we create another million indirect jobs.
So we are a big job creating factory, like all other major
So I think the only way we're going to get jobs back is a combination of private enterprise, large and small, creating real jobs and government creating jobs in terms of redoing the infrastructure of the country. We have to work in partnership to bring jobs back.
QUEST: Do you believe the time has arrived for the chief executive who is a thinker and then a doer and not the other way around?
NOOYI: Well, it depends on the time of day. I think half the time, you're thinking. The other time, you're doing. And other times it's the other way around. So I don't think you can compartmentalize thinking and doing. They go together.
QUEST: What about Davos?
You've been here a good few years, like -- like myself.
Do you still enjoy it?
Do you still find it has wroth and merit?
NOOYI: You know, I think, really, we should think about Davos as the focus on the word forum, not the world economic plot, but it's a forum. Davos is an unparalleled organization because it brings thinkers together to actually discuss and debate ideas.
I think what Davos, you know, forces me to think is, as I look at the teams over the years, the teams are about the same. They take on different characteristics, but they're about the same.
The real question I ask myself, are we doing anything about it?
You know, yesterday, President Sarkozy throw -- threw down the gauntlet on capitalism. Last year, everybody talked about a new form of capitalism.
What's happened between last year and now?
And that's the big question that's looming for me, which is how can we move from talking to action?
QUEST: Thank you.
(END VIDEO TAPE)
QUEST: The chief executive of PepsiCo with some honest thoughts about what's happening in the real economy.
Just look at this. This is real snow and there is plenty of it. In fact, one skier I know fell down a mountain and broke his boots there was so much snow and deep powder as we were going along.
Listen, Guillermo Arduino is at the World Weather Center -- Guillermo, you were 24 hours late.
GUILLERMO ARDUINO, CNN METEOROLOGIST: Oh.
QUEST: But as they say, a day later and the dollar short. And the snow did arrive.
ARDUINO: Finally.
And do you want some more?
QUEST: Oh, the more the merrier.
ARDUINO: You're going to get more. And I'm going to send that to you. It's tonight into tomorrow. Then, the temperatures plunge. You see, especially on Saturday and Sunday. Sunday will be very, very cold. I don't know if you're going to stay put for Sunday.
But the temperature right now is minus five. It feels much colder. We still have a freeze -- so -- a breeze.
So we'll continue to see the snow there. It's not going to be, probably, as much as some other areas around. But, look, I'm talking from now until Saturday close to 20 centimeters, so 19 centimeters. So you're going to get a fair share of snow.
Now, that is coming also into Scotland, so you will see some more snow there in the north. And Germany, my God, they don't get a break. Now, temps are changing a little bit. Berlin has a forecast for tomorrow, Friday, at zero degrees compared to what we had before.
But it's raining in Nuremberg, in Warsaw. And we have some delays at those airports.
We are going to see some more snow in the United States, especially these sections. Let's take 493, the road or -- OK, that is Brandon Miller and Dave Hemmen, two of our senior producers from Nassau and international weather in the care showing the antenna. They have ice five centimeters in diameter. That's the ruler. I can see it.
And we are going to see icy conditions there. So let's come back to - - so I show you -- I'll show you what's going on. We have delays in Tulsa and delays in Oklahoma City.
But you know what?
The delays are going to be spreading all the way into Nashville. If you're flying into Phoenix, Dallas/Fort Worth, into Nashville, Charlotte, Raleigh-Durham, St. Louis,. You're going to see delays at those airports because of the snow and the ice that we're getting. So you've been advised to plan accordingly.
And don't leave us. Richard will be back from Davos after the break.
(COMMERCIAL BREAK)
QUEST: There are more than 220 discussion sessions being held in Davos. Titles range from "The Future of Employment" to "Life on Other Planets." Whether they do anything to change the world, we won't know for some time. One thing we do know, you won't achieve anything on an empty stomach.
Tonight, we meet the Davos restaurateur and we experience his Davosian World At Work.
(BEGIN VIDEOTAPE)
WIM VERHAEGEN, OWNER, POT AU FEU: It's a very traditional Swiss restaurant, fondues and pot-au-feus and also the local (INAUDIBLE).
The cheese was -- it's melting out of the fast food. So you'll take the half of wine. So the half of the cheese. So we have a whole mix of four different Swiss cheese, a little bit of garlic. And you just heat it. That's cheese fondue.
The most flights you have are Swiss flights because when you go around from here, it's about 30 kilometers. We're in the wine region, the Savindu wine region. Also, for tourists, it's very interesting to have the local wines, because a wine tastes the best in their own region.
It's the only week we have a lot of security around the house. It's the only week we have so much police here. And for us, it's nice. It's -- when you do it a longer time, you know all the staff. They come -- every year they come back, so they're all very common here. Only the ministers and the presidents are changing. The staff is always the same.
I like food, I like wine and I like the guests. So for -- when somebody comes in here, it's just a -- it's like -- it's just like they come to be at home. It's not -- for me, it's not (INAUDIBLE). I'm here and I see people who are coming back and I see people who are leaving the restaurant and very happy they had something good to eat, they had a nice glass of wine.
And there are -- when they are happy to go, when they are coming, I -- I'm happy, too. And when somebody comes, it's just like I invite them in my home. It's -- it's -- for me, it's not -- it's not real work.
(END VIDEO TAPE)
QUEST: A World At Work at a Davosian restaurant.
There's snow on me bell. I hope it still works.
We'll have got the Profitable Moment in just a moment.
(COMMERCIAL BREAK)
QUEST: Tonight's Profitable Moment.
The giant at the forum is, of course, China. And no discussion of economic matters is complete without someone saying ah, let's not forget China's position or role in this.
We had three reminders of this today. The confusion, firstly, over whether or not China had been asked or agreed to buy Greek government bonds. Well they hadn't and they didn't, according to the Greek finance minister, as you heard on this program.
Then the top Chinese official stole the forum, telling everyone China will increase income for the lower middle earners and focus on boosting domestic demand.
And, finally, China is now the largest car buying country in the world. Carlos Ghosn of Renault-Nissan reminded me of that on this program.
Unlike other countries, China comes from a standing start, so all the companies are equal in the battle for the market.
The shift in power to Asia from Europe and the U.S., it is palpable. But I add one caveat. China's economy is still a seventh the size of the U.S. China is a huge player in the game. It doesn't hold all the cards just yet.
And that is QUEST MEANS BUSINESS for tonight.
I'm Richard Quest.
Whatever you're up to in the hours ahead, I hope it's profitable.
It's a glorious evening.
Christiane is next.
END
