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Quest Means Business
The Pound Sterling Takes A Pounding Today, But Is It Only Election Uncertainty?
Aired March 01, 2010 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INT'L. ANCHOR, QUEST MEANS BUSINESS: The pound gets a pounding, an early casualty of Britain's next election.
How prudent is that? Prudential is buying up AIG's Asia business.
And the president of GM Europe tells me, tonight, 2010 a weak year for the car.
I'm Richard Quest. Straight out of the gate, because I mean business.
Good evening.
Familiarity breeds contempt, so goes the old saying. Today it is a case of uncertainty breeding fear. As the British pound slumps, tonight we ask why is it the weakest in a basket of weak currencies. It doesn't matter where you look, whether the dollar, the euro, or the yen, the British pound is under pressure and it doesn't seem to be changing much anytime soon.
There is a sharp sell off underway at the moment. The rout began at the weekend, and the reasons are not hard to find. It all hinges on an even that hasn't even been called yet, the U.K.'s general election.
These are the numbers, we need to start first of all. A 10-month low for the pound against the so-called cable rates, at $1.4994; under $1.5, that is always seen as a very significant level. It has slipped more than 7 percent in 2010. And against the euro, 1.1073. Reverse that around and you start to see that a euro is over .90. The Japanese yen, this is interesting, because the yen, with an economy, the Japanese economy, mired be deflation. So, it is interesting that even against the yen, the ground has been lost.
The reason for the pound's rout, the budget deficit and worries on the U.K. economy. As a percentage of GDP it is 12.7, 12.8 percent, and it is likely to remain over 12 percent in 2011, according to the British finance minister's last budget. That, along with the fact that there is no plan in place, unlike Greece or in Ireland, and you start to see the worries of the U.K. economy.
But this-this is the biggie-the U.K. election anxiety. And the question of whether there will be a minority government. Now, we know that there has to be an election in the U.K. by mid-June, give or take. Most people do believe that the election is likely to be on or around May the 6th. Again, give or take.
Factoring in this uncertainty, I turned to Nick Gartside, of Schroders, and I needed to know the election was clearly a worry, but what was behind that election worry.
(BEGIN VIDEO CLIP)
NICK GARTSIDE, SCHRODERS: I think the big reason why sterling is so weak is because of politics. And the latest opinion polls in the U.K. suggest a hung parliament. Now that's bad news for markets, because what markets want is a strong government in the U.K., that can have a credible economic plan. A hung parliament reduces the likelihood of that, and that means that investors are selling sterling-based assets.
QUEST: Right, but if that is the case, then by May, June, at the latest, that factor will become clear one way or the other?
GARTSIDE: That is exactly right. And I think this year could well be a classic year of two haves for sterling. Weakness into the general election, and then depending on the general election results, sterling could actually do quite well in the second half of this year.
QUEST: Why hasn't the U.K. and sterling suffered the wrath of the market? And the movements we are seeing on currencies at the moment are relatively small, and I put that advisedly. But we haven't seen the wrath of the markets against sterling, and yet the chancellor is running a 12.8 percent deficit, with no long term plan for cutting down the deficit, known so far, and amongst the weakest group in the union?
GARTSIDE: Well, I think the reason is that when you sell a currency, you've clearly got to buy something. And when you look at the opportunity set, all the other major currencies are all pretty weak. I mean, let's take the U.S. dollar. They are running a big budget deficit there. They have got debt problems. If you move to the Euro Zone, you've got Greece. If you move to Japan, you've got that structural deflation and weak economy that we have seen for a number of years now.
So really what the market is saying is that all these places are pretty poor. Sterling at the moment is just the worst of a bad bunch.
QUEST: Right, let us look at, for example, on that line with the dollar, for example. Now the dollar has been pretty weak of late, but if we put it against the pound, it is the pound at the moment that seems to be weaker. But the dollar is gaining ground the against the euro, isn't it?
GARTSIDE: It is. My basic philosophy with currencies is that capital is always attracted to where it gets the highest real return. And think what has being going on a the moment in terms of the economy. The U.S. economy grew at 5.9 percent in the fourth quarter, the European economy at barely above zero. So, capital is going to go where it gets the best return. At the moment, that is the U.S.
QUEST: We always think about interest rate differential. I suppose, technically, one can put interest differentials between the Euro Zone, the U.S., the U.K., and elsewhere. But we are beyond that now, at the moment, aren't we? It is as if there isn't really any interest rate play. This more about fundamental feelings of economics.
GARTSIDE: It is. And that goes back to where will you get the highest return? At the moment it is probably dollars. And then aside from dollars, I'd say probably euros. What has been remarkable at the moment is the yen's strength. And when you look at-
QUEST: Let me interrupt you. You say what is remarkable is yen's strength. Is that yen strength or is that dollar/euro/sterling, weakness?
GARTSIDE: I think it is a little bit of both. It is certainly the yen's strength, and also on the other side, it is certainly euro weakness. And one factor that his weighed on the euro at the moment have been the problems of Greece and those other peripheral European countries. And any resolution there, is likely to lead to a bounce in the Euro.
(END VIDEOTAPE)
QUEST: And Nick Gartside, there, of Schroders. We will obviously follow the pound and its machinations. And, indeed, that will be my "Profitable Moment" thought, just before we leave you at the top of the hour.
You are up to date on currencies and business news, Fionnuala Sweeney will now need to bring you up to date on the news headlines.
FIONNUALA SWEENEY, CNN NEWS ANCHOR: Hello, Richard.
A frantic search is underway in Chile's second-largest city for survivors of Saturday's quake. Soledad O'Brien joins us now from Concepcion, with the latest on the rescue and recovery effort-Soledad.
SOLEDAD O'BRIEN, CNN CORRESPONDENT: Hey, Fionnuala, you are absolutely right. And it is quite frantic in just the past hour or so an elderly woman, the body of an elderly woman was pulled out of this apartment building.
If you can get a sense, this apartment building has collapsed just sort of flat, which means that all the balconies, and windows, etc cetera, are now face down on the ground. And what was the basement is now sticking out and the chimney stacks are kind of heading that direction.
They have had a couple of different strategic approaches. First, there is this crane they just brought in a few minutes ago. And they have been trying to do an approach from the roof to see if they can get to people that way. Then you can see where they have been drilling these triangular holes, and you can see sometimes a searcher will pop into one of those holes, throw some things out, mattresses, etc cetera, those are meter by meter, by meter, which means it is just wide enough to be able to get a stretcher in and out if they need to.
And then they have also, on the bottom end of this apartment building, they have been trying to dig through some of those holes, as well, with a rope. You know, kind of bring a rope around one of the searchers and dig down and see what they can find that way, as well.
In the last hour they have found the body of an elderly woman. She had been kind of on the other side, from what you can see here. And searchers told us that they thought she was alive at first, but as they got closer and closer, the building would sort of compact and compact more, and by the time they got to her she was no longer alive. She had died. It was a very emotional thing for some of the searchers. They had tears in their eyes.
And many of these searchers, in fact, were searchers from working in Haiti. And some of their gear is still labeled "Haiti". And they have come basically, as we have, straight from Haiti, here, to do this search and rescue effort.
We have seen a couple of things of interest in the last couple of hours. First, a few minutes ago, a big cloud of smoke, there is something on fire just a couple of blocks down. It is quite close to where we are. Rumor had it that it was supermarket. We are checking that out right now. We will be able to tell you exactly what was on fire. As soon as we get down there we can report on that.
Also, we have seen, Fionnuala, plenty of looting. Some people trying to grab food and water, many others just grabbing items, like they looted a locksmith's shop. They looted the photo store at the mall. And there is a lot of sort of anger. When you talk to people, and say, why are you taking things? Why are you taking this thing? It is not really -you know, it is not water, it is not food. Well, I want to. We are angry.
What you see is a very minimal, at least around here, military presence. So, sort of a military officer, on a half a block, and then another one down another half a block. So, they are not really stopping the looting. And for some of the people, who are business owners, are very angry. Saying they are not being protected. Their businesses are at risk and they are going to have to stand in front of their businesses-sometimes with big poles and sticks, to defend their businesses by hand if they have to, Fionnuala.
SWEENEY: And presumably, Soledad, the scene, the scenes that you are describing, of the rescue and recovery effort, and the looting, are replicated all across the country. But in Concepcion, itself, do we know how many people the authorities think they may be able to rescue?
O'BRIEN: You know that is a really good question and I do not. I know rescuers here are hopeful that every single person who is missing is found alive, that would be somewhere in the 40s, they told me a number of 47, 48. But that changed to, just shifts a little bit as the start tracking down more people and, of course, as they bring out bodies. It is hard to say at this point. But of course, they have been very hopeful.
SWEENEY: All right. Soledad O'Brien, reporting live there from Concepcion, in Chile. Describing scenes there and wonderful pictures, in terms of the tele-visual sense of the rescue and recover effort there. To give us a sense of just what is taking place there, plus the other scenes, of course, of looting which are being replicated in other cities across Chile.
Well, to other headlines now. The French President Nicolas Sarkozy surveys the devastation left behind by a powerful winter storm dubbed, Zynthia. France was one of several Western countries savaged by gale force winds and torrential rain over the weekend. At least 58 people are dead. More than a million people are still without power.
After a four-month postponement the war crimes trial of Radovan Karadzic has resumed at The Hague. In his opening statements the former Bosnian-Serb leader blamed Muslims for the civil war in Bosnia-Herzegovina in the 1990s. Saying the Serb cause was, quote, "just and holy".
And today British police arrested former Bosnian vice president, Ejup Ganic; he was taken into custody at Heathrow Airport under an arrest warrant issued by Serbian authorities for alleged war crimes. Ganic and more than a dozen others are wanted for conspiring to kill wounded soldiers, in breach of the Geneva Convention of 1992.
The scientist at the center of Britain's climate change controversy defended his findings before a parliamentary committee today. Phil Jones headed the Climatic Research Unit of the University of East Anglia. When hacked e-mails were released, critics say they indicate scientists exaggerated the effects of global warming.
And those are the headlines. Richard, back to you in the studio.
QUEST: Fionnuala, many thanks, indeed.
We will take a moment's break and when we come back a new month started for a swing for investors right around the world, as long as you weren't caught holding the wrong shares. It was ever thus.
In London, couple of big names were out of step with the market. What is going on with the PRU and HSBC? In a moment.
(COMMERCIAL BREAK)
QUEST: AIG, the insurer, that owes U.S. taxpayers more money than any company in history, is selling one of its healthiest remaining businesses. It is Asian life insurance arm is called AIA, and Prudential, Britain's biggest insurer, is buying.
The deal is moving AIG's devastated shares sharply higher. The company is still only worth around a fifth-a fiftieth, beg your pardon, of what it was two and a half years ago. It is a very big deal by any definition. CNN's Asia Business Correspondent Eunice Yoon has been looking at the details of the takeover that will double the size of the British PRU.
(BEGIN VIDEOTAPE)
EUNICE YOON, CNN ASIA BUSINESS CORRESPONDENT (On camera): Once Prudential takes over AIG's life insurance business in Asia, the new combined company will be a major force in the region. AIA has a long history here. It has $60 billion in assets, over 20 million customers, and a massive distribution network, spanning over a dozen countries, including China, India and South Korea. AIA is considered a crown jewel for AIG, not only because of its performance but because of its potential in such a fast-growing part of the world.
Clearly, Prudential is optimistic about the prospects for the Asia- Pacific Region. It is paying more than $35 billion for AIA; $25 billion of that offer is cash, the rest in stock and other securities. The British insurer is playing to raise money in a rights issue that could risk diluting its own shares.
So, why would AIG want to walk away from such a highly prized unit? American International Group has to pay back Uncle Sam. It received the biggest bailout from the U.S. government and owes a whopping $130 billion. Other financial institutions have started returning money to the U.S. taxpayer, so the pressure is on. Eunice Yoon, CNN, Hong Kong.
(END VIDEOTAPE)
QUEST: The fascinating part about the decision to sell AIA is that Hank Greenberg, the head of-the longtime head of AIG, had always said that selling the Asian assets wasn't really on the cards, they are the jewel in the crown of AIG. A tarnished crown it may be.
Let's switch to the other side of the world to gauge the impact of this deal. Maggie Lake is in New York. And Maggie joins us now.
They want to pay back the U.S. taxpayers, but they wanted to keep AIA. It simply wasn't -it was a circled that couldn't be squared?
MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Yes, that is right. I mean, if you need to raise money, you can't just sell the crummy biz. You have to sell the stuff that people want and that people will pay up for. So, even though the CEO, Benmosche, came in when he first took office, saying that he wanted to sort of build AIG up. The reality is they have got to pay that government money back. So, they are going to have to sell these assets.
But there is some good news in here for AIG, Richard. And that is that they were originally going to try to do an IPO and try to raise the money that way. But as you know, with IPO markets, that is a tricky proposition in good times, especially with all the volatility. If the global markets took a turn south, you know, it could have ended poorly for them; and the estimates for the cash that they were going to get for that was anywhere between $10 and $20 billion. What we know from the details of this deal, they got $25 billion in cash, and the rest in stock, for $35 billion. So Prudential paying a nice premium here.
So, in that sense, if they were going to do a deal, it seems that they negotiated a pretty good one. And a lot of people had wondered about that. When you know your back is up against the wall and you need the money, how good are you going to be? What is your leverage at the negotiating table? But clearly they were able to get a little bit of a premium, and surprise people. And that is why you are seeing those stocks move higher.
And who know? Maybe this is a little confidence that some kind of precedent, because they are going to have more asset sales, including one that is pending to MetLife. So, Benmosche getting some decent marks for being able to negotiate that, even though it is a little bit of a roll back. And it may be a deal that they didn't want to have to do.
QUEST: Right. And, of course, I know the deal to sell ILFC, the aircraft leasing division, they've decided to keep that for the time being. But I wonder whether or not AIG, as an entity, it is obviously still very large, it is still very significant as a player, but will it ever be what it was?
LAKE: It doesn't appear so, right now. And you know, remember, I don't know that it is its choice to make that decision. It still has got, as Eunice mentioned, a long way to go to pay back that government money. I mean, they are still way in the hole. So, this is all part of the strategy to be small, to be lean, and focus. You are right. They are hesitating on some other assets sales, but people see that as a way not to do a fire sale, but to try to wait for a better price. But all a process to get smaller, will that-could that stop at some point? Could they get ramped up? Hard to imagine in the political environment that we have right now, Richard, that that would be allowed.
QUEST: All right. Maggie Lake, who is in New York. Many thanks, Maggie joining us with the AIG, AIA. Lots of initials to keep us busy.
Let's stay with initials. Annual profits at HSBC, one of the world's biggest, and one of the best performing banks, fell short of analysts' expectations. And that sends its stock sharply down in London. 2009 earnings were hit by a rise in bad loans. The net result came in at $5.8 billion. That was up 2 percent. It missed analysts' estimates. Analysts were looking for some thing over $7 billion.
And more interestingly, and I think where the focus of the day was, the chief executive, Mike Geoghegan, turned down a bonus last year. This year he is taking it and the interesting reason. He says that he and his wife use the bonus money to help many charities, educational charities, both in the U.K. and in Hong Kong. Speaking in Hong Kong, Mr. Geoghegan, discussed the outlook for HSBC, the world economy, and his bonus.
(BEGIN VIDEO CLIP)
MICHAEL GEOGHEGAN, CEO, HSBC: In 2010 we expect a two-speed global economy. We expect emerging economies to motor ahead, growing three times faster than developed regions. Asia will lead the way and will take an increasingly influential role on the global stage, as indeed it should.
(END VIDEO CLIP)
QUEST: And of course, the important thing to note about Mr. Geoghegan is that he was based in London, but now as a direct result of the company's decision to focus more on Asia and make it more of a priority, Mike Geoghegan now based in Hong Kong. The office of the chief executive based there, the chairman is still here in London.
The numbers on the shares of HSBC slumped more than 5 percent. The London FTSE index lagged behind other European markets. They all closed comfortably higher. Another big faller in London was the PRU, Prudential, losing 12 percent. Now, you may well ask, Maggie's has just been lauding the deal that has been announced. Yeah, but the PRU is going to have to sell $20 billion worth of new shares to pay for its AIG Asia.
Elsewhere, Paris, the Blue Talicalifor (ph), and Peugeot (ph), lead the gains. In Frankfurt, every share of the DAX rose, Adidas and Bayer out in front. And you and I can argue about whether it is A-di-das or Adid- das, `til the cows come home.
In a moment, the numbers from the New York Stock Exchange, live. And lifting the lid on America's shopping habits. Spending is up, income is only up a little. Is there something going on? In just a moment.
(COMMERCIAL BREAK)
QUEST: You are getting an idea, as you look at the European bourses, that it was a fairly strong session in Europe. New York is still open and doing business. We go straight to Alison Kosik at the New York Stock Exchange.
A good session in Europe, and I see from our screen-proving that I am paying attention-that you are up over 70 odd points on the Dow.
ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: Yes, we are having a great day, Richard. Investors are kicking off the month of March with a bang. Stocks continuing to rally. We've got less than two hours left in the trading day here on Wall Street. And investors are feeling pretty good despite some mixed economic data we got.
We got information from the Commerce Department, releasing its monthly report on personal income and spending. Before the opening bell, we got this. Americans spent more money in January than expected, but income growth that was weak. Personal incomes rose by 0.01 of a percent, Richard, that is less than economists had forecast. Personal spending increased 0.05. We also got the latest report on construction spending, it declined by more than 0.05 percent in January after falling more than 1 percent in the previous month. The drop, though, was in line with estimates.
Wall Street, though, is bracing for more reports later this week, including the all important February jobs report, which will be released on Friday and definitely expected to move the markets, Richard.
QUEST: Let's talk about jobs. Because one of the issues, politically, and economically is the question of unemployment benefits coming to an end. Now, until now, Congress has reauthorized benefits into the future. I suspect it will be politically impossible for them to let too many people fall out of the benefit system, expensive though it is.
KOSIK: Well, the already have. That extension was not passed because of that lone senator blocking that vote, that senator from Kentucky, but Republicans do, Richard, expect that bill, that extension, to be passed at some point this week. But that extension would only be for one month. And Congress still needs a long-term solution, because even if the extension is passed people still aren't going to be able to get any of their payments.
QUEST: Right.
KOSIK: We are talking about the $10 billion bill and it includes also more than just jobs benefits, Richard. It includes road projects and Medicare payments to doctors, Richard.
QUEST: One question, you just touched on something. Proof I was listening closely to what you were saying. And you've got this-you've got this spending increase, and you got this rise in earnings, but I mean-are Americans de-leveraging? Are they paying down debt? Or are they starting to put it back on the cards again?
KOSIK: There is some sign that they are paying it down, but that they are also spending again. And if you think about if they are spending again, then they are getting the-they are sort of greasing the wheels of the economy again. Because we need the consumer to get out there and spend money. They are spending a little more money than they were, let's say six months ago. But they are also saving a little more.
QUEST: Right.
KOSIK: It is funny, because it is a double-edged sword, because you don't want them saving too much, because then they are not going to be putting money into the economy, right, Richard?
QUEST: And later in the week I'll be asking you what you have been buying. I always find the best form of economics is that which you and I actually go out and buy ourselves. So, we'll talk more about that.
KOSIK: Good idea.
QUEST: Excellent.
KOSIK: We'll talk about it later.
QUEST: Absolutely. Bring some cinnamon paws in. Alison, many thanks. Alison at the New York Stock Exchange.
In a moment, the future of the biggest car companies in the world. The boss of GM International in Europe; he talks about Vauxhall- Opal and his new electric vehicle.
(COMMERCIAL BREAK)
QUEST: Good evening, I'm Richard Quest, QUEST MEANS BUSINESS. This is CNN.
Well, we are talking about General Motors. The company is embarking on the road to recover and it is using an electric car. It is called the Ampera, it is made by Opal, the European arm of GM. And it has just made it all the way from Nusselheim (ph) in Germany, to the Geneva Auto Show, which begins this week.
GM puts its whole European operations up for sale after it filed for bankruptcy last year and then later decided to keep most of them. Now, these are the various brands that you can see. Saab, which of course has been slogged off, was going to be sent onto the scrap heap, but it was saved at the last minute by Stryker, the Dutch sports car maker. The Hummer is ready for the wreckage yard. GM said a few days ago it would close that division after a deal with Chinese buyers fell through.
So, that is the way you've got it at the moment. Vauxhall, Opel, both will take job losses, as Saab, Chevrolet Corvette.
Earlier, I spoke to Nick Reilly, the president of G.M. in Europe, and I put it to him that G.M. Europe, if you look at it overall, it's a very different company to that which it was 12 months ago.
So look at the nem -- the names, think about the jobs and where are the cuts going to be made?
(BEGIN VIDEOTAPE)
NICK REILLY, PRESIDENT, G.M. EUROPE: Well and it will be a very different company. We are in the middle of some restructuring right now, which we're going to carry out over the next six to nine months. But we're also embarked on a massive product initiative with 12 new products coming out over the next two years. And here in Geneva, we're going to be showing the electric Ampera, which we've just driven from Russelsheim to Geneva. And I was part of that drive and it's very exciting.
So electricity is coming in the future of cars. The jobs which will be lost are going to be lost all over Europe. Our intention is to close a plant in Antwerp, but, also, there will be job losses in Germany and -- and other places, as well.
QUEST: Right. And the -- the funding requirement that General Motors Europe still requires, where are you expecting that funding to come from?
Or do you now believe you might actually be self-funding?
REILLY: Well, we are not at the moment, because the market is still pretty weak in Western Europe particularly. And we do have to go through the costs of restructuring.
We've already had substantial amounts of money from our parent company in -- in the U.S. over the last few years. But recently, we have said we need 3.3 billion euros to get us through this very weak year and to restructure the company.
GM has already put in 600 million of that and we are talking to various different governments about 2.7 billion euros. Whether it ends up exactly there, I can't tell you today, because we're -- we're in negotiations with those governments. But I can tell you that several of them have been very positive -- have come back to us very positively. And the E.U. Of course, is watching this very carefully and we're in constant communication with them.
QUEST: The -- the Toyota issues with the recalls -- now, I understand, of course, nobody ever wants to make hay at somebody else's misfortune, because it's there but for the grace of God.
However, if Toyota is selling less cars, that gives you the chance to sell more.
REILLY: Well, you've put it exactly right. I would never have any kind of targeted program against Toyota or their -- or their customers. This -- Toyota is clearly a good company and has been for -- around for a long time and produces good product. And I would much rather focus on the reasons why people want to buy our cars rather than why they don't want to buy somebody else's cars.
And we are providing some excellent reasons for that here in -- in Geneva. We are -- we're introducing new cars. One of them is a very innovative family car, the new Meriva, which I'm sure will be very -- very popular with a lot of people in Europe.
QUEST: Let's talk about the electric car. I -- I tried a small electric car a couple of weeks ago. I mean, you know, they are what they are what they are, but, frankly, when you're looking round everywhere every 10 minutes to plug the thing in and you're terrified, you can hardly pop into somebody's front kitchen and say, do you mind if I just plug my car in, can you?
REILLY: Well, Richard, that's a terrific introduction to the car we're showing here today. One of the major advantages it has, it gets rid of that what's called range anxiety -- people worried about the -- the battery running out. The Ampera has the ability to run purely on a battery for 60 to 70 kilometers, which actually takes care of -- care of a lot of journeys for most people. But it also has a small range extender on board which can recharge the battery, and, actually, the car can travel over 500 kilometers.
And we have just driven this car from Russelsheim to -- to Geneva and just demonstrated that. So this is not theory or a plan, it's a real vehicle. And I think a lot of people will be attracted to this vehicle for just the reason you said.
QUEST: Is the future small electric cars, because I hear a lot of contradictions within the industry over where you believe -- not just you, but other companies, is it hybrids, is it electric?
The message is getting slightly mixed, isn't it?
REILLY: Well, OK, I'll give you my message and you can see if it's mixed or not. My belief is that the pure battery electric vehicles will be focused mostly in mini, small cars and mostly in applications where people are driving in the city, where range is not so crucial, where they know that, generally speaking, in a day, they're not going to go more than 70 or 80 kilometers and they can charge up overnight or they can charge up when they're -- when they're at work.
That's where I think the pure battery electric vehicles come in. Where people want electric driven vehicles for the -- for emissions reasons, but they want to go on a long trip on a weekend or sometimes they need to go further, they're going to be attracted by this vehicle, which is our Ampera.
Longer-term, then fuel -- fuel cells driven by hydrogen will come in. But you're talking probably seven to eight, nine years before they become affordable. And there, you get zero emissions and you can drive as far as you like.
(END VIDEO TAPE)
QUEST: Nick Reilly, the president of General Motors International, GM.
He was joining me from the Geneva Auto Show.
Now, if you want to be a happy builder, these days, you've got to work harder than you used to. The construction industry was a major victim of the downturn.
When we return, Beirut bucks that trend. And that's put a smile on some faces.
(COMMERCIAL BREAK)
QUEST: The U.S. this week will publish data on housing sales, one of the sectors where economists look for signs that the country is on the mend. Outside the States, too, real estate is a good economic indicator and a professional will always tell you location is central to what a property is worth.
Brent Sadler now explains why, despite decades of turbulence, building in Lebanon is enjoying a boom.
(BEGIN VIDEOTAPE)
BRENT SADLER, CNN CORRESPONDENT: (voice-over): In Beirut, they're building as if there is no tomorrow -- high rise developments have mushroomed, along with the cranes. It is an unprecedented building boom reshaping the city's skyline into a panorama of vertical living.
Bassim Halaby is a US-educated property developer.
BASSIM HALABY, BENCHMARK: This piece of land where we are today is a sample of what's going on in Lebanon -- high density, high rise, low density, everything is taking place at the same time.
SADLER: And there is a rich menu of choices aimed to please hungry buyers and tempt ambitious investors.
MASSAD FARES, PRIME CONSULT: Real estate now is most under valued. So everybody will run to Lebanon to caught up with this increase in prices, which are now comparable to the markets across the region.
SADLER: The hyper real estate sector coincides with a period of relative calm in Lebanon's unpredictable and sometimes violent politics. Only two years ago, deadly gun battles erupted between rival political parties. And in 2006, a full scale war with Israel wrecked much of Lebanon's infrastructure and damaged its economy.
Yet incredibly, even when the bombs were falling, people were buying.
FARES: The land that we bought in -- you know, in 2006 has appreciated in value tremendously. The demand on the apartments that we are building is fantastic.
SADLER: Lebanon has turned into an investment haven at a time when other regions, especially in the Gulf emirate of Dubai, face a cash flow crisis.
FARES: Dubai was a mostly a -- a speculative market. Lebanon, on the other hand, is very much of an end user market. People are buying for own -- their own use.
SADLER: The luxury properties, though, are unaffordable to most Lebanese. It's wealthy Lebanese expatriates who made their fortunes overseas or clients from oil-rich Gulf States that snap up the high end properties.
(on camera): But amid this frenzy of real estate development, there are words of caution, even criticism, that the impact of such a large scale construction in a relatively small city will eventuality obliterate what little is left of Beirut's rich architectural heritage.
(voice-over): Some architects say that too many Ottoman-era buildings are being reduced to rubble to make way for high rise towers.
Mona El Hallak claims Beirut is suffering an urban catastrophe.
MONA EL HALLAK, ARCHITECT: I am an architect. I build towers, too. But a tower does -- cannot happen next door to an old building that is a 1920 building, because there is a scape (ph). It's not because the tower is nice or the building is nice, together, they don't go.
UNIDENTIFIED MALE: Rising an imposing 260 meters above sea level.
SADLER: Promising to become Lebanon's tallest skyscraper in 2014, Sama Beirut will stand 50 floors high. The penthouse price -- $25 million for 1,500 square meters of luxurious living.
FARES: You can make money. You will be able to make money. But you have to make sure that this city survives the requirements for infrastructure and the requirements for environmental sustainability.
SADLER: Beirut's many makeovers span 5,000 years of civilization. Drafting modernity onto millennium of history remains a work in progress.
Brent Sadler, Beirut.
(END VIDEO TAPE)
QUEST: Brent Sadler reporting there.
Now, you don't need me to tell you, if you've been traveling around Europe, there has been some spectacularly unpleasant weather. I came back from the United States over the weekend and straight into the rainstorms.
Jenny Harrison at the World Weather Center, who I saw last week...
JENNY HARRISON, CNN METEOROLOGIST: You (INAUDIBLE).
QUEST: And you certainly didn't give me -- you -- now don't you -- don't you start with me, Miss. Harrison.
HARRISON: I tried to warn you.
QUEST: You didn't give me any warning.
HARRISON: (INAUDIBLE).
QUEST: You didn't give me any warning about this. And I'll tell you, it was all very gritty.
HARRISON: Actually, you know what?
I'm going to have to contradict you there. We were talking about this storm since Wednesday last week, Richard. You, of course, were actually heading into London. You went to the northern edge of this, this the U.K., by no means saw the worst or the brunt of this storm system. It was coming in toward the middle and end of last week and we literally were talking about the hurricane force winds. In fact, we were saying they were going to get to about 145 kilometers an hour. And, of course, as you know, hurricane force winds are 120 kilometers an hour.
And this is a storm system that came through really impacting France in particular. A number of reasons why, of course, these winds were so very strong.
But at the same time, it did coincede with -- coincide with high tide. And so with winds that strong coming across the open waters through the Bay of Biscay, that is one of the reasons we saw many of the levees fail and also, of course, the flooding along coastal areas.
Look at some of these reported wind gusts -- 160 kilometers an hour. Of course, winds affecting Portugal, Spain, France. And you can see how far reaching, again, that this storm system was.
Now, in terms of rain, well, there was quite a bit of rain that came in with the storm, but not a huge amount. Yes, we did see some floods and, of course, some areas saw some fairly severe flash floods, in particular. But, of course, it was really all compound by these particularly strong winds.
Now, this is what we've been seeing over the last few weeks. Warmer than average temperatures to the south, through the ocean. Cooler to the north. And we're seeing all of these systems being funneled in between the two. So it's keeping everything coming into pretty much the same region of Europe.
Now, this was a very, very strong storm. And this one, of course, was named Zynthia (ph). Now, the reason for that is actually just to differentiate for local areas after the storm that is being referred to -- particularly when it's one like this. Of course, this is a deadly storm. We know there have been dozens of people who have died across Western Europe because of this storm.
1954 is the time they began to do this. And in 2010, the highs have been given male names and the low pressure systems, such as this one, female names. So here are the next as we go through the area, should we see any more like it. And if you want more information, there is the Web site you can go and look to.
Now, this is a storm system that is not done yet. Heading into Northern Europe, and, of course, as it goes into this much colder air, so we're going to see that rain turn over to snow, although, again, we're not expecting to see huge accumulations of snow.
When it comes to the wind, well, of course, we're looking at the current winds beginning to ease off as the system works its way away from the west. You can see some of the actual current winds in kilometers an hour there. But look at these winds here across the north. So at Gdansk, we've got some sustained winds at around 40 kilometers an hour. That usually means some gusts at around 60 or 65.
Here's the radar the last 12 hours. We've got some thunderstorms cropping up, too, across Central France. So there is still some rain, as well, pushing in toward the southwest. So delays at the airports as we go through Tuesday.
Generally, the longer delays likely to be caused because of the wind. We've got snow coming in, as I say, wrapping around that area of low pressure. So Copenhagen, as we go through there on Tuesday, weather conditions actually deteriorating. And Berlin, those winds should ease a little bit by the time we get to the evening hours.
So there it is all coming in from the southwest.
And then, also, Richard, just very, very quickly, some top tips here from a blogger, Celeste (ph). She says she often gets caught out, doesn't hear some of the weather forecasts, that, of course, we give.
And one of these things that I just want to point out is we all go and stay in hotel rooms, but how often do we actually ever look to see where our room is, to get out, should we need to, in a hurry?
Are you there, Mr. Quest?
QUEST: All right. Many thanks, Jenny Harrison.
HARRISON: Yes.
QUEST: We have -- we have to move on briskly, I'm afraid, Jenny.
We'll -- we'll talk more tomorrow.
We -- there are developments in the aftermath of the Chilean earthquake.
Sara Sidner joins us now from Banco (ph) in Chile, where the tsunami hit after the quake -- Sara, remind us just when the tsunami or the -- the elevated water levels hit, how much damage, if any, was caused.
SARA SIDNER, CNN CORRESPONDENT: Well, what happened here was that overnight on Saturday, the earthquake hit about 11 kilometers from here is the closest city, is Concepcion. That was closest to the epicenter. This is on the sea side, so you're seeing an area that is very, very close to the sea. Lots of homes here.
Overnight on Saturday, this earthquake hit, 8.8. And then a few hours after that, the residents say that once the earthquake hit, they ran out of their homes for fear that there might be a tsunami. They went to higher ground.
But then some of those told -- told us that basically authorities came out and told them that it was OK, to calm down, that there was not going to be a tsunami. So some returned to their homes, which is right on the beach.
And so basically they said a few hours after that, the wave started coming in very, very strong and the sea looked angry, as one resident put it. And again, they were hit by all these waves -- a tsunami. And it really did a lot of damage.
Just over my shoulder, there are lots of homes that are jumbled together right on the sea side. A lot of people rely on the ocean -- relied on the sea for -- to make a living. And so they no longer have, for example, their boats. They no longer have a way to make a living.
Right now, there is no running water. There is no electricity in this area and people are starting to get pretty desperate, worried about how they're going to survive in the next few days. They're not sure if they're going to get any help, because here they say that they have not been given any help by anyone, including the authorities of the country, as well as aid agencies -- Richard.
QUEST: Now, so you -- you've obviously managed to get there.
Firstly, how difficult was your journey to get there?
And, secondly, if you got there, one wonders why at least a modicum of aid 48 hours after the quake hasn't arrived.
SIDNER: That is a question that a lot of the residents are asking.
We were able to get to Concepcion, but that took us a very long time, I have to admit, in coming from the United States. We had to fly into several different airports just to try to get into Chile. We had to drive for 15 hours.
But once we made it into Concepcion, which is where much of the damage is centered, we were able to easily drive through the town and get here, which, is, again, about 11 kilometers outside of Concepcion. So why authorities haven't made it here yet, we're just not sure and neither are the residents.
They're really trying to fend for themselves. You'll see people sort of climbing through what is left of their homes, picking up pieces of things. We saw people taking out, for example, some of their laundry, even, and hanging it up, trying to salvage anything they can.
But they are getting quite worried about how they're going to survive if more supplies are not brought to them or if they can't get to supplies. They said going to the store means nothing. It makes no difference. There's nothing there.
QUEST: Finally, briefly, Sara, the -- the one thing about this is, of course, the -- the relatively -- and I use that term advisedly, I -- I -- and I know comparisons are odious at times -- but the relatively low level of -- of mortality and deaths bearing in mind the extreme nature and the size of this earthquake.
So do they, where you are, expect to -- to uncover, unfortunately, more bodies?
SIDNER: At this point, the answer to that, Richard, right now, is we just don't know. But most people that we spoke with said that they had accounted for those in their family, although we met two people who were still looking for elderly members of their family -- grandparents.
But you have to realize that here, this area has been hit by lots of earthquakes. It is in a very seismically active area and a lot of the buildings are built to sustain certain magnitude of quake, unlike, for example, Haiti and the devastation you saw there.
We also understand that you had this earthquake, although it was massive, 8.8 magnitude, was a lot deeper than the one that happened in Haiti, so there wasn't as much damage. But, again, that also has to do with the building codes and the way things are built here.
Frankly, we drove through the town and we saw a lot of the buildings, the -- the majority of buildings were still standing. Yes, there's damage. Yes, there are lines down. Yes, there are windows broken out. But there were a few -- namely, a few of the newer buildings, that -- that basically were completely destroyed by this quake, but not -- not very many -- Richard.
QUEST: Sara Sidner joining us live from Banco (ph) in Chile.
Many thanks, indeed.
And QUEST MEANS BUSINESS.
I'll be back in just a moment.
(COMMERCIAL BREAK)
QUEST: Welcome back.
Now, the main financial news today, of course, concerns the pound sterling, which has been -- well, suffering something of a route on the international exchanges, largely as a result of political woes and fears. The pound is now trading under $1.50 against the U.S. currency, its lowest level in more than 10 months.
On the equity market, shares in HSBC slumped more than 5 percent after the company -- the bank had results. Look at the numbers overall and you start to see that European bourses. That was one of the reasons why London's FTSE lagged behind other European markets. They all closed comfortably higher, a very robust performance by the Xetra DAX.
The Prudential lost 12 percent. It's going to have to sell billions of dollars worth of new shares to pay for its deal with AIG Asia. In Paris, it was the retailer Carrefour that showed the gains.
And every index -- every share rose on the DAX Index. Adidas and Bayer were out in front.
All right, so, that's how the European markets had performed.
Let us show you and put into perspective, now just -- they're already up 65.6. There are some interesting economic numbers. Remember, the market in New York actually rose 2.3 percent in February. So we're starting the new month -- January down, February up. We're starting with a strong performance in -- well, up 65 over 10000 -- the best part of 10400.
I will have a Profitable Moment for you in just a moment.
(COMMERCIAL BREAK)
QUEST: Finally, tonight's Profitable Moment.
Crises for sterling are nothing new, whether in 1947, post-war dollar; 1967, sterling's massive devaluation; or 1992, when the pound crushed out of the ERM (ph). GBP -- the British pound -- has regularly been beaten up. And the crises usually come to the boil in the summer months.
This year, the pound has wilted even before the first shoots of spring are showing through.
To understand why, we need to look at the factors. And they are political and economic. The prospect of an indecisive upcoming election, a budget deficit that wouldn't embarrass Greece and growth numbers at the lower end of the EU.
British industry will welcome this fall. Raw materials may cost more, but exports become more competitive. A weaker currency promotes growth. It's also known as a beggar by neighbor policy -- and ultimately, it backfires. The sterling will remain weak for the next few months, at least until political certainty returns.
And that's QUEST MEANS BUSINESS for tonight.
I'm Richard Quest in London.
Whatever you're up to in the hours ahead, I hope it's profitable.
"AMANPOUR" is next, after your news headlines.
END
