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Quest Means Business
RIMM Responds to UAE Regulators; Russia Gripped by Worst Drought in 40 Years
Aired August 03, 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: BlackBerry waves the Torch, with a new phone in hand, the company continues to defy security crackdowns.
Proctor & Gamble sales are up, the chief executive tonight on this program about why it is a disappointment.
And over a barrel, tonight the fines that BP could face.
I'm Richard Quest. We have a busy hour together. I mean business.
Good evening.
Tonight, a message from the makers of the BlackBerry handset to the government and the regulators at the United Arab Emirates, which of course is threatening to switch off BlackBerry services.
Before you shut us down, think about how much you need us. That's the message from Research In Motion, which makes the phone. Research In Motion has been talking to our correspondent Maggie Lake. The top men there have been talking about it as they unveiled the latest weapon in the battle to win customers.
Maggie Lake is in New York. We're going to talk about the new handset, the Torch, as I think it is called, in a minute. Let's focus, to start with, on this battle with the UAE. And they gave no quarter today.
MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Yes. No, they didn't, Richard. We were there, of course, at the press conference, which was quite a glitzy event. And we'll go into detail in a little bit. But I had a chance to sit down right afterwards with Mike Lazaridis, one of the co- CEOs of Research In Motion. And I asked him about the situation, the ban, the potential ban in the UAE. And he gave a very-he didn't comment directly on that. But he gave a very vigorous defense of the company's security policies.
Did I hear we don't have sound on that? Yes, OK, sorry.
So, you'll get up with that later. But anyway he basically said, listen, we are not going to in anyway give any ground on the security that is so critical to our enterprise customers.
I think we have it now, have a listen.
(BEGIN VIDEO CLIP)
MIKE LAZARIDIS, CO-CEO, RESEARCH IN MOTION: We will not give up the security of our product to our enterprise customers. And that we work very closely with, you know, each individual regulatory environment, and we make sure that they understand that the BlackBerry is the only really certified solution. Where we can show you that we have gone through all the stringent tests, of all the regulatory environments, internationally and locally.
(END VIDEO CLIP)
LAKE: Now remember, Richard, of course this is a company that security policies, the fact that their network is so secure is what got them to where they are. It is why corporation IT departments agree to take them on and have push e-mail to begin with, which was revolutionary at the time. So they are very concerned about defending that. I asked him, you know, I pushed him a bit on it, and said, listen the UAE says that other governments that have access that they don't have. Is that true? He dodged the question. I asked him whether there was a time table to try to resolve the differences of opinions, because he says there is an international standard they adhere to. And he said, simply, that he couldn't comment on that.
QUEST: So, in the sense, did you get a feeling, Maggie, before we talk about the new phone, that there is any movement there? Or are they just basically-oh, you are shaking your head already.
LAKE: Yes, I think that they are going to try to stick to their guns and hold their ground here. And you know, some people have been saying, listen, this is the best advertising they could ever get. Governments can't crack their system. If you are the head of an IT department of a corporation, you hear that you think, fantastic.
And the same thing with other governments. So, I think they are really-it's their bread and butter, it is the core of their business, they are going to try to protect that. Does that mean that they are not having some discussions? And some ways to resolve that? No, they probably are. They certainly don't want their users, especially if this has a cascade effect, and there are whole sections of the world that start to block them, that is not good for them either. But it does sound like they are at least going to try to hold their ground and not sort of real back some of that security, Richard.
QUEST: All right. Now, the new service, perhaps their biggest-their new phone-perhaps the biggest worry comes from different phones.
Maggie, I need you to stay there in a second, while I just have a bit of briefing from the library over on the question of the different phones that are out there at the moment.
Now, Maggie talked about the BlackBerry, made by Research In Motion, it is U.S. market leader with 33 percent of the market. Interestingly, a study out today says that there is actually a lack of loyalties. And many people say that they would switch to another device. I suspect within corporations, though, it is the robustness of the BlackBerry service that is most appealing.
But they are not alone. Google's Android, and keep in mind, Android is not a phone. Android is a system, it is an operating system. And because it is used by other companies, in their handsets, manufacturers choose to use the Android OS, well you have seen global sales up 886 percent; 27 percent of sales now on Android in the U.S. But remember, there is a large number of different manufacturers offering Android systems.
And then, of course, we have Apple's iPhone. Apple's iPhone has been overtaken by Android in the U.S., but it is proprietary to Apple. So, if you don't like Apple, and you are not an Apple lover, therefore you won't be going with the iPhone. You are more likely to end up with either and Android, or if we move on to the next, you'll see, you get the Nokia system, which is the Symbian system.
So, you've got four major systems. Then the global market leader is Symbian, but that is because Nokia has traditionally been the global market leader. You are seeing how complicated it is. Luckily, Maggie Lake is back with us, in New York.
Maggie, I was going to say, are you a Symbian woman, and Android, a BlackBerry, or somewhere-you just wanted to make a phone call?
LAKE: Yes, well, I have to tell you, Richard, I am a hybrid. And this is who BlackBerry is going after. I use BlackBerry for work, but I have an iPhone for my personal use. And when I asked Mike Lazaridis, why are you bothering to go after the consumers. There is so much competition out there. Why go there? He said not every consumer is a business person, but every business person is a consumer.
I think they are very worried about Apple taking a bite out. Those people who use it, that go to their IT department to say, hey I want you to adopt iPhone. I just want to carry around one thing and I want it to be an iPhone. They are very worried about that. And they have been doing better getting through to the consumer, but I said, like, what gives you the advantage? Why do you think you can sort of jump in here? You haven't been that successful so far? As you know, this is an engineering firm. These are engineers at the heart of it. And they think that they can bring that engineering background and the power and the function that they are famous for. And add these bells and whistles, and they've got a killer product.
QUEST: OK, but-but, when all is said and done, the battle has many- the battle has many fighters in it, not all can survive.
LAKE: No.
QUEST: We saw that with PALM. We saw that with-they were the leader, the Trio was ubiquitous. The PRE (ph), has been less than successful.
LAKE: Yes.
QUEST: PALM is now going to another company.
LAKE: Yes, but I think that BlackBerry has to be considered a serious contender here. They have a huge market share, an affluent market share. And one of the things about this phone, Richard, that is going to appeal right away to people, if they have got all the touch screen, but they have a slide out keyboard for texting. Now some people are fine texting on the touch screens, and typing, but not everyone is, especially all those corporate customers. So, right away that is going to appeal. They went through all this other technical, you know, issues that I don't pretend to understand. But they think it is that combination that is really appealing. Have a listen to how Michael Lazaridis described it.
(BEGIN VIDEO CLIP)
LAZARIDIS: There is this lasting quality to the way we do things and the way our users use them. And what we have done with BlackBerry 6 is we have freshened it up. You know, we've revolutionized and evolved at the same time.
LAKE: Should we expect it to continue in this way? I mean, are we going to see a tablet next? Is this the way BlackBerry is going?
LAZARIDIS: Well, you know, BlackBerry is going BlackBerry 6, you can count on that. You can count on touch ability (ph) devices. You can count on precision navigation. You can count on, you know, Web kit. You can count on our new development platforms. You can count on the growth that we've seen in applications for the BlackBerry platform. So, you know, when we come out with, you know, a dozen new products during the year, you shouldn't be surprised that we are coming up with great new mobile products.
LAKE: So, the other thing that people count on, of course, is being able to access all their information, everywhere they are. There are new concerns. What are you telling users who are worried about the fact that when they are traveling now, they may not be able to access your systems in the UAE, some other countries that are considering it. What are you saying to you users out there?
LAZARIDIS: Well, the most important thing is, first of all, we spent- it was funny, when-when I first started canvassing the BlackBerry to corporate and government customers, this is in the late `90s, and, you know, I talked to them, and I proposed a solution to connect your exchange, connect to your IBM, Lotus Note system. You know, they all told me the same thing. Sounds like a good idea, but if it is not secure I'm not putting it in.
LAKE: Right.
LAZARIDIS: So, we spent the last, well over a decade, building and designing and refining the world's most secure enterprise based solution. That is why it has become number one worldwide. That is why it is the only approved solution for many governments and law enforcement around the world.
LAKE: Right.
LAZARIDIS: It is the only one that stood the test of certifications like EL4 Plus (ph).
LAKE: Right. So, we know that that is why a lot of governments and corporations use it, but some are saying that some-they want the same as everyone else has. So the UAE is saying we want the same access other governments have, are their different rules for different governments? Different places? Do some people have some access that other people don't?
LAZARIDIS: Well, remember, the-when you say the same, that is an international treaty, that our product is certified for. I think we are the only product that is certified to meet those very stringent international standards. It took us nearly two years to achieve that certification. And so when you buy a BlackBerry you can rest assured that we meet that international standard.
LAKE: Is there a time frame that you are trying to resolve-
(END VIDEOTAPE)
LAKE: OK, Richard, obviously, we're talking there again about the UAE situation, which is critical.
I want to just circle back to the product. You know, there has been a lot of speculation about a tablet, about a BlackBerry tablet. I know you care about this, because you so love your iPad. And certainly, not ruling it out sounded to me like there will be something in that department coming out this year.
QUEST: And if there is, Maggie, do feel free to embarrass me with an expensive Christmas or holiday, festive season gift.
(LAUGHTER)
Maggie Lake, who is in New York.
Let me tell you, strong demand drives BMW profits as buyers return to the showrooms. One of the companies to announce results today. Who else in the fast lane? QUEST MEANS BUSINESS, in a moment.
(COMMERCIAL BREAK)
QUEST: Today you have markets on a global, or on like an overarching look. There were strong company earnings that came out today. And they have factored into the markets, which although the markets overall, weren't terribly impressive in the way they ended the session. If you join me in the library again, you'll see that there were certainly some fascinating things. I mean, who could not be fascinated by BMWs. Bearing in mind we are coming out of a recession, a really bad one. And BMW has its biggest quarterly profit in two and a half years.
Remember, Merck also had some very strong numbers, as did Volkswagen. But even so, $1.1 billion U.S., in Q2, and record sales in China, and the U.S.
Interesting, Northern Rock was the first touchstone bank that went belly up in the U.K., $553 million, pre-tax profits for the Rock, which is in U.K. government hands. It has also been split, as you know, with EU approval, into good bad/bad bank-good bad/bank bang-good-you know what I mean, good bank/bad bank.
(LAUGHTER)
But so the good bank has actually made a loss, but even so, Northern Rock, the fact it is still in business somewhat of an achievement.
Pfizer, future profits up 9 percent, as strong sales for top drugs and the merger with Wyeth has helped the company. But you are getting a very good view and I'll talk about this more when we do our "Profitable Moment", right at the end of the program.
Strong profits, remnants of bad debt, and an economy that is still giving cause for concern. Different story on the other side of the Atlantic where it was the disappointing results that pulled the Dow down. Felicia Taylor is at the New York Stock Exchange.
Which result, in particular, did you find disappointing?
FELICIA TAYLOR, CNN FINANCIAL CORRESPONDENT: Well, honestly, you were just talking about Pfizer, so I'll give you the stock quote on that. That is up about 5 percent. That is one stock that is helping to lead the Dow upward, perhaps keeping it sort of in a tepid area, because the Dow is only down about 20 points. You'd think because of the other stock that reported, there were corporate earnings today like Proctor & Gamble, that the Dow might even be down further, as well as the economic news that we had today.
P&G shares down about 3 percent, dragging down the overall index. It's profit fell 12 percent, its revenue also missing estimates, along with the overall results. P&G is also careful for the rest of the year. So consumers really aren't buying very much, except for, perhaps prescription drugs like, Lipitor and Viagra, from Pfizer, Richard.
QUEST: The totality in economic terms, along with the way the market is reacting, it is very much a theme that we're seeing this split. It is almost schizophrenic. Economy says one thing, company results says something different.
TAYLOR: Absolutely right. I mean that is a little bit of a conundrum, Richard, that we are seeing today. You would think that the market would be down even more, based on some of the economic news that we got. Personal income and spending was virtually unchanged in June. That was a surprise. Naturally economists were looking for a tick upward. We also saw pending home sales that dropped 2.6 percent. That was better than the expected drop of 5 percent. However-and it was also a lot better than last month of 3 percent. Factory orders, though, they fell 1.2 percent, and for most people this is still about jobs.
So, you'd expect to see the market down even further today. And I'm going to talk to Ken Polcari about just exactly that, from ICAP Equities. Why isn't the stock market reacting more fully to the negative news?
(BEGIN VIDEO CLIP)
KEN POLCARI, ICAP EQUITIES: You know, I have to tell you I think that investors are still focusing on the positive. They are really trying to be optimistic. They want to believe that everything is getting better. They are punishing the stocks that miss and they really rewarding the stocks that, you know, beat the numbers and come up with nice revenue numbers. But they don't want to sell the market off. Which I think is very interesting, because I agree with you. I would have thought that the market would have gone down 100 points today based on all those numbers this morning. And it is really not.
I feel like the market is going to get weaker today. I think that if the market starts to rally to unchanged, the sellers are sitting right there. So, I don't think the market is going higher for sure. I think that as the day wears on people are really going to start to focus and the market is going to end up getting weaker.
TAYLOR: So, what are traders really focused on? If it is not the economic news, is that a possibility that it could come back to bite us later on?
POLCARI: Well, on the one hand I think it is. I think they are really trying to focus on anything positive that they can see. And any macro economic data point that comes out that is positive, they rally the market. Now, look at today. We have four points that were clearly negative, the market should be off, but they are just looking for what is positive though. They're listening to what central bankers are saying around the world. They are watching what happened in Asia overnight. They are seeing a recovery talk in Europe. And so they want to be positive.
And listen, I'd like to be positive, too. And I'm struggling to find the positiveness in all of this.
TAYLOR: But yet, again, Ken Polcari was the one that told me yesterday that this could be a house of cards, that may come tumbling down. We'll find out and see. Richard, back to you.
QUEST: One of the fascinating parts, Felicia, on the floor of the New York Stock Exchange, you have the immediacy there, if you like, the micro of the traders. We are now going to put that macroeconomic perspective. Felicia, many thanks, indeed.
Ad Van Tiggelen is senior investment specialist at ING, joins me now from the Hague in the Netherlands to talk more about that.
I'm not sure of how much you were able to hear of our discussion there. But this discrepancy between where we are going on a macroeconomic basis versus the company results we've seen, is now starting to give cause for thought, isn't it?
AD VAN TIGGELEN, SR. INVESTMENT SPECIALIST, ING: Yes, Richard, it certainly is. One side you see better-than-expected earnings, again, there with almost 70 percent of the companies beating estimates, by around 10 percent, which is one of the best quarters ever in that sense. On the other side are still justifiable fears for the economic growth going forward. Because it is still very questionable whether the consumer which will have to drive the next phase of the recovery, will indeed do that.
I think that the strong rise in earnings, of course, very much driven by one side, the cost cutting. The other side the low base, which we can compare it with of last year. And then also it must be said there is some sales growth, especially on the industrial side.
QUEST: This is-so if we now then think of austerity, and the austerity measures, which are feeding into the economic chain. Do you believe that equities still offer the best return, as we look coming out of the summer, or should we be thinking of other vehicles?
VAN TIGGELEN: We as I hear, we still see some upsides for the second half of the year of around 5 or 6 percent. We are the most overweight in equities, but I must say it is an opportunistic position. And now we will certainly take profits when the S&P would go towards 1,200. That positive view is mostly based on valuation, because the market is already discounted in a kind of double-dippish scenario. So, the market is already cautiously valued, that is the reason why we still see attractiveness in equities within a certain range. So, up to 1,200, 1220 on the S&P, but not much further than that. Because we also do see-
QUEST: Right, but-let me just interrupt there. Because I mean, it is nice to see that there is some upward, maybe up to 6 percent, 7 percent towards the end of the year. But if you want something better than that, or if you don't where else is there? The bonds look like they are going to be under considerable pressure before the end of the year. Commodities have had a strong run up so far. So one is at a bit of a loss to know else is in the cupboard.
VAN TIGGELEN: Yes, that is a good point. It will be difficult to find out double-digit growth in the next 12 months, probably anywhere. We are not as negative on the bond market as maybe you are implying. We still think that rates will keep very low. We still see a kind of disinflationary, almost deflationary environment. But even then you will only get 3 or 4 percent out of bonds. Equities, 5 or 6 percent not much more; emerging markets, probably the best chances for growth, double-digit earnings probably you should not look for them anywhere, because you are probably not going to find them. You'll just have to be satisfied with modest single-digit returns at best.
QUEST: Ah, that is a very polite way of telling me-I thank you-but a very polite way of telling me, Quest, stop being greedy. The good days are not back yet.
(LAUGHTER)
All right. Many thanks, indeed. Good to have you on the program. We'll talk again as the year moves on. To make sure those gains are actually seen.
You know what it is like, those of us who lived through days where equities, even last year, where equities may have gotten 10, 15 percent. The mere thought of a 5 percent gain now it seems positively paltry. But then I suppose 5 percent is better than losing your shirt.
(DESK BELL CHIMES)
When we come back, if you were the smart money, well that might have been in the commodities markets. Soaring heat, soaring wheat prices, and Russia's dangerously hot summer, it is taking a toll on food production. How is that affecting prices where you are? QUEST MEANS BUSINESS, good evening to you.
(COMMERCIAL BREAK)
QUEST: Russia is trying to calm fears that it will leave the world market short of wheat this year. The price of wheat in U.S. markets has surged 42 percent, in July, a 13-year high. It has meant the drought that is threatening to batter the Russian grain harvest. On Monday wheat futures in Chicago hit their highs in almost 24 months. Russia, you'll be aware, is one of the largest wheat exporters.
A minister managed to calm the markets just a tad, when he said there was plenty of grain stockpiled. Russia isn't alone of course, commodities markets don't act in isolation. Our Senior International Correspondent Matthew Chance, in Moscow, finds out how things look in Russia's farming heartland.
(BEGIN VIDEOTAPE)
MATTHEW CHANCE, CNN SR. INT'L. CORRESPONDENT (voice over): As Russia's firefighters battle the flames it is farmers say they are reaping the worst harvest in years.
Crops in these fields around Voronezh, in Central Russia, have all but withered in the searing heat. Russia's long sweltering summer is wrecking lives and livelihoods.
(On camera): This is pretty amazing driving this Combine Harvester. Now, you might not think the ferocious forest fires and Russia's poor grain harvest this year are closely related, after all, these crops are not catching fire. But of course those problems are linked to a bigger issue. There has been no rain here since early May. Russia is in the middle of its worst drought in nearly 40 years.
(Voice over): The impact on vast swaths of territory has been dramatic. As emergency workers struggle to control the fires, hundreds of towns and villages have been placed on alert. Some have been entirely engulfed in flames. But even in open ground the dry spell is having a profound effect. Farmers say the region's rich black soil, renowned for its fertility, is turning to dust.
YURI MILGUNOV, FARMER (through translator): Look at the soil. It is shouldn't be like this. This is not how black soil should look. As you can see this earth doesn't have any structure to it. It is cloddy. The soil should be crumbly. Not like this.
CHANCE (On camera): What will happen next year, if this soil stays like this and it doesn't rain soon?
MILGUNOV (through translator): If there is no rain in the next two weeks or so, then our winter crops will be in danger, too. The soil should be moist for planting. If there won't be any rains, I don't see any reason to plant anything.
CHANCE (voice over): On the farm workers are processing what's left of the crops. The summer harvest is usually one of their busiest seasons, but not this time.
(On camera): All the farmers here say that these grain storage silos are normally filled to the ceiling with the harvest, but look at them this year. They are virtually empty. And that is because the drought has had a devastating impact on the harvest. The Russian grain union, which is the association that oversees this, says that wheat crops this year are down as much as 26 percent, more than a quarter of last year's harvest. Of course, in one of the world's biggest grain producers that could have a significant impact.
(Voice over): Already the wildfires sweeping Russia are estimated to have caused $10s of millions worth of damage. This terrible harvest will only add to that burden. Matthew Chance, CNN, in Central Russia.
(END VIDEOTAPE)
QUEST: And over the days ahead, we will be looking of course at the various other commodity markets that are now showing record highs.
In a moment, when you and I come back together, it should be the night BP has been hoping for. The oil company takes another step, whether it is static kill, bottom kill, or whatever form, they are hoping to kill the Macondo Well, after the break.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN. And on this network, the news always comes first.
It's a life and death situation tonight for many people in Pakistan after what the U.N. calls the country's worst monsoon flooding ever. Emergency crews are struggling to get to some of the hardest hit areas. But pounding rain and washed out bridges are complicating the relief effort. As many as 1,500 people have now been killed. Hundreds of thousands more are homeless. And it's believed up to three million have been affected.
Israel and Lebanon are blaming each other for the deadliest cross border violence in years. An Israeli Army officer, several Lebanese soldiers and a Lebanese journalist were killed when Israeli and Lebanese troops exchanged fire. Lebanon accuses an Israeli patrol of crossing the border to uproot a tree. Israel maintains its troops were inside Israeli territory.
New York officials have denied landmark status to this building two blocks from the site of the 9/11 attacks at the World Trade Center. The ruling means that the building can now be torn down in its place, an Islamic center and mosque will be built. Supporters say the project will build religious and cultural connections. But opponents say it's an insult to the victims of the September 11th attacks.
As you heard earlier, raging wildfires across Russia have now killed 40 people and the emergency services say nearly 700 fires are still burning in the west. The president has declared a state of emergency in seven regions and officials say the record setting heat wave has baked the landscape bone dry. They say most of the fires were started accidentally.
BP has raised more cash to meet the huge cost of the oil spill. It's agreed to sell its Colombian oil and gas explorations. The price tag is around $2 billion. Looking at the fine that BP could face for the disaster, that money will come in very handy, indeed.
Jim Boulden is with me and has spent the day looking at the fines, the finances and...
JIM BOULDEN, CNN CORRESPONDENT: The costs.
QUEST: -- well, the fire side sale or the fire sales.
BOULDEN: Yes. Well, let's start with the asset sales, shall we?
BP told us last week, last Tuesday, when they gave their results out, that they would be selling $30 billion worth of assets over the next 18 months.
So this $1.9 billion from Colombia is pretty small, but it is the second set of asset sales. They've already announced, back in July, sales of assets for $7 billion to Apache.
So more sales to come. We know they're going to come pretty thick and fast because of these fines and because of the costs.
QUEST: He's got a lot to get to, but I need to know why do they need to sell these assets?
They are a cash generating machine with strong cash -- free cash flow.
BOULDEN: They decided they wanted to -- to narrow down their focus and they wanted to go -- they wanted to get rid of some of their more mature assets. And they thought this was a very quick way to raise funds. And you're right, they are. But they need this money now. And so this is a way to get the money by the end of the year, in this case, from this -- from this Colombia sale.
QUEST: All right. So that's the sales.
BOULDEN: Yes.
Now, let's talk about the fines. You know, we talked about this a lot over the times. But, you know...
QUEST: I think I'm going to need my -- I think I -- and you might wish to join in and have a pen and pencil ready if the numbers get complicated here.
Go on.
BOULDEN: OK, we know from -- from the government's sources in the last couple of days, from some scientists, that most likely, 4.9 million barrels have gone -- left the well. But they -- but BP was able to capture some of those. So if you think about 4.1 million barrels from...
QUEST: All right. Good.
BOULDEN: -- have probably gone into the Gulf of Mexico waters.
QUEST: I've got it. So -- so 4.9 million has been lost.
BOULDEN: Yes.
QUEST: That's what's gone into the Gulf?
BOULDEN: Well, they've recovered 800,000 of that.
QUEST: Right. So 4.1 million...
BOULDEN: Yes, correct.
QUEST: -- has been...
BOULDEN: Is out there.
QUEST: -- is out there.
BOULDEN: Right.
QUEST: Right.
BOULDEN: And if you think about the way the Clean Water Act in the U.S. is, they can be fined for every single barrel that is in the Gulf. So, if they get fined somewhere between $1,000 and $4,000 a barrel for what's in the Gulf, it could be anywhere -- a civil fine -- between $4.5 billion. And if they're found to have had gross negligence in all of this, it could be $17.6 billion. That's just the civil fines. That's got nothing to do with the cleanup costs, of course.
QUEST: And this depends on whether -- well, first of all, is it -- is it generally accepted that the number they will be fined on is 4.1 million, not 4.9?
BOULDEN: That is what it -- it looks like today, because they were able to recover 800,000. And if you...
QUEST: Right.
BOULDEN: It's an interpretation of the law.
QUEST: But that's a huge discrepancy between a civil fine...
BOULDEN: Yes.
QUEST: -- which would -- which would bring in $4.5 billion...
BOULDEN: Yes.
QUEST: -- and the gross negligence at $17 billion.
BOULDEN: And that would take a civil case and it would take a law -- a judge and it will take lawyers and it will take the whole -- it could get messy again between the government and between BP. And this is the federal fines, of course.
QUEST: OK. So -- so we've got -- we've got the fines.
BOULDEN: Yes.
QUEST: We've got the -- the claims.
BOULDEN: Yes, Larry, let's talk claims.
QUEST: Gone (INAUDIBLE)?
BOULDEN: OK. Well, you know, they -- they're -- they put -- they set aside $20 billion in an escrow fund.
QUEST: Yes.
BOULDEN: Of that, they've paid $256 million in claims so far. That's from BP. All the way down to $8 million for oyster harvesters. I wanted to point that out...
QUEST: Oysters?
BOULDEN: -- because they're -- they're breaking it down very specifically of what it's costing them. They say about $2.9 billion so far in the cleanup costs up to the end of July, though that's obviously gone up a bit more. And they already announced this $100 million for out of work rig workers.
So I'm estimating that it's probably cost to -- today, to now, around $3.3 billion, with a lot more to go.
QUEST: Jim, stay with us.
BOULDEN: Yes.
QUEST: Stay with us on that.
Many thanks.
Jim Boulden with the numbers.
So what is actually going to happen, though, in the next few hours, as this "static kill" operation gets underway?
There was a problem with a hydraulic leak from the well cap, but there's been sealed and sorted.
So David Mattingly in New Orleans again -- David, we keep talking to you and we will keep talking to you until this thing is over.
Has "static kill" started?
DAVID MATTINGLY, CNN CORRESPONDENT: We just got word from BP, Richard, that about 20 minutes ago, they started the test -- the all important test they have to conduct before they move on to the "static kill." That test is going to tell them what sort of shape this well is in, if that well can handle the "static kill" procedure, where they're going to be pumping a lot of mud -- drilling mud into that well.
It's also going to tell them if it can handle it, how much mud and how fast they can pump it in there. So a lot of important questions to be answered by this test that is now about 20, 25 minutes old.
So that's going to take a few hours. And after that, if everything is going well, we expect the "static kill" to start. And that's when they're going to start pumping barrel after barrel after barrel of drilling mud into this well, essentially drowning that oil -- pushing it down all the way back into the reservoir, into the hole that it crawled out of before it started this huge disaster.
So this will, in a sense, if they decide to go forward, will kill this well, because it's going to eliminate the threat of that oil, which, until now, has been constantly pushing up...
QUEST: Right.
MATTINGLY: -- trying to create pressure, even though that cap has been on. So it's been in a cage. Now they're going to put it to sleep, drive it back down into its hole and wait until that relief well is done about a week from now, where they're going to fill it up with cement so it's never going to be a problem again -- Richard.
QUEST: David, we all know a bit more than we'd ever like to about drilling underwater and -- and deep sea drilling.
But, David, as they put the drilling mud in, if -- if the oil will not get down -- go further down because the pressure is too great, what happens then?
I mean, because the last time they tried the "top kill," the -- the drilling mud came out the sides.
MATTINGLY: There is a very big difference between this and the "top kill" procedure, because the "top kill" was -- had -- the top was open. So when they were pumping the mud in, it was still spewing out the top. They just could not pump in enough mud and create enough pressure to drive that well back. But now that the system is closed in, they're just going to slowly put the mud in there. And it's going to weigh enough that it's just -- the sheer weight of it is going to push that oil down.
Now, the problem that they're looking at with this is can this well hold the pressure of that well going in while it goes in?
And some other things -- are they going to find a leak?
Are they going to find some places where this mud is seeping out or oil is seeping out where it shouldn't be?
So those sorts of things could derail this process. And if they cannot go forward with this, Richard, then that means they will rely completely on the "bottom kill," that relief well, when it intersects the BP well and fills it up with cement. They're very confident in that. But this procedure, the "static kill" and filling it up with mud, is going to make that final cementing all that much more easy.
QUEST: All right. Many thanks, indeed, David.
You and I will talk more about this. Keep -- keep on it for us.
Many thanks.
David Mattingly in New Orleans.
Now, what a busy day it has been, whether it's BP, BlackBerries or bars of soap -- there's a bit of alliteration for you. The size of Procter & Gamble's market worldwide -- I discovered a fascinating fact. Procter & Gamble spends more than $8 billion a year on advertising its various products. The chief executive will join me after the show.
(COMMERCIAL BREAK)
QUEST: Shares in Procter & Gamble are down in the session. They're down by around nearly 4 percent. The company has brands -- you'll be familiar with them -- Downy, Duracell, Max Factor. But the company's profits were down more than 10 percent in Q4. Analysts were disappointed with the earnings and with the revenues.
We need to talk about this. And we are grateful that the chief executive of P&G, Bob McDonald, joins me now from Cincinnati.
If we look at the numbers -- and we don't want to get too heavily into them, but -- but the factors that created these results, economies are recovering but you're still seeing difficulties in getting that revenue growth and earnings growth back.
BOB MCDONALD, CHAIRMAN & CEO, PROCTER & GAMBLE: Well, Richard, we just finished one of our best fiscal years. We started the year with the goal of growing market share profitably. At the end of the fiscal year, we've -- we're growing market share now in about 60 percent of our business around the world. That's about triple what it was at the beginning of the year.
We delivered earnings per share growth in line with our target.
QUEST: Right.
MCDONALD: We returned cash to shareholders more than the profit we made. We've increased our dividend 9.5 percent. And we bought back about $6 million worth of our shares. So we thought it was a successful year, with accelerating growth throughout the year. In the last quarter, we grew volume 8 percent above year ago, which is the best we've done in nearly six years.
As you said, the market growth is not helping us around the world.
QUEST: Is it a case -- and -- and that -- it's not unique to your company, but the market, at the moment, is saying to people like you, good is not good enough, great might do and you have to do better.
MCDONALD: Well, we -- the share growth that we have reflects the fact that we have our strongest innovation program ever right now in the marketplace. We've introduced a new Gillette Pro-Glide product...
QUEST: Right.
MCDONALD: -- a new Pantene. So we have strong innovation. But you're right, the markets are not growing around the world. We see basically flat to 1 percent value growth in the developed markets. But roughly double digit growth in the developing world. And so much of our growth is coming disproportionately from the developing world.
QUEST: As chief exec of a company the size of -- of P&G, that's a fascinating challenge for you, isn't it, as you struggle, of course, with the very developed markets -- the EU, the U.S. -- but your real future impetus, the marketing, the spend has to be in those new economies.
MCDONALD: You're right, it is -- it is a challenge. We -- we have to follow our purpose-inspired growth strategy where the -- where the people are and where the babies are born. It's -- it's simple demographics. And certainly the footprint of our company, over time...
QUEST: Right.
MCDONALD: -- since its inception 172 years ago, has been changing and moving more toward Asia and more toward Africa.
QUEST: Finally, this statistic that I mentioned before the break, that the company spends nearly $9 billion on advertising, that is the most remarkable amount of money to spend.
MCDONALD: Well, we are one of the world's largest advertisers and we use advertising as a way to make people aware of our products and -- and generate trial. Our purpose as a company is to touch and improve lives. We do that through our products and we do that through our services. And one of the ways that we reach people is through advertising -- sometimes television advertising, like on CNN -- or digital advertising through the Internet.
QUEST: Bob, many thanks, indeed.
We're out of time.
Bob joined me from Cincinnati, from the -- the chief executive from Procter...
MCDONALD: Thank you, Richard.
QUEST: Nice to talk to you.
The issues that we're looking at -- and you've heard us talk about several times both in the news and in our reports from Moscow -- fires and a heat wave in Russia. In Pakistan, it's floods. And in Europe, the weather pattern for days to come.
I'm trying to do his job for him, but, really, we need an expert on all of this and Guillermo is just the man.
GUILLERMO ARDUINO, CNN METEOROLOGIST: You were talking about the price of wheat. And actually, we'll -- we've been looking into it. There's -- the -- the interesting aspect about what's going on in Russia is the unrelenting fashion of this heat wave that comes after a prolonged drought. And that is the main thing that is driving those prices up, because the production is not going to be as good as last year, despite the fact that we were under a severe drought last year in Russia.
So look at this. It should be 22 degrees and it's going up. The third week in a row, no rain, no real letup at all in the conditions. Look at the numbers here -- hectares, 10 millions -- million of hectares of crops destroyed. The damages are significant and the prices are going up. Grains -- grain production is going down. Everything is bad right now because of this pattern -- high pressure to the east. And there we have low pressure to the west, but it's not allowing the -- the weather pattern is not letting this storm going into Russia. So we see that the high pressure continues to be very strong. It's not allowing any rain or any wind of change.
The winds are coming from the south. And that's where the heat is. So look at Kiev, the same thing. Even though we see at night, a little bit of better conditions in Kiev compared to Moscow. I mean it's really bad in Russia, unfortunately.
And then the fires, of course. But first the droughts, then the heat wave and, finally, the fires.
Well, in Britain I see that tomorrow, probably Wednesday, we'll see some significant rain. You see how the system is moving in. France is going to be fine, especially the central and southern parts for the time being. You see we are seeing some spotted rain showers amid portions.
Copenhagen with some rain showers, also; Amsterdam. But it's not that bad. Dublin, the same thing; Brussels, the same thing. It's not -- not that bad.
Temperatures continue to be extremely hot in the Gulf of Mexico. And we do have, Richard, in this case, heat warnings and advisories all across the southern parts of the United States -- back to you.
QUEST: Guillermo, many thanks.
ARDUINO: Thank you.
QUEST: A busy time for you and your colleagues at the World Weather Center.
In a moment, one of America's top investors says Washington needs a few lessons in how to use money more wisely. Bill Gross is a stimulus critic and he's going to be discussing the new normal.
(COMMERCIAL BREAK)
QUEST: An influential investor in the U.S. says Washington isn't spending its economic stimulus money wisely.
Poppy joins me now live from New York.
The question -- look, it's not the first time someone has said that.
So why do we take this call any more seriously?
Who is it from?
POPPY HARLOW, ANCHOR, CNNMONEY.COM: Because it's -- it's Bill Gross. He is the founder of PIMCO, hands down, the largest bond fund in the world. As you know, Richard, they manage about a trillion dollars in terms of assets under management. What they're actually seeing is about a billion dollars of new money flowing under their management every single week, coming from very risk-averse people.
We talked to him on Monday and he really focused in on stimulus spending in the United States, saying it's akin to flushing money down a toilet. He -- he made the analogy of hating electronic toilets. I'm not kidding on that one. And he said, look, they're wasting this money. And as for investors, they have to get prepared for and ready for what he calls the new normal in the economy.
Take a listen to Bill Gross.
(BEGIN VIDEOTAPE)
BILL GROSS, FOUNDER, PIMCO: You know, I suggested that in the U.S. economy, in terms of the recent stimulus, that we've been flushing a lot of stimulus down the economic toilet, which means that we've been directing it toward consumption as opposed to investment. And so the jobs that are required to be created in order to be competitive have not really been produced.
HARLOW: But, you know, you've set out these four different economic scenarios as to how this recovery could go. The one that you're really focusing on, it seems, is this -- this new normal involving deleveraging, re-regulation, de-globalization, talking about population growth slowing, also, more aging Americans spending less and less. So all of that tying into this new normal that's here to stay, Bill?
GROSS: Yes. I -- I think our new normal, which stresses those particular factors -- I won't go over them again -- you basically produce a 1 to 2 percent real growth rate, Poppy. I mean what we've experienced for the past 18 months has been a -- a sudden normal -- a new normal type of recovery in the 2 percent area. Typically, a recovery off of a recession such as we've had would be in the 4 to 5 to 6 percent real growth area. And it's been half of that, if that.
And so what we're suggesting going forward is yes, because of the -- the problem in -- in terms of the -- the structure of the economy, the fact that we're deleveraging, the fact that we're re-regulating and the fact, importantly, I think, Poppy, the jobs themselves are facing structural headwinds. I mean, there are many jobs that are not coming back into the economy -- autos and finance and real estate and state and local governments. And the longer we stay out of those jobs and -- and at 9 percent plus unemployment, the more we stay out of shape, so to speak, as a labor force and less relevant to the global economy.
HARLOW: so this is really a domestic, U.S. forecast, not -- not a global forecast?
I mean this -- this varies country by country, right?
GROSS: Yes, it does. And we have, for some time now, suggested that in terms of the global economy, that the developing, the emerging -- which is almost a -- a misnomer these days, because those are the dominant economies -- we're talking about Asia and China, Brazil, as well -- that those particular economies will continue to do well because they are under consumed whereas the U.S. is over consumed.
And to the extent that they can produce consumption and growth significantly in the future, then they are the economies of the future.
(END VIDEO TAPE)
HARLOW: So the economies of the future, those BRIC nations, not the U.S. Interesting to note, though, Richard, he is pouring billions and billions of investor dollars into U.S. Treasuries, saying there's a flight to quality, investors fleeing from Europe, buying up U.S. Treasuries, despite the low yield.
He actually said that Europe is experiencing what he thinks is a time akin to the liquidity crisis of 2008.
Pretty interesting. More from him here on CNNmoney -- Richard.
QUEST: Many thanks, Poppy Harlow.
That is, indeed, interesting when we hear from people like Bill Gross.
Poppy Harlow joining us from New York.
Now, in just a second, we need to pull the strands together of today's program. We've talked so much about economics, markets and what's really happening. A Profitable Moment after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's Profitable Moment.
We're in very strange economic times, where central bankers regularly warn us of slow growth and uncertainties. But the big corporations showing strong earnings results.
European countries continue to talk austerity and economies are slowing down. We're not seeing any significant cuts in the number of people unemployed. In the topsy-turvy economic world, stock markets are showing small gains and yet the best in the emerging markets.
Time and again, we're warned that all is not right in the world.
To be sure, though, it is the summer. And let's face it, markets can be very odd at this time of the year.
And that's QUEST MEANS BUSINESS tonight.
I'm Richard Quest.
Whatever you're up to in the hours ahead, I hope it's profitable.
"WORLD ONE" is now.
END
