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Quest Means Business
JPMorgan CEO Says No Defense for Losses; Protestors Disrupt Hearing; Jamie Dimon Faces US Lawmakers; The Volcker Rule, Banks, and Hedge Funds; JPMorgan Shares Up, Rest of Dow Struggling; Shareholders Revolt; Dollar Slides; Spanish Prime Minister Calls on Europe to Fight to Save Euro; Bond Yields Rising; Mixed Results for European Markets; Greeks Stockpiling Food, Cash Ahead of Sunday's Elections; Watching Wall Street; US President Concerned About Europe
Aired June 13, 2012 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MAX FOSTER, HOST: The buck stops here. JPMorgan's chief says he can't justify his bank's losses.
(BEGIN VIDEO CLIP)
JAMIE DIMON, CEO, JPMORGAN CHASE: Whatever you call it, I will not defend it. It violated common sense, in my opinion.
(END VIDEO CLIP)
FOSTER: A quarrel with Sorrell. WPP shareholders reject their boss's pay packet.
And dot-anything you want. The internet opens up if you can afford it.
I'm Max Foster. This is QUEST MEANS BUSINESS.
Hello to you. Unacceptable and indefensible. Jamie Dimon says JPMorgan's $2 billion trading loss can't be justified. Testifying before US lawmakers on Capitol Hill, the bank's CEO said the trading landscape had changed dramatically, but more regulation may not be the answer.
(BEGIN VIDEO CLIP)
SEN. RICHARD SHELBY (R), ALABAMA: Was what went wrong, was it the way the hedge was contrived, or was it events beyond your control?
DIMON: I think it was the way it was contrived between January, February, and March, it changed into something I cannot publicly defend.
I've been in regulated business my whole life, and regulators look at many things we do. They audit it, they criticize it. I think it's important to recognize that the -- I think there have been improvements in companies, including JPMorgan, because of their audit and criticism.
So, I think you have to give regulators regulators realistic objectives. I don't think realistically they can actually stop something like this from happening. It's purely management's mistake.
(END VIDEO CLIP)
FOSTER: Well, Dimon was called before US Congress to explain last month's massive unexpected trading loss. JPMorgan lost at least $2 billion from bad trades made by its chief investment office here in London. The proceedings today were briefly delayed when protesters made their feelings known.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: Stop foreclosures now!
CROWD: Stop foreclosures now! Stop foreclosures now!
(CROSSTALK)
UNIDENTIFIED MALE: You can get a lot for $2 billion and you can't get (inaudible) --
(END VIDEO CLIP)
FOSTER: But once the hearing did get underway, Dimon spoke for more than two hours. Maggie Lake was following every twist and turn. Maggie?
MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT: It certainly was, Max, and it got off to fireworks, that's for sure. But it did settle down, some people thinking that the senators maybe were a little easy on Jamie Dimon.
He did something that a lot of other bank executives here in the US have been reluctant to do, and that is apologize. He did sound contrite at times.
But he also at other times vigorously defended the bank's intentions, their right to hedge positions, and also pushed back hard against this idea that he's against any type of financial reform or financial regulations, saying that he does, in fact, support some of it.
Now, you have to remember -- this is important -- Jamie Dimon was considered sort of the smartest guy on Wall Street, one of the most respected. He's been a spokesperson for the industry down in Washington when it comes to talking about this financial reform.
So certainly, he himself acknowledging that this has been a blow to that otherwise sterling reputation. There were a lot of questions, given how good he was in the past, how much -- how good he was at managing risk, a lot of questions about exactly what he knew, when he knew it.
We didn't get a lot of information about that because Dimon's not disclosing the nature, the details of the trade. They're still trying to unwind them. But he did say that, basically, as you heard, it was a sort of a failure of management. He trusted those managers, and they failed him, in essence, paraphrasing.
Later, afterwards, in an interview with CNBC, he was even more adamant about the fact that he did not mislead investors. Have a listen.
(BEGIN VIDEO CLIP)
DIMON: I didn't know. Listen, do you think I would be crazy enough to get out there and say something that I knew to be a lie? And so, I had spoken to people, they had done reports, they had come back, and almost everyone up and down the line thought this was temporary, it was a small thing, it was blown way out of proportion. I obviously believed it. I obviously was wrong.
(END VIDEO CLIP)
LAKE: Now, Max, shareholders giving Jamie Dimon pretty good reviews for his performance. They thought he was cool, that he deflected a lot of the questions. The stock actually trading up today on pretty heavy volume.
But a lot of questions remain, again, especially about the size of the loss -- we don't know what it is yet -- the nature, the detailed nature of the trades. Jamie Dimon telling the committee today that we would expect to get -- he will disclose, the firm will disclose more information in about a month's time when they release their earnings. Max?
FOSTER: Maggie, one of the questions, of course, is can it happen again? And the Volcker Rule is due to come in effect, isn't it? July the 21st. The question is, will that be enough to stop it -- this happening again? Would this have happened if the Volcker Rule was effected?
LAKE: That's right. And this is where the testimony was the most interesting, when they were sort of pushing him on this issue of the nature of the these trades.
They had said all along that these are hedges, a lot of people saying if you're taking on and it created this outside -- outsized risk, could this really be a hedge, or was this proprietary trading in disguise? The very thing the Volcker rule is trying to clamp down on.
An interesting exchange between him and one of the senators on the panel that really encapsulates this. Have a listen.
(BEGIN VIDEO CLIP)
SEN. JEFF MERKLEY (D), OREGON: The basic concept behind the Volcker firewall is that banks are in the lending business, not in the hedge fund business. And -- do you share that kind of basic, philosophical orientation?
DIMON: We are not in the hedge fund business.
(END VIDEO CLIP)
LAKE: If looks could kill, right? Well, we are joined now by that Democratic senator from Oregon, Jeff Merkley. Thanks very much for joining us today, Senator. It was an interesting hearing that lasted for over two hours. Were you satisfied by what you heard from Jamie Dimon?
MERKLEY: Well, I certainly was struck by the fact that he made the case for why we need a strong Volcker Rule. I don't think that was the intention when he came in, but he proceeded to say, "Look, what we did was morph into trading that I didn't originally intend."
He went on to say that in the future, he doesn't plan to have deposits invested in this fashion. He acknowledged the spirit behind the Volcker Rule. And I think in context, it really is the case for why you need this firewall between traditional banking and hedge funds.
LAKE: Senator, you, of course, one of the architects of -- heavily involved in the writing of the Volcker Rule. I would disagree a little bit, though.
I think that while he said he sort of understood the spirit of the Volcker Rule, and certainly the trade itself argues for regulation, he made it clear that the trades that they were initially put on would have been within the rules of Volcker, as drafted now, it's not finalized of course.
And also, throughout the testimony, there was disagreement about what this trade was really about, whether it was a hedge or whether it was proprietary, with Dimon insisting all along that it was a hedge, which would have been allowed.
If the Volcker Rule is going to be murky, and it's always going to be "he said, he said," what was the nature of that trade, is that really the most effective way to address this?
MERKLEY: He actually did say that the -- he wasn't certain whether it met the standards of the Volcker Rule. What I followed up with, is the Volcker Rule says very clearly that when you hold deposits in between loans, you hold them only in US Treasuries and federally insured instruments.
What he did was take those deposits, set up an office, encourage them to take risks with them, encourage them to do proprietary trading, and it's night and day different.
So, on the very face of it, it's clear that this is completely out of sync with the Volcker Rule. So this continued effort to kind of fuzz the boundaries, confuse it, basically to say, "Yes, I don't believe we're in the hedge fund business, but I really want to keep hedge fund trading because I make so much money at it when things go right."
But what he does when he does that is put enormous system risk and put the taxpayers and the economy in the picture in a way that they shouldn't be. The bank should be lending those funds out, holding them in safe instruments in between.
LAKE: Right. When you talk about systemic risk, one of the things that seems clear is that at the root of this all comes back to this trading and these complex derivative products. Once again, he himself saying that the best in the business didn't understand them, didn't assess them correctly.
Shouldn't part of the financial reform, the most important part, perhaps, deal with getting these derivative products onto open exchanges, increasing transparency in that area?
MERKLEY: Well, absolutely. And that is part of the overall Dodd- Frank rules. But there is no doubt that when you take and do what Dimon's team did, which was to take a very long position, that is sell tons of insurance.
This is what they essentially did. They sold tons of insurance against the possibility of an index of corporate credit bonds falling. When you sell tons of insurance and you go the wrong direction, you have enormous losses.
This is completely parallel to what AIG did with mortgage securities. This has every characteristic, every red flag, every single one, of proprietary trading.
And he himself, his six people from his firm who have retired, have come forward and said that this was Dimon's vision: set up the London shop, tell them to quit doing the safe things, like securities, start doing the risky things, and make some money. That's proprietary trading.
LAKE: Of course, then he disagreed with that vehemently during the testimony, we should point out. You asked him, "Are you a commercial bank, or are you a hedge fund?"
MERKLEY: He refused to answer.
LAKE: The bank -- the bank executives have said all along that the ability to do sort of securities trading makes them bigger, gives them more capital reserves, makes them stronger institutions that then can do lending. Brings down the cost of getting capital out into the system.
Do you think that you cannot -- that those two functions should be separated? Some people say bring black Glass-Steagall, separate commercial banking completely from the securities business. Do you think that needs to happen?
MERKLEY: Well, the most critical wall is the Volcker firewall between hedge fund-style trading, where the biggest systemic risk is. There isn't so much risk in market making. There isn't so much risk in wealth management. But there is in the hedge fund world.
If we go to long-term capital management, if we look at what happened with hedge fund after hedge fund, including Global -- MF Global, recently. When you take and manage money with high risk, occasionally it's going to blow up. When it blows up, that's the statistical probability. Sometimes you're on the wrong side.
And when you blow up, you want to blow up where you don't do damage to the overall banking system. That's the spirit -- that's the substance of Glass-Steagall after the Great Depression. We -- if we turn the clock back, when I was just getting out of high school, we saw the savings and loan industry melt down in America because we allowed high-risk investing with deposits.
LAKE: Right.
MERKLEY: We see it time and time again. It's like this collective amnesia in between, and then we go through the same thing. As Yogi Berra said, "deja-vu all over again."
LAKE: Well, and it certainly does seem like that watching this incident unravel. Senator Jeff Merkley, thank you so much for joining us. We will, of course, talk to you again as this financial regulation and reform makes its way through Congress. Thank you so much.
And Max, interesting what he was saying. This really boils down to what sort of business should banks be conducting. There was something for everyone to take away. Democrats likely to think that this incident from JPMorgan underscores the need for more reform.
Some Republicans saying, look, we wouldn't have caught it anyway, this isn't the right reform that we're doing. They may think this opens up the door to sort of renegotiating and rethinking the push for reform. Very complicated stuff.
The thing to keep in mind in all of this is, regardless of what side you're on, the individual investor watching this, once again, confidence completely knocked, they don't trust the system. That's the real risk in this conversation.
And we should point out, Jamie Dimon not done yet. He has to face a House committee next week, and the House known for being a bit more boisterous in their views. So, we should expect some more fireworks. Max?
FOSTER: Yes, bet he's looking forward to that. Maggie, thank you very much, indeed. The investors in JPMorgan actually pretty impressed. By today, shares in JPMorgan are up more than 2 percent so far this session. The best performer, in fact, in the Dow, would you believe?
The rest of Wall Street has been struggling to gain momentum, though. Right now, the Dow is slightly low, down a quarter of one percent.
Now, WPP shareholders are kicking back against executive pay, meanwhile. Next, we'll speak to one of the groups that's urged investors to drop CEO Martin Sorrell's 60 percent pay rise.
(COMMERCIAL BREAK)
FOSTER: Now, shareholders in the advertising giant WPP delivered a blunt message to management, consigning the boss's $10 million pay packet to the bin, 60 percent of WPP shareholders voted against its pay report, which saw CEO Martin Sorrell's take-home pay jump more than 50 percent last year.
Sorrell has been defending the rise. He told the "Financial Times" last week that the pay package rewarded performance, not failure. Last month, around a third of Aviva shareholders voted against remuneration plans at that company, and UBS investors held protests against pay rises that were out of line with stock performance.
Now, PIRC is one of the advisory groups that's recommended WPP investors vote against remuneration, this particular remuneration report. Tim Bush is PIRC's head of governance and financial analysis. He's with us now. Thank you so much for joining us.
TIM BUSH, HEAD OF GOVERNANCE, PIRC: Thank you.
FOSTER: What strikes me as different about the WPP case is actually the figures. The financial figures are pretty good, aren't they? They've reported revenues in sterling up 7 percent at 3.2 billion pounds. So, isn't this a case of where Martin Sorrell is right to say he's being paid for performance?
BUSH: What's interesting about this case is, WPP probably has average to middling performance.
FOSTER: Over what term?
BUSH: Over ten years.
FOSTER: OK.
BUSH: Over an extended period of time. The remuneration is actually not average, it's far, far above average, and I think that is the problem in this case. It hasn't just been a problem this year. The problem was identified last year.
FOSTER: But they got paid less last year, when things weren't going as well. More this year when things are going better.
BUSH: I think last year, pay had doubled from the year before, and there was a 41 percent vote against. There was another 60 percent increase in pay this year, and the dissent has now reached 60 percent.
FOSTER: What are the parallels with this case and other cases where companies perform badly, and executives have been paid. Because clearly, that's seen as wrong.
BUSH: I think -- I agree, there are some companies that have performed so badly, you wonder why the executives got paid at all.
FOSTER: Yes.
BUSH: I agree absolutely.
FOSTER: But this isn't one of those cases.
BUSH: This isn't --
FOSTER: Martin Sorrell's done a good job this year, hasn't he?
BUSH: He has. What's particularly interesting, if you look at the vote for him personally, there was only 1.5 percent voted against.
You actually look against some of the other directors, particularly those responsible for remuneration, you've got 30 percent against, 29 percent against, 22 percent against. There are very high levels of percent against individual directors. I haven't see that --
FOSTER: And what's bind there and what isn't? Because Sorrell's vote wasn't binding, was it?
BUSH: Well, the vote on pay isn't binding, but I would love to be a fly on the wall at the next board meeting, because particular directors have high votes against them, and those votes are binding. So, 29 percent, 30 percent -- if this isn't fixed next year, could easily turn into binding votes against.
FOSTER: Let's look at what Sorrell said in the FT. This was last week. "I find the controversy over my compensation deeply disturbing. The compensation debate in the UK now seems to be -- seems to have shifted from undeserving bankers paid for failure -- and from payment for performance in to what is fair pay."
And the debate, arguably, is a bit -- is this not a campaign against executives getting paid a lot of money?
BUSH: I don't think it is. But I think, actually, the approach, though, almost played into the hands of people who had thought that there was a problem. Because if you feel that you've got an over-dominant chief executive who's being paid too much, the last person to justify the case should be the chief executive.
We didn't see the chairman or the chairman of the remuneration committee. So, if people think that this is a passive board that's nodding through remuneration, events over the last week just merely reinforced that.
FOSTER: Are you worried that he's going to walk because other executives are saying he should walk?
BUSH: I think it's very unlikely, because if -- over time, he's built up a stake of 1.5 percent in the company. Therefore, if he isn't getting paid anything, he's getting quite a substantial return on his investment anyway. And if I had a shareholding that big, I'd probably want to be staying in there to keep an eye on it.
FOSTER: OK. Tim Bush of PIRC, thank you very much, indeed, for joining us.
Now, Currency Conundrum for you. Which of these currencies' bank notes does not feature its symbol? The US dollar, the English pound, the euro? Start checking your pockets. We'll have the answer for you later in the show.
The dollar is down, meanwhile, against most of the major currencies after poor economic figures out of the US. Excluding car dealerships, May retail sales had their biggest monthly decline in two years. The euro is rallying against the dollar for a second day on speculation Greece may seek to tweak its bailout package to stay in the EU. The pound and the yen remain flat.
(COMMERCIAL BREAK)
FOSTER: Spain's prime minister today issues an economic call to arms. Mariano Rajoy urged Europe to deploy all available tools to combat market turbulence and ensure the survival of the euro. In Parliament today, he was forced to defend the EU bailout of Spain's troubled banks.
(BEGIN VIDEO CLIP)
MARIANO RAJOY, PRIME MINISTER OF SPAIN (through translator): It is a fundamental priority. This is a credit to the bank, which the bank itself will pay back. And we should be happy that our European partners have helped us. Thank you.
(END VIDEO CLIP)
FOSTER: Now, in the north of the country, protests over job cuts turned violent. Striking coal workers blocked roads with burning tired and hurled rocks at police. They say government cuts are destroying their industry.
Spain's rescue package isn't doing much to quell concerns about its excessive debts. Spanish borrowing costs are up for the fourth day in a row, now. Ten-year yields are hovering around yesterday's euro-era high.
Italian yields are also up to more than 6 percent for ten-year securities. The government auctioned more than $8 billion of one-year debt at the highest cost since December. Germany also saw ten-year yields rise to around 1.5 percent, a one-month high. Still, there was solid demand for ten-year German bonds at auction today.
The picture was mixed for stocks, meanwhile. Disappointing economic data weighed on some markets. Eurozone industrial output fell sharply in April, hitting its weakest level since September 2010. Spanish stocks were a rare bright spot thanks to gains of more than 11 percent for Inditex. The retailer which owns Zara, among other brands, reported a sharp rise in profits.
Now, investors were also focusing on this weekend's elections, of course, in Greece. Many Greeks are stockpiling food and cash ahead of the election. They fear the results will mean an exit from the euro. The latest polls show the conservative New Democracy and leftist Syriza parties neck-and-neck.
Now, CNN's Matthew Chance went to the central market in Athens to talk to locals about which way they'll vote this Sunday.
(BEGIN VIDEOTAPE)
MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, it is now just days before Greece makes what could prove to be an historic choice. In elections on Sunday, voters must decided whether to support more crippling austerity measures imposed by Europe or reject them in a move European leaders say would send Greece crashing out of the single currency and possibly out of the European Union, as well.
There's already been one inconclusive election last month, and all indications are that Greeks remain unsure and divided.
Which way do you think the country should go?
UNIDENTIFIED MALE: Yes, well, too much austerity won't work. Will not work, I think, from now on.
CHANCE: So, do you think the country should turn its back on the austerity measures being demanded by Europe?
UNIDENTIFIED MALE: Yes. They must find a solution between hard austerity and economic development.
CHANCE: You think the people of Greece will, even though they've undergone a great deal of hardship, will vote, because of the risks, for more?
UNIDENTIFIED FEMALE: Yes. Yes. Because they are scared.
CHANCE: They're scared --
UNIDENTIFIED FEMALE: They're afraid of the risk.
CHANCE: The risk of being kicked out of the euro?
UNIDENTIFIED FEMALE: Of being outside of the euro, yes.
CHANCE: Well the result, the choice, could have profound consequences, not just here in Greece, but across Europe. This is the first time the will of the eurozone to hold together has been put to such a vigorous test, and no one is certain if it will pass or fail.
Matthew Chance, CNN, Athens.
(END VIDEOTAPE)
FOSTER: Well, US stocks are drifting lower as investors digest mixed economic reports and the congressional testimony by JPMorgan chief Jamie Dimon, mainly. Now, JPMorgan is one of the top performers. Its shares are up 2.5 percent. But Alison, that's not helping the broader index.
ALISON KOSIK, CNN CORRESPONDENT: Exactly. Its stocks overall right now are lower. But you talk about how Jamie Dimon's testimony today on Capitol Hill, you watch that stock move and move higher as he spoke, but you have to also take a step back and look at how shares have been doing since that trading loss was announced last month. Shares were down 20 percent.
But you know what? Investors seem to think that Dimon did all right on Capitol Hill. He admitted there was some complacency, that the risk committee should have challenged the trades more. Also, he said that we could see callbacks, meaning people responsible for the bad trades may have to give back compensation. But Dimon does insist that the bank was hedging its bets and not investing.
All right. As for the market over all, again, stocks are lower. Retail sales came in, they fell in May for the second straight month. People are spending less on gas and overall purchases, and what that says is that the economic uncertainty has cut into confidence. Max?
FOSTER: Uncertainty, not just at the US, but Europe, as well. How much interest is President Obama paying to particularly the election coming up over the weekend?
KOSIK: It's obviously top on his agenda. Fears about Europe clearly haven't gone away for the president. He called the presidents of the European Council this morning. The talk focused on the eurozone crisis in light of the upcoming G20 summit.
Now, we don't have great details on this call, but it really underscores the situation in Europe, and something that the White House is clearly watching very closely. Investors are worried about Spain, Greece is also in focus ahead of the elections this weekend.
Italy is a concern, the Italian bond auction today. Yields on those one-year notes, as you showed, were sharply higher than a month ago. Another test of Italian bonds is going to be coming on Thursday, with an auction of three-year bonds.
By the way, Max, it did come up during Jamie Dimon's testimony. He said Europe has, quote, "serious issues," and he said that there's good reason -- or there's a good reason for the European Union, meaning political and monetary, but that right now, it's very, very complex. Max?
FOSTER: OK, Alison, thank you very much, indeed. Now next, the falling price of crude oil overshadows OPEC's meeting in Vienna. We're there on the even of an all-important meeting to set production targets.
(COMMERCIAL BREAK)
(MUSIC PLAYING)
MAX FOSTER, CNN HOST: Welcome back, I'm Max Foster. These are the main headlines this hour.
A series of bombings across Iraq have killed at least 58 people and left 156 injured. Most of the victims were among thousands of Shiite pilgrims traveling to a shrine in the Adhamiya neighborhood. There has been a rise in sectarian violence in the past few months.
United Nations is backing away from an earlier claim by the head of U.N. peacekeeping, who said Syria is now in a state of civil war. A spokesman says it is not the U.N.'s job to make that designation, but he said the conflict has indeed intensified, which he calls deeply troubling.
The CEO of JPMorgan has apologized for the bank's $2 billion loss on high-risk trades. In a prepared testimony to the Senate Banking Committee, Jamie Dimon said it was indefensible that a hedging strategy in London turned into a multibillion-dollar trading loss.
Russia has been given a suspended six-point deduction by UEFA for the behavior of its fans during their 4-1 win against the Czech Republic. The points will not be deducted in this tournament, but from the qualifying round of the next European football championship in 2016. UEFA took the action after fans threw fireworks onto the pitch and waved far right banners.
Rebekah Brooks has appeared in court in London for the first time. She faces changes linked to the phone hacking scandal at Rupert Murdoch's Duchene (ph) newspapers. Brooks, her husband and four other people are accused of conspiring to hide evidence from police during an investigation into alleged wrongdoing by the "News of the World."
(MUSIC PLAYING)
FOSTER: OPEC is warning oil prices could weaken further this year. The oil cartel's secretary-general told members in Vienna turmoil in Europe and slowing Chinese and Indian economies could continue to curb demand.
Crude prices have been falling steadily since April. CNN's John Defterios takes a look at what prompted the pullback.
(BEGIN VIDEO CLIP)
JOHN DEFTERIOS, CNN CORRESPONDENT (voice-over): Uprisings throughout North Africa, which shut down 90 percent of Libya's production for months, military exercises in the Strait of Hormuz, rising demand from China, those factors kept markets on edge and drove prices higher last year and through the first quarter of 2012.
But those fears have been trumped by a euro crisis in Greece and Spain that is sapping demand, not only in Europe, but also in the major emerging markets. In the span of just two months, the tide has turned and oil prices have slumped by more than $20 a barrel, with the global benchmark crude, North Sea Brent, hovering around $100 a barrel.
SEAN EVERS, FOUNDER, GULF INTELLIGENCE: You don't want to be defending an oil price when it's falling. You want to put the defenses in before the fall happens. I think in this instance, it's possibly too late for OPEC to try and defend $100 a barrel.
DEFTERIOS (voice-over): It sets the stage in Vienna for a classic OPEC tug-of-war. On one side, the price hawks, like Iran and Venezuela, that want to maximize revenues versus those known as the doves, like Saudi Arabia and the UAE, that don't want to kill off an economic recovery with high oil prices.
DEFTERIOS: It is a difficult balancing act in a post-Arab Spring environment the major Gulf states have ramped up their spending on education, housing, jobs programs and even a shiny new skyline. In order to protect those programs, analysts say they need to try to intervene in the market to set a floor of $80 a barrel.
DEFTERIOS (voice-over): This has to be broken by the veteran secretary-general of OPEC, the Libyan Abdalla el-Badri, who's finishing up his second term in the role.
MEHDI VARZI, PRESIDENT, VARZI ENERGY: I think that it is the general political atmosphere of mutual suspicion, which leads to this tense situation among the key OPEC members, particularly Saudi Arabia and Iran.
DEFTERIOS (voice-over): It is complicated by Iran's nuclear ambitions and European sanctions that will go into effect July 1 against Iranian oil exports of up to 600,000 barrels a day in preparation for that deadline, Saudi Arabia delivered on its pledge made back in January on CNN to keep the market well supplied. The kingdom is producing about 10 million barrels a day, the highest in three decades.
ALI AL NAIMI, SAUDI ARABIAN OIL MINISTER: I believe we can easily get up to the level 0.4, a level 0.8 almost immediately in a few days, because already (inaudible).
DEFTERIOS (voice-over): In the meantime, both Iraq and Libya raised their own output after the conflict helping in that effort. As they huddle in Vienna, they don't want to see a repeat of 2008, when the global financial crisis set in and prices plummeted $100 a barrel in the second half of the year.
(END VIDEO CLIP)
FOSTER: Well, John joins us now, live from Vienna.
And John, the International Energy Agency, projecting only slight rise, really , in demand in the second half of the year. Are they going to talk about that, aren't they? But how do you think those discussions are going to come on?
DEFTERIOS: Well, Max, we're standing outside the Hapsburg (ph) Palace here, where they have the OPEC seminar ahead of the OPEC meeting tomorrow. So this is a gathering of the OPEC ministers and their counterparts from the international oil companies, and it is the big concern for the second half of 2012, the big elephant in the room, if you will.
They're coming off a streak of 240 days with oil prices above $100 a barrel, but in the last week, they broke that barrier. So there's great concern. I talked to the Venezuelan oil minister, Mr. Ramirez, and asked him why $100 a barrel was the target, then asked the OPEC secretary-general how does he pool these disparate camps together ahead of the meeting the next 24 hours? Let's take a listen in.
(BEGIN VIDEO CLIP)
RAFAEL RAMIREZ, PETROLEUM AND MINING MINISTER, VENEZUELA: For the new capacity of pollution (ph), we need an (inaudible). We believe that price have to be over the $100 dollar per barrel.
DEFTERIOS: Do you think, then, that we should keep the production ceiling at 30 million barrels a day, and not increase it as Saudi Arabia is suggesting?
RAMIREZ: Yes. In our last meeting in December, we agreed to have that ceiling of 30 million barrels per day. We believe that we have to maintain because the economic situation in Europe is too complicated.
DEFTERIOS: This is a very divided OPEC between the hawks and the doves here. We haven't seen this sort of division for a long time.
ABDALLA SALEM EL-BADRI, SECRETARY-GENERAL, OPEC: You people said this in last June, and in December, we were able to get together and we have a very (inaudible) meeting. And, you know, we always have our -- this is a democracy. We have our problems here and there, but at the end of the day, we solve our problems.
DEFTERIOS: So you're confident you can reach a consensus?
EL-BADRI: Yes, sure. Yes, sure.
(END VIDEO CLIP)
DEFTERIOS: That's the OPEC secretary-general, Abdalla el-Badri, trying to put a positive spin here, Max. But we'll find out tomorrow. They're going to have the OPEC seminar here at the Hapsburg (ph) Palace, and then move over to the secretariat Vienna time between 3:00 and 5:00. They're going to try to cobble the different opinions together and come up with a decision.
At the heart of this, do they keep the production agreement at 30 million barrels, but still produce about 311/2, 31.7 or not? And the camps are extremely divided now, Max.
FOSTER: And the other thing they've got to consider, of course, is these pending sanctions against Iran. How are they going to deal with that one?
DEFTERIOS: Yes, in fact, it's a very contentious issue. The oil minister from Iran, Mr. Qasemi, was suggesting that it could wreak havoc in the oil markets. Of course, he would, because it's his oil. It's about 600,000 barrels a day coming into Europe, although he has not had to reduce production significantly as he said.
But the Venezuelan, Mr. Ramirez, took the stand, along with Hugo Chavez, the president of Venezuela, suggesting this is the latest tool by the West, along with military intervention, to get their way. So they're going to try to resist that. This follows Hillary Clinton, the secretary of state, of course, of the United States, saying that 18 countries now have reduced their imports of Iranian crude and that the sanctions will bite.
The U.S. sanctions go in June 28th, the financial sanctions, and the European Union sanctions July 1st. So it makes it very complex and makes for a very interesting meeting tomorrow. We'll have coverage, of course, here from Vienna. Back to you, Max.
FOSTER: That's good, John. Thank you very much indeed.
European airlines watching oil prices and fuel prices, of course. They're also facing some tough headwinds from Europe's debt crisis. After the break, why Budapest's main airport may never be quite the same again.
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FOSTER: Europe's debt problems are dragging down the continent's airlines and IATA says European carriers may lose nearly double what was originally forecast for this year. Hungary's national carrier has already gone bankrupt and as Richard found out, that's left the budget airlines to pick up the scraps.
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RICHARD QUEST, CNN HOST (voice-over): Budapest airport, code named BUD, Bud. As the tower clears, another plane for takeoff. There's one airline call sign that these air traffic controllers haven't used in months.
In February, Hungary's national carrier, Malev, went bankrupt. After failed attempts to keep it in the air. Eventually the government pulled the plug on the airline. Planes were grounded, passengers stranded, routes abandoned. Malev was no more.
Budapest-based low-cost carrier Wizz Air was able to react immediately.
MIKE POWELL, CFO, WIZZ AIR: We were ready for the collapse. We have a number of plans on the shelf. That's why we were able to announce a 50 percent increase in our capacity in Budapest within several hours of Malev's actually ceasing operations. We think it's good news for our business to have irrational competitors removed from the market.
Our footprint is entirely in central and eastern Europe, and therefore we've got a pure exposure to the better growth prospects in central and eastern Europe. Western Europe is not growing any more. Eastern Europe still has a lot of growth potential and we're very well positioned to exploit that -- those opportunities.
QUEST (voice-over): Other airlines also stormed in to fill the gaping hole left by Malev. On the same day Malev went bust, Ryanair announced 26 new routes out of the capital. easyJet added rescue flights.
And European airlines like Air Berlin and Transavia added new routes into Hungary, along with Qatar Airways. While others like Lufthansa and Aeroflot increased the frequency of their existing scheduled flights.
While airlines are jostling for position in Budapest, without a hub carrier, the airport is losing its own battle with the government.
QUEST: As you look for new routes and new airlines, you've got one big problem, and that is the Hungarian government will not accept that there won't be a new Hungarian airline.
JOST LAMMERS, CEO, BUDAPEST AIRPORT: You're absolutely right, Richard, and that's what they're lacking most, though. They are restricted destinations, restricted markets, Russia, Ukraine, Tel Aviv, Israel (ph), Turkey. We need the Hungarian government to open this market for existing carriers to have exactly strong growth opportunities here. We need them.
QUEST: But they believe there could still be a Hungarian carrier.
LAMMERS: Don't ask me why. I hope this was really now disappearing every day and soon they give (inaudible) its traffic rights. We need this decision quickly. This summer is already lost for us. We need to start it (inaudible) immediately.
QUEST: Do you fear that the model has changed, the carriers will be taking the people from Budapest as Lufthansa is in the morning, to their hubs and out to the rest of the world?
LAMMERS: You're absolutely right. It became more difficult without a hub carrier, and I mean what is most important for us, of course, to have also the support here from the government, to have a joint initiative, because to develop this against such strong competitions now in the region, or we need to wait for the failures of other that will come, no doubt, (inaudible).
The consolidation will go on. But, yes, it is difficult for us, but again, there are opportunities.
QUEST (voice-over): Without a carrier setting up base here, the low- cost airlines and the passengers they bring must make up the shortfall. Whatever happens, there's a new reality at BUD. Many routes are unlikely to return, and for the time being, anyway, the danger persists. So Budapest must rely on outside forces.
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FOSTER: Well, Saab is being saved from a similar fate di mala (ph). The Swedish car maker has been sold to a consortium of Japanese, Chinese and Swedish investors. The deal will lift Saab out of bankruptcy and the new owners are planning to target China with Saab's range of electric cars. The automaker went into bankruptcy at the end of last year, just a couple of years after General Motors sold it to a Dutch firm, Spyker.
Let's have a look at the weather now with Jenny Harrison, who's been tracking a tornado in Venice. Extraordinary.
JENNY HARRISON, CNN METEOROLOGIST: It did, actually, Max, extraordinary pictures, too. I'll show you in just a moment. But let's start out first of all and talk about the actual storm that of course had come through.
And of course, this particular tornado certain developed. You can see here across central and eastern Europe, that huge amount of cloud and certainly on the southern end of that, that is where we've seen the thunderstorms. Let's have a look at the video, because it is very, very dramatic, it has to be said. Not unheard of to have tornadoes in this part of the world, but certainly not a particularly frequent occurrence.
And look at the size of this thing, absolutely immense, not much place to go either in Venice. You're either on the island or -- islands, of course, 188 of them, or you're on the water. There was some damage actually caused by that tornado. I'll show you where though (inaudible) reports although of any injuries, but of course, here we are, Venice, across such a beautiful city, actually world heritage site.
And this is the main area where everybody goes up, the Grand Canal. That's for the tourist visit. Then of course, as I say, you've got these other islands, 118 in total. Now Santa Elena (ph) was (inaudible) sustained some damage just across from the (inaudible) and then to the north, Saint Erasmus. So as I say, just scattered, the whole lagoon area with all of these different islands just to the north there of the Adriatic. So it was indeed a sight to see.
Now there have been more storms in the last few hours and some of those have been pretty strong. And again, on Tuesday, some more video to show you. I'll talk about this, in fact, yesterday as well, which is hail across into Slovenia (ph). And this was in some areas (inaudible) as large as 3 centimeters. So you can see, obviously what it did, what it sounded like, but, you know, this is damaging hail, this is.
And (inaudible) coming to one of those very severe thunderstorms and look what it did as well, of course, the wind uprooting trees causing damage, closing some of the roads. Now the storms are certainly still with us. I can show you on the map, but this is a system that brought those. It's working its way eastwards.
It will still hold together, still some strong storms and then it'll just kind of pave the way for another system heading in towards the northwest, some more very heavy rain in there. But meanwhile, out across the east, more warnings in place as we head through the rest of Wednesday into Thursday morning, more strong winds.
At the same time, these, as you know, are the cities all involved in Euro 2012. And right now, in (inaudible) Kiev, we have, of course, got the match which is just underway. The temperature -- need to move again -- 29 degrees Celsius. It's actually drop (inaudible) in the last 10 minutes. As we go through the night, there is a chance of thunderstorms through this evening at match.
The temperature may be getting down to about 25 degrees Celsius. Right now it looks warm, sunny and dry. But as I said, there is the threat of some thunderstorms in the forecast. There's the next low coming in, really aiming for the U.K., very strong winds, too, as that storm system comes in. It's sunny across must of western Europe and there are the temperatures, 18 on Thursday in London, 21 in Paris, Max.
FOSTER: Jenny, thank you very much indeed. Now move over .com, because .anythingyoulike is coming your way. We'll look at the new Web names that you might be seeing on your screen soon.
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FOSTER (voice-over): Time for the answer to today's "Currency Conundrum." Which of these currencies' banknotes do not feature the currency symbol on them? The answer is, A, U.S. dollars do not feature the well-known dollar symbol on them. I guess (inaudible).
A company in charge of how websites are named says we're on the brink of a new era. ICANN, the Internet Corporation for Assigned Names and Numbers has revealed who's been applying for what it calls generic top- level domains.
That means things like .info, .net, and of course, .com. Right now, there are just 18 of them, not counting regional domains like .co, .uk or .gov, which is used by the U.S. government. The list is set to grow. Under ICANN's new expansion, you could soon see domains like .google, .pizza and .money. ICANN has had nearly 2,000 applications so far.
Some of those names will be in high demand and can even spark a bidding war, even at cost price, none of them come cheap. It costs $185,000 just to submit an application. ICANN's CEO, Rob Beckstrom, is with us now. Thank you so much for joining us.
Now we need to explain that this isn't some sort of very expensive exclusionary thing, is it, because you have to vet these applications to a huge extent so it doesn't cause problems in future, right?
ROB BECKSTROM, CEO, ICANN: Exactly. These are priced on a break-even basis. We actually spend that money doing all those background checks you referred to.
FOSTER: So if you've got -- OK, I've got an example here, .london. That's been applied for. The mayor of London could apply; the tourist board of London could apply; the British government could apply. I guess you, then, have to go through the applications and then look at the different applications.
BECKSTROM: Yes, there's a 350-page rule book on how we're going to process these. They're actually the independent professional experts that we hire. In the case of a capital city like London, the government -- highest government office of that city is the party that needs to support an application. So that's something that would be reviewed.
FOSTER: .money? What's that sort of judgment made on it?
BECKSTROM: .money? We'll see. You know, someone else claims they have a trademark on it, then they could object. Or maybe the party who filed for it has a trademark. Anyone can go online and on our website, by the way, and look at the application details and express their opinions.
FOSTER: We've mentioned .google. I guess this is particularly useful for brand names. We've also .zulu. Who's applied for that?
BECKSTROM: Well, you know, we received a letter from the chief of the Zulu tribe almost two years ago, saying that he intended to apply for his people, because they're spread across many national borders around the world.
FOSTER: OK, so represents a tribe, an international tribe.
BECKSTROM: That's, I think, what's being represented in the application and, again, that'll be researched.
FOSTER: Rugby?
BECKSTROM: I think a rugby federation has applied by that. We'll see. The information's online, again, and they'll have to substantiate. If it's a community-based application, you have to substantiate and show the community's really behind you and that you're an organization that represents that community.
FOSTER: There will be a lot of interest in these. But the high cost of them will exclude someone like me, for example, wanting to apply for it. But I guess I could if I had the money and I justified my case.
BECKSTROM: You have to be an organization. So there would have to be, through your LLC or LLP, individuals can't apply. But there are some family name applications, at least one, but that's through a business entity.
FOSTER: And as I understand it, the applicant has to prove to you that if it goes bankrupt, the domain will continue to exist.
BECKSTROM: Exactly right. They actually have to set aside some money, and we have to have provisions to hand over the administration of that top-level domain to someone else, and also if someone's not managing it well and they're allowing abuse, we could even take that top-level domain back.
FOSTER: And have you got any sense about how this will help consumers of the Internet, if I can call them that, let's say they're searching online. Is it going to make a difference to them?
BECKSTROM: The whole goal is to give consumers more choice. ICANN was formed to create more options in the Internet domain name space and to make sure the domain name system and the Internet is secure and stable.
FOSTER: What's your feeling? What psychological difference will it really make?
BECKSTROM: You know, initially some people might find it confusing to see more choices, but very quickly they'll get used to the fact that if .companyname is a credible site, I mean, you have to be a significant institution to have made that investment, so -- and you're also going to see more choice for people, maybe you couldn't get your last name .com or .net; you might find that in one of these new options.
FOSTER: What if I fail the whole application process or fail to notice it, and then I come along and think I've got a better right to something than someone who's won that name? Can I claim it back off them?
BECKSTROM: Well, at the second level -- at the top level, if you haven't applied in this round, you can object to others. There's a right to object. If they get that top level domain, they're going to have that. But at the --
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FOSTER: Can they sell it?
BECKSTROM: Yes, they can.
FOSTER: So it potentially could be --
BECKSTROM: They do get transferred through mergers and acquisition deals or even through sales and transactions.
FOSTER: OK. Rob Beckstrom, thank you very much indeed. It'll be interesting to see that develop.
Now, we'll have an update for you on the markets after this short break.
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FOSTER: Wall Street's still struggling, really, JPMorgan still the best performer on the Dow today with that Dimon hearing, shows up around 21/2 percent after the congressional testimony that he gave today. But it's not helping the wider market, down actually a bit further now since the start of the show, down half of 1 percent.
European stocks were mixed today (inaudible) on some markets, Eurozone industrial output fell sharply in April, hitting its weakest level since September 2010. The Spanish stocks were a rare bright spot. Make sense of that.
And on the bond markets, Spanish borrowing costs are up for the fourth day in a row. More reflective of the economy, really, 10-year yields are hovering around just those euro era high Italian yields are also up but more than 6 percent.
Government auction more than $8 billion of one-year data, the highest cost since December. German 10-year yields also rose to around 11/2 percent, despite solid demand for 10-year German bunds at auction today.
That is QUEST MEANS BUSINESS. Thank you for watching. I'm Max Foster in London. The headlines are next.
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FOSTER: A series of bombings across Iraq have killed at least 58 people and left 156 injured. Most of the victims were among thousands of Shiite pilgrims traveling to a shrine in the Adhamiya neighborhood. There has been a rise in sectarian violence in the last few months.
United Nations is backing away from an earlier claim by the head of U.N. peacekeeping, who said Syria is now in a state of civil war. A spokesman says it is not the U.N.'s job to make that designation, but he said the conflict has indeed intensified, which he called deeply troubling.
The CEO of JPMorgan has apologized for the bank's $2 billion loss on high-risk trades. In a prepared testimony to the Senate Banking Committee, Jamie Dimon said it was indefensible that a hedging strategy in London turned into a multibillion-dollar trading loss.
Russia has been handed a suspended six-point deduction by UEFA for the behavior of its fans during their 4-1 win against the Czech Republic. The points will not be deducted in this tournament, but from the qualifying round of the next European football championship in 2016. UEFA took the action after fans threw fireworks onto the pitch and waved illicit banners.
That's a look at some of the stories we're watching for you on CNN. "AMANPOUR" is next.
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