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Quest Means Business
Delta-Virgin Deal; HSBC's Record Fine; European Markets Up; US Investors Hope for More Fed Stimulus; Apple Shares Rise; Beyonce Boost for Pepsi; Euro, Pound Up; Greece: The Human Cost on Families
Aired December 11, 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: A $360 million ticket to togetherness. Tonight, we hear from the CEOs of Virgin Atlantic and Delta Airlines.
Plus, don't harm the patient. Steve Forbes tells me why the US economy is too weak to take a tax rise.
And Google's Bermuda bolthole. How the search giant's kept $2 billion safe from the tax man.
I'm Max Foster, this is QUEST MEANS BUSINESS.
Hello to you. Tonight, Virgin Atlantic has a new partner. Delta is buying a 49 percent stake in the carrier from Singapore Airlines for $360 million. Singapore paid nearly three times that in 2000. It's been keen to sell, though, for some time.
The appeal for Delta is mainly slots at London's Heathrow. The US carrier has just 0.3 percent of slots there. Virgin, though, has 3.3 percent. It is the fourth biggest airline at Heathrow, and the deal will help Virgin on its trans-Atlantic routes, where it's being squeezed by large European-US alliances.
The airlines will share costs, as well. Revenue will -- in the joint -- they'll save in costs and revenue, and they all -- these joint venture flights, including 31 round trips on peak days between the US -- between the UK and North America.
Now, nine of those will be between London and Heathrow -- London Heathrow and New York. Before the deal was agreed, Virgin founder Richard Branson said a joint venture would be the right way forward for his airline.
(BEGIN VIDEO CLIP)
RICHARD BRANSON, FOUNDER AND CHAIRMAN, VIRGIN GROUP: I think we can manage on our own, but I think to be around for the next 30 years, because the competition authorities seem to feel that big is beautiful and they keep allowing more and more airlines to marry up in some form or another, I suspect it will be wise for us to -- be Virgins no longer. We'll see how we go.
(LAUGHTER)
(END VIDEO CLIP)
FOSTER: Well, Steve Ridgway is Virgin Atlantic's outgoing chief executive. He joins me now, live from London. Thanks for joining me, Steve. Richard Branson always said that he wasn't necessarily interested in alliances. Why does this alliance -- well, does this joint venture, effectively, work, and why do alliances work? What's changed?
STEVE RIDGWAY, CEO, VIRGIN ATLANTIC: Well, I think we, as you heard before, we long fought the monster alliances. And British Airways and American have over 60 percent market share across the North Atlantic, which is over dominant by any stretch.
And Virgin Atlantic has always been a great competitor. Delta wants to make sure that it has a good number of flights and can offer its customers lots of choice into London. So, putting our two airlines together makes a huge amount of sense in terms of the way we organize our schedules and offer the very best number of flights that we can, as well as the maximum number of connections.
So, I think it's a good day for both our companies, and it's an even better day for our customers and potential customers.
FOSTER: What sort of control will Delta have? Although, is that share-holding largely voter rights? Is it non-voter rights? How much control will they have in the say of the new company?
RIDGWAY: Well, Delta Airlines is a very significant shareholder at 49 percent. It is a minority shareholder. Richard has made it very clear that he's remaining the majority shareholder at 51 percent.
But they are stepping into Singapore Airlines' shoes, and we've had a very good relationship with Singapore over the last 10 years in terms of -- or 12 years, actually -- in terms of the way the airline has been managed.
But I think what we have now in Delta is a partner that fits more strategically, particularly where we are strong across the North Atlantic, and they want to become stronger.
FOSTER: In terms of the power on the board, then, Sir Richard will continue to have the main say. I'm just wondering how much of the shareholder will be -- have voter rights. Is it the full 49 percent?
RIDGWAY: Yes, it is. And that reflects the rather archaic ownership and control rules of airlines where European airlines have to majority- owned by European citizens in the same way that US carriers have to be majority-owned by US citizens.
So, it reflects exactly the position that we've been in with Singapore. I think the difference is that we've got this joint venture so that we can ultimately get approval -- anti-trust approval from the authorities in Washington, so that we can really coordinate our schedules and make sure we're using these very scarce assets at Heathrow to the maximum benefits.
And you talked about the percentage of slot holdings. You need to remember that British Airways has nearly 55 percent of the slots. So, I think what Virgin and Delta are able to do together to provide that level of competition to BA, will be most impressive.
FOSTER: And will this change the terminal that Delta operates from at Heathrow?
RIDGWAY: I think certainly they would like to -- and we would like them to co-locate with us. We are together in terminal four. Delta has a massive -- I think 1.4 billion pound investment program in terminal four at JFK. It is the best terminal at that airport.
And by having our operations together, that will be fantastic for our customers, and particularly premium customers. And we want to make sure we can do the same thing at Heathrow, and Virgin has very good bespoke facilities at terminal three, and we want to be able to maximize that for our customers.
FOSTER: You're stepping down in the spring, I think, aren't you? Is there a coincidence to the deal and your stepping down as well? Is this something that -- a right time for you to move on?
RIDGWAY: No, I think I told Richard at the beginning of last year that I thought it was time for me to step down. I'd been the CEO for 14 years. I'm actually rather pleased that this has come together in this way.
We've had a big investment program come to fruition this year. We just announced yesterday the fact that we had picked up another 12 pairs of slots and would start flying short-haul in competition to British Airways to Manchester, Aberdeen, and Edinburgh.
And then today, to announce this strategic venture with Delta I think is extremely positive. So, it's a tough game in aviation. It's not going to get easier in the short term, but I think the ingredients are there for Virgin Atlantic to continue to grow and for the brand to remain very strong, despite what Willie Walsh might assert.
FOSTER: Yes, OK. Steve Ridgway, thank you very much, indeed, for joining us. Well, Delta says Virgin Atlantic is worth more than just landing slots. Ali Velshi spoke with Delta CEO Richard Anderson a short time ago. He began by asking him why he thinks Virgin is a good fit.
(BEGIN VIDEOTAPE)
RICHARD ANDERSON, CEO, DELTA AIRLINES: The culture fit is actually quite good. Delta has for decades been recognized as an airline, an iconic brand, that is service-focused. That Southern hospitality of Delta Airlines.
And we've worked hard the last five years to really revive that and give it new life and new energy. And so, the cultural fit is quite good, and we'll learn quite a lot from our partners at Virgin Atlantic.
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: What do you make of the smack talk about how you're going to push Virgin out, you want to get rid of that brand, you're really -- you're only interested in those slots, you don't care anything about Virgin.
ANDERSON: The brand and Sir Richard Branson are a key part of this transaction for us. We intend on that brand being around permanently. And by co-branding the number one brand in Europe and the UK and one of the number one brands in the world, Virgin Atlantic, with Delta, an iconic brand in the US, we are both stronger together. So, it's a key ingredient to our joint venture together.
VELSHI: Does this help you mostly with that London-to-New York route, or is this going to beneficial in bringing traffic in to use the domestic Delta routes?
ANDERSON: Well, it's both. It's first the US, JFK-to-London Heathrow market is the single largest market between the US and any point in the world, I believe, in terms of international service. And so, it gives us a significant presence there. But on a more broad basis, it connects all of the US with a really strong alternative.
VELSHI: You anticipate any problems with the anti-trust immunity?
ANDERSON: We do not anticipate any problems, given the market dynamics and the fact that the only immunized joint venture today between the US and UK has 60 percent of the market.
So, from a consumer perspective, having a really strong but much, much smaller competitor -- we'll be number two in the market with about 24 to 25 percent share -- gives a really viable alternative to consumers.
VELSHI: Give me a sense of the US airline landscape right now. We're all wondering whether we're going to see another deal now.
ANDERSON: What it seems the regulators have tacitly approved is the four big airlines acquire one of the four small ones, and there's one more left to go. So, Southwest acquired Air Tran, Delta acquired Northwest, United and Continental merged.
So, when you see the consolidation occurring, there's one last transaction, which is US Air and American, and I've been vocal on our conference calls that, when asked, that -- our analyst conference calls, that that will probably occur.
(END VIDEOTAPE)
FOSTER: The head of Delta, there, speaking to Ali.
Now, the biggest fine in British banking history may be a drop in the bucket to HSBC. After the break, we ask if billion-dollar bills are enough to stop banks behaving badly.
(COMMERCIAL BREAK)
FOSTER: HSBC has been handed the biggest fine in banking history. It must pay the US Department of Justice nearly $2 billion to settle allegations of money laundering and breaking sanctions. Jim is here with the complicated details. Jim?
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Thanks, Max. Yes, all these banks have been fined over the years by the US authorities, but none as much as HSBC for this.
Let's look exactly what they're being fined for: $1.9 billion for this London-based bank for violating sanctions and dealing with money laundering. Well, what does that mean?
Well, the New York County district attorney says today's fine was designed to impose a substantial punishment on HSBC and to send a strong message of deterrence to other banks. And the New York County attorney's office says HSBC is being held accountable for stunning failures of oversight.
In a statement, the attorney general, Cyrus Vance, said HSBC "moved hundreds of millions of dollars through the US financial system on behalf of Iranian, Myanmar, Sudanese, Libyan, and other clients in violation of US sanctions.
And that HSBC admitted to violating federal anti-money-laundering laws related to the movement of hundreds of millions of dollars through the US on behalf of Mexican and Colombian drug cartels, Max.
FOSTER: I assume HSBC had something to say about this.
BOULDEN: Yes, of course. They've said all along that this fine was coming, we knew that. But Stuart Gulliver, the HSBC group's CEO, said, "We accept responsibility for our past mistakes and that we have said we are profoundly sorry for them and we do so again." Max?
FOSTER: And that's one talking point, I know, in the city of London. The other one on the shop floor is about these libor arrests. Very little detail, though, right?
BOULDEN: Yes, I think these are the first libor arrests that we've seen. Remember, back a few months ago, Barclay's bank was fined $450 million for manipulating the libor, which is the inter-bank rate between banks. It's very complicated.
But we've been waiting for more banks to be fined, and we've been waiting for arrests. So, three men have been arrested, in their 30s and 40s, their houses have been searched, they've been interviewed by London police. And amongst all of that, we hear one of them reportedly worked for UBS and Citibank at one point.
But these are probably the first arrests in this. We expect more banks to be fined and possibly more people to be arrested and interviewed.
FOSTER: And going back to HSBC, we're only talking about one country, here, really, aren't we? In terms of the fine. Does that mean -- does that open up more potential cases in other countries? This isn't necessarily the end of it for HSBC.
BOULDEN: Well, it's not the end of it, but it's important because it's the US. Obviously, it's a huge market. HSBC, big player in Europe and Asia, wanted to build itself in the US. But this fine is about its operations in the US, because it's violating US law, according to the Department of Justice.
Yes, the FSA here in the UK said they're going to be monitoring it as well. But a $1.9 billion fine, not very big for HSBC when you think of the size of it, but a record fine.
The critics will say, why aren't these banks having people arrested? Why aren't these banks maybe even having their licenses suspended? That would b a very drastic move. But just fining them money, even if it is a record, it's not a lot of money at the end of the day.
FOSTER: A big message, though. Jim, thank you very much, indeed.
Well, HSBC's fine was more than $1.5 billion it set aside. Still, investors didn't seem too concerned by it. HSBC shares gained -- would you believe? -- half of one percent in London. All of Europe's major indices ended the session in the black.
Most commodity shares were strong performers. BHP Billiton, for example, gained 1.6 percent in London. ArcelorMittal up more than 2 percent in Paris. Total Oil was the exception, down more than 8 percent on a disappointing operational update from Ghana.
US stock markets are edging higher this hour on hopes that the US Federal Reserve may announce more stimulus measures. Maribel Aber is at the CNN New York, in fact, with all the latest. Hi, Maribel.
MARIBEL ABER, CNN MONEY CORRESPONDENT: Hi, Max. Stocks have indeed been slightly higher for much of the day. The Dow is up more than 100 points right now, logging its fifth day of gains. Investors pretty much cheering a reading showing German investor confidence jumped in December.
And they're also looking ahead to the Federal Reserve's policy meeting, which wraps up tomorrow, with Operation Twist coming to an end this month, so the central bank is likely to decide on whether it wants to double down on its current purchase of $40 billion in mortgage-backed securities each month.
Or, the other option, buy more treasury bonds as a way of keeping longer-term interest rates low. And experts say the latter is more likely here, Max.
FOSTER: And in terms of corporate news, everyone's looking at the Apple share price this hour. What's going on there?
ABER: Apple shares are up almost -- or I should say more than 3 percent right now. The main reason is that the NASDAQ is outpacing other major averages.
And for one thing, Unicom in China said it's taken more than 300,000 pre orders for the iPhone 5, which is set to go on sale there on Friday. Unicom is the country's second-largest carrier, and an analyst at ISI says -- Group says he expects the strong launch there to continue momentum.
And separately, a telecom team at JPMorgan raised their projected iPhone activations for this quarter to 8 million. So, that's up from the initial estimate of 7 million. And Topeka Capital reaffirmed its buy rating on the stock with 1100 price targets, saying Apple's fundamental trends remain pretty strong here, Max.
FOSTER: And we don't often get a chance to talk about Beyonce on the business shows, but she is a leading businesswoman, as she proved today, right?
ABER: That's true. We don't get to talk about this much, Max, but Beyonce and Pepsi are announcing today they're becoming global partners in a deal the "New York Times" places at $50 million.
Now, most of that will go towards media placements and promotions around the world, but this also goes way beyond commercials that Beyonce has already done for the soft drink company. Pepsi says that Beyonce will be able to choose her own creative projects that Pepsi will fund.
So, the company believes that consumers are looking for more authenticity. As the "Times" puts it, Pepsi wants to become more of an artistic patron instead of simply paying for celebrity endorsements.
But this isn't he first consumer brand to do this, either. Converse, Red Bull, and many others have made similar deals with artists. But Beyonce-themed cans, Max, are expected to start rolling out early next year.
FOSTER: We'll see how they go. Maribel, thank you very much, indeed.
A Currency Conundrum for you, now. What was the largest US bank note ever printed? We mean in terms of dollars, not physical size. Is it A, $10,000? B, $50,000? Or C, $100,000? We'll have the answer later for you in the show.
The euro is back above $1.30, meanwhile, boosted by strong data out of Germany. It put on about half a percent against the US currency today. The pound is also climbing. The yen, though, is sliding.
(COMMERCIAL BREAK)
FOSTER: Well, Greece paid slightly more than it had hoped to to buy back its bonds. According to Reuters, it means Greece will have fallen just short of its debt reduction target. The success of the bond buyback is crucial to unlocking Greece's next round of bailout money.
All this week, we're looking at the human cost of the Greek financial crisis, and these are some of the people that we've been profiling for you.
Today, Diana Magnay takes a look at the toll the crisis is taking on families and the charities that help them.
(BEGIN VIDEOTAPE)
DIANA MAGNAY, CNN INTERNATIONAL CORRESPONDENT (voice-over): Antonios Antakis hasn't had a full-time job for two years, now. He has three young children to feed.
ANTONIOS ANTAKIS, PART-TIME CONSTRUCTION WORKER (through translator): The crisis is very difficult right now. There are no jobs at all. I get around six, seven days of work a month, maximum ten, which adds up to around 300 -- 250 euros a month or nothing at all.
MAGNAY: Monthly food parcels from the charity Kids and Family help. There are schoolbooks, too. Crayons for coloring. A heart for Daddy, but he worries.
ANTAKIS (through translator): There is nothing sacred when you are in debt. It's possible for anyone to lose their homes at any moment.
ANTAKIS (in English): What I can do?
MAGNAY: The charities are asking the same question.
ROUBINI TERZAKI, KIDS AND FAMIKLY: So, here you can see the quantity of olive oil we had in one day. This is not enough for 50 families and we have 4,500.
MAGNAY: Roubini Terzaki works for Kids and Family, the charity that helps Antakis and his family. But the middle class, she says, have less and less to give.
TERZAKI: They can't afford it anymore. They don't have the possibility to help. When we ask for food, beans, olive oil, milk, last year they were bringing us parcels with food. This year, they were bringing us pieces.
MAGNAY: The charity also offers psychological support of families. Terzaki says it's the hidden crisis.
TERZAKI: It's not easy. It's not easy. Also, it's not easy to see that children of 14 years old are trying to suicide. It's really -- we are getting very hungry.
(END VIDEOTAPE)
FOSTER: Well, tomorrow, Diana meets Greece's new poor. Not so long ago, they were wage earners. Now, they depend on charity to survive.
(BEGIN VIDEO CLIP)
MAGNAY (voice-over): Warned we're here, they don't like it. It adds humiliation to hardship.
"LEO", HOMELESS PERSON: There are people that just a few months ago had a job, had a house. They could pay the rent, they could afford a car, they could afford going on holidays, et cetera. And now, because they lost their job, because they don't have other sources of income, they find themselves on the streets.
(END VIDEO CLIP)
FOSTER: Well, this all leads up to our special program at the end of the week, "Greece: The Human Cost." That's Friday at 4:30 PM here in London.
Next, we'll hear from Steve Forbes and his take on the US budget crisis. Plus --
(BEGIN VIDEO CLIP)
LIS DE BATS, UNEMPLOYED: I don't know.
(CRYING)
DE BATS: I just don't wish I was in another situation. But it is what it is, and I can just do what I can.
(END VIDEO CLIP)
FOSTER: Running out of time and running out of hope. Why the fiscal cliff is more than just a catch phrase for America's unemployed.
(COMMERCIAL BREAK)
FOSTER: Welcome back. I'm Max Foster, these are the headlines this hour.
The crowds at rival protests in Egypt are swelling, and there are fears of more violent clashes between pro- and anti-government demonstrators. They're mainly divided over Egyptian president Mohamed Morsi and a controversial referendum set for Saturday on the draft constitution.
British banking giant HSBC has agreed to pay a record $1.9 billion fine to settle US money-laundering allegations. The bank will not be prosecuted as long as it meets certain conditions. HSBC is accused of failing to stop transfers from Mexican drug cartels. Government documents also say the bank violated sanctions laws by doing business with Iran and Sudan.
Twenty-four months into Syria's conflict, the UN says more than half a million people have fled the country. Some 509,000 refugees have been registered or are awaiting registration in neighboring countries and North Africa.
And this hour, the US State Department announced it has labeled Syria's al-Nusra Front a foreign terrorist organization, and the US Treasury has imposed sanctions on its leaders. The US says the jihadist rebel group is an offshoot of al-Qaeda in Iraq.
Doctors in South Africa are treating former President Nelson Mandela for a lung infection. After several days of tests they say Mandela is suffering from a recurrence of a previous lung condition. Authorities also say Mandela is responding to treatment.
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FOSTER: With just 21 days to go to avert the U.S. fiscal cliff, Steve Forbes says Republicans shouldn't rush into agreeing tax rises. The president and the CEO of Forbes Media says it might be better to do nothing at all, in fact. He told me the U.S. economy is too weak to take any fiscal tightening.
(BEGIN VIDEO CLIP)
STEVE FORBES, CEO, FORBES MEDIA: I'm concerned first the U.S. economy is slowing; the 4th quarter is going to be much slower than the 3rd quarter and 1st quarter next year is going to be very dicey, perhaps in negative territory. To put on new taxes in an environment like that is just very counterproductive, perverse.
Best thing to do since it's only two weeks before Christmas is to kick the can down the road and take what they tell physicians, don't harm the patient. Put everything off for six months so they can sit down after the New Year and do something sensible in the tax code and on entitlements in the U.S. That's going to take several months, many months, to reform those.
So to try to do this in the next two weeks is highly unlikely.
FOSTER: But there has been discussion around this for years, hasn't there? To say do nothing at this point, is quite frustrating to hear, because there's the pressure on now that finally an opportunity to solve something by the end of the year, and you're suggesting actually do nothing?
FORBES: Well, the word solve is the meaningful word. That won't -- what they're proposing, some people, to raise taxes won't solve the U.S. economy being weak. It'll make it worse. We've seen this in southern Europe. They're piling on new taxes.
Those economies are contracting. France and Germany on the verge of recession. This country is doing a very, very disappointing and Japan is declining, declined 31/2 percent in the 3rd quarter.
FOSTER: So your view is everyone else is getting it wrong, so don't follow their route?
FORBES: Yes.
(CROSSTALK)
FOSTER: And there's austerity.
FORBES: Well, there's -- well, they're doing one part right. They've made substantial reductions in the public sector, over 600,000 fewer people working there than there were several years ago after a sharp rise in the last decade.
But on the tax side, it's standing in the way of a recovery even though may be unpopular, especially with coalition partners. But that 45 percent, net one's 50 percent tax rate, ridiculous. That should be cut sharply. They should be cutting tax across the board, particularly the capital gains tax, put in incentives, lower the price of good things like productive work, risk-taking, success.
So this economy can come back. This economy is ready to move. As you say, they've done good things, painful things on the public sector side. They may have to do more. But they've made much more progress than Europe. The key is to get the growth side going.
FOSTER: What's the problem with just going through with the fiscal cliff? There is a suggestion -- you come from the Republican perspective, obviously -- there's a -- there's a concerted conspiracy to create fear around this, when actually there shouldn't be that much fear.
FORBES: Well, on the spending cuts, when you hear these large numbers, you do have to put it into perspective. We spend $3.6 trillion a year, 120 billion of cuts, while harmful or painful, especially in the military side, is only 3 percent of that number, something that we're -- will not come to an end.
But piling on new taxes, even though they're relatively small, on capital, on small businesses, will hurt. So why even if the poison is a small amount, why put more poison in a patient that is already queasy?
(END VIDEO CLIP)
FOSTER: Well, everyone seems to have a view on the fiscal cliff. And tomorrow on QUEST MEANS BUSINESS, world-renowned economist and U.N. adviser Jeffrey Sachs gives us his thoughts on the fiscal cliff. Here's a sneak preview.
(BEGIN VIDEO CLIP)
JEFFREY SACHS, ECONOMIST: Even if the negotiations go the way the president wants, we still have years of hard slog because we will not have a balanced budget coming out of this. We still have major needs as well as an imbalanced budget. And so I think the politics around this is going to continue to be heated and continue to evolve. We'll definitely not go with one step to a new world of consensus.
(END VIDEO CLIP)
FOSTER: Well, that's one tax debate. And income tax has been one of the most heated issues on the fiscal cliff negotiations. But as Kyung Lah reports, without a deal, those who suffer the most may be those without a regular income.
(BEGIN VIDEO CLIP)
KYUNG LAH, CNN CORRESPONDENT (voice-over): Lis De Bats doesn't call it a fiscal cliff. What she could be facing at year's end is a financial freefall.
LIS DE BATS, UNEMPLOYED WORKER: I don't know. I just wish I wasn't in this situation, but it is what it is. And I can just do what I can.
LAH (voice-over): De Bats lost her job as a new home sales manager last January.
On an old laptop with a broken cord, she applies for job after job, keeping track in a packed notebook.
DE BATS: Seven, eight, nine.
LAH (voice-over): Averaging 15 applications a day, at age 54, this is the first time she's ever been on unemployment.
She's emptied out her savings and now the last resort. The emergency federal jobless program has kept De Bats in her townhome, giving her $450 a week.
But on December 29th, unless Congress and the White House act, the money stops.
DE BATS: We're not trying to live off the system. We're trying to survive. It's not a luxury to be on unemployment. It's a means to keep us going.
LAH (on camera): The fear of the fiscal cliff isn't just here in De Bats' suburban neighborhood. In the states with the highest unemployment from the West to the North to the South, they will be hit the hardest. Some 2 million Americans will see those federal unemployment benefits disappear all at once.
LAH (voice-over): Economist Chris Thornberg says these Americans are the unfortunate pawns in the tough game of politics and budget balancing.
CHRIS THORNBERG, BEACON ECONOMICS: So, ultimately, this is a tradeoff. The tradeoff, of course, has to be that, while, in some ways, some people are going to be hit painfully by a reduction in federal benefits, at the same time, we have to appreciate that this deficit has to be closed.
LAH (voice-over): But at what human cost, asked De Bats.
DE BATS: Here's my refrigerator.
LAH: She's down to condiments until the next unemployment check arrives. But while we're talking to her about the fiscal cliff, she gets an e-mail.
DE BATS: Yay! My interview. OK, great.
(LAUGHTER)
DE BATS: Whoa, OK, that was good news.
LAH: A third interview for a sales job. If Washington can't do it, maybe this job will pull her back from the cliff.
DE BATS: Oh, my God. You can't believe how excited I am right now.
LAH (voice-over): Kyung Lah, CNN, Los Angeles.
(END VIDEO CLIP)
FOSTER: Well, if you're searching in all the usual places for Google's money, you'll turn up a few results. It's been moved to, well, en masse to Bermuda. And if you can't guess why, we'll tell you, next.
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(BEGIN VIDEO CLIP)
FOSTER (voice-over): Let's give the answer to our "Currency Conundrum" now. What was the largest U.S. banknote ever printed? The answer is C, the $100,000 note. You wouldn't want to lose that. First issued in 1934, it was used for transactions between Federal Reserve banks. The notes featured the 28th U.S. president, Woodrow Wilson.
(END VIDEO CLIP)
FOSTER: Now Google may have saved billions of dollars in tax, thanks to some creative but controversial accounting. According to a report from Bloomberg, it's been moving money into a shell company in Bermuda -- a lot of money, in fact.
Last year, it moved $9.8 billion there in order to avoid paying tax on it. That's equivalent almost to 70 percent of Google's total revenues last quarter, saved $2 billion on tax worldwide, all totally legal, of course. But it isn't the first time Google's tax arrangements have drawn attention.
In fact, it was summoned before a parliamentary committee here in the U.K. last month, along with Amazon and Starbucks over the amount of tax it paid in Britain. Italian police have also investigated Google's tax arrangements.
At that British hearing last month, Google's U.K. boss, Matt Brittin, tried to explain how this business in Bermuda all worked.
(BEGIN VIDEO CLIP)
MATT BRITTIN, MANAGING DIRECTOR, GOOGLE U.K. AND IRELAND: We have an entity that holds the rights to our intellectual property. And you can tell it's a very --
UNIDENTIFIED FEMALE: I thought you just told us the intellectual property is all in California?
BRITTIN: I was trying to finish the sentence, which is the intellectual property rights for outside of the U.S., for the --
UNIDENTIFIED FEMALE: (Inaudible) -- the R&D's all in California?
BRITTIN: That's right, that we, like any company, we're required to do two things, one, to play by the rules and when you set up internationally you need to make decisions about how to protect your intellectual property and how to organize. And secondly, to manage our cost efficiently in order to satisfy our shareholders. And our goal as a company --
UNIDENTIFIED FEMALE: So you're minimizing your tax even though it's unfair to British taxpayers?
(END VIDEO CLIP)
FOSTER: Well, the OECD wants to see tax rules across the world get an overhaul to stop companies exploiting the system. It says reforms could take years to go through. The organization's tax chief explained to me why it was such a tall order.
(BEGIN VIDEO CLIP)
PASCAL SAINT-AMANS, CENTER FOR TAX POLICY AND ADMINISTRATION, OECD: You have three factors there. The one you've just described, governments cannot fix this problem on their own. That's why they need (inaudible) action. That's why the U.S., it is relevant to the network (ph).
Second, you have a political crisis. The political crisis comes from the fact that people, I mean, the hard worker in the streets, they face increases in personal income taxes. They face increases in VAT, value- added taxes. VAT has increased the rate.
VAT has increased in 22 out of 33 OECD member countries with a VAT system. So on the one hand you have the people, the man in the street paying more taxes. And at the same time, big multinationals looking like they don't pay much tax, if any. And that raises a big political issue. And that's why there is political support. And, again, across the world, from the U.S. to Japan, through Europe.
FOSTER: When the system was set up, it was easier to assess, wasn't it, where an economic activity was taking place, so you could work out what was costing (inaudible) basically.
SAINT-AMANS: The basic architecture of the system dates back to the '20s, 1920s, by the League of Nations. Of course, we've adapted it; we've -- we made it change. We've updated it. But we have not changed the whole architecture while the global business has changed the way it operates. And you now have to go (inaudible) the world.
You have digital economy where you do not have physical presence. And because of all that, it may be the case that the current architecture may need to be revisited dramatically. And that's what the OECD has started to do.
FOSTER: It's so complex, tweaking all these systems to come up with a global system isn't going to work. You're basically going to have to overhaul the entire global system, aren't you?
SAINT-AMANS: Well, you can say that it's so complex that let's do nothing. And if we do nothing, what happens? You just put an end to corporate income tax. So you can say so. Or you can say we do have a system, which is complex. I mean, domestic legislations are complex. And then you have in international tax relations. You have 3,000 tax reduced.
This is complex. But you can say, well, let's revisit the basics and maybe we can fix it. And that's our ambition because we think we can fix it by revisiting some key principles. I mean, what are the rights to tax at source? What are the rights to tax when you have digital activities on your territory? And how do you put in place the rules? And we do have many countries lining up to do that.
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FOSTER: Well, from global tax systems to global weather systems and some news on ducks. Jenny's here.
(LAUGHTER)
JENNY HARRISON, CNN METEOROLOGIST: You felt it now. Yes, not the weather for ducks at the moment. Let's just say that to start out with. Bitterly cold across much of Europe, bit of a change in store across the west and the northwest, so in a couple of days, it will be seeming a little bit milder, a lot of cloud, a lot of fog.
That has been a problem certainly for London Heathrow, some freezing fog has been causing some very long delays and a very heavy snowfall has been causing problems elsewhere. Look at this beautiful photo coming in to us from Alex, one of our iReporters in Kiev, Ukraine. There's cars beneath the trees, buried under so much snow.
Some pictures to show you as well of Poland, because, you know, this snow in Europe has been very, very widespread and look at this, my goodness. This is sort of the first decent snowfall of the year for various different cities, but Shan (ph) in Poland, 18 centimeters in less than 48 hours for the emergency services working very, very hard to keep everything moving and moving of course, just smoothly.
But if you come back to the weather map, I can show you that there's plenty of snow in the forecast. This system will head first of all south and then as we go into Thursday, it'll push up towards the Baltic. So just kind of spreading the snow just about everywhere. And bitterly cold. These are the actual temperatures, -13 in Oslo right now, -6 in Warsaw, -1 in London, feeling colder with the wind.
And very icy and certainly plenty of warnings for that. And that's (inaudible) in the U.K. The signs have been out. It (inaudible) change a little bit over the next few days -- excuse me. This is the temperature trend and you see here, for the next few days, the really bitterly cold air. That's going to get (inaudible) further eastwards.
And then a little bit of a milder air flow coming in to the west. So not exactly mild, but not out cold. But when it comes to really, really cold, how about this, Bucharest, Rumania, the overnight low Friday -19 degrees. So that's actually 17 degrees below the average. That's very dangerously cold, that thought of weather.
And you can see the overnight lows on Wednesday -3 in Bucharest, -2 in London, -6 in Berlin. And plenty of snow coming in with it. Most of the snow across the southeast eastern regions and then you can see the rain pushing into the west, and that's because we have got that milder air in play. Now you can see also where the really heavy accumulations will be.
So not only is it going to be bitterly cold in Bucharest, the snow's going to stick around because look at this. The next 48 hours 28 centimeters of snow coming down, 21 in Kiev and look at these temperatures, -2 the daytime high, -3 in Bucharest.
Now, Max, a quick question for you: are you a bath man or are you more a shower man?
FOSTER: Shower.
HARRISON: Shower. Yes, well, probably just as well. I'm kind of the same.
You'd need a jolly big bath, wouldn't you, for this rubber duck. You see that's where I was going with that. Let's have a look at these pictures because I don't know what you all thought in London when this big rubber duck appeared -- where is it? Where's the rubber duck?
FOSTER: Where is it?
HARRISON: Where is the rubber duck.
FOSTER: You need the picture for this story, definitely, Jenny.
HARRISON: We kind of do, don't we? What's you doing? What's our producer doing in London?
FOSTER: I guess the story does work. There's a massive rubber duck that went down the Thames today. That's the alternative.
HARRISON: That kind of is the story, but you really need to see the duck, though, don't you? We're -- you know --
FOSTER: You do.
HARRISON: Here we go. Then let me tell you. It's 15 meters high or 50 feet high and it's a big --
(CROSSTALK)
FOSTER: -- do this without the pictures of the duck?
HARRISON: -- don't need a picture.
Oh, there we go with the pictures. A big --
FOSTER: (Inaudible) worth it, wasn't it?
HARRISON: Look -- it was worth it, wasn't it? Out of all that for that, Max.
(Inaudible) for a non-line gambling site apparently. Their aim is to get Britons having more fun. Don't quite know how the two go together, but I guess it's caused a bit of stir. Tower Bridge had to be opened for it to actually go through. So there we go.
And Max, I've got a great picture to end on actually. Look.
This is what the polar bear in St. Petersburg thought when he saw it. (Inaudible).
(LAUGHTER)
FOSTER: Oh, fantastic.
Polar bear. You didn't mention a panda. I always expect a panda when you go into the animal zone.
HARRISON: This is the winter version. This is the winter version (inaudible).
FOSTER: Very good. Just say seasonal. I like it, Jenny. Thank you very much.
Animal news and the weather news.
QUEST MEANS BUSINESS continues after (inaudible) break. Stay with CNN.
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FOSTER: One of Starbucks' main rivals here in the U.K. is looking to score some PR points over the company's tax troubles. The controversy over its British tax arrangements has rumbled on. And that's given its competitor a chance to gloat.
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FOSTER: Well, there really has been a cold, bitter winter for Starbucks, hauled in front of parliamentary committee and facing cause for a customer boycott, all because it's accused of not paying enough tax here in the U.K.
On Thursday, it tried to put things right by offering to pay another $16 million in U.K. tax, although it says it still doesn't make a profit here.
That hasn't been enough to convince everyone, though.
Over the weekend, a group called U.K. Uncut staged protests in more than 40 Starbucks shops across the country. We don't know how any boycott might have affected Starbucks' bottom line, but anyone who lives or works here in central London will know there are plenty of alternatives to get your caffeine fix.
One of them is Costa Coffee. It's owned by Whitbread. And in the last quarter, its sales rose more than 7 percent. They had a record week last week, and in a nod to the troubles that Starbucks' CEO said Costa is the taxman's favorite coffeeshop.
(END VIDEO CLIP)
FOSTER: I'm not sure if this is good or bad, but Limited Edition Starbucks famous steel gift cards are proving very popular with this festive season. Dozens are selling on eBay for more than double their original value. Each card is loaded with $400 of Starbucks credit. Five thousand of them went on sale on Friday, sold out in six minutes. They're now fetching a small fortune online.
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FOSTER (voice-over): This was sold just a couple of hours ago for almost $1,000. So there is still interest in Starbucks after all.
(END VIDEO CLIP)
FOSTER: Now just ahead, we'll get a check of the stock markets in Europe and in the U.S.
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FOSTER: Our top story this hour, Delta Air Lines is buying a big stake in Britain's Virgin Atlantic. Delta is shelling out $360 million. For that, they get a 49 percent stake in Virgin, currently owned by Singapore Airlines. The controlling share still belongs to British entrepreneur Richard Branson. When the merger goes through, it will give Delta better access to European and Asian markets.
Those shares are currently up around 6 percent. We've got an hour's trading left to go on Wall Street for the day. It's been green arrows all day for the Dow. Investors are optimistic there will be some stimulus measures from the Fed tomorrow. We'll wait and see.
European stock markets closed in the black this Tuesday. It was the seventh session of gains for the London FTSE. This now at an 81/2-month high. HSBC shares gained around half of 1 percent in London, despite a larger-than-expected fine from the U.S. department government (ph). Most commodities shares were strong performers.
BHP (inaudible) gained 1.6 percent in London, Oslo Metal (inaudible) 2 percent in Paris, Tullow Oil was the exception, down more than 8 percent actually on disappointing operational updates coming out of Ghana.
That is QUEST MEANS BUSINESS. Thank you for watching. I'm Max Foster. "AMANPOUR" will be next after a news update.
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FOSTER (voice-over): The headlines: the crowd at rival protests in Egypt are swelling and there are fears of more violent clashes between pro- and anti-government demonstrators.
These are live pictures we're bringing to you right now, swelling all the time, as you can see. They are mainly divided over Egyptian President Mohammed Morsi and a controversial referendum set for Saturday on the draft constitution.
The U.S. has labeled Syria's Al-Nusra Front a foreign terrorist organization. It says the jihadist rebel group is an offshoot of Al Qaeda in Iraq. (Inaudible) conflict in the U.N. says more than half a million people have fled the country. Some 509,000 refugees have been registered or are awaiting registration in neighboring countries and North Africa.
British banking giant HSBC has agreed to pay a record $1.9 billion fine to settle U.S. money laundering allegations. The bank will not be prosecuted as long as it meets certain conditions. HSBC is accused of failing to stop transfers from Mexican drug cartels.
And doctors in South Africa are treating former President Nelson Mandela for a lung infection. After several days of tests, they say Mandela is suffering from a recurrence of a previous lung condition. Authorities also say Mandela is responding to treatment.
And that is a look at some of the stories we're watching for you on CNN. "AMANPOUR" joins us now, live.
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