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Quest Means Business
Line Soars in Largest Tech IPO of the Year; Line Opened 30 percent Above IPO Price; Source: Trump Indicates Mike Pence is His VP Pick; Clinton Campaigning with Tim Kaine; Bank of England Declines to Cut Rates
Aired July 14, 2016 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[16:00:00] ZAIN ASHER, CNN ANCHOR: There you have it, another day on Wall Street comes to a close with that sound with that ring. A pretty positive
day all in all on Wall Street, triple-digit gains for the Dow, thanks to stronger than expected earnings. It's Thursday, July 14th.
A message to investors, Line delivers the year's biggest tech IPO. A message of silence. The Bank of England surprises by holding steady. And
a message from Europe. The continent reacts to the appointment of Theresa May's Brexit cabinet.
Hello, everyone, I'm Zain Asher and this is QUEST MEANS BUSINESS.
Tonight, a frowning bear and a winking rabbit helped push Line to the biggest tech IPO of the year. The Japanese messaging app has made its
long-awaited debut on the New York stock exchange. Executives were book ended by life-size versions of digital stickers that helped drive more than
$250 million a year in sales. That bear did not have much to frown about. Wall Street could not get enough of Line's shares. Shares lurched 30
percent higher at the opening bell, giving the company a $9 billion valuation. CNN's Money Paul La Monica has been speaking to Line's co-
founder. He's in New York, alongside Mashable's senior tech correspondent, Christina Warren. Thank you both for joining us. Paul, let me begin with
you. The stock did well today, certainly a nice boost, but the question is will the momentum continue do you think?
PAUL R. LA MONICA, CNN MONEY CORRESPONDENT: Yes, that's always the big question. I think though that investors are enamored by the revenue that
Line generates from those sticker sales. As goofy as it may seem, it's a reoccurring revenue stream, about a quarter of the company's total sales.
And I think that is one thing that keeps people on the platform and differentiates it a little bit from Facebook's WhatsApp as well as WeChat,
that's a big one in China owned by Tencent.
ASHER: So Christina, the question is, does Line have prospects in terms of growth outside Asia? Can it grow in the U.S.?
CHRISTINA WARREN, SENIOR TECH CORRESPONDENT, MASHABLE: That's going to be a lot more difficult. At this point, there are so many messenger apps.
There's WhatsApp, there's Facebook messenger, that have created its own user base. It's going to be very difficult for them to get beyond Asia
where they're so strong right now. But it's a possibility, especially now, that they have more resources. They could try again. They tried a few
years ago and weren't successful.
ASHER: So Paul, do you think that the enthusiasm surrounding Line is justified given that it could have trouble down the road with user growth?
LA MONICA: I think investors do need to be careful, as Christina pointed out. This is a company that has struggled when it has tried to branch away
from those core markets of Japan, Thailand, some others in Southeast Asia. The company definitely needs more user growth, and growth has started to
slow. They are much smaller than many of their major competitors. Even though they have that kind of cool factor right now, because you have a
successful IPO, we've seen lots of IPOs that are one-day pops and then quickly fizzle away.
ASHER: Right, we certainly have. Christina, how does this company compete against WhatsApp here in the United States, obviously owned by Facebook?
How do they penetrate?
WARREN: I think if they'll try to come to the United States, they need more than just the stickers, although the stickers are a part of it.
Localizing stickers, focusing on things that users here want would be a good thing. It would also be smart for them to consider what they're doing
in Asia, which is building in apps, making it so you can order a car or play music within the messaging app. Those are things Facebook is doing
that too, so as not to be easy for them. But if they could make a robust messaging experience as possible, they might be able to pull some users
away.
ASHER: Paul, what does this mean for other companies like Uber, like Airbnb, that might consider going public in the near future?
LA MONICA: Today's news has to be considered good. Obviously the jury is still out on whether we could call this IPO a success. We have another
"Unicorn Tulio" going public a few weeks ago and that stock has continued to do well. So that combination I think if we have more companies,
particularly tech, show that there is an appetite for it, then maybe starting at the end of the year, early 2017, we'll finally see Airbnb,
Uber, Snapchat and others file for IPOs.
[16:05:00] ASHER: And Christina, this company Line, it's really sort of a jack of all trades. It's sort of the Swiss army knife when it comes to
messaging apps. What is its future? How does it evolve, given that it does everything already?
WARREN: Well I think again, it's building in more of these other services into the app so you can do more things with it. And I also think it's
important to note that they have more than 35 different apps. The messaging app is obviously the biggest Line application, but they have a
lot of games too. And a lot of their money comes from in-app purchases. So I think just continuing to evolve and following the trends of free to
play games and monetizing that is how they can continue to be successful is how they can continue to be successful.
ASHER: Paul, I understand you've been speaking to the co-founder of Line. What do they have to say about this?
LA MONICA: Line's chief global officer, they obviously were very pleased with the debut. They're going to have another offering in Tokyo tomorrow.
But what was interesting was, he really did not seem to think that the company has to expand in the U.S. and Europe, some of these western
markets, that aggressively. I think right now, even though they now have this cash, and proceeds from the IPO, they want to stick with what they're
doing and really focus on those core markets. I didn't get a sense from him that they have global aspirations just yet.
(BEGIN VIDEOTAPE)
JUNG-HO SHIN, CO-FOUNDER AND CHIEF GLOBAL OFFICER, LINE: We start as messenger service about five years ago. But we have evolved to kind of a
one-stop service where you can enjoy everything you want in the smartphone environment. For example, you can enjoy listening to music and you can
read some comic book and read an article and enjoy a game with your family. Even you can make payments in our platform, a big difference from other
messenger service.
LA MONICA: I was wondering also. Can you talk more about the stickers on the service? It seems like that's something that really sets Line apart.
It was hilarious to have a bear walking around the New York stock exchange on a bullish day for your company.
SHIN: The stickers is kind of a cartoon sticker are similar to emoji. But the difference is its more advanced kinds of expression power. For
example, you can add some sound and you can add some animate. And sometimes it's a pop up on the screen. So in terms of expression power,
it's a huge difference.
LA MONICA: It seems people are willing to pay for these, almost a quarter of your sales.
SHIN: Yes.
LA MONICA: Is this something that you believe can carry over to other markets, where people will say, Europe and the U.S., if they're looking to
expand, be willing to buy these stickers as well?
SHIN: Yes, the reason why users are very happy to pay their money to purchase the sticker, it's because with the app to purchase a sticker they
can enjoy it. You really enjoy it. Because you can send a sticker to your daughters, especially we have communication with teenagers. To initiate
communication, to send a sticker, it works well.
LA MONICA: To wrap up, what is the company planning to do to maybe try and stop some of the losses that the company has incurred lately, and also
maybe reignite the user growth? There's been some concerns from analysts that the user growth has started to slow just a little bit.
SHIN: In terms of extending our service, not only messenger but kind of a new service, and a kind of the game service, the huge music service. So if
we need to build up his motor and enhance the motor I think there's many room to grow.
(END VIDEOTAPE)
LA MONICA: What I found compelling from Jung-Ho Shin, was talking about the notion that families will really be using this app together. I think
that's something that many people in the United States wouldn't have thought of until recently with Pokemon Go exploding on the scene. I know
anecdotally, there are a lot of families going around looking for Pokemon now. This thought that a social-app-like Line could be something that a
parent could send one of those cute little stickers to their children, is something that I think is a bit of a wake-up call. That maybe social media
doesn't have to be only about millennials and young kids. That their parents as well might enjoy it too.
ASHER: We'll see what that means for user growth I guess. OK, Christina Warren, Paul La Monica, thank you both so much, we appreciate that.
[16:10:00] LA MONICA: Thank you.
ASHER: It appears Donald Trump may have made the biggest decision so far in his brief but very remarkable political career. Sources are telling CNN
that right now the presumptive Republican nominee is leaning strongly, leaning strongly on selecting Indiana Governor Mike Pence as his vice
presidential running mate. The Trump campaign is cautioning, they're warn that go no official offer has yet been made or accepted, so they're
hedging. There are still technically 19 hours until Trump is due to formally announce his VP pick, which leaves plenty of time for a change of
heart.
The short list also includes former Speaker of the House of Representatives, Newt Gingrich and New Jersey Governor Chris Christie as
well. Let's talk more about this. Rana Foroohar, CNN's Global Economic Analyst, she joins us live now from New York. Mark Preston is the
executive editor of CNN politics. He's joining us live now from Cleveland, Ohio. So Mark, let me start with you. This has been a very public
audition process for the VP candidates. How rare is that, and why is that a smart move on Donald Trump's part?
MARK PRESTON, CNN POLITICS EXECUTIVE EDITOR: It's extremely rare. The fact of the matter is we've already had a front row seat into how Donald
Trump was auditioning these three candidates to be his running mate. They went out and gave speeches over the past few days on his behalf at major
rallies. What he was looking for, although he has backed away from this a little bit, is somebody who could go on the attack. Somebody who could
take on Hillary Clinton and her running mate as well as the Democratic Party. At the same time, somebody who understands Washington, D.C.
Someone who understands the legislative process. As we talk about Mike Pence, who is certainly not a name that is known around the world. He
would be obscure for most people, but he is the Indiana Governor. And prior to becoming the governor, he was in the House Republican leadership.
He was a member of the House of Representatives. So he certainly understands how Washington works and how capitol Hill works. Assuming that
it is Mike Pence, he could be somebody who could help Donald Trump understand the rapids, the water rapids of Washington, D.C.
ASHER: Yes, ultraconservative. Rana, Mike Pence does have very strong ties to the Koch brothers. Is that a reason why he might be attractive to
someone like Donald Trump, for fundraising purposes?
RANA FOROOHAR, CNN GLOBAL ECONOMIC ANALYST: I would think so, absolutely. He's somebody that in some ways is straight out of central casting to be a
vice president, and to sort of balance out the things that have been somewhat problematic about Donald Trump, the fact that he's had a hard time
fundraising. The fact that some of the richest donors like the Koch brothers have not backed him yet. Pence has impeccable Republican
credentials. He's a fiscal conservative. He's foreign policy hawk. He's a Boy Scout. He's very comfortable in church pews. Certainly not drawing
any scandal himself. The one issue I can see though that can be a little contentious. He has very different views, at least public views, on trade
than Donald Trump. Donald Trump has made a lot of points by pretending or really, you know, who knows, being anti-free trade. Pence is a real pro-
free trade guy. So it's going to be interesting to see, if he is the pick, how they work that out.
ASHER: Is that surprising to you, Rana, that Trump could be, I'll emphasize that, could be going with him?
FOROOHAR: It's not surprising to me that if he did pick Pence that he would see a lot of upside in that. This is someone that could really help
smooth out some of the rougher edges that could be more of a problem in a general. It's also somebody that would have appeal to the large donors
that he needs to bring on board. He would certainly be a unifying candidate. But, you know, in a way, it would also be a real counter move,
based on the way he's run his campaign so far. This is not a guy who is an attack dog. As I say, he's straight out of central casting, with a
different personality than Trump himself.
ASHER: Mark, one thing I find interesting is the fact that Mike Pence isn't necessarily the most popular governor in history. Doesn't that weigh
on the ticket slightly if Donald Trump were to choose him?
PRESTON: He certainly has a tough reelection. There is no question about that. And his term as governor has been controversial, to say the least.
Having said that, when you look at the electoral map in the United States, the state of Indiana where Mike Pence is the governor is almost assuredly
going to go in Donald Trump's column. The reason being is that it is really Republican. The path for Donald Trump to win the White House really
is going to be cut through the Midwest. It starts on the east coast, when you look at the state of Pennsylvania through Ohio, over into Wisconsin.
Mike Pence is somebody who perhaps can speak Midwestern values, that could help Donald Trump rally the base in those states. Perhaps, and now when I
say perhaps, could help with some of the undecided voters.
[16:15:00] But as we look at the other two, Zain, we should be very cognizant of the fact that Newt Gingrich and Chris Christie will play
important roles in the Donald Trump administration. What they are, we don't know. I'll throw two potential ones, we could see Newt Gingrich
perhaps become the chief of staff for Donald Trump, which he would be perfectly suited for that. Perhaps Chris Christie who has been a career
law enforcement type in the United States, he could take over the U.S. Justice Department. So even though we think that Pence will get picked for
the VP, I do think there will be roles for these two other men who are being looked at right now by Donald Trump.
ASHER: So they will possibly get consolation runner-up prices.
PRESTON: No doubt. And very important consolation prices nonetheless.
ASHER: All right, Mark Preston, Rana Foroohar we'll have to leave it there, thank you so much, we appreciate it.
FOROOHAR: Thank you.
ASHER: Hillary Clinton is holding a campaign rally this hour in Virginia. By her side, is one of the state Senators, Tim Kaine. Kaine is Virginia's
former governor and a serious contender in the race to get the nod as Clinton's running mate. Most political analysts consider him a safe option
as opposed to someone who might be a riskier choice like Senator Elizabeth Warren.
A surprise announcement from the Bank of England. Action was expected on interest rates in the wake of economic turmoil following the Brexit vote.
But the Bank of England actually chose a different route. We'll explain, coming up after the break.
(COMMERCIAL BREAK)
ASHER: A surprise response to Brexit from the Bank of England, pretty much no response at all. It was widely expected to lower interest rates in an
effort to head off an economic downturn. Instead it actually held rates steady and didn't change them at all. Although it signaled a cut is likely
coming next month, August. Delta airlines though has responded to Brexit by reducing the number of flights from the U.S. to the United Kingdom. The
drop in the pound has cut into the airlines' bottom line. The U.K.'s new chancellor of the exchequer says there will be no emergency budget to deal
with Brexit. Earlier I spoke with George Buckley, the chief U.K. economist at Deutsche Bank. I asked him if he thought the inaction by the Bank of
England was indeed the right call. Take a listen.
(BEGIN VIDEOTAPE)
GEORGE BUCKLEY, CHIEF U.K. ECONOMIST, DEUTSCHE BANK: I think it was the right call. The reason being is because the bank doesn't have any real
hard evidence to prove what Brexit has done. Of course, there's a retail sales number here, there's a consumer confidence number there. But there
isn't any real significant evidence to prove that Brexit has caused a weakening of the economy yet. I'm sure it will do when you look at some of
the new consensus forecast for economic growth, they are substantially weaker. But why not wait three weeks, because that's how long the next
meeting is away, until deciding what to do. I think they'll be in a much better position. Not only will we have more economic news but also because
they are revising all of their forecasts in the first week of August. So why not wait until then, which exactly is what they have done, until they
decide how to calibrate monetary policy?
ASHER: So is it your opinion that they will lower interest rates three weeks from now?
BUCKLEY: I think they will probably have to lower interest rates and maybe go further. Because 25, 50 basis points isn't really going to do a great
deal at all. You may well have to go down the route of quantitative easing. So buying gilts, maybe even corporate bonds like the ECB is doing.
Possibly going back into the funding for lending scheme. Encouraging more banks to lend money at a faster rate than they have been doing.
[16:20:00] There's things the Bank of England could do. And I think they start off by cutting interest rates at the August meeting. And then they
can think about what to do should more easing be required at the September meeting.
ASHER: So the fact that they didn't choose to cut interest rates this time around. How much of a confidence boost is it to consumers and businesses
there in the U.K.?
BUCKLEY: While certainly they will look at the Bank of England and think, well maybe they know something that we don't. That things are looking a
little bit brighter than we thought they were. That's probably not true, because we certainly haven't seen the full extent and the full impact of
Brexit hit the economy right now. We haven't even got data for July at the moment, most of it relates to June. I think it will start to weaken and we
will start to see some effect.
One of the other reasons why the Bank of England didn't do anything today is because of what's happened to the financial markets. We've seen
sterling fall by 10 percent. That's very positive for exports in the longer term. We've seen gilt yields fall by 0.6 percent over a short
period of time. That's good for funding costs, for banks and for corporates. We've seen corporate bond spread tighten. We've seen equity
prices rise by 12.5 percent. These market moves, when the Bank of England comes to reviewing its forecast at the August meeting, will be a big offset
to the weakness that might eventually be caused by Brexit.
ASHER: What are your thoughts on Mark Carney in particular? Obviously handling the economy in a post-Brexit world is a whole different ball game.
Do you think the economy, the British economy, the country, is in safe hands right now?
BUCKLEY: I think he's done a good job so far. I think he's absolutely right to raise the risk that economic growth is going to be weaker after
Brexit. I know that people have complained that the scaremongering that's been going on ahead of the Brexit referendum. But I think he's absolutely
right to say the economy is more likely to be weaker than stronger post the Brexit vote.
(END VIDEOTAPE)
ASHER: More news out of the U.K. Theresa May is moving quickly to fill her cabinet and filling it with a whole host of Brexit supporters. Boris
Johnson was named foreign secretary, one of six new members named on Wednesday. He gets the job of Phillip Hammond, who is now chancellor of
the exchequer. Amber Rudd, replaces May as Home Secretary. Michael Fallon remains as Defense Secretary. David Davis takes the newly created role of
Brexit Minister. We're going to talk about that more later on in the show. Liam Fox is now trade secretary as well. Joining us now live from London
is CNN political contributor, Robin Oakley. Robin, thank you so much for being with us. By appointing a Brexit minister, do you think Theresa May
has effectively distanced herself from any fallout regarding that vote?
ROBIN OAKLEY, CNN POLITICAL CONTRIBUTOR: It certainly looks a bit that way, Zain. Yes, essentially she's got a team of three Brexit minister.
We've got Boris Johnson as foreign secretary. We've got David Davis as the actual Brexit minister. Though we haven't got a building to do it yet.
And we've got Liam Fox as the new international trade secretary going out searching round the world, trying to find new markets, new trade deals for
Britain in the post-Brexit era.
Now, the idea of that in one sense is that she's effectively saying, you guys wanted to get out of Europe, here you are, you got the job. You start
dealing with the details. If, as is almost inevitable, they'll have to be compromises along the way. And deals have to be cut. And those have to be
sold to the party. Well is the right wing Brexiteer who are going to have to do that and take some of the flack. Theresa May, who of course, is
suspected by some of the Brexiteers, because she voted to remain, she's going to steer clear of a lot of the blame while those three have to do the
work, Zain.
ASHER: But so is Boris Johnson in a way, because he's foreign secretary. He's not Brexit minister. But I am curious as to why she chose Boris
Johnson as foreign secretary. I'm not sure what their relationship is, but it was only a few days ago that Boris Johnson actually backed Andrea
Leadsome to be prime minister, not Theresa May.
[16:25:00] OAKLEY: Indeed, yes, and Boris Johnson and Theresa May have never got on particularly well. But I think the psychological explanation
for this is that the nation has been pretty well in gloom since Brexit. Even those who actually wanted Britain to come out of the European Union
have been disturbed by the disturbance on the stock markets falling, the pound. General sense of worry, house market slowing up, things like that.
Boris Johnson, whatever you think of him, and the gaffes that he's, you know, put in in the past, he's a politician who entertains. Crowd warm to
him. He's a good salesman. He proved when he was host of the London Olympics, as London mayor. He became one of the few British politicians
who is known the world over. And the idea of putting him in the job, Ok, he carries risks with him, he brings a lot of baggage with him, he's upset
some people in the past. But he can cheer things up, he can help to sell the new post-Brexit to the world. And I think that is as much anything.
The explanation for taking the risk of giving him that job, Zain.
ASHER: He can cheer them up, but a lot of European foreign ministers don't like him. They've actually said that since he was put in the cabinet. So
how does that work if the people he's going to be working with dislike him?
OAKLEY: They don't like the result that he helped to achieve by being one of the leading figures in the leave campaign. But for example, today we
had the Jean-Marc Ayrault, the French foreign minister, saying that Boris Johnson told lies during the leave campaign. Sounds pretty terrible. But
then Boris Johnson was asked about this, he said, oh, yes, well, there is some disturbance at the result, but Mr. Ayrault sent me rather a nice note
a couple of hours ago, welcoming me to my new job and saying he was looking forward to working with me. I mean that's diplomacy. These people have to
get on with each other. They have to do the job. They're not going to like everything the other guy has ever done. But there's a job there to be
done, Zain.
ASHER: All right, Robin Oakley, live for us there, thank you so much. You'll have of course a lot more discussion on EU trade deals and Brexit
later on in the show.
Meantime, the U.K.'s second female prime minister is making sure women are well represented in her cabinet. She appointed seven women, a third of the
entire cabinet. For more of this I'm joined in London by Patricia Scotland, who is the secretary general of the commonwealth, and happens to
be the first woman in that post. Patricia, thank you for being with us. The fact that Theresa May has put in so many women in her cabinet, what
does that say about her? It is a stark contrast to Margaret Thatcher.
PATRICIA SCOTLAND, COMMONWEALTH SECRETARY-GENERAL: I think Theresa May has made it absolutely clear in the past that she is committed to women's
empowerment. She does believe in women's leadership. And of course, she and Anne Jenkin were responsible for making sure more women joined the Tory
Party. So I don't think any of us are surprised that now that she is Prime Minister, she's making sure that the female talent, of which there is an
abundance, is there in good number in her cabinet.
ASHER: Do you find it surprising that the Conservative Party has had two female prime ministers and the Labour Party, the so-called party of
equality, of opportunity, hasn't had any? Does that surprise you at all?
SCOTLAND: Well, I think it's a disappointment. And I think that Tory's have to be congratulated for having produced two. But I think if you look
at the breadth and depth of the number of women who are on the front bench in the Labour government, you will see that at one stage in the house of
lords we had 50/50, that the number of women in the cabinet were far greater. And that we understood that parity and equality of treatment
isn't just about the person who heads it. It's about the whole system.
And I think we had a very proud record of the number of MPs that were in the Labour government and indeed the number of people on the Labour front
bench both in the Commons and the Lords. You know we had a number of women leaders of the House of Lords. That's something I think the Labour Party
needs to be justly proud of. But of course now as Secretary General of the Commonwealth, I am no longer part of party politics in the U.K., and I'm
now responsible, as the first servant to 53 countries of the commonwealth, which covers about 2.3 billion people.
ASHER: Congratulations to you. I do have to ask you, though, between Hillary Clinton and the United States, Theresa May in the U.K., Andrea
Leadsome who competed with her for a bit, Angela Merkel, why are women winning in politics right now? Is it part of the whole antiestablishment
movement that's been sweeping across the globe?
[16:30:00] No, I think what's happened is that women are really interested in doing the job, as opposed to being obsessed by themselves. And so what
you have is a number of women who are very clear thinking, very dedicated, very hard working, who want to make things happen and who want to make a
difference. So that if you're looking around to see who is doing that, and if you look at the proper meritocracy, and you take off the blinkers in
terms of gender, what you find is that women of real quality are rising to the top. And unfortunately, many of them have taken longer than their male
counterparts to get there. But when they do get there they're seasoned practitioners. They know what they're doing. They know where they're
going. And they also know how to lead.
ASHER: And when you say taking longer, Margaret Thatcher came to power in 1979 and it's been 37 years until the next female prime minister.
SCOTLAND: Absolutely.
ASHER: Patricia Scotland, thank you so much, appreciate that.
Most markets in Europe were up on the surprise news of the Bank of England would leave interest rates unchanged. Except in London where the FTSE fell
quarter of a percent. Otherwise European investors welcomed the news that a rate cut is likely next month.
Brexit has meant political upheaval in Britain. Just ahead of the new government in number 10 will look at the big issues still looming over the
UK. The future of its trade deals, that's next.
(COMMERCIAL BREAK)
ASHER: I'm Zain Asher at CNN center. There's more QUEST MEANS BUSINESS in just a moment when we'll ask an expert is there too much blue skies
thinking over British trade in the Brexit era. And a major victory tonight for Microsoft and its privacy battle with the U.S. government. First, the
headlines at this hour.
With Donald Trump just hours away from formally announcing his vice presidential pick, sources say Indiana Governor Mike Pence appears set to
get the nod. They say Trump has been moving closer to Pence and the governor has been told to prepare for his call. A short time ago the Trump
campaign cautioned that no final decision has been made.
U.S. Secretary of State, John Kerry, is in Moscow seeking greater cooperation with Russia on the Syrian peace process. There's a potential
deal in the works involving joint air strikes against ISIS and the Al-Nusra Front. But Defense Secretary, Ash Carter is expressing skepticism.
And it's been another busy day of political comings and goings in the U.K. as the new Prime Minister Theresa May shakes up the Conservative
government. One of the major casualties was lead Brexiteer Michael Gove, who has now been removed as the justice secretary.
Britain's new era is just 24 hours old, pretty much brand-new. And after her first full day on the job, Britain's new Prime Minister, Theresa May,
has formed her government. She repeatedly said she just wants to get on with the job, and she has, very quickly. The last three weeks since the
Brexit vote have been a whirlwind in British politics. CNN's Isa Soares takes us through it.
[16:35:00] (BEGIN VIDEOTAPE)
ISA SOARES, CNN ANCHOR AND CORRESPONDENT (voice-over): Three weeks since the vote that's spun Britain into a state of upheaval.
RICHARD QUEST, CNN ANCHOR: Calling the referendum in favor of leave.
SOARES: And the shock waves are still reverberating.
UNIDENTIFIED MALE: Are you looking forward to your new role?
SOARES: Politically, the changes have been sweeping. With Prime Minister Theresa May clearing out the old cabinet of David Cameron.
OAKLEY: One of the most massive government reshuffles we've seen. I think Theresa May is trying to underline a complete cutoff from the government of
David Cameron and George Osborne.
SOARES: One day into her job, this prime minister is showing she's not afraid to shake things up. There have been high profile casualties, and
the Chancellor of the Exchequer, George Osborne and Justice Secretary, Michael Gove. And then two new faces and posts. David Davis, the new
Brexit Minister, and Liam Fox, Secretary of International Trade, both Brexiteers.
BORIS JOHNSON, BRITISH FOREIGN SECRETARY: There's a massive difference between leaving the EU and our relations with Europe.
SOARES: But the most surprising appointment went to one of the architects of the Brexit campaign. Boris Johnson, who has grabbed a top job as
foreign secretary.
OAKLEY: Three leave campaigners in the three departments which will cope with Britain's exit from the European Union. Then if anything goes wrong,
if compromises have to be made, it gets blamed on the Brexiteers.
SOARES: And while the political landscape is being shaped, the economic one is still in need of major massaging. Sterling is down more than 10
percent versus the U.S. dollar. Sentiment in the U.K. housing market has suffered its worst drop in 18 years. And consumer confidence has fallen
sharply. Yet the Bank of England has decided to hold fire on interest rates. Keeping them unchanged at a record low of 0.5 percent. Perhaps
triggered by the earlier than expected appointment of a prime minister who means business.
PHILIP HAMMOND, BRITISH FINANCE MINISTER: I hope that's going to start lifting the fog for many investors, many businesses. And we will gradually
see confidence rebuilding.
SOARES (on camera): But many will argue we're not there yet. Questions remain over Britain's role in Europe. And when it will actually leave the
European Union. And then, don't forget, there's a major rebellion on the way in the opposition party. Proof perhaps that Britain is still pretty
much trying to find its way in this post-Brexit reality. Isa Soares, CNN, London.
(END VIDEOTAPE)
ASHER: The task of negotiating Britain's exit from the European Union falls to a man named David Davis. He's a Conservative Party MP and a
former party chairman. On Monday he wrote an article on the conservative home website, saying the U.K. can do deals with our trading partners and we
can do them quickly. And he says Brexit will deliver the circumstances that allow us to pursue an unfettered high growth strategy.
And on the all-important triggering of Article 50, Davis says the government should take a little time, should wait before that happens. He
says the ideal outcome is continued tariff-free access with the block.
Let's get to the money. Figures before last month's U.K. vote to leave the EU shows that Britain does do some hefty business around the world from $66
billion in trade with the U.S. to more than $27 billion in trade with China and more than $12 billion with Canada. After Brexit, Secretary Davis has
said Britain would be Europe's largest export market. That may be viewed as optimistic by some, including Miriam Gonzalez. She helps run the
International Trade and Government Regulation Practice at law firm Dechert in London. I asked if she thinks Davis and his team can get the trade
deals in place during the two-year time frame.
(BEGIN VIDEOTAPE)
MIRIAM GONZALEZ, INTERNATIONAL TRADE PARTNER, DECHERT: I would be very surprised, but Mr. Davis seemed very confident today that it can all be
done, and we will only see.
ASHER: But isn't it likely that Brussels is going to try and impose tough tariffs and quotas on U.K. exports? Isn't that likely?
GONZALEZ: No, not necessarily on the tariffs and quotas. Because tariffs and quotas, if you wish, is the least problematic part of trade. A lot has
been done already in the World Trade Organization. Obviously it would have to be negotiated to try to get that down to as close to zero as we can.
But that's the easiest that's the easiest bit of the negotiations.
[16:40:00] The real issues, the real barriers for trade nowadays all across the world is regulatory issues. That's why being part of single market for
the European countries is of so much benefit, because it means they are not going to be encountering the companies. And later barriers with tariffs,
sophisticated barriers. They are much more difficult to fight. Tariffs is just a number which is negotiated.
ASHER: Do you think that British companies that have large exposure to the EU should somehow be involved in the Brexit negotiations since they have a
lot at stake as well?
GONZALEZ: I certainly think so. I think that I would be surprised if the government doesn't launch soon a comprehensive consultation with companies.
I frankly think it would have been good if these had been done already immediately after the vote. And what we are advising in my firm, in
Dechert, what we are advising clients is that the sooner they can come to the government where they think the real issues of interest in their
sectors are and the red lines are, the better. Because in a situation where the U.K. is going to have to be coping with not enough manpower,
really, to handle all those negotiations, the ones who can do that most clearly and soonest will have an advantage.
(END VIDEOTAPE)
ASHER: That's the British side of the negotiations. Now for the EU take, let's talk with Terry Reintke, a member of the European Parliament from
Germany. She joins us live now from Edinburgh in Scotland. Terry, thank you so much for being with us. When it comes to these negotiations, do you
think that the EU is going to be tougher on the U.K., to send a message to any country within the European Union that's even thinking, thinking about
doing another Brexit?
TERRY REINTKE, GERMAN MEP: Certainly we are in a very tense situation right now. So there is a lot of uncertainty about what is going to happen.
And there have been very clear messages that especially with regards to freedom of movement, the European side is going to be tough in the
negotiations. But I believe that they cannot be a feeling of retaliation or punishing Britain now for this vote. And that we need fair
negotiations, and then in the end, a fair deal for both sides.
ASHER: So Terry, the new Brexit Minister, David Davis, seem to think that the U.K. can sort of copy the future Canada model, and that means freedom
of movement -- or rather access to the single, without freedom of movement. That is what he's saying. Do you think that's possible at all?
REINTKE: I don't believe that's a possible option. The reactions that we have seen from all European institutions and from the other 27 member
states have been very clear on this. The problem that we are seeing here is that he is advocating for a model that is basically undermining the
foundations of the European Union. And that is the pillar of having freedom not only of providing services and trading goods, but also for
people to move around freely and to work, study, and live in different European Union member states.
ASHER: What happens if there's no deal, no Brexit deal within the two-year time limit? What happens then?
REINTKE: Well, there is still a theoretical option to prolong the negotiations, if there is unanimity within the European Council. If there
is no deal reached after all, there will be an uncontrolled leave for Britain. This would mean that tariffs would be reinstalled, and that
Britain wouldn't have access to the European single market anymore. And this would have devastating effects both for the British economy as well as
the economies of the other member states of the European Union. And I think that now we should all fight for not having this situation happening.
ASHER: One thing the EU says is that there will be no negotiations until after Article 50 is triggered. I mean, isn't that slightly unfair, because
it puts the U.K. at such a huge disadvantage?
REINTKE: Well, there is a very clear message that there are no backdoor deals being done. This was one of the strongest arguments that again and
again the European Union was accused of within the Brexit campaign in Britain. And I believe it is right to say that now we are going to follow
very clear rules and very clear negotiation lines, and the ball is in the field of the British government now to trigger Article 50, and then to move
forward with the negotiations. And to finally come out with a plan and a strategy, how this should actually look like. Because for me it was
amazingly surprising how little had been planned before the referendum in Britain on the Brexit vote.
ASHER: All right, Terry Reintke, live for us there, thank you so much, we appreciate that.
French President Francois Hollande is having what I suppose you could call a bad hair day. The head of state is facing backlash over the cost of his
haircut. A government official confirms reports that his personal hairdresser is actually paid more than $10,000 a month. Certainly nice
work if you can get it. CNN caught up with the people on the streets of Paris to see what they think about that price tag.
[16:45:00] (BEGIN VIDEOTAPE)
UNIDENTIFIED FEMALE: You have a lot of people, they don't have something to eat for dinner, and just for -- it's incredible. Just like the other
things in France.
UNIDENTIFIED FEMALE: It's too expensive.
UNIDENTIFIED MALE: He has to look good, no?
UNIDENTIFIED MALE: Good for him. In my opinion, he's working, he's making money. There's no reason to talk about it. To be honest, look at him.
(END VIDEOTAPE)
ASHER: Look at him. Some people are less forgiving. Many have posted photos like this one, with this tweet showing Mr. Hollande in a royal wig.
Another shows the French president with an outrageous mullet. This tweet shows Mr. Hollande with a bad toupee. CoiffeurGate has actually now become
a trending topic on twitter.
Well it's the battle of progress versus tradition in China. It may look like a rundown neighborhood, but residents in this area of Shanghai are
calling it home and they are refusing to leave. Their fight, coming up next.
(COMMERCIAL BREAK)
ASHER: Shanghai is perhaps the most modern city in China. But then just a short dance from the towering skyscrapers, and you'll find people living in
squalor. Developers want to bulldoze one particular area, but people there are refusing to leave their long-time neighborhood. CNN's Matt Rivers
reports.
(BEGIN VIDEOTAPE)
MATT RIVERS, CNN CORRESPONDENT (voice-over): The most expensive thing in Chen Shu Qui's home is her TV. This tiny room is where she lives, in a
blighted neighborhood littered with abandoned homes. Poverty is still common in China. What's surprising about this is where it is.
[16:50:00] This neighborhood sits in the center of Shanghai, China's biggest city, an oasis filled with trash in the midst of a desert filled
with skyscrapers. For developers, it's a plot of opportunity, as property prices continue to soar. "We're so frightened," she says, "we have nowhere
to go." The local government sold this plot to a developer. Common practice in China where the government owns all the land. It gets tricky,
because they don't own the houses on top of that land. So the developer offers a compromise. Compensate people like Chen to leave. Only she says
what she's been offered, a small new apartment an hour outside the city, isn't enough. "I have more than 20 family members here," she says. "the
apartment isn't enough. Are we supposed to live on the street?"
Hearing this, her neighbor, in the dingy alley, pokes her head out of a window with no glass. The developer wants her and her brother to move too.
He's handicapped mentally and physically says Jung Yung Mi. "He can't sleep because he's afraid someone will take away his house." But she can't
take the apartment they offered because it's too far away. It would take hours to commute to work. So she and so many others here stay with acts of
defiance.
The character means "demolish" in Chinese. Someone responded with this one that just says "no." This graffiti says in part, "A case wronged for 32
years. where is the law, where is the communist party?" clashes between developers and homeowners persist continue across the country. And the
ruling party is keenly aware of the problem. It's pledged fair compensation for all, but homeowners say corrupt officials and greedy
developers are actually in it together. For all that choose to stay, one by one people are slowly leaving, for one reason or another.
RIVERS (on camera): This is what remains of the latest house that was torn down back in early May. Neighbors tell us that one night, a group of men
showed up. They weren't cops. They weren't government officials. But they wouldn't identify themselves. They took the family that was living
here and forcibly removed them from this home where they were staying. The next morning, they came back with some equipment and knocked the place
down. That family that was here is now staying with relatives. "If we don't leave, they'll tear the place down with force. They'll take us away
and break down the house with forklifts."
The developer wouldn't take our calls for comment on this story. The local government says they want to move the people to make their lives better.
For now, their lives are here. The clothes on the line, food being sold, a walk to visit a neighbor. It's abject poverty, but for this Chen and this
Jung, to this man in this woman, it's home. And its worth fighting for. Matt rivers, CNN, Shanghai, China.
(END VIDEOTAPE)
ASHER: It's been called a major victory for privacy rights. Microsoft takes the latest battle in its ongoing war against the U.S. Justice
Department. That's coming up next.
(COMMERCIAL BREAK)
[16:55:19] ASHER: A major victory tonight for Microsoft in its privacy battle with the U.S. government. An appeals court ruled companies do not
have to turn over data stored on servers in another country. The ruling said, let me show it to you, the Stored Communication Act does not
authorize courts to issue and enforce against U.S.-based service providers warrants for the seizure of customer email content that is stored
exclusively on foreign servers. However, this might not be the end of the case. There could still be more to come. Microsoft President and Chief
Legal Officer, Brad Smith joins us live now from Redmond, Washington. Brad, thank you so much for being with us. What do you expect, do you
expect the fight to go to the Supreme Court?
BRAD SMITH, PRESIDENT AND CHIEF LEGAL OFFICER, MICROSOFT: I think it's too early to know. I think we all have a choice. We can spend the next two
years arguing about the past. About what Congress intended when it passed this law that literally was enacted 30 years ago, or we can sit down and
focus on the future. That's what we want to do. We think the time has come for the White House, and the Justice Department, and the executive
branch, to sit down with Congress, let's craft the right kind of law for the technology that exists today.
ASHER: I'm just curious, Brad, what exactly this ruling means. Because we've seen other privacy battles from Silicon Valley. We saw the FBI
versus Apple in that San Bernardino shooter case. What does this really mean to other tech companies? Because no doubt they'll be watching this
closely.
SMITH: I think this case is important for the entire tech sector. There were many tech and media companies that weighed in in our favor. The
reason is this. We want to see people's privacy rights around the world protected by their laws as interpreted by their governments. In this case,
the U.S. government was trying to use its own search warrant on a unilateral basis to go get emails even when they belonged to people who
live in other countries, of other nationalities, even when we store those emails elsewhere around the world. So today's decision is an important
vindication for the rights of all people to have their privacy rights managed or protected by their own laws. It lets us in the tech center
provide global services in a way that assures we're sensitive to local needs.
ASHER: Brad, if there is international crime going on and data could provide useful evidence, doesn't Microsoft have a responsibility to help?
SMITH: I think you raise a very good point. And I believe we absolutely, as a company and across our country, have a responsibility to help keep the
public safe. And we do that every day. We respond to lawful orders from courts around the world. But what we want to see is a future where
governments respect each other's laws. We do believe we need new laws. We need new treaties. We need 21st century law that will enable governments
to work across borders. But they need to work in a way that ensures that governments work each other and not simply try to reach into each other's
countries.
ASHER: All right, Brad Smith, live for us there, thank you so much. We appreciate that.
That's it to all of our viewers at home for QUEST MEANS BUSINESS this evening. I'm Zain Asher at CNN center in Atlanta. The news continues on
CNN. Don't go away.
END
