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Quest Means Business
Kim Jong-un Arrives in Russia for Talks with Putin; U.K. Approves Huawei for Non-Core 5G Role; Disney Granddaughter Calls Out the Family Firm. Aired 3-4p ET
Aired April 24, 2019 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JULIA CHATTERLEY, CNN ANCHOR: Will another day bring another stock market record, we will find out this hour. It's Wednesday April 24. Boeing
safety crisis takes a huge chunk from the bottom line. We will explain why the shares are getting hit. Fighting over oil. Occidental is splashing
the cash in a bold takeover move of Anadarko and Huawei gets the tentative go ahead in the U.K. It's making Britain's security allies a little
nervous. I'm Julia Chatterley, this is QUEST MEANS BUSINESS.
A warm welcome once again to QUEST MEANS BUSINESS. It's a new day and markets are scrambling to try and eke out a fresh record high. We're in
the QUEST MEETS BUSINESS trading posts in the final hour of trade here on Wall Street. Gains we saw earlier on mostly gone. The NASDAQ just went
into record territory. It will take a late rally to beat Tuesday for a new record close, too for the S&P 500.
Investors are passing a deluge of corporate earnings today. AT&T missed and the stock is getting punished. Boeing, meanwhile, is holding in
positive territory, despite a huge miss in terms of the numbers. We will be digging through those more later on in the show and Caterpillar, of
course, a big bellwether for the global economy beat, but the stock is down because of continuing worries over China.
Coming up after the bell, the focus, of course then going to shift well and truly to the technology space. We'll get a look at Facebook, at Microsoft
and at Tesla, too.
All right, let's discuss what's going on here. Scott Wren is the senior global equity strategist at the Wells Fargo Investment Institute. Scott,
always a pleasure having you with us. How much emphasis should we be putting on at this stage fresh record highs to these markets, particularly
given the V-shaped recovery we've seen since the back end of last year?
SCOTT WREN, SENIOR GLOBAL EQUITY STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE: Well, Julia, clearly we've had a gigantic move higher here off
those Christmas Eve lows. And I think that it's doing it really for a good reason. But right now, I think the market is pretty close to fair value
for the risks that are still out there. And what I mean by that is, is you know, if we get a decent trade deal here, which the market is certainly
pricing in some positives there, if we see some stabilization, certainly in the Chinese economy, hopefully we'll see some in the Eurozone, I think the
market is starting to believe we're going to see some stabilization there instead of a continued slowdown in growth.
You know those things, that's what it's really going to take, in our opinion to get the market up over and sustainably over this record high. I
think, you know, earnings have just been part of this story probably really actually a minimal part of the story. You know, earnings are coming in
better than expected, we know the quarter is not going to be good, no matter how you look at it.
But really to get over this record high and to work its way a little bit higher for us, you know, we need a decent trade deal here and we need some
stabilization in the global economy.
CHATTERLEY: If we go back just a couple of months, we were talking about the potential for a global recession, earnings expectations that have come
significantly down. So the idea that we're having a conversation here about earnings beating expectations when they were so significantly
lowered, actually, for me feels pretty spurious. Here is an indicator of where we go next to. Would you agree with that?
WREN: You know, I really would and, you know, if you look at where, let's say the S&P 500 is, the market has been looking beyond this particular
earnings season for quite a while. And certainly, we want to hear what the outlook is. And certainly on a day-to-day basis, hour-to -hour basis, when
we see some good numbers or bad numbers from these high profile companies, we're going to get a reaction that lasts anywhere from a couple of hours to
maybe a day or two depending on what the what company it is that reports.
But when you look at the overall environment and you say, okay, the U.S., we're in a modest growth, modest inflation environment that's likely to
last for a while; global environment, hopefully stabilizing here and hanging in there. You know, valuations are not stretched for the S&P 500.
So given that, I think it's relatively easy to make an argument that the market you know, should at least hang in here, if not work its way a little
bit higher over the course of the next 12 months.
CHATTERLEY: Talk to me about the importance of technology at this stage because despite I think a lot of the conversations out there, this is the
one of the huge drivers as a sector for the markets in 2019.
[15:05:03] CHATTERLEY: There's a lot of expectation around what we get from some of the big names like the Facebook's, the Microsoft's, the
Amazon's of this world, too. How important is that? And given that, in hindsight, 2020, Q4 was a great buying opportunity. What are you saying to
investors about what they should be investing in today?
WREN: Well, you know, when the selloff occurred, we did step -- we had been neutral on technology. But in early December, we stepped into
technology. We felt like the valuations were there. And really, we've liked technology, which is 26% of the market cap, the S&P 500, industrials,
consumer discretionary, those cyclical kinds of names, and certainly for this market to work, its way higher, or even just to hang in here.
You need technology, not necessarily to lead but technology has to participate. We think technology will and if you look at some of the
earnings estimates just on that particular sector coming in, I think, if I remember correctly, the consensus was calling for, you know, 20 percent -
21 percent even decline in earnings, you know, Q1 19, versus Q1 18 in technology. That looks way too pessimistic to us and the results so far
are coming in, it would suggest that your earnings are going to be a lot better than that.
So we definitely need the technology sector to participate here. A lot of people think this has been a narrow run up from that Christmas Eve low, but
really, actually, I looked at it just yesterday and you have six of the 11 sectors that are really performing very well. So this has been a broad run
higher off that Christmas Eve low.
CHATTERLEY: Scott Wren, thank you so much for joining us and you have some happy customers if they followed your advice on technology at the beginning
of the year. Great to talk to you.
WREN: Pleasure.
CHATTERLEY: All right, so let's move on now and talk about some of our other top stories. Investors are finding out just how much Boeing's
problems with it 737 MAX fleets are hurting the company's business. The plane maker revealed a red drop in earnings, core profit for the first
quarter plunged 21 percent. Boeing also withdrew its guidance for the rest of the year and suspending share buybacks. It says there's simply too much
uncertainty at this stage.
Boeing shares a pretty much back where they started the day. Jim Corridore is an equity analyst at investment research firm, CFRA, he joins me now
from New York. Jim, great to have you with us. Always good to chat to you. The numbers here are one thing, the outlook here for getting those
Max 737 8 jets back into the sky is a whole another thing.
How comfortable do you feel having listened to the conference call, which I think was probably the most best attended conference call of the entire
earnings season? What do you make of it?
JIM CORRIDORE, EQUITY ANALYST, CFRA RESEARCH: Yes, Julia, I think that the company, increased my confidence that they are on the right track, at
least. While there's certainly no timetable as to when those planes are going to start flying again, probably mid-summer, but who knows. What's
more important is that the company is taking a very thoughtful, a very rigorous approach to how they're working to get this plane back in service.
They're trying to coordinate so that all regulatory agencies around the world allow the planes to start flying around the same time. They are
adding processes and different types of committees to make sure that safety is the number one priority, and they're working very hard to make sure that
when the plane comes back into service, not only is it safe, but that people believe it's safe.
CHATTERLEY: Do you think this is still simply a software fix that's required here? And that's obviously work in progress and they've got to
bring the FAA, of course, the regulators in the United States, but other regulators, international regulators on board with this, too? Are you
still convinced it's just that and perhaps there isn't some larger fixes required as far as engine positioning or broader hardware issues with this
plane?
CORRIDORE: Yes, there's nothing that I've seen that would make me think that the software fix is not going to work. Number one indicator for me is
that pilots throughout the United States knew about this issue, were well trained in how to overcome the maneuvering system, the MCAS system that was
our fault in these crashes. And that shows to me that, you know, the software fix, which is going to make sure that the sensors don't disagree
with each other and cause the MCAS system to engage should be sufficient to make sure that the system doesn't override pilot free will.
CHATTERLEY: So if we talk and just take a step back about the importance of the 737 fleet for Boeing, I mean, we're talking 30 percent of the
company's revenues, 35 percent of the profits, for this specific plane, 80 percent of the order book going forward, it's critical, of course, that
they get this right. How do they restore confidence for the flying public? Is this just something where you say, you know, actually, people have short
memories? And if the regulators say, it's okay, customers will be still willing to get on board. What do you think about that when you when you
look at the price here and the future for Boeing?
CORRIDORE: I think the number one thing is they have only one chance to get this right. There can't be any future incidents or their legacy and
their reputation will be forever tarnished. They get this one last chance has to make sure that they dot every I and cross every T and they seem to
be taking it very serious and rigorously.
[15:10:04] CORRIDORE: They're doing everything they can, according to what I have heard to make sure that when the plane comes back into service,
there are no further mistakes. And like I said, they only get this one more chance to do it right. And as long as they do, eventually the flying
public, as airlines continue to fly the plane and continue to tout the plane, the passengers will eventually come along as well.
CHATTERLEY: Ninety five percent of the cash that this company generates, they give back to investors, huge critical issue for the value of the
shares as well here, even with the suspension of stock buybacks and with no guidance right now about the future, you still think there's value in this
stock?
CORRIDORE: Yes, I mean, if you look at what the company did during this quarter during a quarter in which they ceased deliveries of the plane,
which they didn't get any further orders, and which they weren't able to book any revenues, or cash flows from the planes, they still generated $2.8
billion in cash, they still, while profits were down around 13 percent on EPS line, they were solidly profitable. They generated strong backlogs and
strong order flow from the defense side of the business, from the services side of the business and the 787 which is not under attack and not
grounded. So more orders and better margin. So there's a lot of things going right at Boeing right now. It's just clouded by the 737 issue.
CHATTERLEY: Jim Corridore from CFRA Research there, and Jim, thank you for putting up with my punchiness; as you can tell, I'm a frequent flyer.
Thank you.
All right, let's move on. Tesla will unveil its results after the bell today, investors are on edge. Elon Musk has already warned the company is
unlikely to turn a profit in the first quarter. Wall Street is expecting to see a loss of around $1.15 a share.
Meanwhile, one of Tesla's technology rivals just got a big boost. Ford just announced that it's taking a $500 million dollar stake in Rivian
automotive. The tie-up will include plans for the two companies to co- develop a new plugin electric truck. This after Amazon unveiled its plans to invest in Rivian earlier this year.
Now I spoke to Rivian's CEO before that announcement, and I asked him what makes the brand and his technology stand out.
(BEGIN VIDEOTAPE)
RJ SCARINGE, CEO, RIVIAN: The most important question of why do we exist? What gives us the right to exist as a company? So if you think about the
vehicle space, and for that matter of the electric space, there's a lot of vehicles -- SUVs that don't necessarily invite activity, they're not
comfortable getting dirty, you know, throwing the kids, the dog, the gear in the back. So we want to do is combine electrification with products
that are designed at their core around activities around adventure.
CHATTERLEY: Functional.
SCARINGE: Getting dirty, exactly.
CARLSON: So you think that's what sets you apart, more the interior than necessarily versus the performance.
SCARINGE: Well, every aspect of it. So when I say they're comfortable getting dirty, comfortable being used, they can go on road, they can go off
road. On road, they're great. So the vehicles is zero to 60 miles per hour acceleration in three seconds. Off road, the way we've set up our
drive trainers, we have four motors; two per axle, one per wheel, so we can precisely control torque at each wheel.
So it allows us to be incredibly stable in any condition -- snow, sand, off road, on road -- and then we combine that with a chassis, with a suspension
system that makes the vehicle really comfortable and really fun to ride.
CHATTERLEY: It's so interesting. I mean, I grew up with Range Rovers, that's what we had. Would you say that's kind of the equivalent
competition? It's another question that people ask.
SCARINGE: It's what we're most often compared to from like a chassis point of view or vehicle dynamics point of view. We want to accomplish those.
We want to exceed any other vehicle in terms of offered capability, but do that without any compromise in terms of on road drivability.
So incredible on road performance, sort of the best in the world off road performance, but it's something that's really efficient and you can use
every day.
(END VIDEOTAPE)
CHATTERLEY: CEO of Rivian there. All right still to come, it's a Texas- sized deal. Occidental ignites an old fashioned showdown over Anadarko petroleum. And who will succeed Mark Carney, the Bank of England's needs a
new head to steer there economy through Brexit? Good luck with that. We'll discuss after this.
(COMMERCIAL BREAK)
[15:16:42] CHATTERLEY: It's a bidding war for the frontier, two rivals duke it out over Texas oil territory. Big producers are battling to take
over Anadarko Petroleum and its shale, all producing holdings in the Permian Basin.
Occidental Petroleum came to the table today with an offer that values Anadarko at $57 billion, including debt. If it wins, it will bulk up its
oil output to 1.4 million barrels a day. The bid comes less than two weeks though after Anadarko reached a deal with Chevron worth $47 billion.
Anadarko stock is up around 12 percent in this session.
CNN's Matt Egan joins me now, Matt, great to have you with us. There you are. It's a case of if first you don't succeed, try, try, try again. And
with this final bid here from Anadarko Occidental, they are really meaning business. Talk me through it.
MATT EGAN, CNN BUSINESS LEAD WRITER: So Anadarko Petroleum is suddenly the hottest name in the oil industry. This offer coming from Occidental
Petroleum this morning, if it was consummated, this will be the fourth biggest oil and gas deal in history and the biggest in about four years.
Now the bidding war really puts an exclamation point on the shale oil boom. Oil companies are simply desperate to get their hands on land in the
Permian Basin, which is that West Texas shale oil field that has catapulted the United States to the top of the global leaderboard in terms of oil
production.
Now if this deal happens, Occidental said that it would be still would be the number one producer in the Permian Basin with more than half a million
barrels a day of oil production there.
Of course, this isn't only about the Permian Basin though. Anadarko also owns shale assets in Colorado. It has deep water drilling properties in
the Gulf of Mexico, and it's a big player in LNG as well where it has a project in Mozambique. If you put it all together, analysts told me today
that Anadarko really has an amazing portfolio and it's one that wasn't really getting enough value from Wall Street, which of course is what made
it an attractive takeover target.
This afternoon, Anadarko put out a statement saying that its Board of Directors will meet with bankers and lawyers to carefully review this new
proposal from Occidental to see if it really qualifies as a superior proposal.
Chevron on the other hand has been silenced so far as the number two oil company in the United States. Chevron does of course have the firepower to
sweeten its bid should want to, so Julia, it's possible that this bidding war is just getting started.
CHATTERLEY: And I think you make a great point, Matt, and I think we have to compare. Chevron super oil giant with the size of Occidental here. I
mean Chevron is four times the size. So they have real power here. And I know a number of analysts have come out today, the likes of Key Bank saying
don't get into a bidding war with Chevron here because you could end up paying too much, even if they are great assets here. What's the risk of
that? That simply Occidental is just paying too much?
[15:20:05] EGAN: That's right. So some analysts are coming out and already saying that it's possible that Occidental is adding too much to
value Anadarko, and what you could have is a situation where the new company doesn't have enough resources, doesn't have enough cash, maybe it's
got too much debt to really then spend all the money it needs to, to develop all those assets that just acquired in the Permian Basin.
Chevron, on the other hand has a larger balance sheet. It's actually been very aggressive with share buybacks. So you never know, there could be a
situation where it could turn off or maybe slow down at share buybacks and putting that money more towards investing in the future by acquiring
Anadarko. Well, have to wait and see what happens there.
CHATTERLEY: Yes, let's watch this and see what Chevron does. Matt Egan, great work. Thank you so much for that.
All right, let's turn to Europe now. Stocks ended at mostly lower. That was as oil prices that gave up some gains that they made on Tuesdays
session, some higher inventory data having an impact there. Germany's Xetra DAX index got a boost from a surge in SAP. The software firm's that
shares jumped when activist investor Elliott Management disclosed a $1.3 billion stake in the company and that's the picture as you can see Europe.
All right, Help Wanted. A candidate of the highest caliber, quote "to help manage the financial fallout from the U.K.'s Brexit drama, and steer the
world's fifth biggest economy through it." The salary 480,000 pounds or $621,000.00. Significant? Yes?
The UK has started at the search to replace Mark Carney as head of the Bank of England. Anna Stewart takes a look at some of the possible criteria.
ANNA STEWART, CNN REPORTER: Well, Julia, you have six weeks to get your job application in. For the first time ever, the government is actually
going to be using a recruitment agency, Sapphire Partners to help select the next Bank of England governor. That will ensure that a really wide
field of candidates are considered and are going to have a focus on diversity as well.
Now let's take a look at what this job actually entails. Salary: $620,000.00. Duration: Eight years. Although, the Chancellor today did
say that the right candidate could take a shorter term like Mark Carney did. Necessary qualities: The ability to use sound judgment to make
decisions in a timely manner against a background of uncertainty.
While there are plenty of potential candidates from within the Bank of England, Deputy Governors -- Ben Broadbent, there's Jon Cuncliffe, there's
Dave Ramsden, there's also the very vocal often controversial chief economist, Andy Haldane. But take a listen to what the Chancellor said
about the candidate he's looking for today.
(BEGIN VIDEO CLIP)
PHILIP HAMMOND, CHANCELLOR OF THE EXCHEQUER: As well as having someone who can do a first class job at home. We have someone who commands respect in
the international arena.
(END VIDEO CLIP)
STEWART: Which perhaps suggests another candidate from outside the U.K. Now, one name that is getting plenty of mention today in media reports is
the former Governor of India's Central Bank, Raghuram Rajan. He has also worked at the IMF.
While it is a very prestigious job, it is not without its challenges. Firstly, the Central Bank Governor is going to have to navigate the world's
fifth biggest economy through potential financial and economic turmoil post Brexit. Two, they're going to have to dodge plenty of political traps.
Mark Carney has been accused several times of political bias over his warnings about Brexit. And three, I know the salary looks good,
$620,000.00, but actually does is the exact same salary that Mark Carney started on in 2013, which suggests that the Bank of England is not keeping
up with inflation.
And actually using their own online inflation calculator, I can tell you that that figure with inflation added should be near as $700,000.00. Those
are helpful hints for any would-be candidates when it comes to the salary negotiations. Back to Julia.
CHATTERLEY: Nice work from Anna Stewart there if someone needs to negotiate a bit of an extra addition to that salary, I think. Let's move
on.
We are seeing law enforcement target big pharma the way it would street dealers, hauling off one distributor in handcuffs and charging the owners
of another pharma giant just hours ago.
CNN's Jean Casarez joins me now. Great to have you with us today.
JEAN CASAREZ, CNN CORRESPONDENT: Thank you.
CHATTERLEY: Talk me through this story. What exactly happened today?
CASAREZ: Well, this is huge because this is the first time ever in American jurisprudence, and it's the Southern District of New York Federal
prosecutors that they are criminally charging a pharmaceutical distributor and their executives with crimes. And the pharmaceutical distributor,
obviously purchased the medication, the drugs from the manufacturer, and they then sell it to pharmacies all over the country.
And what prosecutors are saying is that this corporation and the CEO knew that they were distributing these medications to pharmacies and people that
did not need the drug, that they should not be using the drug, had no legitimate interest.
[15:25:10] CASAREZ: And it also -- of course, it's a fiction, right, to charge a corporation. They can't go to prison. But when you're talking to
the CEO, and Laurence Doud is the CEO, 75 years old. He has been charged with conspiracy to distribute controlled substances just like a drug dealer
on the street, right, and conspiracy to defraud the United States facing life in prison. And this is a first of its kind.
Now, Mr. Doud, his attorneys respond, saying that, "Mr. Doud has been framed. In no uncertain terms, the government has it all wrong and has
been used by others to cover up their wrongdoing. Mr. Doud will fight these false charges to his last breath, he will be vindicated."
But let's look at the profits that the prosecutors are saying this company made and it's from 2012 to 2016, oxycodone tablets grew at the company from
$4.7 million to $42.4 million, an increase of approximately 800 percent. Fentanyl grew from 63,000 doses to over 1.3 million, an increase of 2,000
percent. And they say that the company had knowledge.
They looked at these pharmacies, no response yet on what's going to happen to pharmacies, but they saw them paying out cash to vendors and to doctors,
doctors that did not even cover prescribing these types of opioids. They were getting the drugs and just the knowledge was there.
CHATTERLEY: I mean, the way that we've looked at this before is that we said look, doctors are writing scripts for things like oxycodone and
fentanyl and doing it prescribing far stronger pills than they should at this stage. What you're saying is now we're looking at the top down and
trying to get some responsibility from some of the big pharmas. Do we see a reaction? Will we see a reaction from some of the all the big companies
and they have to look at what they've been doing and go, actually do we now need to start taking measures and be very clear about who we're
distributing these drugs to?
CASAREZ: Right and I may say the compliance officer already pleaded guilty to this company, but you're talking about the DEA -- the Drug Enforcement
Agency of the United States saying you all, you need to take notice of this this because what has just happened here a case of first impression could
happen again.
CHATTERLEY: Yes, a warning being sent. Jean, great to have you.
CASAREZ: Thank you.
CHATTERLEY: Thank you so much that. All right, we're going to take a quick break here on QUEST MEANS BUSINESS. Up next, Britain's 5G compromise
on Huawei and what it means for the Five Eyes intelligence Alliance. That's coming up. Stay with QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
[15:30:00] JULIA CHATTERLEY, HOST, QUEST MEANS BUSINESS: Hello, I'm Julia Chatterley, there's more QUEST MEANS BUSINESS in a moment. When the U.K.
elects Huawei to play a part in its 5G network, we'll explain why that's making the U.S. nervous.
And the unhappy "House of Mouse", Abigail Disney ramps up her fight for fairer pay at Disney. Before that though, the headlines at this hour. A
new released video shows two men with backpacks walking through the Shangri-La Hotel in Sri Lanka moments before the deadly Easter bombings.
India says it warned Sri Lanka three times before the attacks of a potential suicide bombing against churches and tourist spots. And Sri
Lanka's city, Muslim community say warned officials about increasing extremism for the past three years.
North Korean President Kim Jong-un has arrived in Vladivostok ahead of Thursday's scheduled summit with Russian President Vladimir Putin.
President Kim says he expects to discuss bilateral relations and what he called the situation on the Korean Peninsula.
British and Irish leaders were in Belfast earlier to mourn the death of a prominent Northern Irish journalist. Twenty-nine-year-old Lyra McKee was
shot and killed while covering riots in Londonderry, also known as Derry last Thursday. The New IRA later apologized for what it calls an accident.
A spokesman for the company that was doing renovations on Notre Dame Cathedral says workers smoke cigarettes on the site, even though it was
against the rules. But he refute claims that this may have been a reason for the blaze.
He noted that the fire started inside the spire and no one was there when it happened. All right, let's continue the spooks. The U.S. and U.K.
could end up in an espionage brawl(ph) over Huawei. And that's because China's telecom giant is getting the go ahead to help Britain build their
5G networks but with conditions.
It is banned from sensitive parts of the project, the U.S., however, still does not like it. The U.K. though says it's on top of it.
(BEGIN VIDEO CLIP)
JEREMY FLEMING, DIRECTOR, U.K. GOVERNMENT COMMUNICATIONS HEADQUARTERS: A flag of origin of 5G equipment is an important, but it is a secondary
factor. When we analyze a company for their suitability to supply equipment to the U.K.'s telecom networks, we're looking at the risks that
arise from their security and engineering processes.
(END VIDEO CLIP)
CHATTERLEY: There are worries though especially in Washington that Huawei's gear could add to this cyber Trojan horse for the Chinese
government. Ciaran Martin is the CEO of Britain's National Cyber Security Center, its parent is GCHK, I got my teeth in, he told my colleague Nina
dos Santos why the U.K. isn't really sticking its neck out.
(BEGIN VIDEO CLIP)
CIARAN MARTIN, CHIEF EXECUTIVE OFFICER, NATIONAL CYBER SECURITY CENTER, BRITAIN: It's not all about Huawei, Huawei's potential involvement is one
important part of it. But in the last two and a half years since the NCSC was set up, the most serious attack on the U.K. telecommunication sector
was a Russian attack on a U.K. telecom's company that involved no Chinese kits and no Huawei.
So, we have to build systems and networks that are resilient to all attackers.
NINA DOS SANTOS, CNN CORRESPONDENT: But is there a good enough answer really here? I mean, one British member of parliament who sits on the
Foreign Affairs Select Committee has said that this decision if the U.K. were to grant Huawei the ability to have a limited participation in the 5G
network is short sighted and has effectively a cyber Trojan horse.
I mean, the point they're making is that this could be a back door for espionage and a back door for disruptive activity.
MARTIN: I'll make two points. The first is the decision whenever it is, will quite properly be announced in front of parliament by the Digital
Secretary Jeremy Wright. And at that point, we'll be able to say a lot more about this sort of underlying analysis of whatever decision it is
taking.
But I'm confident that it will give us the sort of framework we need for resilient and safer 5G systems.
[15:35:00] The second point to the so-called Trojan horse analogy is about the way these networks work. And we've set out very transparently, very
objectively using the best of offensive from defensive to execute expertise whole 5G security needs to work.
One important point is that any piece of kit can be vulnerable, nothing is invulnerable. So whether it's flagged from a particular country, wherever
the supply chain from or his western supply comes from, you have to assume the parts of kit can be compromised.
And you've got to build the defenses accordingly. So it's a really complicated set of issues, and we've started out expertly and technically
and we'll do so in the future.
DOS SANTOS: Those are the operational technicalities, but when we're talking about the ownership structure of the company and its links to the
potential links to the government, that puts you in a whole different paradigm, doesn't it?
MARTIN: Well, when one speaks of Huawei, it's worth remembering that the U.K. has been managing through GHQ(ph) and literally the National Cyber
Security Center's part to use HQ(ph). The U.K. has been managing Huawei's controlled presence in the U.K. for more than 15 years.
And that is not done on the basis of trusting the company or trusting its governments, it's done on the basis of verifying -- it's done on the basis
also of looking at the way the networks are built, looking at the way they're monitored so that we can make sure that, that sort of disruption,
whether from China or from anybody else because anybody could attack regardless of the supplier and cannot happen in a way that would cause
large scale national harm.
(END VIDEO CLIP)
CHATTERLEY: The U.K.'s decision may set up a rift with its key intelligence partners, the alliance known as the 5is. New Zealand and
Australia have banned Huawei's equipment from their 5G networks. Canada is considering the same, the United States is leading the campaign.
In February, it even warned it would not share information with countries that use Huawei's technology. You just heard from the head of Britain's
Cyber Security Center. We're now joined by the former director of the U.S. equivalent. Joining me as well Beckstrom; he's formerly of the U.S.
National Cyber Security Center. Rod, fantastic to have you on the show.
What's your view on what --
ROD BECKSTROM, FORMER DIRECTOR, ICANN: Thank you --
CHATTERLEY: The U.K. has decided here. Are they making a strategic mistake in working with Huawei here in 5G networks?
BECKSTROM: OK, so we'll delve into this for a second. I think it's easy to say it's a mistake or not. It's a complex issue and it involves
intelligence issues, it involves trade issues, and it involves resilience and network security issues of can you actually keep a network up and
running?
To give a little context here is, these switches are like the spinal cord of the nervous system of the internet. So they're right inside the
backbone, they're very critical. And the concern here is that another hostile government might be putting in Trojan horses or what we call back
doors.
So yes, that's definitely possible. But as your director in the cyber security center in the U.K. said, everything is vulnerable and anything can
be hacked. So it's not clear that the network is going to be less secure because of its decision.
CHATTERLEY: I mean, one of the beauties of 5G technology, though, is that things speeds, internet speeds will be quicker. There's going to be
greater connectivity --
BECKSTROM: Yes --
CHATTERLEY: Everything is going to be able to talk to everything else --
BECKSTROM: Exactly --
CHATTERLEY: That much more quickly. If I refer you to your own law, Beckstrom's law, you say anything connected can be hacked, everything is
vulnerable --
BECKSTROM: Yes --
CHATTERLEY: Simply just by being connected. So just by inference, if we're talking about greater connectivity, we're talking about greater
vulnerability. Can we mitigate --
BECKSTROM: Precisely --
CHATTERLEY: Those risks?
BECKSTROM: Well, you know, as your director talked about, you want a layer on defenses. The reality is, they suffer systems inside the switches.
First, there's billions of like literally transistors inside those switches in the very chips and semi-conductors.
And there's millions of lines of source code, and any of those might be tampered with, to make the devices vulnerable. Not only to the host
government or the government that the company comes from in this case, China. But other governments might as well be trying to put in back doors
or their own Trojan horses.
So in a way, it's a bit of a tip of the hat of the American Intelligent services towards the Chinese, to say that they're concerned. But if Huawei
sells these, that they're so well, you know, battened down from their security standpoint, that they're hard to penetrate from you know, from
other perspectives.
But -- so it's a very complex issue. And I can make an argument, Julia, that having a mixture of switches and technology providers in the 5G
networks will make it more resilient for the U.K. or any other government. Because intelligence is not the only issue here.
I mean, everyone is spying on everyone. That's what goes on.
CHATTERLEY: Given --
BECKSTROM: And this is part -- this is -- yes, this is a given, and that's -- this is part of the environment. But the reality is, we can't say that
-- I mean, the network is more resilient if it's got more different providers that are there, that have put the solution --
[15:40:00] CHATTERLEY: So I can --
BECKSTROM: To support it. Because in --
CHATTERLEY: I can make another --
BECKSTROM: Yes --
CHATTERLEY: Argument here, and you hinted us that --
BECKSTROM: OK --
CHATTERLEY: In your first answer, and that was, there are trade relevancies here too. What's the likelihood that when we ultimately see
some kind of deal between the United States and China that there's some carve out here for Huawei, and the United States suddenly decides that, you
know, it's OK, we can work with Huawei and actually than the U.K. looks really smart?
BECKSTROM: Yes, exactly right, Julia. I mean, there's a hardcore trade negotiation going on between the U.S. and China. You could say it's a
trade war, and clearly, this is -- this is one chip in negotiations, it does have a place there, and I think it's likely to come out as part of the
solution one way or another.
And obviously if you're Trump and you're trying to play the American side and holding those cards, you want to keep them out of as many markets as
you can and then try to negotiate a concession later for example. I'm not saying that's what he's doing, he owns his own strategy, but that is a
plausible scenario.
CHATTERLEY: Yes, you can say it, I don't mind, Rod Beckstrom, thank you so much for joining us though and being such a diplomat.
BECKSTROM: Right --
CHATTERLEY: OK, let's move on. We just spoke to Hungary's Minister for Foreign Affairs and Trade. The country has shrugged off the U.S.' security
concerns about Huawei. Peter Szijjarto said Hungary wants more trade with China and it's hypocritical for other EU nations to try and get in the
way.
(BEGIN VIDEO CLIP)
PETER SZIJJARTO, MINISTER FOR FOREIGN AFFAIRS & TRADE, HUNGARY: When I reached out to -- about the situation of Huawei in Hungary. You know,
which other two companies -- which countries contacted Huawei in Hungary?
Deutsche Telecom from Germany and Vodafone from the United Kingdom. It's not Hungary from which China buys 300 aircrafts, you know. So when you --
when you speak about the China-Europe cooperation, please speak to my western European colleagues because we Hungarians are interested in a good
cooperation with China because they represent state of the art technology and we're happy that some of their investments come to Hungary.
RICHARD QUEST, CNN: I've known Huawei, you're going to follow -- you've been warned not to do any business with Huawei.
SZIJJARTO: As the Germans and the British because they make business with Huawei in Hungary. And I can tell you that in Hungary, irrespectively,
from which country you come as a company, you have to respect national legislation. If you do respect it, you'll find corporate --
QUEST: But then the -- when the U.S. warns, don't do business with Huawei or you will have trouble doing business with us. Hungary stands in a
difficult position.
SZIJJARTO: No, because it's not Hungary to make business with Huawei. It's the German Deutsche Telecom and the British Vodafone who makes
business with Huawei in Hungary. We're happy with Huawei's operation in Hungary because you know what they do there? They have a logistic --
QUEST: Right --
SZIJJARTO: Hub for the export towards the western part of Europe, you know.
(END VIDEO CLIP)
CHATTERLEY: All right, join us tomorrow night because you can hear more from the foreign minister, his thoughts on George Soros' immigration and
European elections right here on QUEST MEANS BUSINESS. Now, we're going to take a quick break, but coming up, a Disney descendant voicing her dissent.
What she says is wrong with the "House of Mouse" next.
[15:45:00] (COMMERCIAL BREAK)
CHATTERLEY: Welcome back to the show. A strong op-ed in the "Washington Post" today by Abigail Disney, saying the House of Mouse is widening
America's already enormous income inequality. Roy Disney's granddaughter has criticized CEO Bob Iger's salary.
Now, she's recommending the company gives half of its executive bonuses to its lowest paid employees. She writes, "it's time to draw a line in the
sand about how low we are prepared to let hard-working people sink, while top management takes home ever more outrageous sums of money."
We want you to join the conversation, get out your phone and go to cnn.com- slash-join. Tonight, we're asking you, should Disney executives give up part of their bonuses to share with their employees? Go to cnn.com-slash-
join and vote now, you'll see the results live on your screen that we want to hear from you.
Cristina Alesci joins me now. Cristina, there's never been a more topical time to hit on this inequality, a push back against capitalism, and what's
fueling it, ultimately in terms of wage gaps here?
CRISTINA ALESCI, CNN CORRESPONDENT: Absolutely a timely topic, absolutely on the lips of almost every single Democrat, 2020 contender --
CHATTERLEY: Yes --
ALESCI: What she basically calls is what Abigail Disney calls Bob Iger's pay is making indecent fee --
CHATTERLEY: Yes --
ALESCI: Which is a pretty, you know, inflammatory term to use. She said that he brought home $65 million last year, and that's 1,400 times the
average for the typical Disney employee. Which is just astounding, but for those of us who cover income inequality for a living, we have seen
these kinds of numbers before.
We know that income inequality is spiking here in the U.S., what's unusual about this is, this is the granddaughter of the company's co-founder
calling out the company, and she's making an argument that Disney may have -- has to meet a higher standard because it's Disney.
So, I think the case is getting a lot more attention because of those factors. But I also think that this is going to become a problem for many
companies. And as they become individually targeted, you're going to see this conversation come up time and time again.
CHATTERLEY: I mean, she also made an interesting point, I think, comparing the $1,000 bonuses the individuals received in 2018, versus the $3.5-plus
billion worth of buy backs. And that was interesting to me too because she's a small womp, she's a shareholder, so she's also saying, look, I
would rather you buy less stock, see me less wealthy perhaps, because I've got enough than actually you give employees more money. So, she's making a
very strong point here.
And with her, that kind of rhetoric as well from the left --
ALESCI: Yes --
CHATTERLEY: In this country --
ALESCI: Yes, I mean, she's making a very sympathetic simple argument --
CHATTERLEY: Yes --
ALESCI: Which is, look, the buybacks and the tax cuts that the Congress passed this year, really the bulk of the benefit went to the wealthy and
shareholders. And you know, although Disney's buy-backs were actually less in 2018 versus 2017. It's still -- to your point --
CHATTERLEY: The principle there --
ALESCI: An astounding amount of buy-backs, and that does flow disproportionately to benefit the wealthy because they are the ones who
owns stocks for the most part.
CHATTERLEY: What's Disney saying?
ALESCI: Disney is saying that they've increased pay, that they take care of their workers, I was just on the phone with the company. You know,
they're pointing to benefits and non-salary data points that they're -- that they say shows that they care about their employees long term health,
their education.
But I think for the most part, big companies like Disney are going to have to do a lot more in order to address this very hot button issue.
CHATTERLEY: The starting salary at Disney is $15 I believe an hour. So it's more than double the federal minimum wage. So, I guess we can hand
them that point, but I just think this is a voice that we listen to because she's connected to the family, the founders of Disney, of course.
[15:50:00] ALESCI: Yes, and she says -- she says it's not enough because the cost of what you have to factor in the cost of living --
CHATTERLEY: Yes --
ALESCI: And where the jobs are, right?
CHATTERLEY: Yes --
ALESCI: Maybe $15 is great in, you know, Ohio, but in California, maybe not. So, going back to his arguing --
CHATTERLEY: Go back to 1978, the typical average CEO made about 30 times the average worker. A lot of bells are ringing here for me too, and now
it's almost a 1,000 times.
ALESCI: Yes --
CHATTERLEY: That's an alarming number. All right, let me have a look at the vote now. According to those of you voting on cnn.com-slash-join, most
of you think Disney executives should give up parts of their bonuses, about three-quarters of you agree with Abigail Disney's plans. So a three-course
of you saying give up some of those bonuses, guys. Make sense --
ALESCI: Yes, totally.
CHATTERLEY: Which surprises us, Ohio. Some executives watching this show, clearly --
ALESCI: Of course --
CHATTERLEY: Cristina Alesci, thank you so much --
ALESCI: Of course --
CHATTERLEY: Up next, the future of France's most prestigious school lies in the hands of its most powerful former student. Will the president
sacrifice his alma mater to pacify Yellow Vest protesters. We'll discuss, stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to the show. And to France now where media reports say President Macron wants to abolish the elite school where he got
his education. And it's not only his alma mater, it's also famed for training presidents, prime ministers and chief executives. Melissa Bell
reports.
(BEGIN VIDEOTAPE)
MELISSA BELL, CNN CORRESPONDENT (voice-over): It's an institution that has near mythical status in France. But according to the French press,
Emmanuel Macron may be about to announce one of his most radical moves yet, by abolishing the Ecole Nationale D'administration or ENA created by
Charles de Gaulle in 1945, the elite school has since educated nearly half of France's presidents and prime ministers.
Jacques Chirac, Francois Hollande, Alain Juppe and Dominique de Villepin, countless ministers have also managed to join the 100 students annually who
get through the notoriously difficult entrance exam. As have France's top CEOs, like Societe Generale's Frederic Oudea and the CEO of Orange Stephane
Richard.
The institution was created to open access to the highest spheres of France's civil servants to the cleverest rather than the richest. In the
past, Emmanuel Macron has praised it for allowing him, a boy from the provinces to make it to the top. But it has become in France a synonym for
elitism.
[15:55:00] On Monday, the French president spoke to the cameras about the fire at Notre Dame. He had been due to make another address entirely,
about measures to address the grievances of the Yellow Vests.
On Saturday, and despite the leaks of those measures, 9,000 Yellow Vests were back on the streets of Paris, protesting for the 23rd Saturday in a
row. Their numbers smaller than they were to begin with, but their demands more radical and their mood more revolutionary. None that we spoke to were
interested in the future of ENA.
CNN reached out to the government, but it declined to comment on the future of the institution. Matthias Fekl is a former minister and graduate of
ENA.
MATTHIAS FEKL, FORMER FRENCH INTERIOR MINISTER: Yes, there was a problem(ph), showing that almost two-thirds of French citizens were against
abolishing it. They want to reform it, they want a more modern ENA, a more open ENA, more international ENA, more socially representative ENA, but
everybody knows that you have to form the elite, and it's better to have an elite based on meritocracy.
BELL: Already, the move is being criticized as sheer populism and yet too far removed from the concerns of ordinary people whose economic
difficulties have led to so much social unrest in these last months. Melissa Bell, CNN, Paris.
(END VIDEOTAPE)
CHATTERLEY: I'm not sure that's going to appease them. All right, there's just moments left to trade on Wall Street, we'll have the final numbers and
the closing bell right after this.
(COMMERCIAL BREAK)
CHATTERLEY: We're in the last few minutes of trade on Wall Street, the Dow, the S&P and the Nasdaq all a touch lower, no fresh records today. You
can take a quick look at what's going for the Dow 30 in particular because all the focus today was on Boeing and what they said.
Stop relatively flat despite reporting dismal earnings, suspending their share buybacks of course, and now providing no clear guidance. Core profit
for the first quarter plunging some 21 percent too, the company of course dealing with the safety crisis with its 737 Max 8 jet.
Caterpillar, of course a big bellwether as well, those earnings beat lowered expectations admittedly, but the stock is struggling a little bit
over concerns over slowing growth and stimulus of course, what happens there in China. The attention meanwhile now turning to tech after the
closing bell, we'll be getting results from the likes of Facebook after another quarter mauled by scandal.
(BELL RINGING)
Microsoft, investors also looking at the cloud part of the business, and Tesla of course, trying to calm results weaker than expected.
END
