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QUEST MEANS BUSINESS

Big Bank Bonuses Are Back; Interview with Ronald Arculli

Aired August 18, 2009 - 14:00:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


RICHARD QUEST, CNN INTERNATIONAL ANCHOR: Greed is back. The leader of one of the world's top exchanges tells me the bonus culture has returned. Hacked off, three men charged with stealing more than 100 million credit cards. Tonight, live from Hong Kong, I'm Richard Quest. And yes, I mean business.

Good evening. To your typical banker, a big bonus isn't a greatly accepted thing for a job well done, it's a natural right of passage, something they're entitled to simply for turning up. It's going to take more than the near collapse of the world's banking system to get rid of that culture and change that attitude.

Just when we thought execs had been shamed into giving up the bonus as a right, they're back with a vengeance. And governments, it seems, regulators, anyone, including shareholders, perhaps, seem powerless to do anything about it.

Or should they leave pay to the free market? If someone is prepared to pay it, someone else will accept it.

My guest tonight tells us that the bonus culture is back and it's causing a tug-of-war with policy-makers. Ronald Arculli is the chairman of the Hong Kong Stock Exchange. It operates Asia's third-largest single market. I met him at the exchange hall here in Hong Kong.

Despite all that has taken place, he told me the bonus culture is back, and not surprisingly, he's (INAUDIBLE).

(BEGIN VIDEOTAPE)

RONALD ARCULLI, CHAIRMAN, HONG KONG EXCHANGES AND CLEARING LIMITED: I think there is a bit of a tug-of-war between the policy-makers in the different governments and the, you know, financial markets. I think if you look at the financial markets, particularly in America, you see that, you know, the financial houses are back to their old habits of, you know, huge bonuses.

You know, setting aside 30, 40 percent of their income for bonuses at the end of the year. Well, clearly bonuses only come about when you, you know, make money. And you make money, it depends on whether -- on your traditional business, or you punt (ph), you know, your capital.

QUEST: You're in touch with these bankers on a daily basis. What is it that they don't understand about what went wrong and what they did wrong?

ARCULLI: I think the system allows them to do it. I think that's the tussle between the policy-makers and the bankers and the brokers. You know, there is nothing in place on a check and balance. You would have thought that the board of directors would do it.

But you know, in any large company, and particularly in financial institutions, you do not have a single majority shareholder. So management is really professional, or so they should be. And it is -- they have limited ownership in the business.

QUEST: You're verging on wanting to say that they've not learned their lesson.

ARCULLI: I would say it. I don't think they have. I don't think some of them have. I think some of them have, but some have not.

QUEST: If that is right, they are destined for a phenomenal backlash.

ARCULLI: I don't know, you know, greed is a powerful thing in this world. And money, you know, feeds greed.

I think you haven't got a bad system in England in the sense that I think up to a certain level -- or beyond a certain level shareholders actually have to approve remuneration or packages, you know, to executives.

You know, if the board, you know, wants to put forth a certain package to the shareholders, that might be the answer. I don't like governmental interference, if it can possibly be avoided, because, you know, I don't think capitalism should die or should be dead because, you know, we can't think of a way as to how to better, you know, govern and better manage our financial sector.

(END VIDEOTAPE)

QUEST: And we'll hear more from Ronald Arculli, the chairman of the stock exchange, a little later in the program on the question of economic growth and why the market -- especially here in Asia, why the markets are rising so sharply.

Staying with bankers' bonuses, and some bosses at the U.K.'s top 100 companies, are still collecting bonuses worth 90 percent of their salary, according to new research by Hewitt New Bridge Street paid consultancy.

Around the world, policy-makers and government have decided it might just be time to get tough. For instance, in the U.K., (INAUDIBLE), the U.K. finance minister, Alistair Darling, says he is prepared to change the law to strengthen and toughen the system. He doesn't want to see bankers rewarded for taking excessive risks.

In France, Christine Lagarde says she is against guaranteed cash rewards for bank executives. Germany says it will make bankers who take unjustifiable risks, repay their bonuses. The financial watchdog (INAUDIBLE) blames the compensation system for making the financial crisis much worse.

And in the U.S., President Obama -- well, there, there is a pay czar to keep an eye on things. Kenneth Feinberg told reuters.com he has the authority to claw back money already paid to top executives that have received taxpayers' money.

The bonus culture very much alive and kicking on Wall Street. Susan Lisovicz joins us from New York, from the stock exchange. We'll get to the markets in just a moment. Let's continue talking about the bonus culture: AIG, once again back in the news on this subject, and other companies' banks too?

SUSAN LISOVICZ, CNN FINANCIAL CORRESPONDENT: Yes, greed is back in Wall Street in so many ways, including the market. But, yes, I think it's one of the difficult things -- one of the many difficult things that the pay czar, Kenneth Feinberg, has to consider.

The incoming AIG chief executive, whose name is Robert Benmosche, is going to get an annual salary of $7 million. The Wall Street Journal quotes him as saying that he said that this has to be resolved quickly and otherwise he wasn't going to come into the job, which a stark comparison to his predecessor, remember, Edward Liddy, who was making a dollar a year and received all sorts of grief when he wasn't even at the helm when a lot of the problems at AIG occurred.

You know, and, Richard, this isn't the only instance. We have at Citigroup a couple of traders who -- one of them, Andrew Hall, was just under $100 million. That package was compensated before the moratorium on huge payouts could really be received.

So, you know, there is this big debate, Richard, that, you know, the most valuable resources for any financial company walk out the door at the end of trading, those are the people. And that those people are going to go elsewhere, to other companies, other sectors that will pay them well.

But it's hard for a lot of us normal people to understand when we're - - in fact, our tax dollars are paying to support these very same companies.

QUEST: Susan, we'll leave it on that bonus point for a moment. Could you -- bearing in mind the way the markets have been in recent days, could you quickly just update us on how we stand at this hour heading towards the last hour of close?

LISOVICZ: Right. We have two hours to go in trading. There were folks who were saying on Monday that the sugar high that the market had been experiencing recently in all of these weeks of rallies were over.

Well, guess what? We have a rally in place, the three major averages right now each up about 1 percent. There is a sense that maybe consumer spending, while it may be tentative, is in fact still existent.

Home Depot, which is certainly tied to the housing market, reported better-than-expected earnings, and it raised its forecast for the year. Having said that, it still expects to decline year-over-year, but better than the Street previously expected -- Richard.

QUEST: Susan Lisovicz, who is in New York, at the New York Exchange, many thanks for that.

The question that invited you, the viewer, to join in on the bonus question is: Are we naive -- or was I naive, maybe you were too, in believing that the bonus culture had changed. Quest@cnn.com is the e-mail address, @RichardQuest, the tweet address.

@Loves2pugs (ph): "Afraid so, naive indeed."

@LauratheExpat (ph), always good to hear from you, Laura: "A bit naive in believing it would change overnight. Entrenched cultures are like ice ages, years to recede."

@RamdomMusings (ph): "Did anyone believe things were going to get fundamentally changed? I don't know many people who thought that."

@RichardQuest, we will get more of your tweets between now and the end of the program.

You now know where your portfolio stands, let's catch up with the news headlines. Fionnuala Sweeney is at the CNN news desk.

FIONUALLA SWEENEY, CNN INTERNATIONAL ANCHOR: Richard, two daring attacks in Afghanistan's capital ahead of Thursday's national election. Seven people were killed in this suicide bombing on an allied military convoy in Kabul. Dozens were injured, including a number of allied and U.N. personnel.

Elsewhere in the capital, mortar shells targeted the presidential palace. One person was injured, but President Hamid Karzai was unhurt.

The only man to be convicted in the 1988 Lockerbie bombing says he is not going to appeal. A Scottish court formally accepted Ali Mohmed Al Megrahi's request. Analysts believe the move could be part of an attempt by the ailing Al Megrahi to be released on compassionate grounds.

News of his possible return to Libya sparked a furor in Britain last week.

Egypt's president has been talking to America's president in Washington. Pressure is building on the U.S. administration to launch a new peace push to break a deadlock between Israel and Arab countries.

It's Hosni Mubarak's first White House visit in some five years because of tense ties with former President George W. Bush.

Russia says its navy has arrested eight men who it says hijacked a cargo ship near Sweden. The freighter, Arctic Sea, was discovered off Cape Verde in Africa on Monday. An insurance company official says the pirates demanded $1.5 million or they would sink the ship and kill the crew.

The ship had been missing since July 31st.

And that's the news. Normally I would say "back to Richard in the studio," but back to Richard in the middle of the night in Hong Kong.

QUEST: It really is, the middle of the night it is. Coming up to five past 2:00 in Hong Kong, or just nearly 10 past 2:00 in Hong Kong. Many thanks, Fionnuala Sweeney.

As you can see, my plea last night to whoever owns those lights behind, to leave them on for an hour or so. It was a plea that has been in vain. Still, not to worry, just think of the energy we are saving.

When we come back in just a moment in Hong Kong, they call it the American dream for a reason. But what happens when you take the American dream to China? Does it become a nightmare? We'll have a report on that in just a moment. This is QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

QUEST: Perhaps showing the unsettled nature of the financial world at the moment, a sell-off in -- on Monday came to a bounce-back on the Tuesday session. Let's begin where I am in Asia where there were fairly slender gains for the most part.

Tokyo's Nikkei crept into the black near the end of trade. The Shanghai Composite rebounded more strongly. It had lost, don't forget, the best part of 6 percent the previous day. But it was up 1.5. The Hong Kong Hang Seng also gained ground, as did the BSE SENSEX Index, it rallied.

The picture just as positive -- more positive in Europe, plenty of encouraging news around to support the market. A survey -- the Zew survey in Germany said investor confidence is at its highest level in three years. In the U.K., inflation is holding steady at 1.8 percent. That's easing fears of damaging deflation. And it also (INAUDIBLE) means that quantitative easing and monetary policy remains the policy of the day.

Kirby Daley is senior strategist at the Newedge Group. Kirby joins me now.

Good evening to you. Thank you for staying up so very late.

KIRBY DALEY, SENIOR STRATEGIST, NEW EDGE GROUP: A pleasure to be here, Richard. Thank you.

QUEST: You just heard the scenario. On Monday, we have very sharp falls on the market, very sharp, particularly here in Asia. Tuesday we bounce back. Is volatility going to be the watchword for the foreseeable future?

DALEY: It is, absolutely. I mean, uncertainty abounds right now. It has abounded all throughout this rally. And right now it's really taking the form of, is this correction that we're seeing really just a quick pullback, or is it the start of a more prolonged and what is anticipated to be longer pullback?

So right now investors don't know what to do. Day-to-day volatility is back without a doubt.

QUEST: But hang on. You say, is this rally -- I mean, the question is, will we ever know for a fact, or is it always going to be an ex post facto decision on this, whether it was a real rally? Or will we only ever know next year?

DALEY: Some of us know now. Others.

QUEST: What do you think?

(CROSSTALK)

DALEY: We do have to be.

QUEST: What do you think?

DALEY: I do believe this is a bear market rally. The economic fundamentals do not support, in my view, what will be a sustainable, meaningful recovery that will drive earnings to the level the markets have priced in.

What does that mean? One of them has to correct. Markets are far above economic fundamentals. I believe the markets will have to come down to economic fundamentals. It will be a slow, long process to get back up to where we can support.

(CROSSTALK)

DALEY: . valuations.

QUEST: If you are right, then we are not -- we are looking at another leg of this crisis, you.

DALEY: Absolutely.

QUEST: It's the third or the fourth, I forget which.

DALEY: Yes. We are riding on a medicated high right now around the world, especially here in Asia. And markets have priced in, again, a meaningful recovery, an end to the recession, a statistical recession, and a jump, a leap to a meaningful recovery that will drive sustainable earnings are two very different things.

And investors have sort of confused those right now with all of the cheerleading going on. That's what we have to be careful of, especially here in Asia.

QUEST: Look, I've got to be frank with you, if I may.

DALEY: Please.

QUEST: I mean, the poor viewer, myself, and everybody else, is absolutely bewildered by all of this. I mean, you -- is it because of the unique circumstances of this crisis? Or is it simply incompetence by everyone involved that we don't know where we're going?

DALEY: It's the unique nature of this crisis, number one. We've had so many comparisons to the past, whether it's the Great Depression, whether it's '82, you know, '91, wherever we're talking about, this is different than anything.

(AUDIO GAP)

DALEY: . we can't make those comparisons and judge where we're going to go from here. So that's confusing investors.

QUEST: We're in Kowloon, over there is Hong Kong. The business culture in Hong Kong at the moment, where -- in the big banks, what is that now on the bonus issue? Is it off to the races, snouts in the trough, here we go again, good days are here again?

DALEY: Well, it depends on the bank, I'll tell you, and it depends on the desk within the bank, it depends on the department. But if the troughs are there, people are going to feed without a doubt.

And right now, last year was a very dry year, obviously, everywhere, it seems that this year is not going to be. But who can you blame? The battle is on, as you pointed out. And this year it looks to be a good one for the bankers.

QUEST: Yes, hang on a second. Do they not understand the offensiveness and the anger of people? Or don't they care? Do they -- are they really laughing at us?

DALEY: I don't think anyone is laughing. But I think it's human nature that if it is there and available, they're going to take it. I think no one can ignore the reality that the risks that we're taking.

QUEST: OK. All right. I'm going to challenge you on this.

DALEY: Yes, sure.

QUEST: What about top management, director management, CEOs and chairmen, who should saying to people, look, you're going to earn more than most people will ever earn in their lives, but you're not -- it's not going to be offensively greedy, or is that just not happening now?

DALEY: You know, it actually -- I don't think it's happening. There has been a sense of entitlement in the banking industry for a number of years, and that did not disappear in one year of lower bonuses. And it's - - you know, right now we're getting mixed signals.

We hear President Obama in the U.S. come out strongly against AIG. We hear of massive bonuses this summer that should be coming at the end of the year for some of the top banks in the U.S. -- ex-investment banks, we don't hear a peep out of the administration.

Where are they on this? What's going on? The battle is on, but the culture within hasn't really changed. And that's a major problem. But again, as long as the feed trough is there, people will feed. That's human nature. They're not going to personally take responsibility themselves and try to fight it.

QUEST: All right. We'll leave it there. Thank you very much...

DALEY: Thank you very much.

QUEST: . for getting up -- well, you probably haven't been to bed.

DALEY: That's right.

QUEST: Thank you for having a very late night.

DALEY: My pleasure.

QUEST: All right.

Now there were some economic numbers from Hong Kong that perhaps show this whole thing in full perspective. On paper, the figures show a bounce- back in Asian economies. Millions of people here in the region are still suffering, looking for a job, the effects of the slowdown.

Unemployment here in Hong Kong remains close to a four-year high, 5.4 percent, that would be an extremely generous and good number by the standards of the European Union and the United States. The economy grew at 3 percent in the second quarter.

With more jobs seemingly available, it's perhaps not surprising that people are coming from other parts of the world to seek that lucrative job, particularly from the United States.

The American dream has always been predicated on hard work and "can- do" spirit, succeed at all will. But what happens when those dreamers end up in China?

Emily Chang now reports.

(BEGIN VIDEOTAPE)

EMILY CHANG, CNN INTERNATIONAL CORRESPONDENT (voice-over): Every day in Beijing, 31-year-old Robin Chan walks through the doors of a multi- million-dollar company he built from the ground up.

He is an American who moved to China with one simple idea.

ROBIN CHAN, FOUNDER & CEO, XPD MEDIA: The idea was straightforward, be the first to build a social game company in China.

UNIDENTIFIED MALE: So this is 3-D rendition of one of our avatars.

CHANG: Chan and his staff at XPD Media design "social games," games you play with friends on networking sites like Facebook and MySpace.

CHAN: It was a courageous bet. But it was a bet worth making.

CHANG: Forget about living the "American dream," this is the "Chinese dream." His company is backed by the founder MTV.

CHAN: There isn't a lot "cool" opportunities in China unless you create your own. And that's part of the excitement of China.

CHANG (on camera): Many young people come to China thinking this is the land of opportunity, the promised land, the "wild, wild East." That if you strike big, you could make it really big. But is that the reality?

(voice-over): Not necessarily. Morgan McGilvray just finished his MBA.

MORGAN MCGILVRAY, MBA HOLDER: So I thought, well, since there are no jobs at home anyway, I'll be adventurous and come finish my time out in China.

Are they throwing jobs at me? No.

CHANG: So he is focused on learning Mandarin and becoming a more attractive candidate.

ANNIE LY, NYU GRADUATE: Usually the first thing is check e-mail. And then I go to "China Development Brief" for non-profit jobs.

CHANG: Annie Ly has been looking in the non-profit field for nine months while volunteering and working to make ends meet. But she plans to stick it out in China, in part because she can afford more with less.

LY: Back home I would probably be living with my parents with what I make here. But here I have a great, you know, one-bedroom apartment for myself.

CHANG: But realizing her Chinese dream may be difficult in job market that is becoming more competitive.

SHAUN REIN, CHINA MARKET RESEARCH GROUP: We have a lot of very worldly, very intelligent and talented Chinese that are studying the United States and they're coming back to China. These folks are the ones that most multinationals and Chinese firms are trying to hire.

CHANG: But for those who do make it, the payoff can be huge.

HENRI BENAIM, DIRECTOR, PKM GALLERY: If I started out in New York, I mean, it's completely feasible to think that I would be the receptionist.

CHANG: Instead, at 25 years old, Henri Benaim is directing a gallery in China's contemporary art district, showcasing the likes of the famous photographer, Wang Qingsong.

BENAIM: This is an artist that I had seen in museum shows in New York and seen in catalogues, and now in my job now, we represent him.

CHANG: Still, with all of this responsibility comes a lot of pressure. For Henri, pressure to make sales. For Robin, pressure to innovate. And for Annie and Morgan, the dream is yet to be fulfilled...

(AUDIO GAP)

CHANG: . though none can resist the lure of opportunity in the world's most dynamic economy.

Emily Chang, CNN, Beijing.

(END VIDEOTAPE)

QUEST: Now some quick tweets on the question of the bonus culture. Were you and I -- were we all naive, @RichardQuest.

@RomaVienna (ph): "We wish things weren't back to normal, but people don't change that fast, and what's worse, we haven't learned from our mistakes."

@Lindano (ph): "The road to recovery has many twists and turns, but we don't want to go down the bonus road again."

We'll have more of those as the program continues. When -- you know the old phrase, "clothes make up the man," when we come back in Hong Kong, we'll be looking at suits, Hong Kong-style.

QUEST MEANS BUSINESS is live from Hong Kong tonight.

(COMMERCIAL BREAK)

QUEST: One of the famous exports from Hong Kong is, of course, the Hong Kong suit, around the world the tailors are renowned in this city for being able to knock up a suit in 24 hours.

But many of the tailors don't just stay at home, they go around the world to drum up their own business. The Hong Kong tailors who travel are a good barometer of what we can find in the global recession, as I found out from Raja Daswani of Raja Fashions, who joined me up here earlier today to talk about tailoring in troubled times.

(BEGIN VIDEOTAPE)

RAJA DASWANI, CEO, RAJA FASHIONS: It has been bad for everyone, but we have taken care of the situation. If one place goes down, we have to look for new markets. Like our U.K. market has dropped very drastically, so in order to still stay alive, we had to open up new markets.

And our new markets are Canada, Australia, New Zealand. And we are looking at.

(AUDIO GAP)

DASWANI: .. and other parts of Asia like India and China. So these are the growing markets and we know that we can sell our suits there.

QUEST: The problem, of course, is you've spent a lot of time building up the U.K. and parts of Europe and the United States, so you've had to shift resources.

DASWANI: Not exactly, but of course, we have built up in U.K. and U.S. People know us internationally now. And it's so much easier, you know, to shift resources to other countries.

QUEST: So what did you see in the U.K. and the U.S.? Tell me what it was like when you suddenly started noticing the orders just.

DASWANI: Dropping? Well, when the economy fell and the stock market fell, all of these bankers who used to buy with us, the M&A guys, and whoever had money, just resisted spending money. So we had to think very fast and move very fast.

And you know, we have businessmen from Hong Kong, and Hong Kong people think fast, work fast. So we had to move and open up new markets. And we've been very, very successful with our new markets.

QUEST: Are you seeing any indication of a recovery in the U.S. and the U.K. or.

DASWANI: Oh, we are now slowly seeing a small recovery in the U.K. and U.S. market.

(CROSSTALK)

QUEST: People are buying three shirts instead of two?

DASWANI: No. No, no, no. They are better of because, you see, once the financial sector has come up (INAUDIBLE), last month, we did better sales -- 30 percent better sales than previous months, because everything is still moving up now.

All right? So it's not as good as it used to be last year, but it's still better than what it was in the March-April time.

QUEST: Hong Kong has a reputation.

(AUDIO GAP)

DASWANI: Oh, not even that. We can do it in less than 24 hours. Prove -- you know, if you want to try me, I can prove it to you.

QUEST: Well, we'll give you 24 hours. I don't want any nonsense, so I'll.

(CROSSTALK)

DASWANI: You will see.

(CROSSTALK)

QUEST: It's quarter past 1:00 on Tuesday afternoon, when will I have.

(AUDIO GAP)

DASWANI: . this evening or this.

(AUDIO GAP)

DASWANI: . 2:00, 3:00, your suit will be ready.

(AUDIO GAP)

QUEST: So tomorrow -- Wednesday night's program will be presented in the suit that will be fitted.

(AUDIO GAP FROM 1426 - 1440)

QUEST: (AUDIO GAP) What I don't understand, though, is why they can't arrange is to that you get a text when your card has been used, even legitimately. That way, you'd soon get an understanding of when it's being illegally used.

Maggie Lake, who -- who is in New York (AUDIO GAP) that.

Now, before we take a short break (AUDIO GAP) six or seven hours ago. I had already spoken to Mr. Dashwani and now it was time to see the first fruits of the tailor's labor.

So he came to my hotel room, measured me up and now we are starting to move forward. The cloth is being cut, the suit is being made.

But will it fit?

(COMMERCIAL BREAK)

QUEST: Welcome back to QUEST MEANS BUSINESS.

We are live in Hong Kong this evening, the middle of the night, Wednesday morning.

In 2008, it was oil. Now it looks like 2009's bumper commodity is going to be sugar. Yes, the sweet stuff.

This year's prices have soared more than 80 percent. The sweet stuff is in short supply. Sugar crops in Brazil, the world's biggest producer, have been drenched by heavy rain. India, which has the second biggest industry, it's the opposite problem -- not enough rain, owing to the failing and -- failing monsoon.

India also happens to be the largest consumer of all this sweet stuff. It begs the question, what's going on in India that needs to be investigated by Sara Sidner.

(BEGIN VIDEOTAPE)

SARA SIDNER, CNN CORRESPONDENT (voice-over): At one of Delhi's oldest sweet shops, the pace is frantic, the cash is flowing and the crowd is growing. Today, the Hindu Festival. And it's not complete without giving and receiving sweets.

SYLVESTER, CUSTOMER: And, really, it is very important. It's a very right way to express your feelings.

SIDNER (on camera): Sugary sweets are so important, especially for religious festivals, that even the cows are given a little something sweet. It's no wonder that India is the largest consumer of sugar.

VEENETA KAKAR, CUSTOMER: Here, you know, people drink sugar with tea, milk, everything. You know, they have to have sugar. They can't do without sugar, you know.

SIDNER (voice-over): India also happens to be the second biggest producer of sugar, behind Brazil. So if supply is low in either country, the whole world feels it. This year, there's a shortage. Global sugar prices his a 28-year high this month. And analysts say prices may remain high.

Why?

Partly because this year a drought in India will likely lower yields from sugar cane fields. Last year, sugar output fell due to fewer farmers producing sugar cane in India. The Indian government is expected to make up the difference by importing millions of tons of sugar.

Back at Evergreen Sweet House in Delhi, the crowds continue to buy but the owners are feeling the pinch from high sugar prices.

UNIDENTIFIED MALE: Well, I have to say, it's eating into the profits. Sugar is (INAUDIBLE) because our margins are very limited. We go by the market prices.

SIDNER: The shop has yet to raise its prices, but may do so if sugar prices don't come down. They fully expect the government to intervene.

They're not the only ones. A consortium of big name food companies in the United States say they are running out of sugar and want the U.S. government to do something to ease costs. It turns out sugar isn't just a sweet treat in many countries, but can turn into a sticky political mess if a solution isn't found.

Sara Sidner, CNN, New Delhi.

(END VIDEO TAPE)

QUEST: Sudakshina Unnikrishnan is the vice president of commodity sales at Barclay's Capital.

She joins me now from London.

And sugar is a bit of the humble in commodity terms, isn't it?

We don't -- it's hardly got the excitement of -- of, say, the precious metals or the oils. And but all of a sudden, it's very hot stuff.

SUDAKSHINA UNNIKRISHNAN, BARCLAY'S CAPITAL: Yes. Totally. I would agree with that, because if you look at prices compared to inflation adjusted terms, you know, you've seen sugar prices trading close to 90 percent below the peak that they reached in the '70s and '80s. So, you know, sugar prices have certainly gone up very strongly this year.

But if you compare them on a historical basis, they're still quite low. And if you compare that to the performance of some of the other (INAUDIBLE) commodity complexes or in prices -- base metals prices, you haven't really seen sugar prices rise to anywhere close to the extent.

QUEST: But, they -- it all wants to know, though, is this fundamentals?

I mean I know there are weather issues, but are -- is this a fundamental issue with the product or is speculation also in this market?

I wouldn't have thought there was a lot of room for vast speculation in sugar.

UNNIKRISHNAN: No, I think that's become a very topical issue across commodity markets on the whole. One does tend to, you know, bring speculators at the drop of a hat to be responsibly behind any of the rallies we've seen in commodity prices.

And I think, specifically, in the case of sugar, I think it would be very hard to argue that it's anything apart from a fundamentals story. You have the world's largest producer, Brazil, having a problem in terms of the harvest. You've seen a lot of credit problems in terms of the sugar and ethanol industry falling into the credit crisis that we've been in. You've seen the world's largest consumer drawing down stocks by 60 percent from year ago levels and same thing, a tight -- a very tight domestic output on the back of a rain -- a weak monsoon.

So I think sugar really has all the sort of bullish cocktail of factors that one needs to describe something as a fundamentally based rally. So sugar is really a case of variable fundamentals.

QUEST: It's tempting, perhaps, to sort of have a bit of a snigger at the idea of sugar, because we think of it as something that I put in a cup of tea or, you know, have a chocolate bar.

But when you look at industry, right the way through from confectionary to manufacturing of -- of food stuffs and you think -- you think of the producers, the farmers, then, I think, we're looking at, perhaps, some real hardship.

UNNIKRISHNAN: No, I think certainly. If you look at the case of India in particular, you've seen that the government recently announced a 30 percent hike in terms of the amount that miles need to pay (INAUDIBLE) became farmers to be able to induce further plantings for next year.

But, really, I think it's a case of a lot of, you know, increases in terms of prices that's coming in too late to incentivize production, for this year, at least.

If you look at sugar production in the other key producer, in Brazil, you've seen that, you know, the ethanol mills, the sugar ethanol mills have been faced with a lot of credit constraints.

You look at producers in the U.S. in terms of, you know, companies such as Kraft and Hershey's recently coming out saying that they wanted an increase in terms of the PRQ quarters (ph) in the U.S.

So certainly producers, consumers, you know, the retail side of the market, farmers, all across the supply and consumption chain, you are seeing a lot of problems emerging on the backs of this, you know, big surge, in terms of prices this year.

QUEST: Sudakshina, please come back and talk more about this and other commodities.

And thank you for giving us time this evening.

Now, the weather forecast demands our attention.

Guillermo is at the world weather forecast.

A fascinating thing I noticed today here in Hong Kong -- well, I thought it was fascinating. You know with this old idea of clouds when it rains, it was a clear sky and it was bucketing down with rain. It reminds me of when I was a child and I used to say how can this be?

GUILLERMO ARDUINO, CNN METEOROLOGIST: I think it was designed especially for you and that's what we've seen in Hong Kong, unfortunately. But at night, yes. And I remember being there in October and at 5:00 in the morning, a lot of rain and then the rest of the day was OK.

I think that we have the chance of seeing that again. And there's a little bit of a disturbance there south of you, in the South China Sea. It may bring some breezy conditions and instability, as well.

But the general trend is not bad at all. You see ones that may -- you may see a little bit of that again. The heat is coming back to 33 during the day and then sunny skies. That's what we can expect.

You see it's a little bit better than the picture that we were seeing yesterday and all over into Wujo (ph), as well.

Let's see what's going on, also, with travel delays. We see some clouds in Beijing, but elsewhere, conditions appear to be OK. We don't see anything in the way of signi -- significant precipitation or so.

Now, when it comes to Europe, the heat is going to be oppressive. That's going to include London. We may see rain -- we are going to see rain on Thursday. But up until Thursday, conditions are going to remain OK.

Watch out if you go to Italy, France, Spain. Temperatures above average. We'll be all the way up to 12 degrees.

But London appears to be OK for now.

And now a look at the forecast. You see this front comes here with the jet stream and we get the rain then on Thursday. And it's going to be quite abundant, in fact.

Elsewhere, the heat continues all the way to the east. Careful there, as well. Uka (ph) is 31 for tomorrow; London, 28. It may get all the way to 30 the next day. So watch out and (INAUDIBLE) 36.

That's all the time for weather.

We'll see you on the other side of the break.

(COMMERCIAL BREAK)

QUEST: (AUDIO GAP) We've chosen the cloth, have been measured up and five hours after we first started this whole process, I was ready to try on my first fitting for my Hong Kong suit.

(BEGIN VIDEOTAPE)

QUEST: Do you mind?

RAJA DASWANI, CEO, RAJA FASHIONS: How are you feeling?

QUEST: Oh, very good.

DASWANI: The first button will be here, the second button there. You see, even the back can look sportier. But I want to still make it a little bit more tailored.

QUEST: So tell me, what are the latest things that men are wearing in suits?

DASWANI: You know, they are wearing a nice tailored look suit, two button or one button. A lot of them are now coming into one button, some of it big lapels, some of it fishmal (ph) and some of it large.

There are just small modifications on the lapels just to make it different.

QUEST: So the three button suit?

DASWANI: They're gone. They're history now. They are -- there's now two or one button.

QUEST: Is there such a thing as the classic suit?

DASWANI: The classic suit is the real, real classic has never failed, has never -- it's a two button style with the side vents, one pleat, no turn-ups. That's the real, real classic.

QUEST: Is there much of a regional and cultural difference of the different types of suits?

DASWANI: Oh, yes, definitely. Definitely. Cultural, like if you go down to India, there's the Indian collar. If you go to China, it's the Mao Zedong collar. But, of course, in modern fashion, everyone wears suits more in India and China, so the regular modern suits are very popular (INAUDIBLE).

But also the colors are different.

How do you feel?

Well, a little bit of modification and it makes a big difference.

(END VIDEO TAPE)

QUEST: And tomorrow night, I will be, hopefully, wearing those threads, assuming they hold together.

Tonight's Profitable Moment -- so the bonus culture is back, even if the chairman of the Hong Kong Stock Exchange is worried. Tonight, he tells us bankers don't seem to have learned their lessons. They face a political backlash if they don't change their ways.

There's more to this than just raw greed. Bankers don't seem to understand that it's offensive to be getting multi-million dollar bonuses while the rest of us make do.

The culture of high rewards is so ingrained, it seems to be an indifference or arrogance to public opinion. If you spend your life dealing in money -- making it, trading it and living by it -- then money becomes the most important thing in your life and very soon, it's the only commodity you value.

As my trip to Hong Kong has shown me, and hopefully you, the global nature of this recession means we're still a long way from normality -- whatever that might look like in the future. And big bonuses play no part in that.

And that's QUEST MEANS BUSINESS for this Tuesday night.

I'm Richard Quest in New -- in Hong Kong.

New York is next week.

Wherever you're up to and whatever you're up to, I hope it's profitable.

I will see you tomorrow.

END

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