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Quest Means Business
European Markets Up; Airbus Sees Demand for New Jets; Lotus Returns to F1
Aired September 17, 2009 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ADRIAN FINIGHAN, CNN INTERNATIONAL ANCHOR: Riding high, European stock markets continue to climb.
And the only way is, Airbus says demand for new jets is set to take off.
And life in the fast lane, AirAsia boss Tony Fernandes tells me why he is bringing Lotus back to Formula 1.
Hello, I'm Adrian Finighan, in for Richard Quest. This is QUEST MEANS BUSINESS.
Good evening. Don't tell investors in Europe we're halfway through September, they're still enjoying an extended summer rally. Markets in the region are pushing steadily higher. There were more gains on Thursday continuing this week's winning run.
A supportive move by Ireland to help the banking sector was just plus factor, all of those details in just a moment.
But first, let's take a look at the market numbers. And the FTSE 100, it's at its highest in almost 12 months, we told you that yesterday. It has done it again today. British Airways up 5.5 percent.
Goldman Sachs told investors today to buy Balfour Beatty, up 8 percent. It's buying a U.S. design services group, Parsons Brinckerhoff. And Tullow Oil, up again today. We told you about them yesterday, 4.89 percent today. They found oil in Uganda.
In Frankfurt, the Xetra DAX, it was up at fresh 11-month highs. Deutsche Bank was up by 4 percent today. Auto stocks, though, were down. VW, Daimler, BMW, all lost ground on Thursday in Frankfurt.
And in Paris, the CAC 40 also up over half a percent at fresh 11-month highs. EADS, parent company of Airbus, is up 6 percent, more about that in just a few moments. Banks did well today, SocGen was up by 3.8 percent. BNP Paribas and Credit Agricole both gaining about 2 percent today.
And building materials firms also were -- gained ground today, Lafarge and company Saint-Gobain.
So let's take a look at Airbus. I promised you we would. It says that demand for commercial aircraft is set to soar. The European company says the world's airlines are going to want to 25,000 new planes over the next 20 years at a cost of some $3.1 trillion.
Now both of those estimates have gone up since Airbus's last forecast a year-and-a-half ago. It says that passenger traffic is set to grow by 4.7 percent a year on average. Airbus says that demand will rise as emerging economies grow richer, more budget airlines appear, and old planes come to the end of their life.
Now if that forecast is accurate, it will require Airbus and its competitors to churn out some 1,200 planes a year. John Leahy is the chief operating office of Airbus. I asked him if the industry can deliver that.
(BEGIN VIDEOTAPE)
JOHN LEAHY COO, AIRBUS: Of course we can. And we have to point out that this is an average over a 12-year period. There will obviously be more growth at the end of the period if you're growing at 4.7 percent a year, than at the beginning.
So some people have actually asked me here, well, does that mean you're going to deliver 600 airplanes next year? The answer is absolutely no. And neither is Boeing. But the fact is every year over the next 20 years, on average, we need to build, between us and Boeing, about 1,200 aircraft, 25,000 in total.
FINIGHAN: All right. You say on average. To what extent does the forecast rely upon a rose-tinted-spectacles-view of economic growth?
LEAHY: Well, I don't think it does, because if you go back to the dawn of the jet age, this industry doubled every 15 years. And if you think about the fact that we really didn't have China, we didn't have India. And China and India now are growing rapidly. They're industrializing. They're growing very fast, about 10 percent a year in air transport.
Well, we might grow even faster than doubling every 15 years, if you take the 1.3 billion people in China, add them to the 1.2 billion people in India, and those developing economies.
FINIGHAN: All right. So the grow is going to come mainly from Asia, is that what you're saying? What sort of aircraft are these people going to be flying? Because if you have a doubling of aircraft in the air, I mean, that's going to have some impact on the environment.
LEAHY: Well, remember, in this industry, we've got a pretty good story to tell. We're -- you know, providing about 2 percent of the pollutants. We're providing about 8 percent of the GDP. There are a lot of other industries a lot worse than us. And we're doing everything we can to make that number even smaller on the pollution side and higher on the GDP side.
One is algae fuel, alternative fuels, the other is just replacing some of the 20-year-old aircraft with new modern aircraft that burn about half the fuel and have much less than half the pollutants.
FINIGHAN: And what about the kind of aircraft that will be flying in? Does this mean that -- I mean, the A380, if you look at it, it's a very fuel-efficient aircraft for its size. Does this mean that low-cost carriers, for instance, will be using aircraft of that size on short-haul routes?
LEAHY: Well, maybe not the A380, although I have one order so far for an A380 in a single class configuration with about 845 seats plus crew. And that will be used down to Reunion Island (ph) from Paris, basically in a low-cost operation. So we've got one already.
Tony Fernandes, for example, with AirAsia X, is flying 330s and 340s in the low-cost market. A lot of people think the low-cost market is just single-aisle market, it's not. It's moving into the wide-body market, and if it moves into the wide-body market, why not the 380 market?
FINIGHAN: Yours is a fiercely competitive business. It's not without its stresses and strains, I can imagine it's pretty tough to be in at times. What about them now? I mean, the survey -- the forecast is very optimistic. It's a forward-looking document. How does it feel in your industry right now as we're starting to come out of this recession?
LEAHY: Well, we're watching it very carefully. And although we've said that this year we would deliver 480 aircraft, about the same as last year -- with last year, by the way, being a record year in the 40-year history of Airbus, so that's not too bad.
But by doing that, we've had to delay and cancel some airplanes, bring others forward. There has been an awful lot of motion, a little bit like a swan, you know, looks serene on the surface of the water, there is a lot of paddling underneath, that has been Airbus production through this year.
We think we can keep it relatively flat. And our goal would be to just watch the downside risk, work with airlines one-by-one to make sure we can keep that production flat.
FINIGHAN: And what can you say about the continuing spat between the E.U. and the U.S. about airline subsidies? It seems that every which way you turn at the moment, I was reading about the German government loans for the A350. It seems that every which way you turn to -- I mean, it's an expensive business to be in. You need all the help you can get to start the production.
Someone is crying foul.
LEAHY: Well, I think Boeing got something started that probably was a little ahead of the game there. The fact is that the U.S. provides launch aid. It might do it differently from the Europeans, but they provide an awful lot of launch aid for the U.S. manufacturers, particularly Boeing.
The E.U. does as well. I think you will see now when the next, I guess, findings come out, that both sides will sit down and negotiate a proper structure for launch aid that occurs on both sides of the Atlantic.
(END VIDEOTAPE)
FINIGHAN: John Leahy, the COO of Airbus. And John mentioned Tony Fernandez of AirAsia, I'll be speaking with Tony in just a few moments, not about AirAsia, though, but about Formula 1. But first, let's get you up- to-date with what is making news around the world. Max Foster joins us from the CNN London news room.
MAX FOSTER, CNN INTERNATIONAL ANCHOR: Adrian, a major reversal to U.S. policy on a European missile shield. The U.S. has backed off plans to install rockets and a radar system in Eastern Europe.
Russia had vehemently opposed a Bush-era plan for Poland and the Czech Republic. President Barack Obama says he is now backing a new more mobile defense system. Russia's president hailed the decision as being a responsible move.
In Afghanistan, six Italian soldiers were killed in a massive suicide car bomb attack in the capital. Ten Afghan civilians were also killed. Italy's defense minister says the bombing will not deter the country's commitment to Afghanistan. Italy has around 2,800 troops in the country.
Afghan President Hamid Karzai is rejecting allegations of widespread fraud. In last month's polls, Mr. Karzai says he believes in the integrity of the election, the people and the government.
Final, but uncertified results released on Wednesday give him more than 54 percent of the vote. U.N.-backed electoral complaints commission says there is clear evidence of fraud and has ordered a partial recount.
And Indonesia says it has killed a top Islamic terrorist, Noordin Top. Police say he was killed in a shootout that erupted as they were hunting suspects in July's Jakarta hotel bombing. The 41-year-old was linked to al Qaeda. He was suspected of masterminding spectacular attacks across Indonesia over the past decade that killed more than 200 people.
Those are the headlines, Adrian, back to you.
FINIGHAN: Max, many thanks. We'll see you again, later.
Now it has been a while since we looked at the Irish stock market, but bank shares in Dublin went on a hot streak this session. Bank of Ireland soared nearly 18 percent. And Allied Irish Bank raced up 28 percent. It gives you some idea just how relieved investors were about the previous day's move by the Irish government, wiping more than $113 billion worth of bad or doubtful loans off the books of Irish banks.
The lenders get nearly $80 billion to make a fresh start. Well, with more on what forced the government to take this action, we are joined now live from Dublin by CNN's Jim Boulden -- Jim.
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Adrian, of course, it's amazing to see what happened to those share prices in the Irish banks. The reason for this is shareholders and investors are very happy with this plan that the Irish government has come up with.
It's called the National Asset Management Agency. Basically they're creating this bad bank with these toxic assets. Now investors might like this, but taxpayers here in Ireland are not very happy at all. It's not finalized yet, it's still moving through parliament. And many of the opposition parties are very unhappy that taxpayers are going to be taking on this risk, this $113 billion risk.
The government hopes this bad bank will be able to hold these assets long enough that over time they will become more valuable and that taxpayers will actually see a profit in the end.
Now earlier today, I talked with Frank McDonald. He's an author and journalist here in Dublin and he has written extensively about the property boom that this country went through, which, of course, has turned into a big bust. And he explained to me why taxpayers here are so unhappy with this version of Ireland's attempt to get toxic assets off the books of the banks.
(BEGIN VIDEO CLIP)
FRANK MCDONALD, AUTHOR, "THE BUILDERS": More of it is going to be worked out through the National Asset Management Agency, which basically involves us mortgaging our future and probably the future of our children and our grandchildren to get the banks off the hook, to get the banks -- to free the banks' balance sheets of all of this toxic debt, which we then take on-board at a marginal discount of 30 percent or so.
And it just doesn't look like a very good deal.
(END VIDEO CLIP)
BOULDEN: So, Adrian, why does this matter to people outside of Ireland? Well, I'll tell you, the Irish property people, the builders, these people who became billionaires, invested a lot of this money from the loans from the Irish banks, all over the world.
They bought hotels in London. They bought property in Chicago, in the Middle East, enormous amount of money was invested around the world that was cheap money given by the banks here in Ireland to these property developers.
And the whole thing has gone bad. And so if Ireland can't sort out this problem, it's going to have to nationalize its banks, and who knows what will happen to these toxic assets. So Ireland is trying to get its house in order here.
The IMF says Ireland could be the country that suffers the absolute most of any country in the world when it comes to this global recession and the property bust. And so it's trying to figure this.
If it doesn't figure it out, the Irish government says, hey, we might have to nationalize all of the banks and then the taxpayers here will really be on the hook. And it could take years and years and years for the Irish economy to recover -- Adrian.
FINIGHAN: All right. Jim, many thanks, indeed. We'll be hearing again from Jim in Dublin tomorrow. In the meantime, have a pint of Guinness on me, Jim.
Now one of the most famous names in the history of motor sport is making a comeback, but Formula 1 racing calls for money, lots of it, would you pitch yours into such a high-risk game at a time like this? After the break, we hear from Tony Fernandes, the man hoping to steer Lotus to new success.
(COMMERCIAL BREAK)
FINIGHAN: Now this time next week, the Formula 1 World Championship returns to Singapore for the first time since the controversial 2008 Grand Prix. What went on at last year's race could yet have serious consequences for the Renault racing team, which, as we were telling you yesterday, has already sacrificed its leader this week.
Renault Formula 1 boss Flavio Briatore quit his post over allegations of race-fixing. Ex-Renault driver Nelson Piquet claimed that Briatore ordered him to crash to enable to teammate Fernando Alonso to win the race. Renault says that Briatore will not dispute the allegations. And Renault engineer Pat Symonds will also step down.
Well, there is upheaval elsewhere on the grid at Formula 1. BMW has sold its F1 team to Qadbak Investments, a Swiss-based foundation representing unnamed Middle Eastern interests. The new team, which as yet has no name, expects to race in 2010. And BMW announced back in July that they were pulling out of the sport at the end of this season.
Now BMW's withdraw, though, has opened a door for another famous racing name, Lotus, which returns to Formula 1 in 2010 after a 16-year absence. The funding provided by a partnership featuring the Malaysian government and a consortium of Malaysian entrepreneurs, one of those, the man who will be leading that team of entrepreneurs, is one of Malaysia's best-known.
It is, of course, Tony Fernandes, the founder and CEO of AirAsia, the airline. I asked him why on earth he was putting his money into Formula 1 and not football.
(BEGIN VIDEOTAPE)
TONY FERNANDES, GROUP CEO, AIRASIA: Via Formula 1 team, we have a chance of developing Malaysian drivers, Malaysian engineers, and utilizing the huge infrastructure that Malaysia has built over the last 10 years for Formula 1.
It's very similar to AirAsia. AirAsia was able to take off because we had great Internet (ph) infrastructure, and a great airport. We're looking at the assets, the hardware, we're going to utilize that to build a good business and build a Formula 1 team.
FINIGHAN: All of the drama that surrounded Formula 1 of late, as an investor, does that bother you?
FERNANDES: No. I don't think so. Every sport has had its ups and downs. Obviously this is a very low point for Formula 1. But I have to say they dealt with it quickly, fast, efficiently, and hopefully corporate governance will get better. Probably a good time for us to come in just before it all happens and by the next season in Melbourne, I think it will be a much stronger business.
FINIGHAN: So it's a joint venture, it's you and several other private investors along with government -- part-owned government companies?
FERNANDES: Well, I think we're looking at a partnership with Proton that owns Lotus.
FINIGHAN: Yes.
FERNANDES: So the aim of this venture is to create something like Ferrari. Their Formula 1 team is very integral to the car. The only difference with Ferrari is that the private investors such as (INAUDIBLE).
FINIGHAN: Should public money be put into a sport that, some would see as being elitist?
FERNANDES: Well, I think Proton owns Lotus, Lotus has been maybe in the doldrums in a little bit over the last few years in terms of (INAUDIBLE). Fantastic brand, fantastic assets. They've got a new CEO, Danny Bahar, from Ferrari. I think Lotus has huge upside, and it has been seen in Proton share prices, actually, the share price shot up quite a lot.
So I think it's purely marketing tool, it's not probably made for something frivolous. I mean, Formula 1 as happened with AirAsia, builds your profile, builds more eyeballs, builds more revenue.
FINIGHAN: Are you confident that your investment is going to pay off? I mean, you're a businessman, you wouldn't just be throwing your money at this?
FERNANDES: No. This is not a vanity play. This is a good commercial business. I think the timing in Formula 1 is fantastic. There is a glide slope to bring cost down. I think it's more popular than ever. I think what Bernie and Max have done in opening up races all over the world is great.
I think we are a significant step in that, because we'll be the first team that's really based outside of Europe. And I think that will create a lot more excitement. And just like AirAsia, I'm sure there are many that will follow us and build teams in their own country.
(END VIDEOTAPE)
FINIGHAN: Tony Fernandes, I suppose you could describe Tony as a celebrity entrepreneur.
Another celebrity entrepreneur in the U.K. is betting on the property market. One of the U.K. leading businessmen is promising to take the pain out of buying and selling a home. Now that sounds too good to be true. Is it? We'll find out when we come back on QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
FINIGHAN: Shares of AMR, the parent company of American Airlines, are rallying this session. They're currently up more than 16 percent on news that the carrier has lined up billion in new cash and financing. Most of the near $3 billion will come from GE Capital in the form of loans and lease agreements.
The money will help American fund its operations as it restructures. American plans to increase services to cities such as New York and Chicago while cutting flights to smaller cities.
Now American's debt load is going up, but the carrier calls the new funding crucial as it gets in positions for an expected recovery in travel demand. Let's take you live now to the New York Stock Exchange.
And European stock markets, as we were telling you earlier, are in ebullient mood. This -- that's a good word, ebullient, let's find out what's happening there in New York. Is it the same, Susan?
SUSAN LISOVICZ, CNN INTERNATIONAL CORRESPONDENT: I wouldn't say ebullient or euphoric. I would say kind of neutral right now. But we have seen euphoria in the markets. Now probably since March when there was a sense that the economy was not getting any worse, and that extended through Wednesday's rally, which took the three major averages to highs for the year.
Today we got another dose, Adrian, of better-than-expected economic news, initial jobless claims, for instance, dipped unexpectedly, that is always welcome news, construction on new homes rose, it was kind of in-line with estimates. The parent company of American Airlines is receiving some very big financing.
You know, these all support the elements that have supported stocks for six months, and that is that things aren't getting any worse, in some cases they're clearly getting better -- Adrian.
FINIGHAN: Susan, we're going to be talking to a British businessman in a moment who has launched a project to kick-start the housing market here in the U.K. And of course, I suppose it was housing where this whole downturn began there in the U.S. What is the state of the housing market in the U.S. right now?
LISOVICZ: Well, you know, I think there is a growing sense that, you know, there is a bottoming out in this very big market. And you know, the first rule in real estate is location, location, location, right?
So it's uneven and some markets are clearly worse than others. Having said that, one of the things that has really helped the housing market is an $8,000 tax credit for first-time homebuyers. Well, that expires in a couple of months. And so as we've seen with "Cash for Clunkers" with autos, there is this artificial -- there is a stimulus that has been driving sales to some degree.
And so the question is, what will happen after that dries up? So there is already a bill in the Senate that is working its way through to extent it. We don't know whether that will pass, but you know, the bottom line is, it has a ways to go, Adrian.
There is a 10.5-month supply of existing homes on the market. That's an awful lot of inventory that needs to be worked out. Foreclosures are still real high. There is certainly a worry that that could increase as mortgages reset.
So not -- clearly not getting worse, some signs of improvement, a ways to go, I think, would be the safe assessment -- Adrian.
FINIGHAN: All right. Susan, many thanks. Always great to talk to you, Susan Lisovicz, live at the New York Stock Exchange.
Now a British businessman, as I said, says that his latest project will help people in the U.K. afford to buy their first property. James Caan is best-known to the viewers in the U.K. for his role on the BBC show "Dragon's Den," where small businesses seek funds for development. You may have seen it in a similar format around the world.
Now he is offering homebuyers in the U.K. interest-free loans, interest-free up of to about $80,000. The money would be used to cover a U.K. tax on home sales called stamp duty, plus legal fees. Now the loans would only be available to people who buy through a property Web site which is part-owned by Caan. I suppose that's the catch.
The TV dragon is making $1.6 billion available to borrowers. U.K. house prices have fallen around 20 percent since their peak in 2007. Well, James Caan joined me earlier. He says his plan should boost the sluggish U.K. housing market.
(BEGIN VIDEOTAPE)
JAMES CAAN, ENTREPRENEUR: One of the reasons we think the market is quite, I suppose, bland at the moment, is because building societies and banks are not giving the same percentage that they used to. So they used - - you used to be able to get 95 or 100 percent on your mortgage, today it's more like 85 percent, which means the consumer needs a much bigger deposit today.
And to get the sort of deposit, which could be 15,000, 20,000 pounds, we think is actually quite a challenging number.
FINIGHAN: From a business point of view, an interest-free loan, I mean, that's.
CAAN: I'm a dragon, by the way, yes, I need to make a profit, yes.
FINIGHAN: Absolutely. What's in it for you?
CAAN: I mean, essentially we have a tri-party agreement, so essentially there are three parties involved. You've got Look4AProperty, which is a property portal. You've got LMS, which is the company which provides all of the processing of mortgages. And you've got the Assaytation (ph), who introduces the property.
And essentially the three of us collectively have come together and are prepared to give up some of the commission that we earned to cover the cost of the interest so that the consumer has to pay nothing. We make a little bit less, but the strategy is, if you do 10 times the volume that we will would have done otherwise, everybody wins.
FINIGHAN: Of course, property has suffered a lot in this recession. As a businessman, do you get the feeling that we're through the worst of it now that the recession is over? I mean, Britain, lagging behind the rest of Europe it would seem, in our upward trajectory.
CAAN: I mean, there's no question, I mean, I think every economic indicator today is showing that we have absolutely, you know, hit the bottom. So I think the strategy, certain going forward, is, I think the last quarter of this year, I still think is going to be fairly rocky.
But certainly all of the projections that I've done, I'm working on the assumption that we're going to start to see an uptick in the first quarter of next year.
FINIGHAN: And how has the last year felt from your point of view?
CAAN: Difficult.
FINIGHAN: Challenging? Like.
CAAN: Difficult.
FINIGHAN: . do you relish that challenge? Are you someone who sees opportunity in adversity?
CAAN: I think it has really stretched a lot of entrepreneurs. I think this economic climate I think really brings out the best in you. I think when you're in a business and you've got your back against the wall, I think a lot of entrepreneurs tend to perform better under pressure.
And you know, we've had to make cutbacks, we've had to rationalize some of our businesses. And, you know, I think it has been difficult. I think what gives me confidence and optimism is I think anybody comes out of the recession and comes out strong, generally does incredibly well, because you're leaner, meaner, and you're focused, and you've got a strong platform.
So I'm highly optimistic about the next 12 months.
FINIGHAN: So here you are starting a business at the bottom. What would your advice be to someone who is in a similar position, to anyone who is thinking about getting a business off the ground now?
CAAN: I think right now the key driver for businesses, I think, is if you have a value proposition, I think when your in a kind of recessionary environment, luxury and the market is probably not where you need to be.
So I think if you're starting a business today, you really need to be focusing on propositions that it's a value proposition to the consumer because consumers today are very price sensitive.
So I think any business idea or business that you're involved with, make sure that your proposition to the customer is the most attractive it can be, because they very sensitive right now on making sure it's value for money.
(END VIDEOTAPE)
FINIGHAN: Celebrity entrepreneur -- you try saying it quickly, James Caan.
You're with QUEST MEANS BUSINESS on CNN. Coming up, families like this one are learning to do more with less. And they're finding out that they quite like it. We'll be right back.
(COMMERCIAL BREAK)
FINIGHAN: Live from London, this is QUEST MEANS BUSINESS on CNN. In for Richard Quest, I'm Adrian Finighan.
Now Americans are not nearly as optimistic about the economy as the chairman of the U.S. Federal Reserve. That's the finding of a new CNN/Opinion Research poll. Ben Bernanke said this week that he thinks the recession is probably over.
Nearly nine out of 10 people polled for our survey said that they believe that the U.S. is still in recession. Most say that they're pulling through OK. But nearly 40 percent say that they're worse off than they were a year ago.
Looking ahead, people are more confident, 79 percent say their home prices in their neighborhoods should hold value or should rise. But there is still a lot of worry about jobs. Two-thirds think that it would take them up to six months or longer to get a new job if they lost their current one.
So just how do you cope when the regular paycheck has suddenly disappeared? CNN's Allan Chernoff found one family in the Chicago suburb of Crystal Lake that's stretching its dollars.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: (voice-over): Karin and Chris Kubacki jogging home from an errand instead of driving -- it's one of many cost-saving steps the Kubackis are taking since Karin, the family breadwinner, was laid off in July from her software job at Accenture.
CHRIS KUBACKI: At first, it seemed instant panic -- oh my gosh, we're going to lose our house tomorrow, we're going to be living in the street in a cardboard box.
CHERNOFF: Karin decided to turn her loss into an opportunity and spend more time with the family while taking time to find another job she'd love. So the Kubackis plan to stretch Karin's unemployment checks and her 13-week severance to last a full year -- determined not to dig into savings.
KARIN KUBACKI, UNEMPLOYED SOFTWARE DESIGNER: How do you do it?
I have the rules posted, actually, at my desk.
CHERNOFF: Rules like live within your means, which the Kubackis say they've always done. They're also do-it-yourselfers. Chris, a stay at home dad, who is a wood worker, built toys for his son Max.
MAX KUBACKI: My dad made it. That's the best.
CHERNOFF: For the first time, Karin set up a budget. To stick to it, the family shops only for absolute necessities. The library is now a frequent stop, as are other free community resources.
K. KUBACKI: Oh, we've had more fun since I lost my job than ever.
CHERNOFF: Having adopted a frugal lifestyle, the Kubackis say they now truly appreciate small luxuries.
K. KUBACKI: And if you pick just a couple of luxuries like Hershey bars, you really enjoy them.
CHERNOFF: Even as they stretch, the Kubackis still donate 10 percent of Karin's unemployment check to their church -- living only a few doors away from the neighborhood food pantry, the Kubackis are often reminded of their blessings.
K. KUBACKI: So I don't have a job right now. We've got a house. We've got food. We have nothing to complain about.
CHERNOFF: Allan Chernoff, CNN.
(END VIDEO TAPE)
FINIGHAN: Positive mental attitude -- that's what it's all about.
Good luck to them.
Now, there's been a lot of talk this week about the behavior of banks and whether anything has really changed since the financial crisis broke. We can expect calls at the G20 meeting in the U.S. next week for a cap on bankers' bonuses.
Well, CNNMoney.com's Poppy Harlow is just back from the "Fortune" Most Powerful Women's Summit in California, where, not surprisingly, bank pay was a major topic of discussion.
And Poppy is with us now with all of the details -- hey, Poppy.
POPPY HARLOW, ANCHOR, CNNMONEY.COM: Hi, Adrian.
Yes, it really was sort of a hot button topic at this summit, where powerful women from around the world joined together, bringing up talk of those AIG bonuses and all the outrage that surrounded that issue.
At the time, President Obama really came out swinging, but we haven't really seen much actual action to curb executive pay since then. Yes, the president did appoint a pay czar. He's Attorney Kenneth Feinberg. But he can only review compensation at the U.S. bank that receives bailout money.
But here is the issue. The banks that have already paid back that bailout money, like Goldman Sachs, for example, they can do whatever they want with compensation at this point. The government has no say. And that's what has some people worried that some of the old ways, Adrian, of doing business on Wall Street are maybe coming back.
I sat down with the head of the FDIC, Sheila Bair, this week. She told me what she thinks about that.
Take a listen.
(BEGIN VIDEOTAPE)
SHEILA BAIR, FDIC CHAIRMAN: There's a difference between capitalism and unbridled greed. There are tools that regulators need and legislation, but there are also, you know, financial institutions themselves should take some leadership here, too. And they should recognize that there was a lot of excessive risk taking and the government did have to step in, you know, regular working Americans and their taxpayer dollars had to come in and support them. And it's absolutely unseemly to have these eye-popping bonuses and, you know, this business as usual type of culture is just -- you'd think they would opt -- they would exercise more self-restraint.
(END VIDEO CLIP)
HARLOW: Strong words there -- lack of self-restraint when it comes to compensation at some of those big U.S. banks. The bottom line here, Adrian, she's not asking for regulation of exact dollar amounts in terms of compensation, but what she does want to see and where the conversation, I think, is really headed is compensation tied to long-term performance, not just one year's performance, Adrian, as is the case right now on Wall Street.
FINIGHAN: Yes. You...
HARLOW: Adrian.
FINIGHAN: You talked, Poppy, about -- about the banking czar having very little power at the moment.
HARLOW: Right.
FINIGHAN: I mean is there -- is there any legislation in the pipeline?
HARLOW: There is. The House here in the United States passed a bill back in July and that gave shareholders in major institutions, say, banks, more say on executive pay. What it also would do is limit bonuses at risk taking institutions based on their risk taking at institutions that hold more than a billion dollars in assets. That hasn't gone before the Senate yet. It's not law. And, also, I should note, it doesn't have any hard caps on compensation, like those that are being called for right now in Europe.
But what's interesting to note is in a recent speech, just a few weeks ago, the CEO of Goldman Sachs, Lloyd Blankfein, said excessive pay "works against the public interest." I thought that was very interesting.
He also said, though, Adrian, on the other side of that, bonuses are important to attract top talent to the financial institutions.
So an interesting debate going on. You can see that full interview with Sheila Bair on CNNMoney.com -- Adrian.
FINIGHAN: Absolutely. It's an interesting conundrum.
Poppy, many thanks, indeed.
HARLOW: Sure.
FINIGHAN: CNNMoney.com's Poppy Harlow.
Now, we've been talking a lot about the after effects of the Lehman Brothers collapse this week on the program -- how the markets slid and how lending came to a virtual halt in both the U.S. and Europe.
Now, in China, banks have actually fared pretty well during the current downturn.
But what lessons have they learned from the crisis?
Well, Zhu Min, executive vice president of the Bank of China, spoke with CNN's Andrew Stevens.
(BEGIN VIDEOTAPE)
ZHU MIN, BANK OF CHINA: I think the -- there's many things that we've learned from this crisis that for us is very important.
Number one, being a commercial bank served a real (INAUDIBLE). No big trading exposures, no big offshore balancing activities, no big derivatives, just our reals have declined.
ANDREW STEVENS, CNN CORRESPONDENT: But that means lower profits, doesn't it?
MIN: Exactly. That's the third point I'm going to say. The second is the transparency for the risk management. You have to let people know what they're risk (INAUDIBLE).
The third point is exactly, I think the banking centers have to recognize this is a long, stable business. It's not for high profit.
STEVENS: Do you see this as a window of opportunity for the Chinese banks to go outside China now, given what's happened in the rest of the world in the financial system?
MIN: It is a window of opportunity for us and it's a very open window. But I would say not necessarily being the goal was, you know, take the market share or, you know, get other bank market share.
Yes, there has been a lot of (INAUDIBLE) of changes. But a few things I would say. Number one, on the other side, those people still take us, the Chinese financial system, us emerging (INAUDIBLE) country, we're still, you know, needing to (INAUDIBLE) ourself in the (INAUDIBLE) structures a part of (INAUDIBLE) internal risk management and also the -- the (INAUDIBLE). A lot of things we've been working on (INAUDIBLE).
STEVENS: The Chinese banks are emerging, obviously, on the world stage.
How do you avoid the same bonus culture which many would say was at the center of the problem with Western banks?
MIN: Every culture needs a proper incentive scheme. We do the same thing. And we do a lot of international recruitings. We also have an incentive scheme with a much, much moderate rates. I think we -- we're not particularly, you know, think that incentive is the key issue to motivate the people to work hard.
STEVENS: Do you -- does the Bank of China aspire now to be the world's biggest bank?
MIN: It's -- it's not an issue to be of top 10 or top five. It's really an issue to be a company, you do have your whole companies, you can compete in the international arena in all the way around. That's number one.
Number two, you do serve your client well. And, at the end of the day, you're making profits but you contribute to the value-added for the whole society.
(END VIDEO TAPE)
FINIGHAN: Zhu Min, the exclusive vice president of Bank of China, speaking there with CNN's Andrew Stevens.
Right, let's get you up to date with what else is making news around the world.
Max Foster joins us once again from the London newsroom.
MAX FOSTER, CNN CORRESPONDENT: Adrian, a frightening rampage at a school in Southern Germany. Police shot and arrested an 18-year-old boy armed with an ax and knives. They say he threw Molotov cocktails into two classrooms and wounded eight students and a teacher. The attacker is in critical condition. It's the second attack on a school in Germany this year.
France plans to shut down a migrant camp in Calais. The immigration minister promises the tent down -- tent town will be closed in a humane manner. He says the people camped out there will be allowed to seek asylum or transport back to their home countries, mainly Iraq and Afghanistan. Drivers had complained of stowaways climbing aboard their rigs trying to get into Britain.
An arrest in the murder of an American graduate student at Yale University. Police have taken lab technician Raymond Clark into custody. He's been charged with the murder of Annie Le. The 24-year-old was last seen alive on November the 8th as she entered a lab near the campus. Her body was found hidden in a basement wall on Sunday, the day she was to be married.
And talk about going, going, gone -- this video is a hit with baseball fans. Steve Monforto snags a foul ball, high fives his friends and hands the prize to his daughter. She promptly tosses it away. Three-year-old Emily got a sweet hug, though, from daddy, while he lost the ball. He clearly held onto something much, much greater -- Adrian.
I think he got a ball from the team anyway. So it wasn't all lost.
FINIGHAN: Yes, he got a original one. I wonder how much that one -- that cost him.
(CROSSTALK)
FINIGHAN: Max, many thanks, indeed.
Right. It is a familiar name to U.S. travelers that's fallen on hard times. We're talking about the Holiday Inn. Now the hotel chain is relaunching its brand with a billion dollar revamp and eye catching programs like this New York suite made entirely out of car keys. We'll check out what's new with the global head of Holiday Inn in just a moment.
(COMMERCIAL BREAK)
FINIGHAN: Hello again.
Now, picture this -- you run nearly three -and-a-half thousand hotels. You try to keep them looking smart, but with guests in and out all the time, they can get a bit scuffed.
So what do you need?
You need a total revamp. And that's the job that Holiday Inn has set itself. It's throwing $1 billion at the task.
Kevin Kowalski is the global head of Holiday Inn and he joins us now live from New York.
And, Kevin, that's great -- you're in a room made entirely out of -- out of what?
Key cards. Fantastic.
KEVIN KOWALSKI, SENIOR VICE PRESIDENT, HOLIDAY INN: Out -- out of key cards, absolutely. Yes. Don't mistake this for one of our regular rooms in one of our hotels, because it's clearly not.
FINIGHAN: So what, I'm just worried about what happens if you sneeze.
But how -- how is this revamp going, because it's -- it's taken some time and you've been at it for quite a while.
KOWALSKI: We have been at it for quite a while. Actually, the relaunch started in April of last year and, you know, from the get go, our target to complete all 3,300 hotels around the world was the end of 2010.
And the good news is even with these tough economic times, we're on target to get it done. We have a high level of confidence that we'll be done with the full estate by the end of next year.
FINIGHAN: All right. So what are you doing to -- to your hotel rooms to bring them up to date?
I mean surely a hotel room is a hotel room is a hotel room. You just want a comfortable bed somewhere -- somewhere nice and pleasant to lay your head for the night.
KOWALSKI: In many ways, that's right. But, you know, I think there's something special about Holiday Inn as a brand. You know, it's a 57-year- old legacy brand that's had long time emotional connections with our guests and it's a brand that's really come to represent casual hospitality. You know, a very kind of relaxed, unpretentious place where people can let their hair down and be themselves. And those are the things we've really tried to reinforce and we think set us apart from a lot of our competitors that are more stiff and corporate and kind of formal.
And, you know, we've learned our guests -- you know, they want to get away from work at our hotels. They want something that's more relaxing and that's what we're trying to provide.
FINIGHAN: Yes, I was going to ask you, you're halfway through then, OK. So -- so some of the hotels have been revamped, others are yet to -- to be revamped.
But what if -- what are people saying about -- about your new rooms?
Do they not -- do they like them?
KOWALSKI: They do. You know, we -- we really try to our discipline and measure it in several ways. The first thing we look at is guest satisfaction. So we measure individual stays at each and every one of our hotels to try to determine whether our guests like the experience or not. And we're finding that the hotels that have been relaunched have significantly higher guest satisfaction than those that have yet to relaunch. So that's one great measure.
The other thing we look at is the performance of the hotel -- you know, is -- based on that satisfaction and that better experience, is the hotel performing better and is it more competitive in its marketplace?
And again, we have good news. The relaunched hotels are performing about 5 percent better on RevPAR -- how we measure each individual hotels performs -- and they're actually gaining market share versus their competitors in their local markets.
So all those things add up to say we're doing some of the right things with the relaunch.
FINIGHAN: And to what extent is this going to be a -- a never ending job?
They say of the fourth bridge here in Scotland, that once you've finished painting it, you've gone from end to end, you'd better go back and start again at the beginning.
Is -- isn't that what it's like running a business of your size?
KOWALSKI: Well, you know, there's certainly some truth to that. You know, when you have 3,300 hotels around the world and they're all at various stages in terms of their age and how long they've been in your brand, there's always some ongoing renovation.
But the good news is we're -- we're massively renovating all 300 -- 330 hotels at once over a couple of years. At the same time, we have the largest portfolio -- the largest, you know, pipeline of -- of any brand in the world. We've got over 1,000 hotels that are currently under some stage of construction and will be entering the brand over the next couple of years.
So when you add those things up, we're going to have a lot of brand new hotels and then we're going to have a big number of hotels that have just been refreshed.
So I think that's going to give us a little bit of a respite from that constant renovation that you just talked about.
FINIGHAN: Kevin, we wish you the best of luck with it.
I hope it goes well and pays dividends for you. And I love that -- that room made entirely out of -- of hotel key cards. I'm just trying to make out whether the lady standing there behind you is real or -- I think I saw her move. She's not made of key cards.
Thank you.
Kevin Kowalski.
KOWALSKI: She's real.
FINIGHAN: Yes. The global head...
KOWALSKI: (INAUDIBLE) for the camera.
FINIGHAN: The global head of Holiday Inn. Yes, she is real.
How about that?
Guillermo -- how do we know -- is at the CNN World Weather Center. And he's real, as well. And I don't think he's standing in a room full of key cards, are you, Guillermo?
Where are you?
GUILLERMO ARDUINO, CNN METEOROLOGIST: I -- I am actually covering a super typhoon. And the -- the important thing to bear in mind in here is that it has been so far the strongest cyclone anywhere in the planet in over two and some years.
So it is quite impressive. The center of the system is clearly defined. The sheer size of it is impressive, as well. The strength and the environment that is perfect for more action is something else that we look at very closely, as well. And no change in the forecast in the last three days or so. So, everything seems to be very predictable.
Is it going to become again a typhoon at any time, because as we go north, you know, it encounters cooler waters. Also, there is this front here in Japan that is bringing rain and in combination with this -- the front is going to block the cyclone from going into Japan. But in combination with this, it's going to dump a lot of rain into Honshu. So get ready for that.
We have also some winds that are going to steer the system away from Japan. Lucky you. But the rain is there and the forecast, you may see some delays there; Taipei, not related with this, also some rain.
Europe with some changes now. We have Spain with rain, the Barcelona area and southern parts of France. The Iberian Peninsula is getting in more rain with this low pressure center. While it's getting a little bit easier, especially in the western parts of Italy. So it's your turn, finally. But now this system is moving a little bit into the Balkan Peninsula and in Greece included, is where we will see the bad weather. So I said Barcelona with winds, probably delays and the rain, as well, just to name one city.
The winds are easing, especially in the next two days, in England and in coastal parts here of the Netherlands and France, but they remain active in the north. Scandinavia is getting a new system that is going to bring some rain. And Saturday, we may see some rain showers in London.
But for the most part, Friday and Sunday are going to be much better, not much going on in here, in the British Isles. Let's see the forecast. You're going to see a band going through. There you go. And coming from the south and, in that case, that's what's going to produce the rain showers over there.
So, that's more or less what's happening.
Stay tuned with us. We're talking fashion after the break.
This is QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
FINIGHAN: Stop the press -- Tommy Hilfiger is taking New York. So it says here. The American designer is opening a 22,000 square foot mega store on Manhattan's Fifth Avenue. It's a risky move in a retail environment that seems to be tilting to the low budget end of the scale these days.
But as Hilfiger tells CNN's Maggie Lake, he's very comfortable in his new digs.
(BEGIN VIDEOTAPE)
MAGGIE LAKE, CNN CORRESPONDENT: These chairs are -- are my favorite.
TOMMY HILFIGER, DESIGNER: Oh, these chairs are cool.
LAKE: I love them.
HILFIGER: Hollywood.
LAKE: Yes. Exactly.
(voice-over): After 25 years as a fashion icon, Tommy Hilfiger has finally set up shop on one of the world's most renowned fashion streets. He sunk millions into a lavish global flagship store in the heart of Manhattan's famed Fifth Avenue, where neighbors like Saks and Tiffany's have long held court.
Known largely for his denim and casual wear, Hilfiger's new store will showcase all of the designer's collections, including his runway fashions.
(on camera): You're opening a new, gorgeous flagship store in the middle of one of the worst recessions we've ever seen or certainly seen for decades. It's a pretty big risk.
HILFIGER: Well, we feel being the only American fashion designer on Fifth Avenue, we're in a great spot. And the traffic on Fifth Avenue is international, which is still shopping. But they want value. And we stand for value. We have the same philosophy as we've had for 25 years. We have accessible luxury, affordable fashion, wearable fashion and an incredible selection.
So we feel very confident that we're going to do OK.
LAKE: Now, I have had many a retail analyst tell me that the consumer is dead and they -- this time, they are not coming back.
Is that your sense?
Are they coming back but are things changed?
What is the state of retail right now?
HILFIGER: I think it's tough for everyone. However, I believe it's coming back. And they may not be buying automobiles or houses or vacations, but they can afford something to wear -- a new sweeter, a new shirt, a new jacket to wear makes you really feel good. And it's not an enormous investment. But it is psychologically something that, I think, fine tunes the mind.
LAKE (voice-over): Even in this tough environment, Hilfiger is optimistic about his business.
HILFIGER: It -- it has been a blow to the luxury market. And, you know, if you're accessible luxury and if you're affordable luxury, you -- you still, I think, stand strong. But I think a lot of the competitors will have to rethink and re-engineer which is not (INAUDIBLE). So we're, I think, in a sweet spot.
LAKE (voice-over): And Hilfiger is enjoying every moment of it. The question is whether shoppers will agree.
Maggie Lake, CNN, New York.
(END VIDEO TAPE)
FINIGHAN: Well, designers from all over the world are showing off their latest creations right now at New York's Fashion Week. The big question on everyone's minds remains the state of the world economy, as Richard Roth found out.
(BEGIN VIDEOTAPE)
RICHARD ROTH, CNN SENIOR UNITED NATIONS CORRESPONDENT: Fashion -- the recession -- there has been an impact on the industry, right?
How bad?
FERN MALLIS, EXECUTIVE DIRECTOR, SEVENTH ON SIXTH: Well, it's been as bad as it's been in -- in every industry. There's a lot of empty store fronts. A lot of stores have cut back their orders. Designers are being much more focused now about what they're making and selling. They're not doing anything superfluous and they're not wasting anybody's time or money. And they're trying to get more value for what they're producing.
ROTH: How is the fashion business affected by this economic recession and have you been at all?
MAX AZRIA, DESIGNER: I think the economy -- the fashion business was affected by the economy. However, the situation has stabilized because there are less competition in the market and less degradation or the diminution of the (INAUDIBLE) in parallel with the clothing store hopefully.
UNIDENTIFIED FEMALE: I've been a nail professional for 15 years.
ROTH: Has the fashion recession affected you in any way?
Are there less toes being scrubbed?
UNIDENTIFIED FEMALE: No, it's always a service. People love to be pampered.
ROTH: You know, I have a problem with my middle toe. I don't think it's going to be worked on here.
KERI HILSON, SINGER: I think in lieu of the recession, that you still have to find enjoyable things and find things that do make you happy. And for a lot of people, that's fashion.
CAROLINA HERRERA, DESIGNER: I think women -- we never stop buying, even in the bad economy, even in a -- in difficult times and all that. To buy something is, you know, it lifts your spirit and it has never stopped even if they can't afford it. I mean they eat less, but they buy something. We do that.
(END VIDEO TAPE)
FINIGHAN: And that's it for this edition of QUEST MEANS BUSINESS.
In London, I'm Adrian Finighan.
Hala Gorani is up next at the International Desk.
As Richard would say, whatever you're up to in the next three or four hours, I hope it's profitable.
END
