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Quest Means Business

Iceland in Financial Crisis; Buffett Rebuffs Kraft Offer

Aired January 05, 2010 - 14:00   ET

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

RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Iceland freezes payouts for IceSave, bank feeling the heat from the EU.

Kraft sweetened its offer for Cadbury's and suffers a rebuke from its biggest shareholder and that is Warren Buffett.

And the battle of the smart phones. Now, Google going head to head with Apple's IPhone.

I'm Richard Quest, tonight, I mean business.

Good evening.

Tonight, Iceland in crisis. As the president has defied parliament, responding to popular protests, President Grimsson vetoed a bill to repay more than $5 billion to Britain and the Netherlands. Money those countries paid out to investors when their Iceland banks went belly up. Iceland has been forced to take the money when it didn't have the funds to compensate depositors in its shattered banks.

Tonight, we are going to examine what this will mean for Iceland's economic future, its political future, and of course, whether it will threaten vital economic aid to Iceland from the European Union and its membership.

Iceland's troubles began when it was hit head-on by the global financial crisis. Come and join me over here as we talk of the painful year of adjustment.

Iceland's banks had taken massive risks with much of their investment from borrowed money, borrowed on the international money markets, which of course the credit markets shut down spectacularly in 2008. When that hurricane came, it brought Iceland's banks crashing down. The government was forced to take control of the major banks, Glitnir, Landsbanki and Kaupthing. Hundreds of millions of dollars belonging to savers, particularly overseas, in the UK and the Netherlands, was frozen.

In November, Iceland got a $10 billion loan from the IMF and European and Nordic neighbors. It was even rumored that Russia was going to come to the rescue, $10 billion. But Iceland, in July, applied to join the European Union. That is a process that won't be helped by the latest altercation over the $5.5 billion that Britain and the Netherlands had to shell out to compensate investors in IceSave's banks. Now the British and the Dutch governments have an obligation to pick up the bill. The Icelandic parliament had agreed to pay the money back to Britain and the Netherlands, and now it is the president who is refusing to sign that into law.

That is the time line of the crisis. Jim Boulden, who joins me now, was in Iceland at the time of the crisis, and joins me to talk about it.

Jim, President Grimsson's decision not to sign the bill; is it a constitutional or an economic or any crisis?

JIM BOULDEN, CNN INT'L. CORRESPONDENT: I don't know that it is a economic crisis yet. It is a very popular move on his part. The Icelandic people-it is like, it has been estimated that it would cost each one of them $20,000 equivalent, per person, if this vote had gone through, if this bill had been signed into law. That is why you see these incredible -

QUEST: So why did they sign it? Why did they sign it? I mean, why are they bailing them out? Why are -is the Icelandic government bailing out the British and the Dutch, if the know it is an unpopular measure with their own people?

BOULDEN: That is why it was a very close vote in the parliament. That is why it took so many changes and permutations and it happened just before the new year. And it was by no means a popular vote. It was -some of the major parties were for it, but obviously the president seems to think that this is a better way to go. That now allowing the Icelandic people to vote in this referendum.

QUEST: So President Grimsson isn't saying no to a bailout. He is basically saying no, until the people have individually approved this.

BOULDEN: It is interesting as to why he, specifically, has decided to take this step, which is a very rare step within the constitution of Iceland. Because as you say, the government decided this was the best of the bad deals that have been coming through. But we have to remember in the end the Dutch government, very unhappy. The British government, very unhappy by this. They thought that this deal had finally been settled. And remember it is their money that they have actually given to their own citizens. This money didn't even go through Iceland. This was Britain loaning money, kind of loaning money, to Iceland to pay back the British savers in IceSave.

QUEST: Is this likely to have a implication to Britain - Iceland's application to join the European Union?

BOULDEN: Well, that is a long-term project. It is not going to happen until 2012, at least. So it may, in the short-run, let's see where the vote goes. Let's see what the reaction is to people. But you know they still need to get more money from IMF, they haven't gotten that yet either.

QUEST: Stay with me, join in our discussion. Because the petition against repaying the money was signed by a quarter of Iceland's voters. It was organized by a protest group, called InDefense". It called the bill and crushing economic burden.

On the line now, from Iceland, via broadband, one of the founders of the group, economist Magnus Skulason.

Mr. Skulason, President Grimsson's decision not to sign the bill, clearly, what are you hoping happens next?

MAGNUS SKULASON, ECONOMIST, JOINT FOUNDER, INDEFENCE: Well, thanks, Jim, I must correct you on one thing. Actually, the Icelandic parliament passed the bill in the end of August, with some safeguards, to safeguard the Icelandic economy, so Iceland would pay part of the GDP growth to the British and the Dutch, but that agreement -well, we haven't had a formal answer from the British and the Dutch regarding that. But they demanded more. So they demanded that unreasonable IceSave agreement.

So, actually, the parliament spent like three months last summer, just over trying to find us reasonable solution to this, out of a staggering 5.55 percent interest. But on the deal that would be more in accordance, to actually promise, to (AUDIO GAP) European Union, from November 2008, and so, on the restoration of the Icelandic economy.

QUEST: But is your fundamental opposition, Magnus, that any money is paid to the British and Dutch investors, or is it just the amount of money?

SKULASON: Absolutely not. Of course, we want to fulfill our legal obligation, according to the European Union depository guarantee scheme, and that is natural. And we have said we would do so. The Icelandic government has stated so, clearly, all the way since October, last year, when the crisis started.

But we have to understand that we had a total systematic breakdown on our banking system. The British government used the anti-terrorism legislation to freeze the assets, probably because they were intended (ph) because of Lehman Brothers, at that time.

BOULDEN: Magnus, this is Jim Boulden. You had another ratings downgrade. This time from Fitch ratings this afternoon, because of this decision by the president. SO, you currency is still controlled, it is still very weak. You have a difficult problem trying to explain this to rest of the world, why Iceland is not taking the steps that many people thought would actually help the economy to recover in 2010.

SKULASON: Well, as Jim said, this is like $20,000 per head, and that is a staggering amount. And the Fitch rating, actually, I'm wondering if they have the correct information. If they knew that actually the parliament, the Icelandic government, already passed the IceSave deal, in August, with some safeguards. And that should actually more positive, that Iceland is very responsible and trying to pay out the money, instead of having a riskier contract that is now, has now been beat up by the president.

QUEST: Magnus, this is Richard Quest again. I'm just wondering, is President Grimsson, in taking this action. He is clearly in accordance with what the popular wishes are, but bearing in mind the elected government has passed this bill, is this a constitutional issue, at the same time?

SKULASON: Well, the president has said that he is -that actually, that this is his right, according to the constitution, because he is elected in an election, directly from the public.

QUEST: Right.

SKULASON: And he has done so today. And so, A, what could happen, there could be a referendum in two-month's time, but maybe that is too long. The government of Iceland could actually withdraw the current bill and go back to the Dutch and the British and say, well, let's take the August bill that was actually passed by the government, and by the parliament, and actually as well, by the president. Or, thirdly, we could build up a new negotiations .

QUEST: Magnus.

SKULASON: . with a more reasonable solution.

QUEST: Thank you very much, Magnus Skulason, joining us from Reykjavik.

SKULASON: Thank you very much for having me on your program.

QUEST: And Jim Boulden, of course, with me here in London. You'll keep watching this?

BOULDEN: Yes.

QUEST: Let me update you. Europe's main markets paused for a breath, they followed the rally on the previous day. Bring up the numbers. London's FTSE, the only winner on Tuesday.

I want to keep with the banking sector, RBS, was up more than 10 percent. And Barclays and Lloyd's also did well. Well, RBS is up sharply because of the potential for investors in the bank. Pharmaceutical (ph) stocks going up as well. Sanofi Aventis fell 1.3.

And the CAC 40 flat. Frankfurt's Fresenius Medical Care was the biggest loser.

To New York, which is open and doing business at the moment. The New York market is currently trading and it is down 48 -well, just half a percentage point.

You are up to date with the markets, the news headlines now. Fionnuala Sweeney is at the CNN News Desk.

(NEWS BREAK)

QUEST: We are looking at a real dog-eat-dog business in just a moment. It is Formula One, the lengths that people will go to get the right results. Now, you'll remember, of course, when Renault ordered its own driver to cast one of the most powerful men in F1, got his marching orders, but could he be back. We'll be live in Paris, in a moment.

(COMMERCIAL BREAK)

QUEST: The former Renault boss, Flavio Briatore, is free to return to Formula One. At least according to a court decision in France, which overturned that life-time ban imposed on him by the sport's governing body.

The FIA kicked him out in September. It ruled that Briatore and another manager ordered their own driver to deliberately crash his car. The idea being to help a teammate win the Singapore Gran Prix. Both men are seeking substantial damages against the FIA.

OK, let's put some perspective. Our Senior International Correspondent Jim Bittermann joins me from Paris, where we may be having one or two problems with the line.

But, Jim, we'll battle on anyway.

Hang on, have they just simply said, that lifetime ban was against the rules, or have they kicked the whole thing out and he's back in the game?

JIM BITTERMANN, CNN SR. INT'L. CORRESPONDENT: Well, they said the lifetime ban is off. So, that he can once again rejoin Formula One racing. He has been banned not only just from managing a Formula One team, he was banned from even attending a Formula One race. He is now free to do so.

It really remains a question, though, exactly whether he will be an active participant, whether there will be any teams that will really want to pick up Briatore after all the scandals surrounding his activities in Formula One racing. And you know, whether or not that they Formula One people will appeal this. The lawyer suggested, after the court hearing today, basically suggested that there would be an appeal. But there has been no announcement, no communique from the racing federation up until this point. Not one expected tonight, but perhaps tomorrow we'll hear what they're plans are in terms of further pursuit of this case, Richard.

QUEST: Jim, the one thing I can't quite follow, is the court saying that the -that he didn't do it, therefore the decision was wrong, or are they saying that the sentence was improper because of the length and term of the sentence?

BITTERMANN: No, I think it is something in between those two. In fact, what they are saying is the procedure is wrong. Basically, they said that he was not given a fair hearing, that there were anonymous witnesses, that his lawyer was not allowed to cross-examine. That just the whole procedure was not fair. One of the interesting aspects about this, Richard, is that the basically this is the French court getting involved in what is essentially a private association that is basically taking care of its own disciplinary matters.

And it really raises a question about future disciplinary matters by the federation, or by, in fact, any other sporting association, whether they get involved disciplining their members, are they going to get overruled by some court, getting involved in the situation? We just don't know, Richard.

QUEST: And we do know that we seem to have lost Jim Bittermann, in Paris, for the moment.

When we come back, in a moment, Kraft's courtship of Cadbury's has taken an interesting turn. U.S. food giant is freeing up cash to try to make its bid a bit easier to swallow. Cadbury isn't biting. And there is a new wrinkle, the shareholder, Warren Buffett, in a moment.

(COMMERCIAL BREAK)

QUEST: The U.S. food giant Kraft making a new push for dominance in the chocolate business. Kraft, of course, makes Oreo cookies and has improved its offer for Cadbury's in the details. Cadbury's says, and I quote, "The offer is still miserly, Kraft has missed the point."

Kraft's biggest shareholder, Warren Buffett has fired a shot. Saying he voted not to allow Kraft to issue several billion dollars worth of new shares, because that could damage shareholder value.

Now, this is a complicated transaction. The thing to bear in mind is what Kraft is doing, it has kept the total amount the same, $16 billion, is the bid. But it is now dividing it up slightly differently. It is now putting more of a cash element to it. And, crucially, it says it is going to sell its pizza business to Nestle, and use the cash to pay for the transaction.

You get the idea. Maggie Lake.

All right, Maggie, have I just about given the gist of that transaction.

(LAUGHTER)

QUEST: Because, at the end of the day, Warren Buffett chiming in, and then saying he doesn't like it. Does he say he doesn't like the deal at all, or just the deal's structure?

MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: I think a little of both, Richard. But he has got issue with the structure right now. In particular, and this is a big deal. He is coming out publicly today. The vote isn't until February 1, but he obviously feels very strongly about this.

And he thinks that it fundamentally undervalues Kraft. Because Kraft is going to have to issue all these new shares, where the stock is trading, roughly around $27 a share. Buffett bought into Kraft at around $33 a share. And there are a lot of people who think that share price should be higher. So he does not like the fact they'd have to issue all this share.

But that is not the only beef he has of it. He also says that this plan, which is -remember he is not voting on the deal itself - he's voting on Kraft's plan to issue shares. He also doesn't like it because he says, and this is a quote, "that the share issuance proposal, if enacted, will give Kraft a blank check allowing it to change its offer to Cadbury in any it wishes." The concern? That Kraft is going to buckle to Cadbury's complaints and up that price.

And although Cadbury would like it to do that, its investors in the U.S. are against the idea of it over paying for Cadbury's, which they think it would be. So Warren Buffett doesn't like either of those things. You know, Berkshire Hathaway owns about a 9.4 percent stake in Kraft. It is not huge, but as you know, Warren Buffett is extremely influential. And the fact that he is coming out now, and saying that he doesn't like anything about this, may sway other Kraft shareholders, who may be sitting on the fence or thinking about this, when they go to put in their vote on February 1.

So, they don't like it on your side, and it appears, they don't like it over here, either.

QUEST: Let's talk about - I mean, that bizarre, potential white knight deal, Hershey and the Italian chocolate maker, it - they made it indicative. They put up a flag saying they might be up for doing something. And we haven't heard anything since.

LAKE: We haven't heard anything since. And that is a problem for Cadbury, who keeps kind of holding that out there. You know, people do believe that Hershey's board is seriously taking a look at this, but Richard, I know from being over here, you probably know a little bit about this. Hershey is a complicated case, for its own reasons.

Unlike Kraft, where the issue is whether the shareholders will OK it, at Hershey's the company is controlled by a charitable trust, whose mission is to fund a school for orphans and underprivileged children. You are talking about a very different rationale then a lot of the business deals that are done, which really the focus is all about profit. Traditionally, when they have done deals it has been complicated. They tried to do something with Wrigley a few years back, and at the last minute pulled out. It was messy. All sorts of people weighed in. So, Hershey is complicated.

You know, Cadbury would like to see it, because culturally they have more in common. Could they do some sort of defensive alliance? Maybe. But so far everything is speculation. There is no bid from Hershey on the table.

QUEST: This is turning into a real melted chocolate mess, isn't it? I mean, it is the sort of deal that we saw maybe sometimes in the `80s and maybe the `90s, where everybody just finally says, enough.

LAKE: Well, that is the thing. You wonder why are they continuing when nobody seems to like it. It is hostile for Cadbury. Their own shareholders don't like it. The thing is that Kraft has been underperforming its peers and its CEO really is under, Irene Rosenfeld, really under pressure to say how they are going to grow that company. What are they going to do, when specifically she really wants to diversify internationally? Because this was -management was pinning a lot of hopes on this, and they seemed to be willing to push it against the wishes of most everybody. But you wonder with this kind of opposition if they are going to be able to get it done, Richard.

QUEST: Maggie, good to have you with us tonight. Many thanks, Maggie Lake. Another day in New York.

Smart phone users of the world, whether you are IPhone, Android, Palm, Free, or now, there is a new one, Google. Google has just unveiled a contender. Does it pose a threat to the IPhone, nonetheless?

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest. QUEST MEANS BUSINESS, this is CNN.

The New York market is open and doing business and you need to know how it is looking and trading at the moment. A lot worse, UNINTELLIGIBLE) But I'll tell you the New York market was down around about 40 odd points, now own around 51.32, half a percentage point, 10,532. And very strong day, previously, on the upside. So perhaps we shouldn't be too distressed if things are looking a little bit off. Maybe a bit of profit taking in these very early days. Remember, though, that while we were talking yesterday with Susan Lisovicz, and the first five days, trading days, tend to set the trend for the year. Well, I'll be you on that by the end of the week.

If you are looking elsewhere in the Americas, it is already proving to be a tough year for consumers in Mexico where they are dealing with higher prices on everything from gasoline to tortillas. Our Senior Latin American Affairs Editor Rafael Romo has more on the conditions.

(BEGIN VIDEOTAPE)

RAFAEL ROMO, CNN SR. LATIN AMERICAN AFFAIRS EDITOR (voice over): Tortillas have long been a staple at Mexican dining tables, but prices have just gone up on the familiar thin round of unleavened corn meal

Teresa Jimenez (ph) says it is going to hurt her family and others.

UNIDENTIFIED FEMALE (through translator): Tortilla prices should remain the same, we already have to limit the amount of tortillas we eat, and we don't have extra money to afford the new prices. We don't have jobs.

ROMO: The increase in tortilla prices is just one result of the higher taxes put in place January 1st by the Calderon government. The sales tax on most products went up by 1 percent to 16 percent as well as income taxes on workers with a fixed salary.

UNIDENTIFIED FEMALE (through translator): I'm angry because our president is not helping people in need. He raises salaries for bureaucrats and we the people are only getting a three peso raise.

ROMO: The higher taxes are pushing up the cost of gasoline, which creates a domino effect.

UNIDENTIFIED MALE (through translator): Wages don't go up as fast as prices. Ideally they would keep up with inflation, but they never do.

ROMO: Mexicans are also seeing price hikes in other basic food products such as eggs. Electricity and propane gas are also more expensive now.

UNIDENTIFIED MALE (through translator): The rise in basic food products and fuels is higher than ever. It's really ridiculous.

ROMO: Mexicans have a name for the kind of inflation that seems to hit the country at the beginning of each year. They call it the January slope.

(on camera): The minimum wage in Mexico is less than $5 per day and about 40 percent of the population lives in poverty. Mexico's central bank expects consumer prices to increase by more than 5 percent before the end of the year.

Rafael Romo, CNN, Atlanta.

(END VIDEO TAPE)

QUEST: So, the New York market was open or is open and I showed you what it was trading at -- some down 50 points.

We need to understand why.

And for that, Susan Lisovicz is at the New York -- no, you're -- you're not -- you're -- you're in New York -- good afternoon to you, Susan, moving around, keeping me on me toes.

And, look, I'm not going to be too concerned by 50 off on day two of the trading year, because you'll be the first person to tell me, Richard, it's too early to be getting yourself excited.

SUSAN LISOVICZ, CNN CORRESPONDENT: That's right. And, you know, I mean, you could call it a new year's hangover. I mean we saw a pretty terrific rally on the first trading day of 2010, Richard. It did come on light volume, though, so that's something we're going to talk about more and more in the future, because that really points to, I think, some skittishness about the reality of this recovery.

So it's not surprising we see a little bit of a pull back. We do have some news, of course, with it, some mixed economic news. Factory orders doing well and that sort of ricochets off of what we heard on Monday with manufacturing. Pending home sales not so good. Well, you know, there could be the big surge to get into that tax -- that first time homebuyers tax credit.

We're watching autos. You know, we know 2009 was a tough year, but one thing we have seen now, because we have a -- a good, solid array of big automakers reporting their last month numbers -- and they're terrific. So we're seeing Ford shares, for instance, touching a four year high after it reported a 50 percent jump in U.S. sales from November to December. And that's something that we've seen, as well, with the others -- Chrysler, 36 percent month over month; GM, 38 percent; Nissan did very well, double digits, as well as -- as Honda. And so that could be a welcome sign for a big ticket item going into this year, where the bar, frankly, is going to be much higher.

QUEST: Airlines have caused much interesting consternation.

If -- I mean there -- there are two distinct views on this latest security crisis following last week's failure -- or Christmas Eve's failed attempt. One says that the airlines will suffer. The other says it -- that they're managing to weather the storm.

What does the market say?

LISOVICZ: Well, the market says they'll weather the storm. I mean it would be an entirely different story, let's face it, if a suspected terrorist was able to detonate, you know, at a very critical time. It didn't and security did act -- passengers, everybody did what they needed to do and a crisis was averted.

But we've had crises where we have seen real consequences, whether it's SARS, whether it's 9/11, whether it's the Great Recession. What we're seeing today, what the market is telling us, it has nice hopes for the airline industry. Continental's shares are up nearly 13 percent right now.

Why is that?

Well, Continental, one of the biggest U.S. airlines, reported better than expected December revenue. And let's face it, you know, people are choosing not to fly when they're out of work.

Not only that, Continental's brand new CEO says he's going to forego his $737,000 salary in bonuses until the airline turns a profit for a full year, OK. Continental lost about half a billion dollars in the first few quarters of 2009...

QUEST: All right...

LISOVICZ: -- so -- and -- and we're still seeing problems, because I'll just mention very quickly, regional carrier Mesa Air filed for Chapter 11 bankruptcy. It will continue to operate, but it shows the -- the fragility that industry has to, one, the economy; and, two, oil prices.

QUEST: Susan Lisovicz and New York.

Many thanks, indeed.

And talking of Continental. You can hear Jeff Smisek, who is the chief executive of Continental. He's on this month's CNN Business Traveler.

Now, in just a moment, it's a world of sky high salaries, multi- billion dollar transfers, eye-watering takeovers -- football's finances are coming back to haunt it.

How is that going to affect it?

(COMMERCIAL BREAK)

QUEST: Welcome back.

Football clubs may be forced to change tactics, and I don't mean the way they play on the field. Of course, on this program, we look at the way the business is run. Years -- huge salaries, the players' owners, who pay for takeovers with enormous loans and money out of their back pocket. Now it's all coming back to haunt the teams. And now the authorities are saying it's time to do something about it.

Let's put some perspective and show you exactly what we're talking about.

Let's start over here, for example. Let's talk about Manchester United. Now, we believe that a debt restructuring is imminent. It's reportedly going to consider a $1.1 billion bond issue. The Glazer family, which owns it, of course, is thought to be asking JP Morgan and Deutsche Bank and maybe a few others to help out in getting this debt issuance on the market. The debt of $1.1 billion, of course, is a great weight down on the club. But one has to question how it got there in the first place and the mechanisms for getting rid of it.

Now, look at this one -- Portsmouth. Transfers have been banned by the Premier League until the debt has been cleared. And we're only talking, in Portsmouth's case, of $64 million. You may wonder why Portsmouth for 64 is in such trouble. Of course, Manu is 1.1.

But it's all to do with the size of the club, the size of the revenues, the size of the owners' deep pockets. Portsmouth has failed to pay players' wages on time over the last three months. If you put it into the European perspective, Byron Munich announced on Tuesday its cut wages to stay out of the red. Valencia has borrowed money for construction of a new stadium and are $750 million in debt.

Belgium's Excelsior has filed for bankruptcy and is out of the league. This is a sorry story, indeed. You may be wanting to know and worried about.

Well, one transaction in 2009 brought the finances of football into sharp focus. Manchester United got $130 million -- one, two, three, four, five, six, seven knots for Cristiano Ronaldo when the player moved to Real Madrid. Not a bad bit of business, you'll have to agree, except it's only slightly more than the company's annual debt repayment.

So now you start to see why they did the deal. But it still left MANU's debt in a shocking state.

We need to talk more about this.

Pedro is here.

PEDRO PINTO, CNN SPORTS ANCHOR: That's why I'm here.

QUEST: Yes. I'm grateful for that.

And, look, the -- why is it so serious?

I mean these companies -- these football clubs are cash cows, particularly MANU. I mean they're one of the world's best known brands.

PINTO: I think that the point is here, Richard, is why are we talking about it now?

And this Manchester United story with the fact that they're considering issuing bonds for nearly $1 billion is why we need to take a long, hard look at this problem. And with Manchester United, you think that they're one of the richest clubs in the world, the Premier League sells their television rights to the world for more money than any other league.

So why do they have this problem?

Well, the issue with -- with English teams and what we saw with Portsmouth, as well, is that a lot of times we've had owners who bring in these incredibly large debts to the club and that is why the Premier League has recently tightened their -- their rules for -- for -- for people to come in and buy -- and buy clubs. And they've implemented fit and prepare persons tests to make sure that they're not doing this in the future. So the Premier League is trying to change this.

QUEST: Is the problem that they're being badly run or is the problem that the clubs are being milked or that the owners are being greedy?

Because at the end of the day, you know, it's still a phenomenally popular sport. The punters are paying to go and see it. And they're buying all those scarves and sweaters and things.

PINTO: We are. And with a club like Manchester United, they're saying look, our -- our operating profit is still more than our yearly debt payment, so we shouldn't be that worried about it.

But they should be worried about it, mainly, Richard, because UEFA is implementing rules in implementing rules in the next three years, 2012, they want to ban every club from the Champions League that has a huge debt like Manchester United. The clubs have to be self-sufficient.

So this is why Manchester United may be looking at it now to try to change what (INAUDIBLE)...

QUEST: They are not helped by the Abramoviches of this world, are they, who come along?

Daddy Roman pops along with the checks...

PINTO: Sugar Daddy.

QUEST: Sugar Daddy Roman.

PINTO: Well, you know...

QUEST: I mean he gets -- just in case you're not familiar, he converted a lot of the debt in Chelsea to basically equity...

PINTO: Equity, that's right.

QUEST: ...and even the CEO of Chelsea now says the club is effectively debt-free.

PINTO: Now what is the difference here?

Roman Abramovich is worth something like $11 billion. The owners at Manchester City, $25 billion. So they can say hey, don't worry about paying me back.

The problem with the Glazers, Malcolm Glazer and the rest of the owners of Manchester United, they don't have that money in their pockets. They have that money in loans with the -- with the banks.

QUEST: Right.

PINTO: So they can't -- they have to worry about it. That's the big difference.

QUEST: (INAUDIBLE) for poor Portsmouth.

PINTO: Well, it is troubling because for the third straight month, like you said, the players are getting paid on time.

QUEST: Yes, actually, it's not funny. It's not funny.

PINTO: And -- and it is an issue. They've had three different owners in the last year. So no one that picks up that club knows exactly what to do with it.

QUEST: If I gave you a billion -- finally, briefly, if I gave you a billion, would you buy a football club?

PINTO: Yes, I would, but I'm football nut, so maybe that's why.

QUEST: All right.

Many thanks.

(RINGS BELL)

PINTO: Thanks for the bell.

QUEST: OK. There is a new contender in the Smartphone market whose entry has been eagerly awaited. The Web giant Google is getting stuck in and it's setting up a new kind of rivalry with the iPhone maker, Apple. It's called Nexus One. It's just been launched in California -- the palm- sized phone -- palm as in size of the palm, not in size of the name -- boasts a fix mega pixel camera and the capacity to transcribe fiction. You speak into the phone and your words appear on the screen.

Oh, I'm in trouble now.

The headsets will be made to Google's design by HTC.

(BEGIN VIDEO CLIP)

MARIO QUEIROZ, GOOGLE: I do want to say that the Nexus One was designed in very close partnership with HTC. HTC is a company that has taken risks and has bet on the android platform from the very, very beginning.

(END VIDEO CLIP)

QUEST: OK. Errol Barnett is with us from CNN Center to talk about this -- now, look, Errol, our viewers, as you know, they're -- they're very savvy about all these sort of things. They use iPhones, Palm Pres. They've got all the gadgets.

So what is this one offering that will get people excited?

ERROL BARNETT, CNN INTERNATIONAL CORRESPONDENT: Well, what they're saying, Richard, is that this is the first Google phone to use Google software, completely designed by the company, only available through a Google Web store. So if you think about the success of Apple from iTunes to the computers that they offer and then their phones, they want you to come inside the family in a similar way.

How good is that phone?

Well, just moments ago their Web -- the Web only press conference ended and they had members of the HTC, the Vietnamese-Taiwanese company that helped develop the phone, to explain how easy it is to use.

Basically, it's like mixing an iPhone and a BlackBerry, the two most popular Smartphones in the U.S. and elsewhere in the world, as well. A five mega pix camera, which is -- which is what you just mentioned.

What does that mean?

It means that you take a picture and five million dots make up what you're taking a picture of -- a multi-color track ball down here. Another big thing here, Richard, is they want this phone to be as much as yours as possible. They want you to be able to customize this phone. For example, wallpapers and backgrounds you can create, do as -- as what's called open source technology. You can develop your own software and aps to go onto this phone.

QUEST: All right, I -- all right, now hang on, Errol. Hang on.

BARNETT: I hear you.

QUEST: At the end of day, though -- at the end of, this is really going to come down to who browbeats the consumer with enough marketing value. Now, we know iPhone has done it.

BARNETT: Yes.

QUEST: Apple has great strength. They were first in the market. But we know that Google has a huge war chest that it can throw at this in the competition, in the battle.

BARNETT: Absolutely. And the way they shared information about this device wasn't by telling everybody, releasing commercials and sending devices out to the press. They wanted those tech insiders to really give feedback. Those are the first people to get this device and to show what it can do.

And now that many people use Google Maps, Gmail and all of their other services, they say now, come home, use it all in one device that we've created and it will be, they say, more efficient than their competitors. Viewers -- customers will decide.

QUEST: OK. I know you're -- I know you don't take sides in any of these things, but in a word, do you like the look of it?

BARNETT: Yes, I do. It's cool. Like I would -- I would not be ashamed to take this out.

QUEST: Well, there we are, then. There we are.

BARNETT: Sure.

QUEST: Fine.

Thank you very much. Errol Barnett is clearly on the other side of 40 to myself.

The weather forecast now.

Guillermo is at the CNN World Weather Center.

It -- Guillermo, you've got some answers.

It's still cold out there.

GUILLERMO ARDUINO, CNN METEOROLOGIST: Yes, it is. It's going to get colder and, also, we're going to get snow. I'm talking about like 40 centimeters in many parts of England. That includes France, too, as this low pressure center, it's really cold in here. So the air doesn't have time to warm up. We're talking about officially 10 centimeters, but locally may see like up to 40 centimeters.

We're starting in the West, in Devon and in Sari and then it's moving all the way to Cambria.

Now, London will not see -- because there's already evidence of some snowflakes down there, but we'll not see snow until tomorrow.

Can you imagine the nightmare tomorrow, because in many places, there are going to be 40 centimeters of snow. And that means transportation issues.

So let's see the accumulations. Look at the table here -- up 10, 15 centimeters in some parts. I must say that Scotland is not going to get a lot of snow, but it's going to be bitterly cold, because the winds are going to be impressive over there, as well.

Southampton, on the coast, even eight centimeters, probably. And as we get into Wednesday, London is going to get its fair share of snow, as well.

So, forecast -- Amsterdam and Dublin, the same problem. Northern Ireland is going to see some snow, as well, and also cold conditions. The Midlands will see snow. But I think that to the south is the problem, and Wales, too. Then we have partly cloudy skies the next days, Thursday and Friday. But it's going to be extremely cold.

Now, Britain is not the only spot that is getting the snow. Look at Poland, the Czech Republic, the Baltics here, Scandinavia. And when we get to temperatures over there, it's really bad, as well.

Now, into tomorrow, we have a low pressure center here in Spain that is going to bring bad weather by the end of it. And then the snow is coming into the Alpine Region and the Balkan Peninsula.

But the weather is OK here, concerning airport activities. Maybe Milano with more snow; Copenhagen and Vienna also with snow.

Temps, one in London. The winds, you know, minus two in Glasgow, the wind really bad. Minus 10 in Stockholm for tomorrow, 19 in Athens.

And in Asia, we have also bad weather in Seoul. In Japan, we're going to see a lot of snow again and winds even in Hong Kong. Look at some other cities -- Northern India extremely cold, as well. But Japan I -- I think, Richard, is going to get bad snow because of this system here that doesn't want to move away. And it's bringing a lot of sea effect snow. So there are some snow showers still affecting many, many densely populated areas over Asia.

Are you beautiful?

Well, wait until we talk about that, when we come back.

(COMMERCIAL BREAK)

QUEST: There's someone out there for everyone, so it's been said and your mother always certainly made it clear that there would be somebody who could love a face like this. These days, millions of people are using dating Web sites to find that special person. If you describe yourself as curvy, cuddly and even voluptuous, there's one site where you are most definitely not welcome.

Jenny Wivell has been finding out more.

(BEGIN VIDEOTAPE)

JENNY WIVELL, CNN CORRESPONDENT (voice-over): Big is not beautiful, as far as this Web site and its members are concerned. BeautifulPeople.com markets itself as an elite online dating community where image is everything. You can only become a member by being voted in by other members.

But 5,000 members who piled on the pounds over Christmas and posted new photos on the Web site were shocked when BeautifulPeople and their fellow members voted them out. The Web site is so proud of what happened, they put out a press release about it.

MIKI HAINES-SANGER, BEAUTIFULPEOPLE.COM: It's all about keeping true to the profile that you create. So if you've joined as a size six or a size eight or with really ripped abs, then the other members expect you to maintain that look, because it is a site where beauty is at a very high standard. They aren't interested in hippos and wart hogs. They want the gazelles and the panthers.

UNIDENTIFIED FEMALE: How can you say they're not beautiful?

WIVELL: The owner of Europe's longest standing plus size model agency believes encouraging communities to diet is irresponsible.

CHERYL HUGHES, HUGHES MODELS: They're encouraging entirely the wrong concept, because what they're doing is encouraging these impressionable women, whether they be young girls or older women, irrespective, to be dieting, to be keeping themselves skinny because they think it's beautiful.

WIVELL: BeautifulPeople.com doesn't actually exclude you if you're over a certain weight, but it says if you let things slide, so will your membership.

(on camera): To join the existing 550,000 members online, you just have to tap a few vital stats into the computer, including your name and your age. You also have to submit a photo, which, in this instance, clearly carries a lot of weight.

The voting process takes no prisoners -- you're either hurt or you're not. But in a cyber world where beauty is in the eye of the beholder, there's no telling who will make the grade.

Jenny Wivell, CNN, London.

(END VIDEO TAPE)

QUEST: Hippos and wart hogs has to be the line of the night.

And when I come back, I'll have a Profitable Moment which, of course, will turn our attention back to Iceland and the sorry state of those frozen assets.

(COMMERCIAL BREAK)

QUEST: Tonight's Profitable Moment.

The people of Iceland have rebelled against the government and their president says it's now for the voters to decide whether to repay British and Dutch creditors. The whole Icesave debacle has been a miserable business and the issue is complicated.

For instance, questions involved relate to why did Britain and the Netherlands let Icesave make such generous and, in hindsight, ruinous offers in the first place?

Ordinary savers knew they were getting a better than average deal. In good times, they got rewards. Maybe they should be obliged to bear the risks, too.

There's plenty of blame to spread about, which is why this latest decision to let the people of Iceland decide whether to pay the bill is unlikely to be the last word. The Iceland banking debacle is a sorry saga, indeed.

And that is QUEST MEANS BUSINESS.

I'm Richard Quest in London on holiday for the next week.

So, whatever you're up to in the days ahead, I hope it's profitable.

Christiane is after the headlines from the I Desk.

END