Return to Transcripts main page

QUEST MEANS BUSINESS

Bankers Asked to Explain Bonuses; Cowell to Start New Show

Aired January 12, 2010 - 14:00:00   ET

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


MAX FOSTER, HOST, QUEST MEANS BUSINESS: Spending the bonus, bankers are put on the spot to explain why they are getting top dollar.

He'll be back. Simon Cowell is bows out of "American Idol" with plans for a money spilling follow up.

And pay up or the plane gets it. The head of Airbus says he'll scrap the A400 if customers don't accept a price rise.

I'm Max Foster in for Richard Quest. This is QUEST MEANS BUSINESS.

Good evening.

You know you are overpaid when your mother says you are. A top banker concedes his pay could be seen as excessive.

Also, tonight, Simon Cowell changing the face of entertainment? Well, the music mogul is turning his back on the most profitable TV show in the world. Betting on a new program, one that he owns, though. We'll be live in Los Angeles to find out what makes "X Factor" different from "American Idol." And we ask Cowell's best mate, what is going on?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: We're advance of probably the biggest fight ever in the history of entertainment.

(END VIDEO CLIP)

FOSTER: There you are. It is fascinating industry -interview as well. You've got to watch that.

Now, a pay day never loomed so large for Britain's banks, as bonus season kicks off on Wall Street, British lawmakers are holding some of the U.K.'s top executives to account. The heads of Royal Bank of Scotland, Lloyds and Northern Rock are all taking the stand before the Treasury Select Committee. In a moment we'll be hearing from the committee chairman, a member of parliament, John McFall.

But first, Jim Boulden joins us now with more on the bonus wars, so far, Jim.

JIM BOULDEN, CNN INT'L. CORRESPONDENT: Thanks, Max.

Let's first remember that the U.K. government has stakes in three of the big banks that got into trouble in 2008. They have a majority stake in the Royal Bank of Scotland, some 84 percent; 43 percent of Lloyds, that is after Lloyds was asked, basically, to take over the Halifax Bank's Bank of Scotland, by the government, and then got itself in trouble that way. And 100 percent of the nationalized bank, Northern Rock.

That is why the three CEOs of these banks went before the Treasury Select Committee. They sort of check in from time to time and the committee wants to see how the taxpayers money is being spent and how the banks are going.

Well, of course, one of the first questions always is about the bonuses. And the payouts, now we haven't heard yet what bonuses, for instance the Royal Bank of Scotland will be giving to its employees. But let us not forget that the U.K. government did announce recently that it will tax all discretionary bonuses, a 50 percent tax, if it is over $40,000. That is about 25,000 pounds.

Now, the first one up in the hot seat, as it were, was Stephen Hester. He is the CEO of the Royal Bank of Scotland. Now he said, actually, the bank is doing better, so far than he expected. And he said it has been a pretty decent year and they have been doing a lot to clean up the balance sheet to shrink the investment banking.

But, of course, the first question to him was about his pay. Something like $16 million, a year, if you take in his share options. And also, but he was also blunt about it and he said even his parents think it a bit excessive.

(BEGIN VIDEO CLIP)

STEPHEN HESTER, CEO, ROYAL BANK OF SCOTLAND: IF you asked my mother and father about my pay they would say it is too high, as well. So even some people close to me have that view of bankers, clearly it is very hard for me to talk about my own pay. All I can say to you is that when I was asked to do this job, I didn't apply for it when I was asked to do it. And the only conversation I ever had about my pay, and to this day this is true, is I was asked what it would take to attract me to leave my previous job.

(END VIDEO CLIP)

BOULDEN: So we can see how much it took to attract him to take over the RBS. The other man up, Eric Daniels, he is the CEO of Lloyds Banking Group, as I said earlier. He was involved in September of 2008, when the government asked Lloyds to take over HBOS, Halifax Bank of Scotland. And the committee really wanted to know whether he got a very good or a very bad deal for the shareholders. And he was asked whether he hoodwinked the government, or whether it was the other way around?

(BEGIN VIDEO CLIP)

ERIC DANIELS, CEO, LLOYDS BANKING GROUP: I don't believe that anyone was hoodwinked. What we believe is this is a very good deal for our shareholders, and will prove to be in the medium term, our shareholders, including the taxpayer. We believe this was good for not only the Lloyds shareholders and other stakeholders. But we also believe it was a good thing for the wider, the wider banking system.

(END VIDEO CLIP)

BOULDEN: Eric Daniels said that if the takeover hadn't happened it could have been much worse. Just think, something like Lehman Brothers, Max.

FOSTER: Jim, thanks so much.

Well, the banks are clearly on the defensive, but let's find out how their case is standing up. The chairman of that Treasury Select Committee is John McFall and he joins me now.

Thank you so much for coming in.

JOHN MCFALL, CHAIRMAN, U.K. TREASURY SELECT COMMITTEE: Good evening, Max.

FOSTER: You've been looking into this for some time now. What sort of progress are you making in your own mind?

MCFALL: Well, UKFI, United Kingdom Financial Investments, is a body that is responsible for the taxpayers' interests. And RBS, Lloyds, HBOS, and Northern Rock have worked very, very, very regular communications with them. So, it is up to us as a parliamentary body to make them accountable. And as your interviewer earlier said, we come in regularly to get a look at exactly what they're doing.

And I think, I would have to say from today, from all three, that they are all making progress. Two of the big issues that we encounter as a committee, with this crisis, was the lack of corporate governance and excessive risk-taking. And I think all institutions have learned that issue (ph), and I think that came out today.

FOSTER: Is the banking sector going to come out of this better and stronger you, think? And taxpayers are they going to be more protected after this?

MCFALL: Well, the big issue here is when do we exit? If we exit too early then the taxpayer gets a bad deal. So we have got to be there for a certain length of time.

FOSTER: The exit, as in the stakes within the banks?

MCFALL: Exactly. Exactly. And that is the issue that concerns us most, on that. We don't want to see an early exit. Because that would be a fire sale. So we must be sure that we are going about their business in the proper way. And, you know, RBS, their share price is the worst performing share price in the FTSE 100, in the past year. So, they have quite a way to go yet.

FOSTER: And the bonuses are coming in the forms of shares, aren't they, as opposed to cash now. That is one big fundamental change. So, actually they are not making the money quite yet, because the share price is low, as you say.

MCFALL: They are still in terms of the bonuses that Stephen Hester was very clear today that he had to pay people to attract them to RBS. And actually I'd say that is a big of a crazy situation -

FOSTER: It's true, though, isn't it? Because if he looses good people the bank will go down and the taxpayers money.

MCFALL: Yes, in the short term, that is the case. But in the long term what we need to do is ensure the banks come into the real world and ensure that we don't have these telephone number bonuses. Because what we are finding in the banks is they are sort of a pyramid with a very wide base, where you have a lot of people working in the bank for a relatively modest salary and then you have these telephone numbers at the top. That system has to change.

FOSTER: That is true, but this is a global industry, and London is a global financial capital. So, you are just dealing with U.K. banks but they are competing with world banks who can offer more money. So it is not realistic to say the U.K. banks have to work within restrictions, because they will fail.

MCFALL: You have a point there, in the short term. And I agree with that. But in the longer term, they -

FOSTER: But they could fail in the short term.

MCFALL: Well, they can fail in the short term, but you have a point, so that they have no option at the moment to pay these people. And that was the point that Stephen Hester was making today. But in the long term what we have to ensure is that there is a global arrangement in the banking system.

One of the things I asked them is, is it really clever people that work in the banking sector, that we can't find anywhere else? Do these people have super brains, as opposed to people who are working in medicine and engineering, and in education, or whatever? I don't think so. So, we have a long way to go. And we'll be inviting them in on a regular basis to ensure that progress is made and we get change in this banking system.

FOSTER: I just want to ask you about that moment, when the RBS boss talked about what his thought. It was a wonderful moment within this whole story, isn't it? Because it really sums up the two strands to this story; the bankers' view, and actually the public's view, which is we don't get these figures.

MCFALL: Wasn't it, exactly. And the bankers in a way are in another world of their own, and Stephen Hester said that about his parents. But I said to him, look, does he agree with the Biblical commandment that you honor your mother and your father? Because if you do you will refuse this bonus. He hasn't done that.

(LAUGHTER)

FOSTER: We'll wait and see. All of us has parents, don't we, mate. Thank you so much, Mr. McFall.

Now it was a pretty sober day for the European stock markets, meanwhile. All the major indices posted significant losses. Germany's DAX dropping 1.6 percent. A downbeat start to the U.S. company earnings season did the damage after ALCOA posted disappointing results and signs that China plans to reign in bank lending.

Mining shares, such as BHB Billiton, lost, as well as banks like Credit Abicole (ph), and Commerzbank. They all really took a hit.

This is what is going on, on Wall Street at the moment. There is the Big Board. And it is down, slightly, marginally, really, on the back of ALCOA's weaker than expected profits kicking off that earnings season. We were hoping for better results, at least investors were.

All sorts of news coming through right now, but really very much focused on all those results coming through. Expecting more today and later in the week.

Next we are going to check up with the news headlines. We are going to cross over to Becky, who joins us now from the newsroom.

(NEWS BREAK)

FOSTER: Thanks so much, Becky.

Now, Simon Cowell is the star of the most-watched program in America, but he wants more. We look at his next big project and his ultimate ambition, with the man who knows him best. That is his best friend and yes, he does have one.

And on course for crisis, the $29-billion project that could be falling out of the sky.

(COMMERCIAL BREAK)

FOSTER: This man wants to change the face of American TV, all over again, that is. Simon Cowell is known to millions in the U.S. as the acerbic judge of "American Idol", but now he's quitting the show and he's bringing another talent show to American viewers, that is the "X Factor" the U.K. version of "X Factor" gets top audience ratings here in the U.K., generating big bucks for Cowell, even bigger than the does just as a presenter or a judge. Well, CNN's Kareen Wynter joins me now from Los Angeles.

Just explain this one, Kareen. Because we are going to have two very similar shows, on the same network, right?

KAREEN WYNTER, CNN HOLLYWOOD CORRESPONDENT: Right, it is a great problem for FOX to have. I mean, we've seen how amazing in terms of ratings, "American Idol" has done here in the States. Now, with the "X Factor" the version coming here, Mr. Cowell said, you know, I wanted to really focus on making sure that performed and delivered. That is why he's departing "Idol". And you know, you can almost imagine the hit that that is going to be.

But Paula Abdul, she was the first judge, Max, to announce here departure from "American Idol". Now the show's most famous voice says, he is leaving one of the most-watched shows in America at the end of the season. Say it isn't so. How will "Idol" survive, right? Simon Cowell told reporters Monday that he wanted to leave "Idol" after this year, bigger and better than it was in the past. The no-nonsense judge will focus all his efforts on the "X Factor", which the FOX network says will debut in the fall of 2011, here in the U.S.

Now, Cowell, who will serve as judge and executive producer on the program says he didn't feel it was right to do two shows, Max, here in America at the same time.

The announcement, as you can imagine, has shocked the nation with many wondering can "American Idol" survive without its most popular lightening rod figure. We caught up with a few stars Monday night, who had their own ideas on "Idol" life after Simon. Take a listen.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Can the show go on without him?

ICE CUBE, MUSIC ARTIST/ACTOR: I don't think so. I think he's the man. You know he's definitely the man that makes that show tick. Always has been. He was the one that was the most interesting from day one, because of his, you know, his truth. And his -you know, he didn't sugar coat nothing. You know, who is going to be Simon Cowell? I mean, I could do it.

DENZEL WASHINGTON, ACTOR: What was it, a nine-year run? Ah, good for him.

UNIDENTIFIED FEMALE: It is going to be quite different.

WASHINGTON: Tell him to loan me a dollar, I'm sure he has a couple.

(LAUGHTER)

(END VIDEO CLIP)

WYNTER: And we can also tell you, Max, that Ellen DeGeneres, who replaced Paula Abdul at the judge's table this season, told audience members during a taping of her talk show Monday, that she is going to be very, very sad to see Cowell leave. She says, "He's such a huge part of the show and made it what it is today."

But I have to say, Max, Ellen has such a huge following that she is absolutely, absolutely going to carry the show. And you had to think that the network knew what it was thinking when it placed her in this position, in this show, wouldn't you say?

FOSTER: Exciting times, yes, absolutely. There are other big stars, of course, but everyone is fascinated by that pair of Paula Abdul and Simon Cowell. Could they possibly come back together somehow? Because it was a big money-earning pairing, wasn't it?

WYNTER: I think so many people would love to see that, the little spats they had in between. Well, shortly after Cowell made his announcement Monday, Max, reports - you know these reports -they started to surface that he and "X Factor" show producers were chatting with Abdul about possibly joining as a judge on the U.S. version of the show. Now, reps from FOX, they're not confirming those reports. And representatives for Cowell says that nothing, nothing has been determined. But what a team, here? You know, we'll have to wait and see what happens. But a lot of people would love to see that reunion. They were cute together.

FOSTER: We wait to see. Kareen, thank you so much for that. Now, we want to look behind the scenes a bit more on this story, because actually it is not just about one man here. This is Simon Cowell, of course, we all know him, and he's a big business figure as much as an entertainment figure. He's not a face. He is very active behind the scenes. But there are other people behind the scenes here as well.

The other one is Simon Fuller. This is a man who controls and owns "American Idol" name. And he's the one that makes the most money from it. He makes more than Simon Cowell. And perhaps that's a sense of tension between the two of them. But there is rivalry between these two, but there is another player involved here as well, who you don't hear quite so much about. This is Philip Green. He is a huge figure in British business. He is a billionaire. He privately owns some of the biggest names on the U.K. High Street. He's very well-known as a tough businessman. And he's now working with Simon Cowell on this project in America, to bring "X Factor" to America. So it is an interesting dynamic there.

We wanted some more insight into all of this, so we turned to Pete Waterman, he is Simon Cowell's best friend. They were judges together on "Pop Idol" which was the British precursor to "American Idol'. He said we should prepare for one almighty showdown between those two Simons.

(BEGIN VIDEOTAPE)

PETER WATERMAN, FOUNDER, PETER WATERMAN ENTERTAINMENT: We are advance of probably the biggest fight, ever, in the history of entertainment. Because Simon Fuller has still go "American Idol" and now Simon has got "X Factor" in America. And their both with FOX, so you are about to see two guys that are both got huge egos and do not particularly like each other. They have a great respect for each other, but you are not going to see them in open battle. This is going to be great television, watching television.

FOSTER: You are great mates with Simon Cowell, what is his thinking?

WATERMAN: Simple. He wants to earn everything. He wants to be the biggest -he wants to be at billion dollars a year man. And he is going to be the first one to do that. He'll fulfill it and then he'll walk away.

FOSTER: It is said that he earns something like $36 million a year on "American Idol". That means he thinks he can earn a lot more under "X Factor" under that banner, how much more could he earn? I mean, he's made a mountain of money, already hasn't he?

WATERMAN: Well, $36 million to a billion? There are a few naughts on the end, you know what I mean? I can surely say it is not about the money, is it? It is about that he can say that he created history. He became the first man who became a worldwide brand, with you know, 19 naughts on it. And it is not about the money because he doesn't need it. It is about saying, I did this. I have achieved this.

And you know, if you had sat back, you know, 10 years ago when we did the first "pop Idol," and say that Simon would have actually changed British television, and took British television to the world, and made it acceptable. If you go back 10 years, you know, when we first went to FOX with the idea of "Pop Idol", they laughed at us. And then everybody told us this will not work. So, Simon has actually made it work. And you know, 10 years on, it becomes the global brand. That is an amazing achievement.

FOSTER: There is a third personality involved here, isn't there? Philip Green who is a British billionaire, owns much of High Street here in the U.K. And he's in business now with Simon Cowell, involved in this deal somehow?

WATERMAN: Well, that is the intrigue. No body knows exactly what Philip Green's role is here. I mean, he is managing Simon. So -or I would guess, he is the one that is negotiating these deals. So Simon is not daft. Simon has gone and found the world's best negotiator and brought him in to negotiate him into a place in history, which is quite, quite bizarre really. Because, again, they're two very different characters.

And it shows Simon Cowell's determination to what he wants to achieve there. He will give away a massive piece of himself, to somebody who has created a brand on the High Street, anyway. So this guy is obviously the best negotiator Britain has ever seen. He can negotiate my deal. I actually have got an amazing respect that he can achieved this, because he has achieved what no other human being in Britain has ever done. You know, people talk about the Beatles, people Brian Epstein. But Simon is the Beatles and he is Brian Epstein, you know? And he's changed a way of life.

FOSTER: The one criticism is that this show doesn't do an awful lot to help the music industry. But are we all missing the point here?

WATERMAN: Oh, you are missing the point.

FOSTER: It is a TV show, right?

WATERMAN: No, it is the Simon Cowell show.

(END VIDEOTAPE)

FOSTER: There you are, from his best mate.

Now, in career terms, Simon Cowell is certainly not -well, he's got the "X Factor" but if you don't have his luck, you might find a new job, just a click away. In just a minute, signs of recovery in the online recruitment market. Is it a window of opportunity for European job seekers?

(COMMERCIAL BREAK)

FOSTER: There are signs of hope for those of you looking for career opportunities online. The monthly Monster European employment index, which analyzed as millions of online job opportunities, has released December figures. They'll show online recruitment activity held steady from the previous month. But current level of activity, though, is down 24 percent from one year ago. But it has risen slightly in the last quarter of 2009.

The U.K. saw the biggest jump in online demand for workers. And the sector where demand in Europe is growing the most was in the legal sector. I'm joined by Alan Townsend. He is head of EU operations director at Monster.

Let's have a look at your figures in some more detail. There are people out there who are looking for work.

ALAN TOWNSEND, EU OPERATIONS DIRECTOR, MONSTER: Yes.

FOSTER: What would you be doing if you were going onto your site looking for work. Where are the best opportunities?

TOWNSEND: Well, it is interesting, I think, over the last couple of months is we are now starting to see the businesses are restructuring, if you like, getting ready I think to come out of the recession. The data this month, for the Monster employment index, shows that areas like HR as well as legal, also marketing, is starting to see more job vacancies coming online. Which I think is an indication that business is ready to take that next step out of the recession, really.

FOSTER: Are they looking for particular skills, particular age groups?

TOWNSEND: Well, I think it is across the board. I think in particularly in the management positions. Particularly, in the HR sector, it means again they are looking for people who can help assist in terms of the business moving forward very quickly. And also I think the talent management is interesting. I think the business are now thinking that if we are going to be the company that is going to expand the fastest in our sector, as we come out of recession. Have we got the right talent? Are we in a position to actually get people when we need to. And how fast can we get those people.

FOSTER: It is encouraging that HR is seeing this uptick, because that suggests, as they get, as you say, they are getting ready to bring people into the rest of the business. It is HR that picks up first, isn't it?

TOWNSEND: Yes, it is. And I think what has also happened is that the business no doubt have obviously cut back their numbers over the last 18 months, right the way across Europe. And perhaps they have now reached that point where actually they can't really take them down much longer, or much further, in some of those support sectors. So, they'll need now to start scaling up in those areas, if the business is going to grow in 2010.

FOSTER: How easy are they going to find it to find the right people?

TOWNSEND: Well, I think that is always the question, because a lot of the very good people are sitting tight. I think in 2007, 2008, people looked at moving on the basis that, you know, I like my job, but perhaps there is a better job out there for me, but if it doesn't work our there is another job out there for me. In 2009, I think that changed completely with people wanting to stay where they were, thinking I know this company, I know where I stand. And now they are starting to think maybe I can start to take that risk of looking for that next opportunity, and that next job.

FOSTER: Are there things they want in their contracts this time around that they wouldn't necessarily have been looking for, or been so worried about before the financial crisis?

TOWNSEND: Yes, I mean, it is very interesting. At Monster we do a lot of polls about seekers and what they are looking for and their expectations. In areas like training and stability and development are coming to the fore more and more, as opposed to purely financial reward. And I think that is something that perhaps people have learned, coming out of the recession is that the money is great, but short term, where is my career going to go in the long term?

FOSTER: Alan Townsend, thank you so much for joining us.

TOWNSEND: Thank you.

FOSTER: Now, record deliveries and another victory over its closest rival, but Airbus has a major Achilles' heel. If the out-of-control military project that is bleeding the company dry.

(COMMERCIAL BREAK)

FOSTER: Welcome back. I'm Max Foster in London and this is QUEST MEANS BUSINESS here on CNN.

Now, Airbus says time is running out to keep one of its costliest projects alive. It's just one month since the A400M military transport plane made its first flight. But according to the makers, the $29 billion project may have to be scrapped if the contract to build it isn't renegotiated by the end of January.

Airbus says the expense of the project is threatening to bring down the entire company. The original contract promised to deliver 180 planes. Seven countries signed up, but Airbus says it will suffer catastrophic losses if the companies or the governments who are buying the planes won't swallow higher prices and later deliveries.

Airbus says it's spending between $145 million and $220 million a month. And the parent company, EADS, has already written off $3.5 billion in future losses on that.

Now, said to be more than $10 billion over budget, Airbus wants governments now to pick up part of the slack there.

On the commercial side, Airbus sales are still holding up. But it's a difficult time for the industry -- 310 new plane orders in 2009, but also nearly 40 canceled orders. They predict 250 to 300 orders in 2010. No recovery, though, really until 2012.

Airbus delivered 498 airliners last year, up from 483 last year. (INAUDIBLE) revenues of about $41.7 billion. That's down around 3.5 percent.

Now, shares in Airbus parent company, EADS, are down more than 2.5 percent. So that's the view of investors, really.

Earlier, I spoke to Tom Enders -- he's the CEO of Airbus -- and asked him whether the A400M may never fly again.

(BEGIN VIDEOTAPE)

TOM ENDERS, CEO, AIRBUS: We are in a situation where we cannot continue the program without a significant financial contribution also from the government customers. We set and demonstrated today again that we are making our own contribution. We don't want to put that entirely on -- on the customers.

But what is most important is that we get into serious negotiations. And so far, this is not happening. We stand ready for negotiations with our government customers.

FOSTER: But you've had contracts with a -- a set price. You set the price tag.

ENDERS: Well, I mean, I'm very frankly admitting we made stupid mistakes six, seven years ago when we contracted for this aircraft. Nobody in the world has ever developed, in six-and-a-half years, a complex multi- role aircraft like that one, and yet we committed to that. And now we're in a situation where we have a great aircraft, all the -- the flights we have passed so far demonstrate that. But we are -- we're left with unkept liabilities. And that is something that I, as chief executive of Airbus, can certainly not accept.

FOSTER: Yes, but why should your customers pay for your mistakes?

ENDERS: Well, simply because with the price increase we are suggesting, they still get superior value from this aircraft for taxpayers and certainly for air forces. In other words, alternatives are still more expensive than this very good and very capable multi-role aircraft.

FOSTER: OK, how about the Superjumbo, the A380, your other big project right now?

Is that going smoothly?

ENDERS: Well, Superjumbo is -- new orders are not great. We have added only four last year of the 380, but then again, we did not expect, throughout the crisis, at least, that we will have huge orders for the -- for the A380. We have sufficient orders for the -- the next years to come.

Our predominant change right now is to ramp up production. We had some disappointments here also in 2009 and I'm ready to admit that. But we've taken strong actions to improve the situation in 2010 and deliver at least 20 aircraft to our customers.

FOSTER: And what are the specific problems there?

Can you name anything that's really holding things up?

ENDERS: Well, let me say -- I mean, I could give you a long sermon on that. But let me say we underestimated the complexity of the aircraft. We have also issues with the complexity of our own engineering and manufacturing processes. But that is on a -- on a good way right now to be improved, to allow us to ramp up the production.

FOSTER: People will be interested, because you do, in some sense, reflect the global economy -- people will be interested in what you expect from the -- the next year, 2010.

ENDERS: Let me put it that way, I mean we are certainly not out of the woods. We're hoping for the best, but we're preparing, also, for other scenarios. But our plan is to keep production roughly at the 2008 and 2009 level. We think that the -- the order intake will also be pretty much in the same ballpark as -- as it was in 2009, 250, 300 new orders. And that would be a good result in the current environment.

(END VIDEO TAPE)

FOSTER: The head of Airbus there speaking to me earlier.

Well, in one sense, it's surprising that Airbus' troubles are mostly on the -- on the military side, considering what poor shape civil aviation is in right now. Shares in Japan Airlines plummeted nearly 45 percent on Tuesday, for example, with growing fears about its -- about it filing for bankruptcy, possibly.

In Tokyo, Kyung Lah now brings us up to date on that.

(BEGIN VIDEOTAPE)

KYUNG LAH, CNN CORRESPONDENT: It has been a roller coaster ride for Japan Airlines, beginning with its retirees. The retirees announced that they would be accepting a 30 percent cut in their pensions. Current employees have agreed to a 50 percent cut in their pensions. That did not, though, help the stock. The stock on the Tokyo Stock Exchange plummeted some 45 percent. That is a record.

Investors dumping the stock on fears that the struggling airline may soon file for a version of Chapter 11 bankruptcy here in Japan. And so far, it does appear that the airline is on track to do so.

Japan's transportation minister seen going into meetings with banks that are owed money by Japan Airlines. If the banks agree, then this clears the way for Japan Airlines, in one week, to file those papers that allow them to get that equivalent of Chapter 11 bankruptcy here in Japan.

Now, at the same time, the U.S. carriers are sensing that this is their opportunity to get in on the lucrative Asian market. So they are courting Japan Airlines.

American Airlines today announced that it would be upping the ante to keep Japan Airlines within its network, offering $1.4 billion to the struggling airline.

Here's what the chief financial officer announced today.

(BEGIN VIDEO CLIP)

THOMAS HORTON, CFO, AMERICAN AIRLINES: This proposal demonstrates oneworld's extraordinary commitment to JAL. It brings stability and certainty to Japan Airlines at a time when most needed, as it faces turbulent times over the coming weeks and months.

We believe our proposal is in the bits of JAL and its employees and customers and the government and taxpayers of Japan.

(END VIDEO CLIP)

LAH: Japan Airlines is also eyeing a deal with Delta. Delta offering a little less money -- about $1 billion. But what Delta offers is a more extensive network for Japan Airlines.

So, the struggling airline eyeing its options and what it will look like as it looks toward financial recovery.

Kyung Lah, CNN, Tokyo.

(END VIDEO TAPE)

FOSTER: Now, despite the global recession, one bank has reported blockbuster profits for 2009. After the break, we'll go live to New York to find out how the U.S. Reserve struck gold.

(COMMERCIAL BREAK)

FOSTER: We're taking you live to Wall Street now and giving you the latest on the big board. It's down .5 percent. Stocks falling this hour on the back of Alcoa's weaker than expected profits that we heard of after the bell yesterday. Also, a weak U.S. dollar in commodity prices also weighing on the markets there.

We'll keep across that for you, of course, in this program.

Now, a lot of us have written off 2009 as a year to forget as investors, what with the fetal world -- feeble world economy and company profits really drying up, as well. No such gloom, though, at the U.S. Reserve, interestingly.

Maggie Lake is in New York to explain this one to us -- Maggie.

MAGGIE LAKE, CNN CORRESPONDENT: Yes, Max, you know, "Time" magazine named Ben Bernanke Man of the Year. They might have named him money manager of the year, as it turns out. The Fed raking in, they said today, some $52 billion in profits, largely from all those extraordinary measures they took buying up government bonds, Treasury bonds and asset-backed, mortgage-backed securities. The interest they made off that really filled up the coffers.

Now, of course, the point of all those exercises were to stabilize the world economy, not to turn a huge profit. But the fact that they're able to funnel all those billions back to U.S. taxpayers certainly is going to take a lot of pressure off the Fed.

People have been anxious about all those programs and the lingering effect of the Fed's balance sheet and, also, you know, the indebtedness of the U.S. Since it's going back in, that might ease the pressure on Ben Bernanke. He's been very concerned about exiting those programs too quickly. He really wants to wait.

So, hopefully, this news will help. Again, certainly not out of the woods and the U.S. taxpayer not off the hook for all the money they invested. But at least in terms of these Fed programs, a little bit of good news for Bernanke to spread today.

FOSTER: Yes, where do we actually stand with all of these exit strategies?

Where are we at the moment?

LAKE: Not enough information coming out, according to investors. The Fed has been holding their cards very close to their chest. They are -- one area to watch is housing. They have said they're going to let all those purchases of mortgage-backed securities expire at the end of March.

But we know from the last set of minutes that there's concern about that. Some members of the FOMC are worried that if they do that, you could see interest rates spike up, taking that big buyer out of the market. The interest rate spikes up and that will hurt the very, very fragile recovery that they're trying to take root in the housing market.

So that's going to be one first area to watch to see if the Fed actually does let it run out, if the hawks want it to, or whether some of the more worried members of the Fed are able to push and expand some of those programs.

That will be an early indicator -- Max.

FOSTER: OK. We'll have a look at that.

Thank you so much, Maggie.

Now, the U.S. Reserve isn't the only powerful central bank making headlines right now. The People's Bank of China is unexpectedly taking steps to reign in lending by banks across the country. Starting on January the 18th, China's major financial institutions will have to keep 16 percent of their deposits safely in the vaults, up from 15.5 percent right now.

The central bank's announcement, which came sooner than economists had expected, actually, is being seen as an attempt to keep a lid on inflation.

Early this week, Chinese exports were cause for celebration. Now, a certain export is triggering growing concern in the U.S. An Associated Press report said children's jewelry made in China contained high levels of a -- a toxic metal.

Andrew -- Andrew Stevens now looks at the fallout of that.

(BEGIN VIDEOTAPE)

ANDREW STEVENS, CNN CORRESPONDENT: North American safety watchdogs are looking at Chinese-made products for hazardous cadmium. That's after an Associated Press investigation found the toxic metal in children's jewelry.

The trinkets slipped past existing consumer protection regulations because jewelry is not subject to the same rules as toys. According to the report, some of the jewelry products were more than 90 percent cadmium.

Well, the U.S. Consumer Product Safety Commission says an investigation is underway.

(BEGIN VIDEO CLIP)

RICHARD O'BRIEN, CONSUMER PRODUCT SAFETY COMMISSION: I think we -- we're starting to see the fruit of a lot of concentrated effort over the past year, year-and-a-half. We've started to see recall numbers diminishing. They're substantially lower in 2009 over 2008.

That said, there's a lot more to be done. It is not -- it is a long way from perfect and I don't want to give the impression that we're totally out of the woods on a lot of these compliance issues, but I think there's - - there has been, in many ways, a change of attitude. And that's been reflected in the cooperation that we've gotten from Chinese industry and officials.

(END VIDEO CLIP)

STEVENS: The U.S. is no stranger to hazardous products from China, from pet food to lead-based paint in toys. Well, the Consumer Products Safety Association says standards in China are improving, but they need to do more.

(BEGIN VIDEO CLIP)

O'BRIEN: This is the first time, though, that there's been a segregation that we need to be aware of a potential trend that suppliers might begin to substitute cadmium for lead in -- in some kind of line of children's product. In this case, it's not a toy. Toys would be regulated specifically for that. We need to look at whether there's a trend and just cut it right off at the ground.

(END VIDEO CLIP)

STEVENS: The U.S. Centers for Disease Control ranks cadmium as the seventh most harmful substance found in the environment. It's known to cause cancer and recent research says it can also impede brain development in children in a similar way to lead. Cadmium can find its way into the body by biting or sucking on items which contain it.

Andrew Stevens, CNN, Hong Kong.

(END VIDEO TAPE)

FOSTER: That's the story from Hong Kong then.

We're going to look at the global weather forecast now. People are still very interested -- Guillermo, in what's going on in terms of extremes in weather, really, around the world.

GUILLERMO ARDUINO, CNN METEOROLOGIST: I think that Europe is a little bit behind. Things are not getting better. And I have bad news concerning France that I'm going to give you in a little bit, especially our business travelers, pay attention. But in Britain, we are going to see some more snow.

I think that the long run for Scotland is much better. We are going to see more snow immediately, tonight into tomorrow, in Wales. It's because of this system here and the collision of air that we have warm air from the south and cold air from the north. So we're still dealing with some sleet, some snow showers, rain. Now I've been checking, Southampton is reporting a mixed precipitation right now, rain and snow. Also, Plymouth is reporting some rain and snow. But in two days from now, Plymouth is going to do much better in terms of temperatures compared to everybody else, because we're still dealing with like one or under -- underneath zero, like a minus one. Then we have Plymouth going all the way up to seven, probably, in a couple of days.

But Wales is, I think, where we have all the snow in the next 24 hours. London is still seeing the chance of some more snow.

OK, comparing this with -- with yesterday, this graphic is not that bad. London with some more snow. Elsewhere, the winds very uncomfortable, but at least we're not dealing with some problems.

Even though Charles de Gaulle -- and the automatic graphic did not post snow -- they -- the authorities there are estimating that tomorrow we may see in between 30 to 50 percent of cancellations in Charles de Gaulle; Orly, 50 percent of cancellations. So, you know, go online and check what's going on with your flights for tomorrow in Paris, because we are going to see the snow here, plentiful in the south, as you see, as we go into the Alpine Region.

The same thing in northern parts of Spain and in the Pyrenees and then Italy, the northern sections.

Now, Germany is going to remain cold, with probably not so much snow. We will see snow in Poland and into Ukraine and in Romania and Moldavia, but not in Germany, where it will be very windy and very cold, too.

Barcelona, it's pouring right now at the airport. As far as I checked, the winds are going to pick up very soon. Milano with some snow. And then we have the chance of some snow showers. But the accumulation is not going to be significant in Frankfurt.

So this is what we're dealing with right now. And this low is promising the problems as it goes through France at Charles de Gaulle. And then the cold here and the cold all the way to the north. So that's pretty much the idea for Europe.

Minus three, the temperature we expect for tomorrow in Berlin, too. In London, it's going to be a little bit breezy. Still the chance of snow.

And severe weather popping up in Argentina. So we have rain and rainfall here in the central parts of Buenos Aires Province and in the northwest, we have some winds. The alerts continue. The bad weather will remain.

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

We have Richard coming up.

(COMMERCIAL BREAK)

FOSTER: Well, competition is, of course, key to most industries. But where airlines are concerned, the safety -- there is safety in numbers. And in a recession, alliances become particularly crucial.

Richard Quest now looks at how the world's major carriers are helping each other and their customers.

(BEGIN VIDEOTAPE)

RICHARD QUEST, HOST (voice-over): Alliances have a tricky task. They need to attract member airlines and fill geographical gaps. Take Japan Airlines, or JAL, currently a member of the oneworld alliance. JAL is on the brink of bankruptcy and is being wooed by SkyTeam to defect and bolster its root network in Asia.

JOHN MCCULLOCH, MANAGING PARTNER, ONEWORLD: The better deal is to stay -- is to stay where they are and the less risk, certainly in this very, very unstable financial situation that they're in today and the market and the industry is in. So that's where we're focusing. Obviously, it would be a blow. But we've -- we're confident that we can keep them.

QUEST: If JAL does jump ship and move from one airline to another, the Japanese carrier will follow in the steps of Continental Airlines. After five years with SkyTeam, Continental joined the rival Star Alliance.

JEFF SMISEK, CEO, CONTINENTAL AIRLINES: We're upgrading alliances. We're upgrading from our former alliance to the best alliance, the biggest alliance, the oldest alliance, the most technically advance alliance in the world.

QUEST: (on camera): Why, though, was it important to change alliances?

SMISEK: The problem with SkyTeam is once Delta and Northwest merged, we became the junior partner. And, moreover, we compete quite a bit with Delta in the Northeast. We compete with them in flows to -- to Latin America. Whereas with the -- with the large U.S. airline, United, that we're allied with right now, actually, we're not competitors.

I think that there is obviously a -- a possibility that we will merge some day. There's no question about that. We're -- currently we're taking a look at how Delta is doing their merger.

QUEST: (voice-over): Delta, now the world's largest airline by passenger traffic, also merged its frequent flier program with Northwest.

JEFF ROBERTSON, V.P. OF LOYALTY PROGRAMS, DELTA AIRLINES: Our revenue performance have actually increased. And that increase has come as a result of some of the synergies that we've seen in bringing the World Perks and SkyMiles programs together to create the world's largest loyalty program. We spent over $20 million in integrating our two programs and tens of thousands of man hours and technology time to bring the two programs together.

QUEST: Being part of an alliance can help stave off economic danger and keep airlines in the black.

KOSTAS IATROU, AIRLINE ALLIANCE EXPERT: The alliance gave the possibility to the airlines to be able to continue to operate in a very difficult environment.

QUEST: Even though the whole is usually greater than the sum of the parts, this is not a time for complacency. Star Alliance's chief exec, Jaan Albrecht, warns airlines cannot rely on alliances alone.

JAAN ALBRECHT, CEO, STAR ALLIANCE: The alliance is never a guarantee for the airlines to be profitable. It's not a formula for survival. What we have seen over 12 years over experience, is that the alliance is basically the icing on the cake.

QUEST: SkyTeam, Star and oneworld are becoming the three pillars of strength -- giving support where needed. It's the icing on the cake. As for the passengers, it's the benefits from flying that can be a cherry on the top.

Richard Quest, CNN, London.

(END VIDEO TAPE)

FOSTER: In just a moment, we'll check on the latest movements on Wall Street.

Do stay with QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

FOSTER: Let's take a look at the big board before we go. As you can see, it's down around .5 percent. Stocks falling, really, on concern about commodity prices; also, the dollar is weakening a bit and some concern there about fourth quarter earnings -- are they going to -- going to be as good as many people have been hoping?

There's some question over that.

Tomorrow, Richard Branson, by the way, is on "Connect the World." His first business was a -- a mail order record retailer, followed shortly by a record shop and a recording studio that signed The Sex Pistols. That's tomorrow on "Connect the World." So we'll tune in for that, certainly a great interview coming up on that show.

We're going to have "AMANPOUR" next.

But first, we're going to have the headlines for you from the I Desk.

END