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QUEST MEANS BUSINESS

Interview with CEO of PIMCO; Interview with Executive Chairman of Orascom

Aired February 1, 2011 - 14:00:00   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: A dramatic development out of Egypt. President Mubarak, as you have just heard, reportedly bowing to protestors; stepping down at the next election. We will report on that, during this hour, if it happens.

On the business agenda, a blockage in the pipeline. BP's Rosneft deal is held back.

And also, tonight, a commissioner from the EU, as the EU lights a spark under business.

I'm Richard Quest.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Open for business in Europe, or we're out of business.

(END VIDEO CLIP)

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

Good evening.

As you have already heard, just in the cuts, and a short while ago, we are hearing reports that President Hosni Mubarak will step down at the next election, later this year. Al Arabiya television network says the president is going to make the announcement in a speech. Now, we are watching of course everything that happens in Egypt at the moment. And if and when that speech takes place we will bring it to you immediately.

The people of Egypt are out in force, or at least tens of thousands of them. They are in unprecedented numbers on the streets. And they are demanding that President Mubarak must leave. At this hour, it is 9:00 o'clock in Cairo and many thousands remain in the city's Tahrir Square. Again, they are defying a curfew, standing together and chanting slogans or praying.

The longer this goes on the greater the damage that is being done to Egypt's credibility in the international financial markets. S&P, Standards & Poor's has cut the country's credit rating down to double B. And signaled it could fall further if the unrest continues. Moody's, you know, downgraded Egypt on Monday.

Mohamed El-Erian is the chief executive of PIMCO, which is the world's largest bond firm. And bond fund, in terms of trading. I asked him how this plays out for investors in Egypt?

(BEGIN VIDEOTAPE)

MOHAMED EL-ERIAN, CEO, PIMCO: It is important to do what we call tail scenarios, to assume what can happen. You don't always get it right, but it gets you into a mindset of reacting. Most of the time, Richard, the battle is won or lost not in terms of anticipating every development, but in terms of reacting to every development. And you have to develop what we call, here, a concept of constructive paranoia.

You have to be worried, but you have to be worried in a constructive manner. It is very important to ask the "what if" question and to ask something that investors around the world don't ask themselves enough, is what mistake can I afford to make and what mistake can I not afford to make?

QUEST: In that scenario with so many unknowns, not least of which will President Mubarak finally relinquish power? If he does relinquish power, what comes next? Not to say the least, the Muslim Brotherhood and a variety of unknown factors, how do you answer those very questions, then?

EL-ERIAN: I say that we have to play both defense and offense. On the defense side, you have to make sure that you are well-enough positioned to be able to absorb a negative shock. On the offense side, you have to be able to exploit other people's indiscriminate selling, or indiscriminate buying. When we look at Egypt, Richard, we see things starting to come together. We see the opposition talking within itself, and developing a forward looking agenda. We see more willingness on the part of the governments to interact with the opposition and we see the army, which is a very respected institution, and liked in Egypt, playing a constructive role. So put all this together, there is a slow process of reconciliation of very different views about what managed change looks like in Egypt today.

QUEST: If we then go beyond the Egyptian shores, and we look, for example, at oil. Let's just take this-you know, this very-this incident has shoved oil up to $100 and the danger is it creates a floor at that level. It is also had an impact in U.S. Treasury bond markets, as well, the flight to safety, the dollar. So, we can't just simply isolate it can we, to Egypt and the surroundings?

EL-ERIAN: We cannot and should not. So, we should look for the following. There will be a permanent one-time increase in commodity prices. People now recognize geopolitical shock is more of an issue. And importantly other countries that are looking at Egypt will want to stock pile many more commodities in order to avoid what is happening in Egypt in terms of food inflation. So this will put pressure up on the commodities.

On the dollar and Treasuries, what is really interesting to us, Richard, is not what happened, but what did not happen. What did not happen is a major strengthening of the dollar, what did not happen is a major increase in bond prices. And this addressed to us, that the U.S. not longer plays the same role in terms of flight to quality that it once did.

QUEST: That is a huge suggestion, is it not, that if the U.S., if the Treasury, the long bond, and the dollar is to some extent not a sensitive on geopolitical crisis? Then frankly we have to rethink a lot of our fundamental thinking, don't we?

EL-ERIAN: Richard, we have to think a lot of our fundamental thinking, because, we, as a society, as a global society, are going through some major realignments. We have, as a society, gone through a financial crisis that has changed facts on the ground. Starting with the U.S. deficit and debt situation, and we are seeing an accelerated migration of growth and wealth dynamics between countries. So this is a very exciting time. But it is a time also where people have to have open mindset to recognize that we are on this bumpy journey to something different.

(END VIDEOTAPE)

QUEST: Mohamed El-Erian, the chief executive of PIMCO. One of the largest bond funds in the world, if not the largest, and talking to me earlier from California.

The markets and how they have responded? Well, the U.S. markets, to some extent-

(DESK BELL CHIMES)

-holding their own. Well, more than that. It even takes me as a bit of a surprise when you look at it, and you suddenly see, whoosh! Up like a rocket. Up 138, we are now over 12,030.

Some encouraging numbers from UPS, some better than expected economic data. None of which is terribly exciting, but it certainly gave the market the direction that it needed to go off like a roman candle. 138 points, over 12,000 for the moment, on the Dow Jones industrials.

Now, some might argue it is just not BP's day. The oil company has been slapped with a court order, its shares have hit a snag in London. And it posted its first annual loss in a generation. If that is not enough, you'll hear from the chief in a moment.

(COMMERCIAL BREAK)

QUEST: Now, then, an update on our main story. We are hearing reports that President Hosni Mubarak will step down at the next presidential election, in September. Al Arabiya television network says that Mubarak is going to make in a speech. Now, when that happens, well, we are believing and we are told, and we are thinking it could be within the next hour or so. The people of Egypt, or at least those that are protesting are out in force and they are there in unprecedented numbers. If, when, and how, President Mubarak speaks, you will hear it here, on CNN.

BP tonight is figuring out its next move after a London court blocked its planned deal with Russia's Rosneft. The investors also sent BP shares lower in London. That was a response to the oil giant's latest results. But before one gets too necessarily worried or exciting-exciting, I should say-bear in mind where BP has come from to get to where it is now, especially after the Macondo incident.

(DESK BELL CHIMES)

Come over here, and I will brief you, in the library. BP-Rosneft, this is a deal they are wanting to do. But, of course, BP's own subsidiary in-or the owners of, the partners TNK BP, they have been to the royal courts of justice, to get an injunction, but it is a temporary one. To stop this while, of course the full hearing is taking place. It is temporary injunction. BP believes, of course, that it would like, in some way, to do a deal with Rosneft and with TNK. And it said it is trying to fast-track those discussions.

BP, itself, had a loss in 2010 of 4.6 billion. Now that is a first loss for the company in the best part of 20 years. It was the charges that have been set aside, for the Macondo spill, not only of course a trust fund but also the losses, the clean up, everything else. Because the trust fund, of course, is paid over many years, where as the clean up costs were draining outright, at the moment. It's $4.6 billion loss in '10. However, BP does say it will pay 7 cents a share in Q4 of '10. Dividends were suspended as part of the whole noise and furor during the Gulf of Mexico spill.

Many people believe the suspension of dividends was purely a political move. BP certainly has the cash reserves to continue. Although, there are some suggestions in "Fortune" last magazine article that the preservation of capital was crucial for BP in those early days of the crisis. Jim Boulden is with me.

I went off on a tangent there.

(LAUGHTER)

JIM BOULDEN, CNN FINANCIAL CORRESPONDENT: That's fine. It's a good article.

QUEST: Yes, it is. It is a very good article. Where were we? Oh, yes, back to BP.

BOULDEN: Yes.

QUEST: Rosneft and TNK.

BOULDEN: Very, very complicated, isn't it? Really. But what struck me in the 90 minute briefing that the CEO Bob Dudley gave today, to the press here in London, he is completely relaxed about this. At least he gives that demeanor. He says the court injunction, he said it before it happened. But he kind of anticipated it would happen. He said it is a time out. It just delays a little bit of what is going on, this deal between. And he says, very likely that whatever agreement comes out of all of this will be a fast track negotiation and it could be that TNK BP do get into the deal.

QUEST: Is he trying to-look, I don't understand this. It is complicated.

BOULDEN: Yes.

QUEST: It is messy.

BOULDEN: OK, try this.

QUEST: Go on.

BOULDEN: TNK BP is onshore.

QUEST: Right?

BOULDEN: BP Rosneft is offshore.

QUEST: So he's not trying to-

BOULDEN: They don't do the same thing.

QUEST: Right, but is he trying to ditch TNK BP?

BOULDEN: No, no. Because they don't do these same thing.

QUEST: So why is TNK BP all upset about Rosneft?

BOULDEN: They think that they had this deal since 2004, that anything BP can do in Russia that they should have a little bit of it. It's that simple.

QUEST: Well-

(LAUGHTER)

QUEST: Yes, quite. And how does it play out?

BOULDEN: OK.

QUEST: Because the one thing I do know about litigation, is that where money is at stake, an agreement is usually found, because people don't really want to litigate it to the nth degree.

BOULDEN: Right. And that is why I think this fast-track negotiation that Bob Dudley wants is probably where we are going to go. Because you go to court, because that certainly quickens the mind, doesn't it? So then you get to the idea of where, OK, what can you give. What kind of stake can you give BP TNK into this?

QUEST: I need to just need to throw one unfair question at you.

BOULDEN: All right.

QUEST: Haven't given you notice about it, but you are well across the BP barometer. There losses this year, this $4 billion loss. It doesn't really account for the full cost of the trust fund that they have had to put together.

BOULDEN: No, yeah.

QUEST: That will be dribbled out over 20 odd years.

BOULDEN: Yes.

QUEST: But, BP, why are they paying a dividend again, then?

BOULDEN: Because they got $17 billion of cash in, the bank, in 2010 because they sold assets. That is not from oil. They put $17 billion-they are going to get $30 billion, they think, by the end of 2011. And that $17 billion is already in the bank. So they are able to be confident enough, the board, to start getting the shareholders back on their side, if you will.

QUEST: Fine. The BP dividend, back on the books.

Jim, many thanks, indeed. Until next time.

Coming up, you adapt, or you die. A sobering message in the world of business, but in New York we'll hear that from Richard Braddock, who extols the virtues of the Internet. In Hong Kong, it will be Michael Wu, with a coffee culture. It is "The Boss" after the break.

(COMMERCIAL BREAK)

QUEST: I need to remind you of our top story tonight. Egypt's President Hosni Mubarak will reportedly step down, at the next election. The Al Arabiya television network says President Mubarak is going to make the announcement in a speech. It is expected within the next hour. You can be assured, of course, when it happens. You will hear about it here on CNN.

OK, now we turn our attention: He was told that it wouldn't work. That was a risk that Michael Wu took when he brought the world's biggest coffee chain to Hong Kong. In New York, Richard Braddock tells us tonight being a chief exec can be a very lonely place. As you can tell, the decisions, the trails, the tribulations, they are all about being "The Boss".

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Previously on "The Boss": Michael Wu tried to raise his company's profile by doing his bit for charity.

MICHAEL WU, CEO, MAXIM'S GROUP: It's great when the staff sees that the company shares the same values which they do.

UNIDENTIFIED MALE: And in New York, Richard Braddock stretched the FreshDirect brand a little bit further with a new line of frozen meals.

RICHARD BRADDOCK, CEO, FRESH DIRECT: I think it is going to have a major impact on our business going forward.

UNIDENTIFIED FEMALE: I'd now like to introduce our final session of the day, entitled, Serving Your Customer Better: Using the Internet To Your Advantage," and given by Rick Braddock.

UNIDENTIFIED MALE: The CEO of FreshDirect is giving a speech to retail executives interested in knowing how he makes money from the Internet.

BRADDOCK: Thank you. Nice to be here together, with all of you.

UNIDENTIFIED MALE: Richard has years of experience giving speeches. And this audience doesn't intimidate him.

BRADDOCK: As we meet here today, there is probably little doubt that the Internet deserves to be in everyone's plans, regardless of what they sell. It is not only a high growth medium, but also can be a transformative one as well.

UNIDENTIFIED MALE: Richard says these speeches give him a chance to think strategically about his business. In many ways they help him map out the future for FreshDirect.

BRADDOCK: What I write down in the speech is my freshest thinking on how to run the business better. So it gives me a chance to sharpen my strategic wit.

UNIDENTIFIED MALE: Today he's giving executives a crash course on how to boost business over the Internet.

BRADDOCK: Most of us are not using the Internet to its fullest capabilities in pursuing e-commerce sales.

UNIDENTIFIED MALE: Richard believes the Internet allows him to know his customer and their demands better.

BRADDOCK: Your customer gives you that deep knowledge of themselves so that you can be prepared to serve them more effectively on their return.

UNIDENTIFIED MALE: Of course, the Internet connection is only part of the equation.

BRADDOCK: I sort of like to tweak people from the old ways and in a little bit of a philosophical sense, say, you know, get on with it. This is a new world. And if you don't get acquainted with it you are not going to serve your customers the way others will do.

UNIDENTIFIED MALE: Those listening to Richard's advice, are keen to know more about how the company operates.

UNIDENTIFIED MALE: Are you prices the same as what would be paid in a normal bricks and mortar supermarket, or a little bit more for the added convenience, or less?

BRADDOCK: Our average orders in New York is $120, out in Westchester it is $160, and the Hamptons it is $250. If you really look at this business analytically when a customer tries you, one of two things happen. They either trend toward loyalty and become one of those, you know, e- commerce darlings. Or, they go away.

UNIDENTIFIED MALE: As the forum reaches its close.

BRADDOCK: OK, we're out of questions? OK, well, thank you.

(APPLAUSE)

UNIDENTIFIED MALE: Richard reflects on his position as "The Boss" and what he has learned over the years.

BRADDOCK: Being a CEO can be a very lonely place. That usually happens when your business isn't doing too well. Or it can be a very happy place, and that happens when your business is doing well. So, right now, with our business growing at 25 percent, I'm pretty happy to be a CEO.

WU (speaking Chinese, English Subtitles): Welcome to coffee tasting today.

UNIDENTIFIED MALE: Michael Wu is meeting his staff at Starbucks in Hong Kong.

WU (speaking Chinese, English Subtitles): Edwin, you're the host of the tasting today. Let's start.

UNIDENTIFIED MALE: The chairman of Hong Kong Maxim's Group is reviewing how this Starbucks coffee shop has been performing.

UNIDENTIFIED FEMALE (speaking Chinese, English Subtitles): When we started, 70 to 80 percent of our customers were tourists. Now they make up 50 percent.

UNIDENTIFIED MALE: Michael first brought Starbucks to Hong Kong in 2000, as part of a joint venture with the American coffee giant.

WU: They were actually selling much more than just coffee. They were selling a lifestyle.

UNIDENTIFIED MALE: But not everyone on his team saw the power of the Starbucks brand.

WU: Hong Kong does not have a coffee culture. There is only a tea culture in Hong Kong. And a lot of people tell me that it won't work.

UNIDENTIFIED MALE: 10 years on and Michael is celebrating success with Starbucks CEO Howard Shultz. It wasn't always easy, though. With the foreign brand came new challenges. How to integrate local Hong Kong culture without weakening the Starbucks brand.

WU: We have actually changed a lot of the ways that the customer perceives Starbucks in Hong Kong. For example, our food program, I think we are one of the very few, if not the only market, which actually makes our own food. So we can make very locally relevant foods, such as egg tarts, such as, curry puffs, such as sausage rolls.

UNIDENTIFIED MALE: As a joint venture Michael doesn't have complete control over the brands, but with over 100 Starbucks now under his belt, he believes this venture has been a win for him and his company.

WU: We have learned that we can actually grow the market. We can educate our customers, and locations where we would never have thought would have been successful 10 years ago, are some of our highest grossing stores now.

UNIDENTIFIED MALE: Next week, on "The Boss", Richard Braddock and the FreshDirect team work around the clock to deliver the goods during one of the worst New York City winters in decades.

And in London, Sarah Curran prepares for the re-launch of My-Wardrobe.

(END VIDEOTAPE)

QUEST: Now, if you would like to be considered, or if you a chief exec who would like to be considered to be part of our "The Boss", then please drop me an e-mail. The e-mail address Quest @ CNN.com. Quest @ CNN.com. We're looking for applicants

(DESK BELL CHIMES)

When we come back, the Internet doesn't work, the shops are shut and you haven't been able to get any money out of the cash machine, you are also head of Egypt's biggest telecom company. The head of Orascom, the executive chairman, about how he's doing business, at the moment.

(COMMERCIAL BREAK)

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

This is CNN. And on this network, the news always comes first.

And we're learning the embattled Egyptian president, Hosni Mubarak, is expected to address his country later tonight, as tens of thousands of anti-government protesters still fill Cairo's Tahrir Square. Al-Arabiya television network is reporting that Mr. Mubarak will announce he will not run for another term as president.

In addition, "The New York Times" is reporting that President Obama has told Mr. Mubarak that he should not run for another term in the election in the fall, effectively withdrawing American support for its closest Arab ally.

There's been a big shake-up in Jordan on the heels of the series of public protests last month. King Abdullah has dissolved the government and named a new prime minister. Marouf Al Bakhit served as prime minister before. He's also been a military adviser to the king.

Elsewhere, in Australia, the flood-dividend Queens -- state of Queensland is bracing for more bad weather. A category four cyclone is heading toward its coast. Hundreds of residents in Cairns are being told to evacuate their homes and take sensible precautions. The storm is expected to make landfall there shortly.

So, we are currently waiting for President Mubarak to speak about his future in Europe. But it's becoming increasingly tricky to do business in the country.

The Internet is partially blocked out, shops have been closed for days. Activists call for workers all over the country to walk out, as on strike a part of these protests. And even those who did go to work were faced with a countrywide curfew that started in mid-afternoon.

This is some of the things that are happening in Egypt at the moment.

BP is pulling its families and its staff out. A hundred and ninety- nine people flew to the U.K. Last night and more could follow. BP's chief exec says drilling is slowing down because of what's happening. Production, though, has not been affected.

Procter & Gamble, P&G, says it's closed its general office in Cairo and two plants on the outskirts of the city. Now, the Cairo office may be closed, it's told its staff to work from home and stay safe with their families.

Coca-Cola also closed its office in Cairo, says that it won't reopen until the situation is more secure. It also says, not surprisingly, that it's taking all necessary measures to ensure the safety of staff.

And Volkswagen says it has stopped making deliveries to Egypt. Fellow car maker G.M. Says people and plant are safe. It will commence normal operations when conditions permit. That's the scenario of what is happening with some of the major companies.

Naguib Sawiris is the executive chairman of Orascom Technology, Egypt's largest mobile phone network.

And he joins me on the line now.

Good evening to you, sir.

Let us begin with what -- what -- do you have anything you can add to our understanding, perhaps, of President Mubarak stepping down or saying he won't run again?

NAGUIB SAWIRIS, EXECUTIVE CHAIRMAN, ORASCOM: I just listened to the news just as you. I mean it was in Al-Arabiya and now it has not been confirmed by the Egyptian television, which should be the official channel. So we are not really sure whether this is true or not.

QUEST: Let's talk, then, business, while we wait and see, because, obviously, the politics will take care of itself.

First of all, with -- you are a mobile operator and we do know that the mobile network has been closed down at various times or at least been ordered to be shut down.

What is your understanding of all of this?

SAWIRIS: Well, look, we are an operator who has a license and we need to adhere to whatever the government tells us, because our license says that the government has the right to request us to close some of the services at their own discretion, you know, and when there is any crisis in the country.

And I -- and we have to obey, otherwise we are risking losing our license, you know. So we already adhered to that.

Personally, I believe that this, right now, there is no need whatsoever to close down the Internet or the SMS anymore because they were worried that the demonstrators will gather and meet and so on. They're already there. They're in the -- there is a million people in the middle of downtown Cairo. They're staying there and they're going nowhere until their demands have been met.

So I don't see any sense in that, because we are all now sitting in our homes without any work. We can't go to our offices because of the curfew and because of the lack of Internet. There's no correspondence, no communication...

QUEST: Right.

SAWIRIS: -- so I think it's not a very wise situation.

QUEST: I mean, when you start, you know, when -- when President Mubarak's officials say to you, shut off the Internet, shut down the -- the mobile phone network, you obviously have to follow a legal instruction, but do you do so sort of under protest?

SAWIRIS: Of course we do that under protest. I mean I -- I don't even share the wisdom of that decision. Right now, I believe it's best to let the Internet back because we will hear more of -- of the young people's wishes and demands. And we are able to resolve the deadlock we have now. I mean the situation now, we are in a deadlock.

QUEST: Right.

SAWIRIS: Demonstrators are saying we won't negotiate until he leaves and -- and the president is not leaving. And then -- and sensible people like us are saying, OK, he leaves and then what?

What's the -- who's going to run the country?

I mean there is no solution on the table to ask a man like that to...

QUEST: Right.

SAWIRIS: -- to -- to leave. You know, so...

QUEST: But...

SAWIRIS: -- (INAUDIBLE).

QUEST: -- let me just ask you to give -- but then if that is the case, do you think some sort of halfway house -- and I -- and I know I'm asking you to speculate, but do you think some halfway house where Mubarak says I'll go in September but that gives us time to put in place a process, do you -- is that acceptable to someone like you?

SAWIRIS: Well, I think it's acceptable to someone like him. We want the streets to be -- it to be acceptable to them. Right now, I believe that the street has put itself in a deadlock, you know.

First of all, I must say that I commend President Mubarak for not fleeing away like Ben Ali did. You know, he is a military man. He's a man who has been facing -- he faced wars and enemies.

He is not going to flee the country and leave, you know?

So I believe -- I urge -- I urge the demonstrators to be reasonable in their demand and to allow a transition period. I believe that the president has the safety of the country in his eyes and would like to leave honestly (ph)...

QUEST: But...

SAWIRIS: And he -- he will be willing to do that if he sees that the country is put in good hands.

QUEST: One final question...

SAWIRIS: And that has got to be a...

QUEST: -- what -- what...

SAWIRIS: -- what we are -- sensible people like myself and others are trying to even broker now, if we can.

QUEST: As you say, you're trying to broker, let me just ask you, finally and briefly, how much damage is being done, do you believe, to your business and to the Egyptian economy by what's taking place?

I know, politics aside, and I know there are greater issues at stake, but if we just look at it from the bigger -- from the business perspective?

SAWIRIS: I -- I believe we -- we've lost all the growth of GDP this year. That's gone away. So if there was a 600 (ph) percent anticipated, I think we'll see the same in minus, you know.

The other problem we have is there is that'll stagnation.

QUEST: Right.

SAWIRIS: There is no traffic, no transportation. The factories are not running because the laborers cannot reach the factories. The raw materials are not reaching, the products are not being distributed. In a few days, we will run out of fuel, food and everything. It's a...

QUEST: OK.

SAWIRIS: -- disastrous situation.

QUEST: Indeed, many thanks, indeed, the chair -- the executive chairman of Orascom joining us -- joining us on the line there shortly.

Now we join CNN USA and John King.

END