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QUEST MEANS BUSINESS

Jobs Unveils iPad 2; Unrest in Libya Causes U.S. Crude to Top $100 a Barrel

Aired March 2, 2011 - 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: A standing ovation for Steve Jobs. He has just unveiled the iPad 2.

U.S. crude tops $100, as a key oil town comes under attack in Libya.

And from catwalk to courtroom, John Galliano will face trial for racial insults.

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

Hello to you.

Well, in the past hour Steve Jobs has made a surprise comeback to show off Apple's secret sequel to the iPad tablet. Jobs arrived on stage in San Francisco to a standing ovation. He's been on medical leave since January 17. Few expected him to appear at today's media conference unveiling the iPad 2. And this is his first public appearance since he unexpectedly went on leave. Well, Jobs revealed that the new tablet will be out next week in the U.S., March 11 and be out worldwide two weeks later. The iPad 2 will be twice as fast as the iPad 1, but will cost the same, and will be thinner than the iPhone, we understand.

Dan Simon has been watching the announcement in San Francisco. He stepped out of the media conference to speak to us.

So, Dan, a real surprise when he turned up?

DAN SIMON, CNN TECHNOLOGY CORRESPONDENT: It was a huge surprise. Look, we knew there was going to be a new version of the iPad, but we never expected to see Steve Jobs on the stage. As you said, he's been out since January 17. I will say that he appeared to, you know, have the normal stage presence that we have seen with Steve Jobs. He did appear to be painfully thin in my estimation, but had plenty of energy there on the stage.

As you said, he announced the new iPad 2. This is a newer, thinner, faster version of the iPad. It has got video cameras which was widely expected; 33 percent thinner, to be exact. It is going to come in two colors, black and white. It will also have the ability to be able to be shown on a large high definition television. It has what is called an HTMI port. I want you to listen now to how Steve Jobs introduced the device just a short time ago.

(BEGIN VIDEO CLIP)

STEVE JOBS, CEO, APPLE COMPUTER: This iPad 2, what have we learned? What can we improve? Well, it is an all new design. It is not a tweaked design. It has not got marginal improvements. It is a completely new design. And the first thing is, it is dramatically faster. We have a new chip, we call it an A5. Our chip wizards have come up with this. And it is great. It is dual core processors, all right? Two processors inside and so we get up to twice as fast on CPU performance.

But we have really gone all out on the graphics performance. Up to nine times faster graphics. The graphics on this thing are wonderful. Same low power as A4; we don't want to give up any of that legendary battery life. And even though others are starting to ship, I think this is going to be the first dual core tablet to ship in volume.

So, A5 is really quite an achievement and is going to give us something that is up to twice as fast on CPU performance. Up to nine times faster on graphics and the first iPad was no slouch.

(END VIDEOTAPE)

SIMON: And Steve Jobs called 2010 the year of the iPad, noting that the company sold 17 million iPads last year and they basically created an industry. He joked that 2011 would be the year of the copy cats. But he thinks they have really got a step further with iPad 2. We should tell you that it will go on sale much earlier than anyone anticipated. It will go on sale March 11, here in the United States, and then two weeks later it will be sold in 26 countries around the world, including in Britain, Max.

FOSTER: And very frustrating for people who bought them for Christmas, I guess. Some thought there might be another new version towards the end of this year. Anything on that?

SIMON: We haven't heard anything about that. That would be a surprise to many analysts. Typically Apple doesn't do that. They risk offending their customers, if you will. As you said, though, if you happen to have bought one a few months ago for Christmas, then I suppose you are out of luck unless you want to shell out the $500 to upgrade. That is what the price will be for the iPad 2. The same price as the first iPad, starting at $500, Max.

FOSTER: I'm sure Apple would love it if we did. Thanks very much, Dan Simon, there for the announcement.

Well, when the first iPad did come out there wasn't much of a market for tablet computers. Now, there is more than 100 different models out there. And many of the new features of the iPad 2 have been on rival tablets, it has to be said, for months. So let's take a look at who is trying to take a bit out of Apple's market.

Well, among them is the Motorola Xoom. There it is, 25.5 centimeters worth of display. The iPad is slightly smaller, 24.4 centimeters. It runs on Android's new honeycomb system, that one. And there are two cameras and an HD camcorder. Retails at $799, that is $300 more expensive iPad, though.

Samsung have got the Galaxy. And there it is, it's screen is 17.75 centimeters, around $550 worth of computer there. Though a 25 centimeter version will coming soon, with honeycomb and two cameras. So they are all keeping up.

BlackBerry has the PlayBook and that is out later this year; 17.75 centimeters worth of touch screen you've got there. Unlike the other two tablets it can run flash, which the iPad can't (UNINTELLIGIBLE). It will be priced under $500. That is going to be a big competitor.

So, does the iPad 2 change everything? Or is it actually a bit late for the party, and how does Steve Jobs' return actually affect things? Well, Rupert Goodwins is the editor of the technology web site ZDNet.UK, and he joins us now.

Thank you for joining us.

I know that you were anticipating this announcement like everyone else was, and a big surprise for you?

RUPERT GOODWINS, EDITOR, ZDNET.UK: Steve Jobs giving it, that was the most exciting part of it. The iPad 2 is what you would expect. It is incremental. It doesn't do anything new that you couldn't do with the iPad 1, so it doesn't really give you very much more.

The Steve Jobs, people, almost writing off already, saying he's probably not going to come back. He's off on indefinite, ill. Lots of people saying he's too ill to continue, but he looked very good.

FOSTER: Yes, that is encouraging in terms of the brand, generally, right?

GOODWINS: And also the continuity, because Steve Jobs is so identified with Apple, the iPad, the iPod, and the iMac are all what he gave after he came back. And without him at the helm there is many questions (AUDIO GAP) Apple can continue on this winning run.

FOSTER: Especially when there is a rumor going around that the chief designer is on his way out as well.

GOODWINS: The rumor that he wants to come back to the U.K. and Apple doesn't want him to, so yes. There are a number of questions there and this can only do Apple good to see Steve Jobs giving a very confident demonstration.

FOSTER: Could Apple not have produced this tablet last year?

GOODWINS: Yes. What Apple always does is it produces a new thing, which is magical, they say, and it is missing lots of features and they gradually add them in, so by the end of the product's run it has got everything it should have had at the beginning. And we are seeing now it has got cameras on it and the mobile phone, it has a camera on it, which costs $5 to put in, the last for five years now. And the original iPad didn't have one. Why not? So they could put it on the iPad 2. Still no slots for memory cards, still not standard interfaces, all the things you think you might want to use it for, so perhaps they're coming on later.

FOSTER: The speed looked pretty impressive. That was a bit of a surprise, wasn't it? Twice the speed?

GOODWINS: Not really. That is what happens with chips, every year they go twice as fast. Nobody has ever complained that the iPad 1 was too slow. So, it is nice that it goes twice as fast now. But it doesn't do anything new.

FOSTER: And are the people that are going to have the iPad 2 going to have much better computers, would you say, than the people with the iPad 1?

GOODWINS: I don't think so. I think the same people-I've seen people on Twitter already saying I haven't found anything to do with my iPad 1, but I'm going to buy and iPad 2 anyway. So, I think it is the same sort of-it's new, it's sleek, and it comes in black and white, fantastic. So, people are going to go out there and buy it, even not knowing what they are going to do with it.

FOSTER: Rupert, thank you very much. We'll have you back when we have the next version.

GOODWINS: Thank you.

FOSTER: Sooner than later, probably.

Now shares of Apple got a boost from Steve Jobs appearance and having slipped a little this morning, shares jumped almost 1 percent when Steve came out on stage for the start of the iPad 2 announcement. They are currently up around 0.95 of 1 percent.

Now when we come back a battle is raging over Libya's oil and global airlines are getting caught in the crossfire. We'll ask if we are seeing an oil shock in the making.

(COMMERCIAL BREAK)

FOSTER: Now the oil fields of Libya are becoming a key battleground for Moammar Gadhafi. A doctor in the town of Al-Brega said four people were killed and 23 wounded by gunfire. Libyan forces dropped bombs near the same town. CNN's Ben Wedeman witness the bombs falling and he joins us now on route to Benghazi.

OK, what can you tell us about what you actually saw with your own eyes?

BEN WEDEMAN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Max, what we saw is three separate bombing runs by Libyan air force jets. One of them seemed to be dropping a bomb in the direction, or rather in the vicinity of the town of Brega, where that key oil facility and natural gas processing plant is located. Afterwards the planes made another run right over our heads. We were with a large group of opposition fighters who were preparing to launch a counter attack into Brega, which at the time was under the control of government forces. That plane dropped a bomb just by the side of the road, very close to where we were standing.

Later in the afternoon, Max, we were with another group of fighters and residents of Brega who were celebrating the fact that they had been able to drive the Libyan forces out of town. And there, yet again, another Libyan jet flew close-very low over head, dropped another bomb at the edge of this crowd. They were shielded by cars, which were parked by the road, but we do believe there were casualties in this instance. We didn't stick around, however, to see if there were any because like everybody else in this crowd, we were afraid that a second bomb was coming so we rushed out of the area and didn't go back, Max.

FOSTER: And what is your sense, is damage being done to the installations there? Or was this just about protecting the access to them?

WEDEMAN: It seems to be about the access. We didn't hear of any damage to the refinery, the natural gas plant, and the export facilities themselves. Much of the fighting seemed to be around a university on the edge of Brega, as well as sort of the western edge of the town. We did not hear of any damage done to those oil facilities, Max.

FOSTER: Ben Wedeman, thank you very much indeed for joining us from the route of up to Benghazi.

Well, the turmoil in Libya is driving oil prices to their highest levels in two and a half years at the moment. And any threat to the country's oil installations can only make the situation more volatile. Jim Boulden has been looking at how secure Libyan oil supplies are. I guess the point is you don't want to damage them too much.

JIM BOULDEN, CNN FINANCIAL CORRESPONDENT: Yes.

FOSTER: You want to keep them intact, at least whatever side you are on.

BOULDEN: And it is good to hear from Ben that there is no indication Braga is Libya's oldest oil refinery. It is capable of refining 10,000 barrels a day. And what is interesting is the last couple of days talking to people in the oil markets. They think some companies are actually getting some oil out, they don't know who to pay. Of course, a lot of opposition, a lot of the oil fields are in the areas of the opposition. But others, the National Oil Company says, no, they are still in charge of the oil. And that is who of course these companies have contracts with, is the National Oil Company, which is run by the government.

So the question is, with 65 percent or so of the oil not flowing currently out of Libya, it is going to take a lot to see how companies will be able to go back in there. And they are all watching very carefully, of course, to see if there is any damage. But your point is very important. The opposition doesn't want to attack the oil fields. This is the money. This is where Libya will get its money, whoever is in charge.

And earlier I spoke with Julian Lee, he is a senior oil analyst over at the Center of Global Energy Studies, and we talked about security. Here is what he had to say.

(BEGIN VIDEO CLIP)

JULIAN LEE, SR. OIL ANALYST, CENTER FOR GLOBAL ENERGY STUDIES: We're not hearing any reports at the moment of damage to oil facilities and oil infrastructure, but if there is a protracted conflict it is certainly something that can't be ruled out entirely. But even if there is no damage there is going to be, I think, a period of greater concern over the situation in Libya and whether it is a stable place to invest.

(END VIDEO CLIP)

BOULDEN: Of course, those companies already there who have invested, they have moved out all of their ex-pats. They have moved out all of their senior oil executives. So, they can't be doing normal business for a long time now, even if they have left back some of their local Libyan employees. So the question really is, who is able to pump even some of this oil out, when the opposition and when you have battles going on like we heard about today.

FOSTER: Of course, what drives the price isn't always reality, though, isn't it?

BOULDEN: No.

FOSTER: Whether or not it is flowing, if there is a fear in the market that you have this ongoing problem across that region. That could drive prices up and create a shock in oil prices, how likely is that, do you think?

BOULDEN: Well, right now we always keep saying Libya is only 2 percent of the world's oil. But it is very important for Europe. But if you put in context with some of the other big oil shocks, you go back to 1979, the oil, Iranian Revolution, and that, we saw a lot of oil taken off the markets then. It was some 5.6 million barrels per day, at the height, were taken off the market and that is a lot.

And then the Gulf crisis in 1991, after Iraq invaded Kuwait, and then you had the U.S. led forces going into Iraq, into Kuwait, and a little bit into Iraq. And that was 4.3 million barrels a day. And then 2003, the war, the invasion of Iraq, another 2.3 million barrels per day taken off.

And now we are seeing Libya, roughly around 1 million barrels a day taken off. What is so interesting about that, everyone keep saying Saudi Arabia can replace it. Well, they can replace it in numbers but not in quality. Libyan oil has got a high quality and countries like Italy and Ireland rely on it heavily. And so they are going to have to find other places. And it is more expensive to refine Saudi Arabian oil than it is to refine Libyan oil.

FOSTER: OK, Jim. Thank you very much, indeed, for that.

While soaring oil prices could cut global airline profits in half, according to the leading industry body. The International Air Transport Association now says industry earnings could fall to around $8.6 billion. That is half of what the industry earned just last year. IATA blames unrest in the Middle East and North Africa for driving oil prices above $100. And back in December they expected prices to stay closer to $84 a barrel.

Earlier I spoke with IATA's director general and he broke down the numbers for me and explained what it means for his industry.

(BEGIN VIDEOTAPE)

GIOVANNI BISIGNANI, DIRECTOR GENERAL, CEO, IATA: We have a drop in profit this year by 50 percent. Last year we made $16 billion of profit, this year $8 billion, this means half of it. And on top of this, our margin is 1.4 percent. And these are all numbers that are kind of worrying us. Because this is a very fragile industry. This industry $210 billion in debt and so any kind of emergency situation is putting us at risk.

FOSTER: And what is its specifically that is bringing your margins down to such levels. I know you have described this as on par with a charity industry, because the margins are so small. But what is it that is driving these problems for you?

BISIGNANI: You know, in this specific moment, the fuel is of great concern. The fuel bill of this year will be $166 billion. And this was a consensus price, average, for this year of $96, so it means $10,000 billion more than what the original forecast in December.

FOSTER: But the airlines are charging surcharges, fuel surcharges, where is that money going?

BISIGNANI: You know the fuel surcharge, it is a decision of each airline but it never covers more than 20 or 30 percent. Especially when the business is suffering and I would say, I would say, there is a certain kind of limit. On the other side, this will-on the other side we might say that this year we will probably have a $50 percent hedged. And this is what is helping, in order to mitigate the impact of the fuel.

FOSTER: I know you have also made some predictions on passenger numbers. They are actually up, aren't they? And they are going to keep going up. So what is the problem here with the business, when passenger numbers are going up. And the margins are so tight, it can't entirely be down to fuel prices.

BISIGNANI: You know the traffic is going up by 5.7 percent. And the capacity is of 6 percent. So we have more capacity than traffic, and this is not helping. And the yields, due to this fact, will probably raise between 1 and 1.5 percent. So that is another issue. That is helping in a certain way, but it is still quite fragile.

FOSTER: And in terms of hedging, airlines always do hedge, or make predictions on what oil prices will be and they sort of ensure against that, don't they? Why are they getting it so wrong at the moment?

BISIGNANI: But, no, the hedges, roughly 50 percent. Who is not hedging is many of the Asian players. And especially in China, because the situation in China is not so easy for airlines so that substantially, directly, government owned to have this couch. You use this kind of tool. But all, on the other side, you know, this-the labor, the costs, especially in Europe we have taxed in an incredible way. In the U.K., for example, there is an ADP tax of 3 billion pounds. In Germany, recently, there has been imposed another billion euro tax on Air (ph) Austria. So all this taxation is not helping because we are still a sick industry.

FOSTER: OK. So fuel surcharges are bound to go up at this rate, aren't they, if we go with your figures?

BISIGNANI: You know this is a decision of the airlines, individually and this situation where you have $10 billion increase, it is quite natural that the airline will decide a certain level of fuel surcharge, but this is up to the airline, we have nothing to do with it.

(END VIDEOTAPE)

FOSTER: The head of IATA talking about their financial situation. The U.S. has got its own threat of a government shut down, though, is temporarily averted.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Anyone wishing to vote, or change their vote, if not, on this vote the yeas are 91, the nays are 9. The joint resolution is passed.

(END VIDEO CLIP)

FOSTER: But the battle over spending looks set to intensify. We are live in Washington, after the break.

(COMMERCIAL BREAK)

FOSTER: The U.S. government shut down has been averted, for now. The U.S. Senate has approved a bill that keeps the federal government funded for two more weeks. The legislation approved by 91 to 9 votes, cuts $4 billion, though, from current spending levels. But the battle over budget cuts is far from over. Senior Congressional Correspondent Dana Bash joins me now, live from Washington.

We got there in the end, didn't we? But it is only temporary.

DANA BASH, CNN SR. CONGRESSIONAL CORRESPONDENT: Very much a temporary reprieve from the very big-the very real possibility of the government shutting down in two more weeks when this temporary spending measure expires. But you know, what is most interesting, Max, in watching the back and forth-and it has been a dizzying back and forth today, between Democrats and Republicans-is over whether or not, I'm not even kidding you, they will sit down to negotiate over the bigger gulf between them. And that is the $61 billion in cuts the House Republicans passed two weeks ago, and Democrats say they don't want to go anywhere near that. That is really what we are talking about here. I just want to give you a taste of what we heard, first from the Democratic Senator from New York Chuck Schumer, and then the Senate Republican leader on the back and forth.

(BEGIN VIDEO CLIP)

SEN. CHARLES SCHUMER, (D) NEW YORK: The White House is inviting both sides to negotiate a long-term solution lead by Vice President Biden. If Republicans are serious about negotiating a responsible compromise they should accept this invitation immediately and get to work.

SEN. MITCH MCCONNELL, (R-KY) MINORITY LEADER: Now the question is, where are the Democrats going to take us? What is their proposal? That would be the next step to try to resolve for the balance of the year, and we look forward to hearing from the majority in the Senate.

(END VIDEO CLIP)

BASH: Let me just translate this for you. This is what is going on, on this very, very important issue between these two sides bickering. What they are bickering about is whether or not and how they can even start negotiating. Senate Democrats are saying the White House wants to do this. They are going to leave the talks to the vice president. It could be here within the next 24 hours to do it. And Republicans are saying, we're not going to come and sit down and negotiate with you Democrats because we don't know what your position is.

Now, both may have valid points, but when you think about what happened in the U.S. election not too long ago. Really, the message saying we want things to get done. We do want to cut spending but we also want people to really work and stop playing politics like this. It is not happening right now, Max. I think that is fair to say.

FOSTER: But a government shut down is actually still a real possibility, isn't it, in a couple of weeks?

BASH: Yes, here is what I'm told by sources on both sides, and in particular, Democratic sources. And that is that this particular measure that the Senate passed today will fund the government, as you mentioned for two more weeks, until March 18. It has $4 billion in cuts. That was a Democratic concession. What Democratic sources say is that they do actually have in their back pocket another $4 billion in cuts for an additional two more weeks. So if they don't come to any kind of an agreement, or even sit down to negotiate before that March 18 deadline, they probably could do two more weeks. But then it is going to be even more difficult. So wherever, however you look at it, whether it is two weeks or four weeks, it is going to be very tight and tough. And it is going to be all consuming in terms of getting this done and keeping the government running for the next two weeks or months.

FOSTER: Politics in Washington, Dana Bash, thank you very much indeed for joining us.

Now, Ben Bernanke, meanwhile, got another grilling on the hill on Wednesday. The Fed chief was testifying for a second day, addressing the House Financial Services Committee. And he faced criticism from a number of House Republicans. Bernanke said the risk of the economic recovery stalling is still there, but is less than it was.

(BEGIN VIDEO CLIP)

BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: The labor market doesn't continue to improve the risk would be that consumers would see unemployment going back up again, they would loose confidence. And then you would have increasing risk that the thing might stall out. So that is the risk. Although, I think that risk has declined in the last few months.

(END VIDEO CLIP)

FOSTER: Well, it has been an up and down day, really, for the U.S. stock market, as investors weigh some positive jobs news against rising oil prices and continuing concerns over the situation in Libya, of course. Alison Kosik is at the New York Stock Exchange with more on what has been moving the markets.

And, Alison, we want to start with those comments from the Fed. What did you make of them? What impact did it have?

ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: You know what, it is funny how you mention Bernanke's comments. They contributed to Tuesday's sell off. We are seeing a different story today. The Street looks like it is mostly shrugging off today's comments. Though investors really do share some of Congress' concerns about inflation especially in light of the run up in oil prices; NYMEX crude, right now, sitting over $102 a barrel.

Now, Bernanke is saying that higher commodity prices have yet to cut into U.S. growth. But we have seen the average gas price, right here in the U.S., jump about 20 cents in the past week. And Wall Street is worried about what affect that is going to have on consumers and the overall recovery, which even the Fed admits is still fragile, Max.

FOSTER: We have this jobs news as well, didn't we? A lot of people frustrated by that, because it wasn't all that clear.

KOSIK: Yes, I mean, this is the private sector report. And actually, it is keeping the-keeping stocks in the green today. Payroll services firm ADP said that the U.S. private sector added 217,000 jobs in February. It was above estimates, but a separate report, and this is where the confusion comes in, a separate report said mass layoffs, they rose more than 30 percent from January to February. Now, we had been seeing mass layoffs fall steadily for months. And last month investors got burned by the ADP, which came in much higher than the government report. So they may be kind of leery of that happening again. The expectation for Friday is to see 180,000 to 200,000 jobs added and just under 200,000 private sector jobs added.

And one other thing to throw in the mix here; the jobs report on Friday that we get, it may not get the undivided attention it usually does. You know there is a lot of chatter that Friday could be a big day of protests in the Mideast. So we are kind of seeing a real tug of war recently, between good economic data and all these geopolitical events going on. We'll see, though, if the data tries to win out for the day today. I'm talking about the ADP data, Max.

FOSTER: A lot to consider. Alison, thank you very much, indeed, for that.

Well, European stocks continue their retreat with traders keeping a close eye on that escalating conflict that Alison is talking about there in the-in the-in Libya as well as a rebound in oil prices. Worries about their combined impact on global growth dragged down the carmakers in France, and in German, but the FTSE finished off the day's lows after banking stocks got a lift from better than expected earnings from Standard Chartered.

Now, we are hearing reports this evening in London that Britain may approve News Corp's $12.5 billion take over of BSkyB. But the buyout may see Rupert Murdoch's media giant forced to spin-off the loss making TV channel, Sky News. One source says a spin-off of Sky News is more likely than the sale, but it's also possible that News Corp may be allowed to keep a stake in Sky News.

BSkyB and Sky News both said "no comment" when contacted by us.

Now, around 30 minutes from now, a U.S. senator recounts his emotional story of being abused as a child. And Hollywood producer Harvey Vine -- Weinstein weighs in on recent headlines about actor, Charlie Sheen. That is on "PIERS MORGAN TONIGHT," right after QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

FOSTER: Welcome back.

I'm Max Foster and these are the headlines.

Residents in an opposition-held Libyan town say rebels are still in control after an offensive by government forces failed. Libyan planes bombed the oil exporting town of El Brega on Wednesday and sent in trucks loaded with heavy weapons. A doctor at one area hospital says at least four people were killed in that fighting.

Moammar Gadhafi says there's no need for the opposition to topple him, meanwhile, since he holds no official title. In a marathon speech on Wednesday, the Libyan leader also warned the West that thousands and thousands of people will be killed if the U.S. or NATO intervenes.

The U.S. president says he's saddened and outraged at the killings of two American troops at Frankfurt International Airport. The Air Force airmen were shot to death on a military bus at Terminal Two. A U.S. official says it's believed a young Kosovar is in custody.

The Taliban are claiming responsibility for the assassination of Pakistan's only Christian cabinet minister. Shahbaz Bhatti was gunned down on Wednesday. He had spoken out against Pakistan's stringent blasphemy law and said he had received death threats.

Spain is the latest country to freeze Libyan assets. It shouldn't trouble Moammar Gadhafi too much, though. He denies he has any, at least in the material sense. He is speaking -- well, he is speaking to supporters. He was speaking to reporters -- or supporters earlier.

(BEGIN VIDEO CLIP)

MOAMMAR GADHAFI, LIBYAN LEADER (through translator): I find it funny when they say that Gadhafi has got assets. I wish I had any assets. I said, give me a million dinar. My assets is history, the people, the glory, not the American dollars or the oil, which is the banned currency.

(END VIDEO CLIP)

FOSTER: Spain says otherwise, though. It says Colonel Gadhafi owns a large tractor plant near the resort of Malaga and he had plans to build around 2,000 homes, a golf course and a conference center there. The London School of Economics says it's received around $490,000 from Libya. That includes money from the Gadhafi International Charity and Development Foundation. It said it will pool that money now into a scholarship for students from North Africa.

Even celebrities are -- are dumping Libyan money. Nelly Furtado Tweeted that she will be giving away a million dollars she received for doing a 45-minute show for the Gadhafi family.

Eighty percent of Libya's money comes from oil and those billions are managed by the Libyan Investment Authority. Some believe Gadhafi has direct access to that fund.

Atika Shubert now investigates how he's been investing all that money.

(BEGIN VIDEOTAPE)

ATIKA SHUBERT, CNN CORRESPONDENT (voice-over): Italian Prime Minister Silvio Berlusconi once boasted about his close friendship with Colonel Moammar Gadhafi, while former British prime minister, Tony Blair, has been described as a friend and adviser to the Gadhafi clan.

So it may come as no surprise that Italy and Britain are among the favorite destinations for Libya's money. Among the assortment of Italian assets, 7.5 percent of UniCredit, Italy's largest bank; 2 percent of Finmeccanica, the Italian aerospace and defense group; less than 1 percent of Eni, the country's energy company and 7.5 percent of Italian football club, Juventus.

(on camera): Here in London, it's about real estate. The LIA owns several properties here in London, including this historic one just across the street from the Bank of England.

Then there's this busy property right in the middle of the commercial center of Oxford Street. But, in fact, all of this is just a small part of it. More than 70 percent is believed to be in cash or short-term financial investments and much of it in U.S. banks.

Anti-corruption activists say it is critical to block Gadhafi's access to these funds.

ROBERT PALMER, GLOBAL WITNESS: If you are in control of the state, you have control over the state's assets. In the case of Gadhafi, it's becoming increasingly clear that he has control over the Libyan Investment Authority, which has tens of billions of pounds throughout the world, including, according to some reports, 20 billion pounds in London.

SHUBERT: (voice-over): On Thursday, tough E.U. sanctions are expected to be finalized. But some have proactively taken their own steps. Pearson's, publisher of "The Financial Times," has frozen the 3 percent owned by the LIA. The U.S. has already seized $30 billion of Libyan assets in the U.S., the biggest of its kind. That, combined with the E.U. sanctions, officials hope, will corner most of Gadhafi's wealth.

Atika Shubert, CNN, London.

(END VIDEO TAPE)

FOSTER: So is this unrest dampening the appeal of emerging markets for investors, then?

Well, Richard Yetsenga is global head of emerging market strategy at HSBC.

He joins us now.

Thank you very much, indeed, for joining us.

RICHARD YETSENGA, GLOBAL HEAD OF EMERGING MARKETS FX STRATEGY, HSBC: Thank you.

FOSTER: Just describe how the emerging markets have been dealing with the last couple of weeks.

YETSENGA: Actually, look, very well. Historically, you would think of emerging markets as being very high beta (ph), you know, money that's in emerging markets quite flighty and likely to move out in response to these sorts of events.

But a couple of things are different. One, of course, is the developed economies are the ones where we probably worry about their abil - - ability to deal with higher oil prices more. Certainly, growth is much weaker there than in China, India, some of the emerging world, and, also, the last couple of months, we had already seen a switch out of emerging markets back into the core developed markets, because at least in developing markets, that's where we've seen the upside growth surprises the last three or four months.

FOSTER: It has. But then there's this concern about the oil price, which, as you say, is it going to affect the Western markets more, isn't it?

YETSENGA: Well, I would think so. Certainly, if we view an oil shock as being a squeeze on margins and a profit squeeze, you would think companies operating in economies that are growing at 8 to 10 percent in real terms would be better able to deal with that than companies operating in economies that are growing between 0 and 3 percent.

FOSTER: What typically happens in these situations, though, when you get military conflict, almost, some sort of protests and then political instability?

What do investors do?

Do they pull their money out and then put it back in?

What happens?

YETSENGA: Well, obviously, in the markets concerned, I mean the initial response is to look for somewhere else. But in terms of global impact, I think, you know, it obviously raises the level of uncertainty. Investors generally are likely to, you know, reduce the bets that they are making directionally on markets and go back to some core benchmark positions, I think.

FOSTER: But when the governments collapse, do you -- they struggle to get their money out, don't they, of these countries?

YETSENGA: Well, certainly, but the countries that we're talking about, I mean Libya obviously not a big market for global investors, really. And certainly the other countries have been affected, a similar sort of thing. Which is why the key impact, really, is what does it mean for the other core investable markets?

FOSTER: And are people looking at the Middle East and thinking, well, actually, look what happened in South America, look what happened in Eastern Europe, this could eventually become a very positive move, economically speaking?

YETSENGA: Certainly. But initially, I think the big impact is what is the political contagion?

You know, do some of the real oil -- big oil producing countries get involved?

If that's the case, then do we really have a big oil shock?

The last time we had an oil shock was 2008. And the only thing that benefited from that was the U.S. dollar.

FOSTER: And are you expecting an oil shock?

YETSENGA: Well, certainly...

FOSTER: You must be thinking about it.

YETSENGA: -- certainly, not, and, of course, I think all investors and all strategists, like me, are spending a lot of time thinking about that. It's very difficult to quantify, which is why I say I think the only thing that's clear is uncertainty is much higher, so the level of bets has gone down.

FOSTER: OK, Richard Yetsenga, thank you very much, indeed, for joining us.

YETSENGA: Thank you.

FOSTER: Now, no one to blame but myself -- John Galliano makes a full apology and heads for rehab. We'll look at what it means for Dior.

(COMMERCIAL BREAK)

FOSTER: Now, we are hearing conflict reports about a Bangladeshi Nobel laureate's status with the bank that he actually founded. The government has said the pioneer in microfinancing, Muhammad Yunus, has been relieved of his duties as managing director of Grameen Bank. Well, bank officials say it's a legal mattle -- matter, and that Yunus remains in his job.

Bangladesh's central bank says that at 70 years of age, Yunus violated a law by staying on well past the mandatory retirement age, 60.

But his supporters say the government is trying to discredit Yunus, a harsh critic of Bangladeshi politics.

Someone facing problems of his own is John Galliano. He'll stand trial now for allegedly making anti-Semitic comments last week. If convicted, the designer could be sentenced to up to six months in prison. Galliano has apologized for the behavior that saw him lose his job as chief designer for fashion house, Christiane Dior.

I asked Monita Rajpal, who's in Paris, what he said in that statement.

(BEGIN VIDEOTAPE)

MONITA RAJPAL, CNN CORRESPONDENT: We hadn't heard from Mr. Galliano up until now. And he has risued -- issued a statement saying that he apologized for his actions, but denied he is anti-Semitic. In the statement, he said, quote: "Anti-Semitism and racism have no part in our society. I unreservedly apologize for my behavior, it causing any offense." He goes on to say: "I only have myself to blame. I am seeking help and all I can hope for is time to address the personal failure which has led to these circumstances."

But he did go on to say that he is launching a counter complaint against the aggression and defamation that has arisen out of -- as a result of all that had happened. He says in the statement, quat -- excuse me -- quote: "I was subjected to verbal harassment and unprovoked assault when an individual tried to hit me with a chair, having taken violent exception to my look and my clothing."

Again, this is just the latest statement that we received.

And the first statement that we've received from the British designer for the House of Dior, also just coming into us now here in Paris, is a statement from the Paris prosecution office, saying that Mr. Galliano will, indeed, face trial for these -- for these charges.

FOSTER: And this is a figure, almost a living legend in the fashion world, isn't he?

You've got Fashion Week going on there in Paris.

What on earth are people making of all of this?

RAJPAL: You know, there are some really mixed emotions, mixed reactions as a result of all of this. Mr. Galliano has a lot of friends in this industry. He is considered a creative genius. He is considered the man who really helped to make Dior a lot of money.

Of course, Christiane Dior was a very powerful fashion house to begin with. But, of course, he was the one that made it into this pop cultural phenomenon, as well, dressing A-listers from Nicole Kidman to Sharon Stone, that we saw the in the recent Academy Awards.

The thing is, there are many people who are saying that, you know, regardless of his fame and his genius, there is a right and there is a wrong. There are things that one should not say.

However, there are -- his friends are saying that they -- they -- this is a time for them to be compassionate. He is, as Hilary Alexander of "The Telegraph" has said: "He is a gentle soul and someone who is a very creative person," and wanting to see exactly what, perhaps, may have led to something like this.

Again, you know, it all has to be proven, whether or not he actually did do what he's being accused of.

FOSTER: And what about Dior, because this is the ultimate French brand, in many ways, isn't it?

And very, very damaging for Dior.

Are they going to be having their show on Friday?

RAJPAL: They, from what we understand right now, according to Dior spokespeople, the show will go on as planned. Of course, this is what we're -- they're saying right now.

But you have to know, Dior is a 64-year-old house. It was established in 1946, 1947. Galliano took over in the late 1990s. And, you know, Bernard Arnault, the chief executive of LVMH, the -- the company -- the big powerhouse that owns Dior, he nipped it in the bud. He said it was -- you know, this needs to be dealt with immediately.

At the end of the day, impressions and reputation is huge in this industry. And something like this, when we're talking about alleged racial slurs or anti-Semitism, no fashion house could be aligned with any that are seen to be even supporting someone who may even have said something like this.

So they -- they -- they quickly nipped it in the bud.

Now, Dior will survive. That's what an analyst here in Paris has said. It is such a -- it is such a powerhouse. He said Dior is gold and gold must be protected.

(END VIDEO TAPE)

FOSTER: Well, let's take a look at the weather at this point.

It's pretty cold, as you can see there, in Paris. And clear skies in parts of Northern Europe. But a much different story to the south.

Meteorologist Pedram Javaheri is at the CNN International Weather Center following all of this for us -- hi, Pedram.

PEDRAM JAVAHERI, CNN METEOROLOGIST: Hi, Max.

Yes, the storm system to the south has been really the talk of the area here the past couple of days. Of course, we know what's been happening in that region, with all the turmoil from areas outside of Tripoli, working their way all the way into, say, Tunisia. A lot of people displaced. A lot of people living in temporary housing right now.

And to the south, just look at the past 12 hours, sits in place here. It really doesn't go anywhere. And as it sits in place, it is going to eventually rain itself out. But right now, producing very heavy rainfall across portions of, say, Southern Italy. Behind this feature, right around, say, Tunisia, where we have a lot of folks, again, living outside with temporary housing, very cold temperatures in the overnight hours. That's what's been causing a lot of the problems.

But to the north, look at this. From Berlin out toward, say, Paris, all the way out toward London, clear skies and cool temperatures. And that's going to persist the next couple of days, as well.

to the south, we're looking at heavy snow showers in the higher elevations of Italy, with the cooler temperature that we talked about. But now, we're getting some reports here of very strong winds also associated with the storm system, Trieste, out there in Northern Italy and the Adriatic, look at this wind gusts -- nearly 200 kilometers per hour, one of those down sloping bora wind events -- events that we see this time of year, causing at least 90 people to get injured across Trieste in the last 12 or so hours, in the overnight hours of Tuesday night and into Wednesday morning.

Also, Southern Italy getting very heavy rainfall associated with this, from Palermo down toward Messina, getting nearly 120 millimeters as that storm system sits in place.

So the overall pattern for Europe, travel delays right now look minimal, but we are going to experience a bumpy ride up there, perhaps, because we have windy conditions associated with this storm in the general area. And from Madrid all the way out toward Barcelona, perhaps a morning shower. But generally speaking, Rome should be good to go, perhaps an afternoon shower could give you some light delays out there. And that's the concern for parts of Europe.

In the United States, a different story. We have a storm system working its way through the midwestern portion of the United States. And they've been hit, of course, from Chicago out there toward St. Louis, Missouri in the month of February, one of the snowiest months they've seen on record.

So a lot of that snow now beginning to melt and that's causing some of the problems.

We have some flood warnings in effect from Louisville down toward Tennessee, eventually on into, say, New Orleans, Louisiana, where some flooding issues are possible, as well.

But the overall picture across much of the United States, especially the Southern United States, is the droughts.

Take a look at this -- extreme drought across portions of the Southeastern United States, working your way on into Florida, where we've had major fires. And these are the thermal signatures of all the fires active right now, around the southern tier of the United States. And just east of Orlando, you can see some of the major fires out there. And as you take the satellite perspective, you can also see some of the smoke plumes associated with these fires outside of the Orlando region, just north of it, across the I-95 corridors, where they've had the highway out there closed in certain areas of it because of all the fires.

And, quickly, take a look at the this video. We have it for you coming out of the Florida region, showing you the fires in that area. We have winds right now very gusty at times. So it gives it the oxygen, it gives it the energy it needs to fuel these flames out there.

And unfortunately, the weather pattern going to remain right here, Max, for at least the next couple of days, so the fire concern is going to stay very high, at least for the next couple of days, in the state of Florida -- Max.

FOSTER: OK, Pedram.

Thank you very much, indeed, for that.

Now, Adidas reports record sales and says it's on track to further earnings growth. Find out why it's so upbeat when we speak to the company's CEO.

(COMMERCIAL BREAK)

FOSTER: Well, Germany fell short in its bid to win the World Cup with South Africa last year. But at least one German company scored big in 2010 and credits the tournament for much of its success.

Adidas says net profits more than doubled, to $784 million. The world's second largest sporting goods maker, after Nike, reported a 9 percent jump in sales, which came in at a record $16.5 billion.

And because Adidas sees strong future cash flows, it also more than doubled its dividends.

Well, CEO Herbert Hainer spoke with CNN's Jim Boulden about the challenges that lie ahead and how Adidas plans to tackle them.

(BEGIN VIDEOTAPE)

HERBERT HAINER, CEO, ADIDAS: 2010 has been a fantastic year for us. We are outgrowing all our competitors. And the good thing is that we are growing with all our brands and in all the key regions.

So Adidas is growing and Reebok is growing, TaylorMade is growing, as well as North America, China, Russia, Europe. And this is a good platform for further growth in the future.

JIM BOULDEN, CNN CORRESPONDENT: You mentioned China growing, but just a little bit. I noticed that sales weren't up that much in euro terms.

Are you correcting things in China now?

Do you expect to have a better 2011 there?

HAINER: Yes, we have corrected it already. When you look into the numbers, then you can see that in the second half of 2010, we have been growing by 10 percent in China. And this will continue in the future. And we definitely believe that we will grow double digit in the next years in China.

BOULDEN: Of course, you have to deal with commodity costs. And, of course, commodities are getting much higher.

How do you counteract that?

Or do you expect to have to raise the prices for your goods?

HAINER: So we are working on two work terms (ph). One is that we want to make our processes, our supply chain, more efficient, leaner, taking costs out. And the second one is that, of course, we are looking into the price structure of our products and our concepts. We are putting more value into the product. And, therefore, we do believe that we can trust higher prices on the one or the other product.

And these both measurements makes us believe that we will keep our margin on the level in 2011, which we have in the moment and therefore grow our profit by 10 to 15 percent in 2011.

BOULDEN: Like some of your competitors, you've slightly raised your sales forecasts for 2011.

What do you attribute that do?

And is it a cautious raise forecast?

HAINER: Well, in general, it's high demand, which we see from the retail end, from the consumer to our product. You know that we are pre- selling for the next six months. And all what we get so far is very positive.

BOULDEN: You've raised your dividend a lot, which, of course, your shareholders will be happy with.

What -- what does that tell you about this sports wear and -- and Adidas for 2011?

HAINER: A good many look the our cash flow, then you can see that we have an extremely positive and good cash flow, which brought us in a situation that we could pay down our debt faster than we thought. Our company is in extremely financial health today and, therefore, we always said if we are in that position, then we will give money back to the shareholders.

And this is what we have done. We raised our dividend quite significantly. And this will also be our strategy going forward.

BOULDEN: What can we expect from Adidas as far as any signings of -- of new stars or are you worried about losing any new stars?

There's a big battle between, of course, you and Nike, when it comes to these -- these high level athletes.

HAINER: We have a very well balanced portfolio. But, of course, we are always looking into it. And you might just have heard, two weeks ago, that we signed Nani, the Portuguese national player, who is playing in England. And whenever there is an opportunity, then we are looking into it.

BOULDEN: You were very big, of course, in the World Cup in South Africa in 2010. It cost a lot of money, as well, advertising and marketing for you.

How do you describe the World Cup for Adidas?

HAINER: Good. First and foremost, I think there is no doubt that we have been the clear winners of the World Cup, as we have been the sponsor of the World Cup, we have some of the teams. We had a winner in Spain. We had all the individuals who -- winners, Diego Forlan, the best player of the tournament; Thomas Mueller, best scorer; Eco Casius (ph), best goal keeper. These are all Adidas or Reebok players.

And we have achieved our 1.5 billion euro in revenues just for the category of football.

I think these are all clear indicators that we are the clear number one in football in the world.

(END VIDEO TAPE)

FOSTER: A confident head of Adidas there.

Now we want to update you on our top story tonight, which is Apple's latest product unveiling. As we mentioned earlier, Steve Jobs' surprise return a short time ago has given shares a boost. Very few people were expecting to see him go up onto the stage when the iPad 2 was unveiled today. You can see here he received a standing ovation.

Here's how he describes the new product, though.

(BEGIN VIDEO CLIP)

STEVE JOBS, CEO, APPLE: This is what it looks like. It's really thin. And it comes in two colors, black and white. We're going to be shipping white from day one.

(APPLAUSE)

JOBS: And to give you some scale, this is what it looks like. Again, you can just pick this thing up. It almost floats. Black and white. Black or white here.

Now, in addition to having both colors, we also have models that work with both AT&T and Verizon's 3G networking from day one. So we support both AT&T and Verizon.

Now, here we are adding...

(END VIDEO CLIP)

FOSTER: Well, let's have a look at the Apple shares, then, because they had slipped earlier this morning, but jumped almost 1 percent at the moment the CEO returned to action. That's who everyone wanted to see and they did. Shares are currently trading up around .75 of 1 percent.

We're going to have a look at -- the result of the markets after this short break.

(COMMERCIAL BREAK)

FOSTER: The markets again, as promised. On Wall Street, U.S. stocks have bounced back from Tuesday's sell-off, but gains have been limited by today's escalation of violence in Libya and those rising oil prices. Before the bell, payroll firm, ADP, said the private sector added 217,000 jobs in February, which as better than expected. And chip stocks got a lift after JPMorgan Chase raised its ratings for the semiconductor sector.

And that is QUEST MEANS BUSINESS.

I'm Max Foster in London.

"PIERS MORGAN TONIGHT" is just ahead.

But first, we're going to check the news headlines.

END