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Quest Means Business

JPMorgan's Trading Losses Hit $5.8 Billion; JPMorgan Shares Soar; New York Federal Reserve Raised Concerns About Libor in 2008; European Markets Up; Growth in China Slows; Spanish Government Sets up $22 Billion Aid Fund for Regions; Civil Servants Protest in Madrid; Euro Stopped Slide; Boeing on Top at Farnborough Airshow; Virgin Galactic Readying for Final Frontier

Aired July 13, 2012 - 14:00   ET


RICHARD QUEST, HOST: Nearly $6 billion swept away, and JPMorgan is still counting the trading losses.

It's a case of growing but slowing. It's China's economy that's cooling down.

And tonight, big name stars can't just deliver their lines. You must deliver profit.

I'm Richard Quest. It may be Friday, and I still mean business.

Good evening. A huge loss and not a total disaster. JPMorgan has laid to bare the damage done by a titanic mistake at its London chief investment office, the CIO. The bank is leading the gains on Wall Street at the moment.


QUEST: Take a look at the Dow, up 168 points, 1.34 percent. Well, what was first pegged as a $2 billion bad bet has now inflated to $5.8 billion so far this year. Morgan says that managers who led the CIO are no longer working there and, interestingly, could be punished with a claw-back of two years' salary. The chief executive, Jamie Dimon, says the incident has been a wakeup call for everyone involved.


JAMIE DIMON, CEO, JPMORGAN CHASE: We've learned a lot. I can tell you, this has shaken our company to the core, and what happened here is that most of the management team went back and said, let's redouble our efforts to make sure we're running a great company, granular, thoughtful, disciplined in every way possible. We could never say that you won't make mistakes. We operate in a risk business.


QUEST: Alison Kosik is at the New York Stock Exchange where, of course, Morgan shares trade and are gaining almost 6 percent. We'll come to you in a moment, Alison, to explain why in such a torrent of misery they should be up so sharply and if that's moving the market.

Outside the scene of the crime, so to speak -- metaphorical crime -- Felicia Taylor is at JPMorgan.


QUEST: Actually, I've just realized it wasn't. The scene of the metaphorical crime was here in London, not over there in New York.


QUEST: It was just the negligence of monitoring it in New York. Take me through what we learned today.

TAYLOR: OK. So, you pointed to the number of losses, and that number is $5.8 billion. That number could continue to grow. What's most important about what Jamie Dimon said in the conference call this morning is that they have now basically shut down that division of the CIO, the Chief Investment Office, and basically have suspended any kind of trading in derivatives.

There is something called -- an index know as the IG9, where those bets were made. They've now unwound that trade by about 70 percent, but they're still about 30 percent that's still exposed to the marketplace that they're going to continue to unwind.

He says -- Jamie Dimon says that could result in a gain. Most people are betting that it will continue to be a loss for the company. I spoke to one analyst, and he said, that is one bone of contention for JPMorgan Chase. Take a listen.


THOMAS RUSSO, ANALYST, GARDNER RUSSO & GARDNER: The one area that always remains an issue is derivatives. There was a question that asked, what about those $86 billion worth of derivatives on the asset side, not only $74 billion of liabilities on the derivatives side?

Now, that's an imponderable. And they still have that exposure, so that's -- that's ultimately the hardest part of the business to get your arms around.


TAYLOR: Overall, though, most analysts are very, very bullish about this stock. They say that for them, most often, is a buy or at least a neutral for them.

The exposure is still billions of dollars, but overall, JPMorgan Chase had $2 billion in reserves to cover this loss and then some. So, I think at the end of the day, it's not going to be that important for them.

But the point is, they've closed this division down. It will no longer be making those risky trades. It's gone back to its core business.

As with regards to the claw-backs. We know that they're not going to get this two years of compensation. They also may have to give up any compensation for 2012. They will not get any severance. The question is, how many other traders will involved, and will there be other job losses at JPMorgan Chase? Richard?

QUEST: Felicia, as I read the report, or at least the interim report and the investigation, this wasn't just a trading mistake, was it? This was a lack of supervision, the firm management didn't know what was happening, the risk management committee lost the plot, too.

TAYLOR: Absolutely. There's no question about it. Ina Drew, who head up the CIO, absolutely should have come forward and known what was going on. These trades take a long time to happen. This doesn't happen just one one trade in an afternoon. This takes months to ensue.

So, the fact that they didn't come forward earlier or didn't acknowledge earlier that there was a problem with these trades ongoing is certainly a mar against Jamie Dimon's reputation. But he has done everything he possibly could to come out and be apologetic about it. And frankly, Wall Street, as Alison is going to tell you, seems to be in favor of the stock.

QUEST: Alison. Thank you, Felicia. Alison, why is Wall Street in favor of a company that announces a $5 billion incompetency in its trading strategy, and why is the market up 160-odd points?

ALISON KOSIK, CNN CORRESPONDENT: OK, first of all, let me take your first question. The reason JPMorgan shares are up, Richard, is because the feeling that the worst is behind JPMorgan Chase. That is the feeling here on Wall Street, that the worst is behind them.

The way investors see it, they knew these losses were coming. They knew big losses were coming. So now, they've gotten the number and they know it's even going to grow, but they also know that JPMorgan is pretty darn strong.

Look. Already this year, JPMorgan has made $9.9 billion this year. So, yeas, the $5.8 billion loss, it is eye-popping. But so is that $9.9 billion profit. And also on this conference call today, Jamie Dimon says look, business is good at JPMorgan. It made double the number of small business loans in the second quarter. The slowing economy isn't impacting demand for business loans.

QUEST: All right.

KOSIK: OK, so you want to know why the broader market is doing well, right?

QUEST: Briefly, yes, please.

KOSIK: OK, all S&P -- the ten S&P sectors led by financials and materials, they are all in the green, 29 of the 30 Dow components are in the green, being definitely led by financials. Financials are going strong, anywhere from 3 to 5 percent right now.

You're seeing a market come off of six days of losses. JPMorgan Chase, Richard, had given investors a reason to rally.

QUEST: We thank you for that. As I always say, don't touch anything in the last two hours of trading. Let's keep the green mark on the market.

Now, concerns about libor and the rate of interest were raised four years ago by Timothy Geithner, now the US Treasury Secretary. According to e-mails published today, Geithner was then head of the New York Federal Reserve, and he wrote to the governor of the Bank of England, Sir Mervyn King, back in 2008. He outlined suggestions for how the libor rate-setting process could be reformed.

Look at the e-mail. Mr. Geithner outlined six key things which could be done to improve the integrity of libor. It included strengthening governance and eliminating incentive to misreport. Sir Mervyn King responded that the suggestions, in his words, "seemed sensible to us," and he passed them on to the British Bankers Association.

Among the other documents released today, claim that unnamed Barclays officials actually admitted in 2008 to manipulating the libor rate. Later on this program, we'll talk to a US congressman who believes both the JPMorgan Chase incident and the libor scandal are all reasons why there needs to be more regulation.


QUEST: European shares ended the week, it was a high note. Rio Tinto and BHP gained more than 3 percent, Arcelo Mittal up 2 percent, Deutsche Telekom up 5.7 after an upgrade. Italian investors brushed off Moody's downgrade. It was two notches above June and a negative outlook.

And some economists in my morning reading, which are very rude, all indices up except Italy for the week as a whole.

Coming up, China slips down a gear. We'll look at why its economy is growing at its slowest pace in years. And cashing in on the Final Frontier.


RICHARD BRANSON, FOUNDER, VIRGIN GALACTIC: A vehicle that will put small satellites into space much more efficiently, much more cheaply, and more reliably than ever before.


QUEST: Sir Richard Branson on his latest project to make space the travel direction for the future.


QUEST: The Chinese economy is growing at its slowest pace since the depths of the global recession in 2009.


QUEST: Growth fell to 7.6 percent in the second quarter of the year, compared to a year earlier. Now, by any other standard, that would be a rip-roaring success. It sounds good compared to Europe and the US. And the slip was to be expected.

However, the biggest exporter in the world is suffering from the slump in its key markets in Europe and in the United States. From Addis in Ethiopia, I'm joined now b y Jeffrey Sachs of Columbia University. Always good to have you with us, Jeffrey.

We knew the slowdown was coming and was happening, but do you think this 7.6 reflects the real number, or do you think it's been massaged?

JEFFREY SACHS, COLUMBIA UNIVERSITY (via telephone): Well, we just don't know. We do know that local governments report to target and can easily over report. We know that China is certainly in the most delicate moment that it has been in in years. And there was a bit of relief that it wasn't worse today. That's why markets --

QUEST: Right.

SACHS: -- actually soared around the world. But I think there still is a huge question mark over whether the investments that were made in the last couple of years are going to justify themselves with tenants in new buildings, with commercial structures being filled, with infrastructure being used, or whether China will --

QUEST: Right.

SACHS: -- will turn out to have made its own bubble.

QUEST: And with this regard, we do expect, don't we, that as the year moves on that the authorities will add liquidity either into the banking system through reserves or directly or through some form of fiscal stimulus? Because with a change of administration, the last thing they want is -- no, it's not going to be a recession, but a miserable slowdown.

SACHS: Well, that's exactly right. And in fact, they had already tightened last year, so we're seeing some of the results of last year's tightening show up in the first and second quarters this year. They've obviously signaled very strongly at all levels, and especially from the top and --

QUEST: Right.

SACHS: -- at the central bank, as well as leadership of the government, that they're turning on the stimulus again right now. How this plays out, though, is hard to see. This is again a situation which the whole world is simultaneously slowing down, and the uncertainty is enormous. The mood swings day to day --

QUEST: Right, but -- well --

SACHS: -- and I think we're just going to have a lot of uncertainty for many weeks to come.

QUEST: Well, with that uncertainty in mind -- forgive me for pressing in, there -- but should we -- should we be relieved at this 7.6, or should we be concerned?

SACHS: I don't -- I don't think that it added a lot of news, unfortunately. This is more or less what might have been expected, but it doesn't really answer the question of what's going to happen in China in the second half of the year.

With Europe, obviously, still in a very deep crisis, with the US economy really growing only marginally, with China's exports clearly hurting very, very badly, for the second quarter, they've gotten through, but it doesn't really tell us a lot about where they're heading in the second half of the year. Just not enough information today.

QUEST: Jeffrey Sachs on the line from Addis. Have a good weekend, Jeffrey. Good to talk to you, as always, on the program.

SACHS: You, too, good to talk to you.

QUEST: Now, Spain stands ready with a $22 billion aid fund for its struggling regions. In return for the help, the regions will have to adopt strict measures to reduce their deficit.

The announcement came as civil servants were the latest to take to the streets of Madrid. They are all protesting about the austerity. You've followed us, of course, during the course of the week we had the miners, we had the riots, we had the bank capitalizations, and we had the increase in VAT. Our correspondent in Madrid is Al Goodman.


AL GOODMAN, CNN MADRID BUREAU CHIEF (voice-over): Spain has more than 3 million civil servants, and this group of them shows no sign of quietly swallowing a new round of austerity cuts.


GOODMAN (on camera): This is the Puerta del Sol, the central plaza in Madrid and an historic place for demonstrations in the capital. Since the economic crisis began, there have been numerous protests here, almost daily. This day, it's the civil servants out here because, under the government's latest austerity measures, their pay is about to be cut again.

GOODMAN (voice-over): This Labor Ministry worker says the problem is much bigger than just losing the extra paycheck at Christmas.

ANA NIETO, LABOR MINISTER EMPLOYEE (through translator): I feel -- I feel humiliated as a worker and humiliated as a citizen. I am ready to do whatever it takes.

GOODMAN: After 24 years as a government worker, she earns only about $1400 a month.

NIETO (through translator): I'm not just losing as a worker. I'm losing as a citizen. Government services are getting worse. I'm worried about my daughters. I'm paying for their education.

GOODMAN: There's no time to waste. This demonstration is suddenly on the move, arriving in time to welcome more civil servants from the Treasury Ministry, a symbol of the nation's financial squeeze.

Across town, King Juan Carlos hosted the prime minister and his cabinet at a rare special session. The king urged a spirit of sacrifice for all to solve the crisis. Then, the cabinet approved $80 billion in additional austerity cuts aiming to reduce the deficit.

CRISTOBAL MONTORO, TREASURY MINISTER (through translator): If we don't reduce the public deficit at the pace which we have agreed to, this economic crisis and the recession will just go on longer.

GOODMAN: Back on the street, the protesters stayed on the move, trying to swell their ranks.


GOODMAN (on camera): This is now the third location of this same demonstration. They've joined their colleagues outside the Education Ministry, and there are other demonstrations at this hour across the capital.

GOODMAN (voice-over): Protests also sweeping across the country. But the conservative government with a big majority in parliament, won't budge on the economic policy.

CARMEN GARCIA, REGIONAL GOVERNMENT WORKER (through translator): It's impossible for us to lose hope, because then we just might have to die. If we let them take away our money and we can't even try to do anything about it, we might as well move to Germany.

GOODMAN: Some here blame powerful Germany for setting the austerity tone across debt-ridden Europe. But many others fault their own government here at home for making what they say are the wrong choices to solve the crisis.

Al Goodman, CNN, Madrid.


QUEST: Now, for tonight's Currency Conundrum. Take a look at this. What is it? Well, I'm going to tell you. It's an English pound. And now for the Conundrum.

Tell me, why does the English call the pound a quid? It's called a quid, I have two quid. Was it because of the Latin "quid pro quo" or after "Chuid," the Gaelic word for money, or after the English village of Quidhampton in Wiltshire? We'll bring you the answer later on the program.

Whether it's quids, yen, or euros, the euro stopped its slide against the dollar despite an Italian downgrade and poor relatively GDP out of China. It's off its two years and back above $1.22. The pound at 1.55, the yen 79. Those are the rates --


QUEST: -- this is the break.


QUEST: All this week, we have been following the trials and tribulations of Boeing and Airbus at Farnborough. The trade part of the show is now over. It's the public days. And as the numbers show, the tables have turned at this year's Farnborough Show. Boeing has come out on top.

The number gram reflects it. At the beginning of the week, we could barely get the A and the I of Airbus. A bit more than that. But Boeing does have 373,228 firm 145 commitments. If you look at Airbus, the Airbus numbers are 115, which is made up of 54 and 61 commitments.

It's not entirely unexpected. Airbus did have an exceptionally strong Paris Airshow because it had just introduced the A320neo. Even so, it is off some 40-odd percent from its Paris numbers which, as I say, is not entirely surprising because of the new plane.

Virgin Galactic is a plane that's not really in the sky yet, and when it does get there, it'll be very expensive for you and me to fly on it. Virgin Galactic used the airshow to unveil its first orbital spacecraft, LauncherOne.

Now, unlike Virgin's Spaceship Two, it won't be carrying space tourists. The company founder, Sir Richard Branson, says it will launch small satellites for a third of the competition. And he also told Juliet Mann the date has been set for the first passenger flight. So, all aboard!


BRANSON: The maiden voyage will be December next year. I broke it to my children, Holly and Stan, that they'd be going into space next December. So, we're in the final -- final countdown, now. So, very exciting.

JULIET MANN, CNN INTERNATIONAL CORRESPONDENT: So, December onward, passengers are going to be able to use the space airline?

BRANSON: From December onward, the following year will take about 600, 700 passengers into space. So, more people into space than have been in the history of space travel.

MANN: Ever since the first man went into space.

BRANSON: Ever since the very first man went into space.

MANN: There's another announcement that we've head. Of course, that's LauncherOne. Tell me a little bit more about that.

BRANSON: Well, this is the rocket that's going to take satellites up into space. It's going to go orbital, so it'll travel around the Earth at 25 times the speed of sound, and it'll travel around the Earth in about 80 minutes.

The exciting thing is that we'll be able to take satellites into space -- the current cost is about $40 million -- $30 million, $40 million -- we'll be able to do it for less than $10 million. So, it'll enable many companies that can't afford to put satellites into space at the moment to be able to do so in the future.


QUEST: Sir Richard Branson putting satellites and humans into space.

Coming up next, learn from libor. An elder statesman of the US Congress tells me the scandal shows the need for rigorous regulation.


QUEST: Hello, I'm Richard Quest. More QUEST MEANS BUSINESS in a moment. This is CNN, and on this network, the news always comes first.

We start with Syria. Kofi Annan, the UN Special Envoy for Syria says he is "shocked and appalled" at reports of mass killings in the Syrian village of Tremseh. Opposition activists say more than 200 people have been killed in the massacre that took place on Thursday.

JPMorgan says a bad bet on derivatives has cost the bank $5.8 billion so far this year. The bank says those involved in the trades no longer work for the company and may have to repay two years' worth of wages. An internal investigation has found traders may have tried to cover up the enormous losses.

The English footballer John Terry has been found not guilty of racial abuse. Terry was accused of hurling racially abusive insults at an opposing player. He maintained he was only repeating what was said to him on the field, and the magistrate in the case ruled that no one had proved Terry was lying about that beyond a reasonable doubt.

And Madagascar's lemurs are sliding towards extinction. The International Union for the Conservation of Nature says the primates are now the most endangered species on Earth. Their numbers have fallen by 80 percent over the past decade as a result of illegal deforestation and hunting.

Our main story tonight, of course, concerned the losses from the trading scandal at JPMorgan Chase and the libor scandal and who knew what in the US authorities.

Well, we bring you now a warning from one of the United States' top congressman, Sander Levin, who told me there needs to be more rigorous banking reform in the wake of scandals such as LIBOR and Morgan's bad trade losses.


REP. SANDER LEVIN (D), MICHIGAN: You know, there's a drug by some here in Washington to deregulate, to have much less regulation. I think what's happened there indicates the need for us to have effective rigorous regulation because this loss, it grows kind of almost every week.

And clearly there's a need for there to be watchdogs and to take them away and say that everything will work out in the wash. That's -- that doesn't work anywhere, including in Washington.

QUEST: But -- and not only do we have a trading loss with JPMorgan, but you have the LIBOR scandal in the U.K. And I suspect you also believe that there will -- that it will eventually wash up onto the shores of the United States and some of U.S. banks, too.

LEVIN: You know, there is always a danger of overregulation. We don't want to tie the free markets into knots. But we also don't want the markets to just run loosely and essentially to tie our economy into knots and then have a really major impact on all of us.

I think the main point we should make is that all of this talk about LIBOR, all the talk about JPMorgan, it eventually flows down to us as consumers. It really flows to the homes of middle -- of everybody. So there needs to be a concern.

QUEST: The one-year extension that the president is proposing to the Bush-era tax cuts, we can't really look at it in isolation, can we? Because you've not -- now you've got these tax cuts to be extended; you've got middle class, you've got wealthy.

But you also have the fiscal cliff. You have the failure of the commission, the deficit-cutting commission. Is that -- do you seriously believe there's a real risk that the U.S. could go over the fiscal cliff at the end of this year?

LEVIN: I don't think we'll go over the cliff. I think we need to act well before that. And what the president said was this -- and it makes good sense when you just look at it objectively. In 2010, the latest for which year we have the information, 1 percent, the higher 1 percent got 93 percent of the income accrued.

And so in view of that, the president is right. We should extend middle income tax cuts, but not for the wealthy in this country who've done very well. They need to participate in avoiding the cliff. It just gets down to that.

QUEST: Finally, Congressman, as we move into the most active part of the presidential campaign now over the next few months, do you believe and do you fear this could be one of the bitterest campaigns that you've seen?

LEVIN: Well, I think so. I hope it's not just bitter, but informing, because I think we face unusually tough decisions and unfortunately there's a very deep polarization.

And it's going to be put to the citizens of our country to decide whether they really want to rip up all of the last 60 years, including Social Security, Medicare, Medicaid and including regulation, whether they really want to rip that up or whether they want to move ahead. And I think that's a vital, vital decision. So I hope it's less bitter and more informative. I hope so.


QUEST: That's Congressman Levin talking to me from Washington earlier.

Some news to bring you. The U.S. FBI has told CNN that Russell Wasendorf, the founder of Peregrine Financial Group, has been arrested and accused of making false statements. Peregrine Financial filed for liquidation amid allegations of fraud, of criminal complaint against Wasendorf said he made an apparent suicide attempt.

Coming up next, we mention a star quality in dollars and cents. We look at what the right lead is worth when it comes to the movies.




QUEST (voice-over): The answer to the "Currency Conundrum," why a pound is called a quid. The answer, oddly enough, is quid pro quo, something for something. The expression's been shortened over the years to just quid.


QUEST: Tom Cruise is Hollywood's highest paid actor again this year. "Forbes" says he earned $75 million in the last 12 months. "Twilight's" Kristen Stewart is Hollywood's most bankable woman, raking in $34.5 million. (Inaudible) obviously think they are worth it. Star power, even a cameo, cannot be the difference when it comes to the film's financing between profit and loss.

So Neil Curry now takes a look at the business of casting a star.


NEIL CURRY, CNN CORRESPONDENT (voice-over): Six actors have played James Bond on the screen. The current 007, Daniel Craig, blonder and more muscular than his predecessors, has reinvented the superspy for the 21st century.

His first two films have taken a combined total of more than $1 billion at the box office.

For the next installment, "Skyfall," Craig is flanked by an international army of critically-acclaimed movie stars and Oscar winners.

UNIDENTIFIED MALE: My intention to make the best Bond movie that we possibly could.

CURRY (voice-over): Coproducer Michael G. Wilson recognizes that casting plays a crucial role to minimize financial risk and maximize returns.

MICHAEL G. WILSON, PRODUCER, JAMES BOND FRANCHISE: Casting is the most important element besides the story you can have to bring the script alive. You have to have an actor who can deliver.

CURRY (voice-over): Hopeful actors arrive at a casting company office in London and nervously await their auditions. Casting director Kate Dowd, whose credits include "The Bourne Identify" and "Pirates of the Caribbean," is searching for new talent to work on an upcoming production, "Flying Home."

UNIDENTIFIED MALE: So you used to be this English doctor. Now --

KATE DOWD, CASTING DIRECTOR: I'm looking for an actor who can bring a bit of personality, a bit of life to the part.

UNIDENTIFIED MALE: -- the absolute favorite --

DOWD: When you're casting, you're thinking of the director and what he's -- what he wants. And you're thinking of the producers and what, from a marketing point of view, what's going to be good for the film, what will sell the film, what will -- what will look good on the poster.

Good. Very good. Try one a little less heated, but keep the pace of it. It should be quick like that, yes.

Finding the right cast is going to make or break the movie.


CURRY (voice-over): The tried and tested formula of star name plus script equals financing was used by the makers of independent Australian thriller, "The Hunter." American actor Willem Dafoe prepares for one of many so-called junket interviews to publicize the film.

WILLEM DAFOE, ACTOR: I'm a mercenary that's hired by a biotech company to go to Tasmania and hunt down the last remaining Tasmanian tiger.

CURRY (voice-over): Not only Dafoe give a critically acclaimed performance, but his recognizable face and successful career is essential to "The Hunter's" overall business strategy.

DAFOE: The weight of my name for financing, it's a relative weight. You know, a film like this, they knew they wanted an actor of a certain kind of reputation, a certain kind of appeal. It's a low-budget movie. They proposed it to me, and my understanding is it helped them get financing. But you can't say that for a $50 million movie, you know what I'm saying?

CURRY (voice-over): However, one new business venture is thinking big by going local.

MEG THOMSON, COFOUNDER, ECCHO REMAKES: We started exploring the possibility of taking one story and remaking it in several different countries.

CURRY (voice-over): Company Eccho Remakes wants to streamline the remake system by offering a global brokering service to producers.

THOMSON: It's very hard to compete with the tent pole movies or the huge star movies. And we're not going to have Brad Pitt or Tom Cruise. But what we're finding is more and more local markets, they want to see their own stars.

We have a movie called "What Goes Around," for example, that has a famous Danish comedian. And it did extraordinarily well in the Danish market because he's so well known.

One of the great things for producers is that these stories are already approved by audiences. These movies have already been developed. They've already gone through the whole process of script development, of financing. And so we're bringing them a product that's ready to go.

CURRY (voice-over): Clever cameos can also provide cash-strapped producers with a way to leverage star power at a discount of the full fee. Tom Cruise is the highest-grossing actor in Hollywood, but some of his most eye-catching performances in recent years have come through cameo roles.

From the power-crazed Hollywood producer in "Tropic Thunder," to an aging rock god in the musical "Rock of Ages."

Casting is also considered crucial to animated movies. Chris Rock, who provides the voice for the character, Marty, in the "Madagascar" franchise, described it as the world's easiest way to earn a million dollars -- Neil Curry, CNN.


QUEST: The world of the movies.

Now since we're in a thespian mood.

St. Swithin's Day thou dost rain For 40 days, it will remain. St. Swithin's Day, if thou be fair For 40 days, 'twill rain ne mere.

I suspect Jenny Harrison at the World Weather Center has heard that old ditty a gazillion times over the years.

JENNY HARRISON, CNN METEOROLOGIST: Yes, well I had to look at actually -- I was looking because of the day coming up. It's this Sunday, isn't it, 15th of July, St. Swithin's Day. Yes, if on St. Swithin's Day it pours, you're better off to stay indoors. So I came up with a counter one, which is:

If, however, the sun does shine Get outdoors, have a great time.

You're not going to see much sunshine, Richard, but it won't be too bad. (Inaudible) make a good team. It won't be too bad, I have to say. It's getting a little bit drier, but there's more rain in the forecast. And in fact, right now, (inaudible) are still some warnings, flood warnings and flood alerts across in particular central regions of the U.K.

But across the west of Europe, again, some very heavy rain, some thunderstorms, as you can see more of that across Wales in the last few hours and into France in particular, some very heavy downpours with those storms.

But the winds have been strong as well. Look at these wind gusts that have been reported this Friday just so far, 63 kilometers an hour, that in Chassiron. That's in western France, and that, of course, is one of the highest gusts, 52 across in Mumbles and again in France, middle of Troyes at 52. So it's all coming from this area of low pressure, the front, of course, is sweeping across first.

So behind this system we will see perhaps isolated showers and still some rain. But it will be brighter in different areas, of course. They are isolated, those showers. And then we've got more warning for thunderstorms across the southeast of Europe. Now Saturday, at this stage 13 of the Tour de France, it's the long one.

It's a fairly flat one, not for you or I, but well, for most of us. But it's a long one, 217 kilometers, a hot day as well, 28 degrees at its hottest. And we could have some strong gusts as it's going along the coast there, (inaudible) around 40 kilometers an hour.

The heat, meanwhile, that is reserved for the far southeast of Europe, all the Greek islands in particular (inaudible) get some high temperatures.

The (inaudible) there at 38 degrees Celsius, but cool to the north, hot in the south, rain in the north, sun in the south and of course that is why we've got the best temperatures there, 32 in Rome, 24 in Vienna. And Richard, if you're lucky, 18 in London. Have a nice weekend.

QUEST: Ah, I'm on my way to Singapore tonight, where I've already been looking at the warm temperatures. Jenny, we thank you for that.

And that is QUEST MEANS BUSINESS for tonight. I'm Richard Quest. Next week I'm in Singapore. If you see me on the travels do say hello. Thank you for your company this week. Whatever you're up to in the hours ahead, I do hope it's profitable. "MARKETPLACE AFRICA" is next.


ROBYN CURNOW, CNN HOST: You're watching MARKETPLACE AFRICA; I'm Robyn Curnow. We're in Botswana this week, and this is the world's richest diamond mine. It's called Jwaneng. More diamonds are produced here in Botswana than anywhere else.

CURNOW (voice-over): This country's economy has been transformed by diamonds. For decades the Botswana government and diamond giant De Beers have been mining here in a joint venture, a 50-50 company called Debswana. Now this relationship is (inaudible).

CURNOW: Well, Debswana says they're going to expand this operation even more, but crucially De Beers is going to be shifting its rough diamond trading operation from London to Gaborone, the Botswana capital. De Beers says this is the biggest-ever (inaudible) business from Europe to Africa. How does that impact on Botswana and its people? Well, we're going to explore that in this week's show.

CURNOW (voice-over): Scooping, dumping, clearing away ton after ton of rock, these massive trucks ferry away the raw materials discarded in the search for diamonds in this open pit mine in southern Botswana.

The valuable ore, jam-packed with diamonds, lies meters away, ready to be processed. But the harder, less rewarding task of removing the unwanted rock is the job of Tshepo Kgomokhumo. His monster truck is the size of a small airplane. Every day he climbs up high into his cockpit and removes rock.

CURNOW: (Inaudible).


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CURNOW: That's a lot of rock.

KGOMOKHUMO: That's a lot of rock. That's the impact that (inaudible). Otherwise --

CURNOW: The impact's having on your (inaudible).

KGOMOKHUMO: (Inaudible) that what we are. I'm a soldier for my country.

CURNOW (voice-over): Botswana's development has been built on diamonds buried deep in the soil. Small, dry landlocked country in southern Africa has prudently invested its mineral wealth. The government has long had a 50-50 joint venture with the De Beers mining company.

It's called Debswana, and the state mines the country's riches as an owner, getting a share of the profit in addition to just collecting taxes and royalties like many other mineral-rich African governments.

Now a shiny new deal looks set to boost Botswana's diamond industry.

De Beers is moving the sale of its rough diamonds from London to Gaborone, the capital. The new head office is under construction. This geographical shift will bring an extra $5 billion of diamond sales into Botswana, says De Beers.

Eighty staff members will be relocated from Europe to Africa. All in all, 160 people will eventually work here.

De Beers says the move makes sense. This is where most of the world's diamonds are produced. And they say doing business here is cheaper and perhaps even more stable than in Europe.

KAGO MMOPI, DIAMOND TRADING CORP.: These diamonds are basically your top-of-the-range kind of diamonds. These are gem diamonds. They will certainly go for jewelry.

Kago Mmopi works for the Diamond Trading Corporation.

MMOPI: The sales agreements essentially sets up Botswana to be one of the major diamond -- well, diamond centers in the world.

CURNOW (voice-over): Those close to the deal say the impact of the De Beers move will be felt in many other ways. Some international banks, which finance the diamond industry, have applied for banking licenses with the government, which will now be dealing with an extra $6 billion flowing through the country's banking system.

And officials say more of Botswana's citizens will be trained and employed in cutting and polishing factories like this Indian company as more firms seek to set up shop with direct access to the rough gems.

UNIDENTIFIED MALE: Well, we have factories in India. We have a very big factory operation in India. But we needed to come here, one, because there's the access to rough supply and that really is the driver. That's the key for us being here.

The foreign firms are also being pressured to empower locals. The deal benefits ordinary people.

This company hired more than 60 deaf factory workers, setting up systems to ensure hearing and hearing impaired employees can all communicate.

UNIDENTIFIED FEMALE: I feel very good. I'm very happy with this job.

CURNOW (voice-over): The same companies also set up a small jewelry manufacturing business. Each trinket's all destined for growing markets in India.

CURNOW: Why is De Beers relocating some of its operations to this small, sleepy town of Gaborone rather than, for example, to Johannesburg, which is not only the financial center of Africa, but also just 41/2 hours away.

What does Botswana have that South Africa doesn't? Well, analysts are increasingly pointing to the fact that Botswana has more business friendly policies, is more economically and politically stable.

CURNOW (voice-over): South Africa's loss is Botswana's gain, particularly as diamond sales have been hard-hit by the financial crisis. And the government is more than aware that diamonds are not forever.

PONATSHEGO KEDIKILWE, PH.D., BOTSW MINERALS MINISTER: The dependence on diamonds only has been given us sleepless nights, whether it's in terms of revenue, foreign exchange (inaudible) or taxes and the budget. That is -- it's obviously a worrying phenomenon.


CURNOW (voice-over): For now, though, Botswana's future is linked to the diamonds still buried in the soil, and their allure is enduring. People are consuming diamonds faster than they are being mined. And a growing gap between supply and demand will, for now, keep prices high.


CURNOW: Well, we're about halfway down this massive mine here in Botswana, and after the break, we're going to keep on talking diamonds.



CURNOW: These are packets of diamonds. I'm going to open one. This one here is 5 karats, worth around $100,000 U.S. But in Botswana's economy too reliant on these gemstones? Well, to answer that question for this week's "Face Time," we interview the governor of the Bank of Botswana.


LINAH MOHOHLO, GOVERNOR, BANK OF Botswana: We're very much aware (inaudible) diamonds are exhaustible and aren't renewable, and therefore we have to continue to ensure that the benefits deriving from them are many (ph). (Inaudible) for everybody to see.

CURNOW: There is a sense that the bonanza, the diamond bonanza is perhaps nearly over.

MOHOHLO: There's a element of truth in that, and the point I've just made is quite valid, that it's not like you can, you know, it's agriculture, where you can plow a few seeds and make sure that you water them. (Inaudible) the amount of light.

That's not the case with diamonds. But there has been a number of (inaudible) that have come from the partnership with De Beers. I hasten to add that the technical and managerial expertise of De Beers have been responsible for where the country's development is.

CURNOW: This relationship that Botswana has with De Beers, this 50-50 partnership, the fact that the government part-owns these mines, that they're producers, in a way is quite a unique arrangement.

Has Botswana found a model that other African countries can emulate?

MOHOHLO: Since we partnered with De Beers, we have a lot to show from any point of development standpoint. So if you were to replicate what we do in Botswana in other African countries, I have no doubt in my mind that there could be meaningful gains.

You will know by now that Botswana was an arid, agri-dependent poor country. It had independence in 1966. That's transformation is impressive from what I just described to a middle income country in a space of three to four decades. It's a (inaudible), I think. We have (inaudible) to be proud of, not just Botswana, but also De Beers.

CURNOW: Why is Botswana different? You look at Angola, huge oil revenues, which hasn't been plowed back into education the way Botswana's done it. Many other African countries have had this windfall of resources, whether it's gold or oil or diamonds. What's made Botswana different? Why has it worked here?

MOHOHLO: We were so poor at independence that when we got financial resources, we didn't get excited. We saved a lot more than has been the case in other countries.

CURNOW: You were part of the team that negotiated this shift from London to Gaborone. How significant is this? What does it mean?

MOHOHLO: Tremendously significant. I was engaged in those negotiations and they were hard, long and daunting. You know, when you have partners, you can't always agree. But it is important that ultimately we agreed on what we believe serves both interests.

CURNOW: Around $6 billion worth of diamond sales are now going to be coming through Botswana's banks. In a way, that's perhaps the most significant offshoot of this deal.

MOHOHLO: It is the most significant. You will know that Botswana has always been (inaudible). And when they have not yet decided on viable development projects, Botswana has always been able to put aside money, which they've always said is a cushion to (inaudible).



CURNOW (voice-over): Well, that's it for our look at Botswana's diamond industry. If you want to see any of our stories or interviews, of course, go online at But for me, Robyn Curnow here in Gaborone, see you again next week.