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Quest Means Business
Future of Europe; Europe in Crisis; US Outlook Improving; European Stocks Up; Fed Insight; SoftBank Seals Sprint Deal; US Mobile Market; CitiGroup Q3 Success; US Markets Up; Dollar Strengthening; Unilever Says Hand-Washing Saves Lives
Aired October 15, 2012 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MAX FOSTER, HOST: No exit. Europe's top economic official says Greece will stay in the eurozone as Athens warns there's still no deal on austerity.
Wireless tie-up. How Sprint's $20 billion windfall could change the American market.
And Quest versus Baumgartner. One broke the sound barrier, but the other means business.
I'm Max Foster, this is QUEST MEANS BUSINESS.
Just days before a key summit to bond together the cracks in the eurozone, the bloc's key financial decision-makers are divided on its future.
The European Commissioner for Economic Affairs says there's no likelihood of any country leaving the eurozone. In Thailand for an economic summit, Olli Rehn told the "Bangkok Post" that the worst is now over for the European debt crisis.
Not everyone shares his optimism, though. The Swedish finance minister says that a Greek exit from the eurozone is probable and that the possibility of it happening within six months shouldn't be ruled out.
The immediate signs from Greece aren't good. The Greek finance minister says a package of new austerity measures probably won't be agreed by Thursday's summit. The main Greek unions have called a 24-hour general strike for the same day.
Greece's borrowing costs are easing this Monday, despite all the uncertainty. The yield on ten-year bonds dropped to a 13-month low of around 17.5 percent. Meanwhile, yields on Spanish ten-year bonds are rising, currently, at 5.8 percent.
Mohamed El-Erian is CEO -- co-CEO of PIMCO, the world's biggest bond trader. He's a friend of the program. He joins us from California tonight. Thank you for joining us.
First of all, if we look at the bigger picture, you've been writing recently and talking recently about your concern about a big shift in society and how the younger generations are suffering because of all of this financial turmoil. What did you mean by that?
MOHAMED EL-ERIAN, CO-CEO, PIMCO: Max, very simply, that if we're not careful, there's a real possibility that the next generation will be worse off than this generation. And this would be very unusual for the West.
The West has grown accustomed to this notion that with every generation, living standards go up. But this time around, we may leave our children with too much debt, too little growth, too much inequality, and dysfunctional politics. And that is a really scary possibility that we need to do something about today.
FOSTER: And you're watching the European Summit agenda sort of come together as we head towards Thursday. More debt, likely, so the problem's only going to get worse. There's no end in sight, is there, despite what Olli Rehn says?
EL-ERIAN: Yes, not yet. Compared to where we were three months ago, a lot of progress has been made. In terms of design, Europe has agreed on the four legs to the stool to make monetary union sustainable. In terms of what the ECB has done, it has reduced the chance of a very disorderly outcome.
But now, we need to move in Europe from design to implementation, and as you said in your introduction, there's difficulties. There are difficulties in Greece, there are difficulties in Spain, and there's even not a coherent picture yet.
So, we've made a lot of progress, but it's too early to declare victory. We still need to continue on the implementation stage.
FOSTER: In terms of implementation, we're talking about national bill sales, setting up a euro area budget, because leaders didn't like the idea of euro bonds. What does that actually mean, and will it make a difference?
EL-ERIAN: So, the key issue is how do you reconcile three different things? One is mutualizing debt. So, to make sure that the debt is better shared around a zone that can sustain the overall debt, if the allocation is right.
Secondly is how do you give assurances to those who behave well that the others will also behave well? What sort of conditionality?
And the third and most critical issue is how do you convince citizens in national democracy that this will work? And Europe has not yet found the solution to meeting these three requirements at the same time.
FOSTER: Those are the big concerns, and that's what you want to see progress on, isn't it? But we've got this row developing currently about a temporary problem, which is whether or not Greece should be given more time to repay its debts. Christine Lagarde of the IMF up against the Germans on this one.
Should they be given more time? Because the Germans are saying you cannot have a situation where creditors aren't getting their money back because it's a principle that just doesn't fly.
EL-ERIAN: Yes. I think Europe and the Greek people -- must not forget the Greek people who have it up to here in terms of austerity -- so Europe and the Greek people have to decide on one of two courses.
The first one is remain within the eurozone, and that has implication. The most important implication is that official creditors had to reduce their claims on Greece, what's called OSI, Official Sector Involvement. And the Greek people must stick to more austerity. That's one possibility.
The other possibility is to look for something outside the eurozone. It's not easy, it's disruptive, but Greece regains more policy flexibility. But it was critical, Max, and what's not being decided, is which one should they go for? And how do underwrite the implications.
And until that is decided, this muddled middle is going to cause a lot of uncertainties. Are they in? Are they out? What does that mean for the average Greek person? And then, that in itself is going to put a cloud over the whole of the eurozone.
FOSTER: Meanwhile, your clients have got some good news. You got some big global investors, of course. You have a global perspective. And the US economy, it seems, we're getting this trickle of positive information coming through, these reports coming through. Do you think this is now sustainable? Are we on a roll, now, in the US economy?
EL-ERIAN: So, we're on a bit of a roll, so we're building up momentum. In the last few days, we had some pretty good numbers. Today, retail sales surprised on the upside. Last week, it was jobless claim, it was consumer sentiment. The week before that, it was employment.
So, we're starting to get positive data that confirmed the view that the US economy is healing. But also importantly is that the politicians have been frozen out of the system for a while. Everybody's waiting for the elections to see what's going to happen next in Washington.
And what this is telling you, Max, is if you get the politicians out of the way, this economy can continue to heal. But now, we need a bit more than that. We need the politicians to provide the tailwind, and that's about the fiscal cliff and other issues.
So, the good news is the US economy continues to heal, but more needs to be done to reach what's called escape velocity, which means growth in the 3 percent. We're not there yet, unfortunately.
FOSTER: OK. It's very unclear picture, isn't it? Mohamed El-Erian, thank you very much, indeed, for joining us from PIMCO.
And investors are trying to make due with what information they have right now. Europe's major stock indices have started the week on a high note, though, because they're feeling quite positive. All the main indices are up.
Banking shares are the top performers. In London, Barclay's gained 2 percent, Commerzbank gained 1.4 percent in Frankfurt, and Societe Generale rose 1.5 percent in Paris. So, the financials doing well. In Athens, Piraeus Bank and EuroBank Ergasias shares soared by nearly 6 percent, so even good news in Athens.
The president of the New York Federal Reserve says Europe is slowly improving. Ali Velshi spoke to William Dudley earlier today. We're trying to get everyone's views on the global economy. This is a strong one, an important one. So, what did you find out from him, Ali?
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Well, it was very interesting hearing the conversation you just had with Mohamed talking about escape velocity, getting to that point and getting growth to a level that that can actually work.
So, while some people, particularly here in the United States, like to use the refrain, get the government out of the way, as Mohamed says and Bill Dudley agrees, you want some tailwinds provided by government. But when I asked him about Europe -- we'll put the fiscal cliff aside for a second -- I asked him about Europe and how it's looking. Here's what he had to say.
(BEGIN VIDEO CLIP)
WILLIAM DUDLEY, PRESIDENT AND CEO, NEW YORK FEDERAL RESERVE: I think this is the problem of having 17 different countries having to coordinate policy. The joke is, OK, I want -- I have some really good advice for the Europeans. Who should I call?
(LAUGHTER)
DUDLEY: Who's that one person that could actually get it done? Now, obviously, for the European Central Bank, it's Mario Draghi. But if you're talking about how this gets worked out broadly, there's lots of different players.
(END VIDEO CLIP)
VELSHI: And so, Max, his concern as we were talking, in terms of how things get settled in America, and he was talking about the debt ceiling, he was talking about TARP and things like that, and he said that's difficult with one Congress. Europe, despite its problems, he says, is moving in the right direction.
FOSTER: Mohamed El-Erian being quite positive about the US economy, as well. Ben Bernanke over the weekend defending his policies over the weekend. He's got some defense of that now, hasn't he --
VELSHI: Right.
FOSTER: -- as well, I guess? Did Mr. Dudley follow on that, as well?
VELSHI: Yes. Look. Ben Bernanke defending against accusations from emerging markets that US policy is too accommodative and it is too difficult, but the issue is this fiscal cliff.
Bill Dudley was saying that he would like it, while there isn't a mission creep problem with the Fed and central banks doing what government should be doing, he said that's not that serious. He does feel that this fiscal cliff issue is quite serious for Americans. Listen to what he said.
(BEGIN VIDEO CLIP)
DUDLEY: Well, I would say it's worrisome, even today, because I think people's uncertainty about how the fiscal cliff is going to be resolved is actually having its effect today on hiring and investment. So, it's hurting the economy as we speak.
Now, obviously we don't know exactly what's going to happen come post- election. We don't even know what the results of the election are going to be. And one would think that prudent policymakers would avoid just sort of plunging off the fiscal cliff on the other side
VELSHI: One would think, and one would hope.
DUDLEY: But there is uncertainty created by that, and that uncertainty, I think, the important thing is that uncertainty is hurting the economy today.
(END VIDEO CLIP)
VELSHI: So, there you go, Max. Not too different from what Mohamed El-Erian said. We're probably moving in the right direction, particularly with respect to Europe. We will probably not go over a fiscal cliff here in the United States, but the combined uncertainty of the two is very difficult for investors and, frankly, business owners and individuals to come to terms with.
FOSTER: Ali, appreciate it. Thank you very much, indeed, for that.
And there's a brand-new player in US cell phones. SoftBank and Sprint have shaken hands on a $20 billion deal. We'll tell you what it means for the market next.
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FOSTER: The Japanese cell phone carrier SoftBank has moved into the US market. It's spending more than $20 billion on Sprint, the third- largest American carrier. That company's shares are currently down 2 percent on Wall Street. SoftBank shares finished down more than 5 percent. Alex Zolbert has more on the deal from Tokyo.
(BEGIN VIDEOTAPE)
ALEX ZOLBERT, CNN INTERNATIONAL CORRESPONDENT: If all goes as planned, it will be the largest overseas acquisition ever from a Japanese company. Word late here on Monday in Tokyo that Japan's SoftBank is buying up a 70 percent stake in US mobile phone carrier Sprint Nextel, and the price tag? More than $20 billion US.
Sprint, of course, being the third-biggest mobile phone carrier in the United States, trailing the likes of AT&T and Verizon. And here in Japan, investors are not liking the deal. SoftBank shares were off another 5 percent today, more than 20 percent over the past week since news of this deal first broke.
But SoftBank's CEO, Masayoshi Son, took to the press late today to announce the deal and try to ease some of the investors' concerns.
MASAYOSHI SON, CEO, SOFTBANK (through translator): There is always a risk when you face a big challenge. It could be safe if you do nothing. And our challenge in the US is not going to be easy. We must enter a new market, one with a different culture, and we must start again from zero after all we have built.
ZOLBERT: Analysts here say while the Japanese mobile phone market is slowing down, this gives SoftBank an opportunity to expand its international footprint while taking advantage of a strong yen.
Again, the terms of the deal, $20 billion US, $12 billion in existing shares, $8 billion in new shares. They say they expect the deal to close sometime next year, assuming it gets regulatory approval.
Alex Zolbert, CNN, Tokyo.
(END VIDEOTAPE)
FOSTER: That's a big question, isn't it? Well, SoftBank has a long way to go, as well, if it wants to compete at the top of the US cell phone market. It's just paid $20 billion, we've heard, for 70 percent of Sprint Nextel. That would put it -- put Sprint's total market count at around $29 billion.
But that's still nothing compared to Verizon, which has a market cap of $127 billion. And the market leader, AT&T, well it is currently worth more than $200 billion. Maggie joins us from New York with more on that. It's a numbers game, isn't it, if you want to be in this market?
MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT: It's a numbers game in a fiercely competitive telecom market here, and Sprint really needing to make up the ground to try to catch those two behemoths.
Investors here having a very different reaction to this deal. Sprint investors liked everything about it, because what it brings, what it gives Sprint is some much-needed cash, cash, cash, Max. Sprint really needs to build out that 4G faster network that everyone who's using SmartPhones really relies on to get data, to send pictures. They need to build it out.
I want to show you just how important it is and how behind they are. Here's the map that our colleagues over at CNN Money put together, and I'm going to start with Verizon.
This is what it looks like for their 4G fast network coverage in the US. If you take a look at AT&T, they are behind, but building out quickly. They have a lot, if they could cycle to AT&T next, please. Thank you. So, you can see, a little bit behind, but they're building out quickly.
Look at Sprint's 4G network coverage. This is for when the iPhone 5 came out, for those who are thinking about buying it. If we hit on Sprint, they have very sparse coverage when it comes to 4G. That is a major problem. When you are going out to buy one of those new phones and you want it to run on that fast network, you do not want to choose the carrier that has a map that looks like this.
That's really what it's all about for Sprint. They already have a lot of debt. This deal enables them to build out that network without incurring more debt. A big positive as far as investors are concerned.
But Max, you laid out that market cap graph before. They've got a long way to go to catch up, and that is the challenge for SoftBank entering this market, to catch up with Verizon and AT&T.
FOSTER: And things are so far behind, the suggestion is it won't have a huge impact on competition, so the regulators should be OK with it?
LAKE: In fact, the regulators will probably love it. They have been really looking to counter the duopoly that seems to be happening with AT&T and Verizon, they're very worried about customers being left with just two choices, and expensive choices at that.
So, the thinking on the part of analysts is that the government's really going to embrace that. And getting regulatory approval in the telecom world is usually the nightmare scenario, as we found out when AT&T tried to buy T-Mobile and they were rejected and had to pay a big breakup fee.
So, the fact that regulators like this also another thing that investors on this side of the pond are liking about this deal, Max.
FOSTER: What about the society and the cultural view on this? Because Sprint a huge piece of telecom's history in the US. One of the early players, the nation's seen it grow, and now a Japanese company coming in and taking over. Is there a problem there?
LAKE: Usually you'd think there might be some nationalistic issues, but when it comes to technology and our gadgets, it's all about what have you done for me lately? There doesn't seem to be any of that sort of iconic history, that legacy going on.
People, as I said, that's why we showed you those maps -- they want the newest phone, they want to be able to sort of live their life, send those datas of videos, do all the things that SmartPhones allow you to do, and they want to be able to do it fast.
If you don't have a network that supports that, they're going to go somewhere else. That's why it's really critical that Sprint get there now and catch up, otherwise a lot of people feel like it might be too late, Max.
FOSTER: Maggie in New York, thank you very much, indeed.
Elsewhere, just down the road on Wall Street, CitiGroup beat expectations with its third quarter earnings. Revenues were up 3 percent compared to last year. That led to a Q3 profit of almost a half a billion dollars. Citi shares were up more than 37 percent in the past three months.
And on a big week for earnings on Wall Street, it's banking stops that are propping up the wider market. Bank of America, JPMorgan, they're both up. And some better-than-expected retail sales figures we were talking about earlier with Mohamed also helping. They jumped 1.1 percent in September, adding to the economic positivity in the US right now.
A Currency Conundrum for you. In the US, thieves have stolen a stash of nearly -- or, well, newly-minted $100 bills as they were being transferred to a Federal Reserve Depot. Our question to you is, why won't the thief be able to spend the money?
A, the notes are not real? B, the notes aren't in circulation yet? Or C, the notes are flawed? We'll have the answer for you later in the program.
The dollar currently strengthening on the back of that positive US retail sales data. Uncertainty around a possible Spanish bailout is keeping the euro lower. The pound's almost unchanged, and Japan's yen is down a third of a percent against the dollar so far today.
(COMMERCIAL BREAK)
FOSTER: Well, the simple act of hand-washing can save the lives of up to 600,000 children each year, according to Unilever. The global giant today signed an agreement with the Earth Institute to raise awareness of the habit in sub-Saharan Africa.
There, diarrhea and pneumonia kill more than 1.5 million children a year, a number which can be cut, according to Unilever's chief executive Paul Polman. I asked him how much of a difference he hopes to make.
(BEGIN VIDEOTAPE)
PAUL POLMAN, CEO, UNILEVER: Hand-washing is proving to be a very cost-effective way. The World Bank just recently released a study showing that it is about one third the cost of the next alternative.
So, even in the US or the UK, women after changing nappies, only about 17 percent wash their hands, half of them only with water. In places like Ghana or Nigeria, this is as low as 1 percent. So, yes, hand-washing is a very effective way.
If you reckon that about 2 million children globally die of infectious diseases, as you rightfully say, and you can cut that down by 30 percent, it's the equivalent of about 10 Boeings a day.
FOSTER: What's the problem, then, in these very poor areas? Because I presume water's a problem, let alone the soap.
POLMAN: We agree with you, you have to attack the issues of water as much as the issue of hygiene or sanitation. However, studies keep pointing out that the hand-washing itself, even if the water is slightly contaminated, is still a better solution than water alone.
FOSTER: Well, I want to ask you about Europe. We've got the summit coming up this week, and European leaders, of course, basking in the glory of the Nobel Prize last week, gave them some bolstering. But they've got to get down to the nitty-gritty again this week, haven't they? As a global business leader, are you hopeful that anything positive is going to come out of this summit?
POLMAN: Well, Europe is moving in the right direction, but often it is too little, too late, and I hope that increasingly, as the pressure builds up in Europe, we will also see some bold decisions on the political side. As companies, we're obviously actively involved in trying to be part of that solution with them, as well.
But the structural issues still need to be addressed in many parts of Europe, although increasingly, we see southern Europe -- I was in Italy the other day with Prime Minister Monti. We see the same in Spain or in other countries, the issues are being addressed, but we want to obviously see bolder solutions there.
FOSTER: One of the things they're likely to come up with is this budget for the eurozone countries, more fiscal integration there. Is that one of the things you're talking about as a positive move?
POLMAN: Well, the issues of the euro and fiscal and monetary harmonization are well-talked about by many people, but the underlying issue, which we need to keep focused on, is how do we get growth back in Europe?
One of the major challenges will be social cohesion with the increasing rise of youth unemployment, especially in southern Europe, increasingly keeping north.
And I think more of the debate needs to be at in how do we make Europe again a very competitive son, which brings you to investments in education, labor market reforms, pension reforms, and many of the other areas that we need to get higher on the agenda, now.
FOSTER: And you're there in the US, so I need to ask you about the presidential election, as well. Economics is part of the debate there, but it's largely about personality right now and those big TV debates. Obama not seen to be doing as well as Romney right now.
But as a businessperson looking at those debates, what are you hoping to get out of the second debate?
POLMAN: Well, first of all, companies like Unilever have been around for a hundred years or more, and we plan to be around for many hundreds of years in the future, and elections come and go and governments come and go, and we really like to help keep focused on the long term.
And that's why we're here for global hand-washing day, that's why we have a very bold business plan of doubling our business, decoupling it from environmental impacts. I think what I'm more concerned about is not the short-term tactics of the politics, but being sure that the long-term is being kept on the agenda for the benefit of all.
(END VIDEOTAPE)
FOSTER: The chief executive of Unilever speaking to me earlier today.
Well, next, they're ringing in a new era of financial responsibility. Portugal's secretary of state to the prime minister tells us how his broken -- his country has broken the debt spiral.
And move over, Felix Baumgartner. Richard has a death-defying quest of his own.
(COMMERCIAL BREAK)
FOSTER: Welcome back, I'm Max Foster, these are the headlines.
Malala Yousufzai is now in the care of doctors at a special hospital in Birmingham in England. The Pakistani teenager arrived a couple of hours ago, and the hospital's medical director says she could be there for weeks, if not longer. Malala was shot in the head by Taliban gunmen last week, and she's been an outspoken advocate for girls' education in Pakistan.
The leaders of Britain and Scotland have signed a deal that allows Scotland to hold an independence referendum. In two years, Scots will vote a simple yes or no on whether they want to break away from the United Kingdom.
Turkey appears to be enforcing an air blockade against the Syrian government. Turkish officials made an Armenian plane bound for Aleppo stop in Turkey for a security search. Turkey and Armenia apparently worked out an agreement for the stop ahead of time.
Muslim rebels and the Philippine government have signed a framework deal aimed at ending a 40-year insurgency. 12,000 members of the Moro Islamic Liberation Front will agree to lay down their weapons in exchange for an autonomous region in the south.
A new CNN poll of polls shows the US presidential race in a dead heat on the eve of the second presidential debate. The poll finds likely voters deadlocked between President Barack Obama and Republican challenger Mitt Romney at 47 percent.
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FOSTER: The New York Stock Exchange is honoring one of Europe's bailout nations this Monday. Today is the fourth annual Portugal Day. Alison Kosik is at the NYSE.
Alison?
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Max, Portugal's secretary of state Carlos Moedas joined other dignitaries from Portugal to ring the opening bell this morning. It is, as you said, Portugal Day here at the NYSE. And what it does, it's the day that gives leading Portugal -- Portuguese companies, rather, an opportunity to directly address the investor community here in the U.S.
So I had a chance to interview the secretary of state and began by talking about Portugal's massive deficit.
(BEGIN VIDEO CLIP)
CARLOS MOEDAS, SECRETARY OF STATE TO THE PRIME MINISTER, PORTUGAL: It began what was this flexibility of actually getting a smoother curve in terms of our target deficit. But the problem is the same; we haven't changed the program. The amount of money's the same and the program is the same.
And it's very important that for international viewers to understand that and why, because the program is on track, because Portugal is adjusting as it was expected. One of the major problems of Portugal so far was in a spiral of external debt.
And our program is actually doing much better and is doing much quicker in terms of reducing that burden to the Portuguese society of the external debt. Just to give you an idea, like five years ago, we had a 10 percent deficit on our external account. That was actually adding up to our external deficit 10 percent of our GDP every year.
Today, that same number is -2.6. So we were able by increasing exports and, of course, by decreasing internal consumption, because that's part of the journey, to actually reduce this current account deficit, which is extremely important to solve the problem in Portugal.
KOSIK: OK. (Inaudible) talking about, you talk about the internal consumption, you know, austerity is sort of a double-edged sword. You know, how do you grow your economy when you're cutting so much?
MOEDAS: Look, the growth in any economy depends on how deep you go into your structural reforms of that economy. When you are a small country, you don't have a lot of choices. You have to have your public finances in order.
And for that you need austerity, because you need to actually get your public finances in a path of credibility. And at the same time, you do structural reforms that actually liberate your economy in order for companies to grow. The stakes in the government is not able to actually do growth by any kind of a decree law.
What we can do is to lower down barriers by actually changing legislation, by actually having a new insolvency code, by actually having a new competition law, by having people able to do licensing if they're producing a very quick way and a more, better way for them. And if you actually get all those hurdles done, if you let the economy work, then growth will come.
(END VIDEO CLIP)
KOSIK: So the secretary of state seemed pretty pleased with the strides that Portugal is making, Max.
Now about austerity, I -- Moedas acknowledged the sacrifices that the Portuguese people are making, and he said, you know what, there's no other way to change the country at this point, that everybody has to make sacrifices.
I also asked him about Spain, which obviously is under immense pressure to take a bailout right now. And how much of an impact, I asked him, would that have on Portugal if it did ask for help. Now Moedas said he didn't have an answer for me. But what he did say is that Portugal is diversifying its trade partners, not just in the E.U., but also outside of it in an effort to grow their economy, Max.
FOSTER: Alison, thank you very much indeed. We have actually just seen, well, getting reports about the budget for 2013 on behalf of the Portuguese government, and very, very tough sanctions in there, some would call it; higher tax rates, quite higher tax rates as well.
We'll bring you more details as they come in. But this all goes ahead of the summit, the European summit and a sign that Portugal wants going out. But it's doing as much as it can.
Several banks on Wall Street are being taken to court meanwhile over alleged rate rigging. Five U.S. homeowners are bringing a class action lawsuit against 12 top banks, saying that LIBOR fixing affected the cost of their mortgages.
Felicia Taylor is in New York.
Felicia, this is the first time we've really got complaints on this level coming through the courts. It's always been organizations taking actions before, right?
FELICIA TAYLOR, CNN CORRESPONDENT: Absolutely right, Max. I mean, that's the point that's, you know, significant about this. We've heard class action lawsuits on behalf of municipalities, on behalf of investors.
This one's on behalf of homeowners and it's being led by one woman in particular, as you mentioned, along with four other plaintiffs. And they're claiming that basically there was rate rigging that caused them to pay thousands of dollars extra in their mortgage payments over the course of a possible nine-year period, between 2000 and 2009.
This particular woman, she even had to have her home repossessed. Now would that have been different if this rate rigging didn't exist? We don't know. The question is how much did these people have to fork over that they didn't necessarily need to? We know there was rate rigging; we don't know whose favor it was in.
So significantly, you know, what we're talking about is whether or not incentives were given to traders at various banks to actually move that LIBOR rate on the first day of the month by as much as 71/2 basis points. That's a huge spread when you're talking about individuals trying to make - - trying to make their mortgage payments.
And here's what one expert says, who said this just cannot be taken lightly.
(BEGIN VIDEO CLIP)
RALPH SILVA, DIRECTOR, SILVA RESEARCH NETWORK: What this case is actually making sure will happen is that the legal organizations are going to look at this and trying to determine what the actual number is in the change in terms of the interest rate.
If that, in fact, does happen, then we're looking at trillions worth of transactions that are going to be looking at following this and getting some money back because of the rate rigging itself.
(END VIDEO CLIP)
TAYLOR: Trillions -- I mean, think about that kind of number. This is obviously a story that we're going to be talking about for quite some time. The amount of damages being sought has not been -- has not been made clear as of yet.
But there's no question about it. Just to give you an idea of an encapsulation, the amount of loans indexed to LIBOR are about 900,000 between 2005 and 2009. That means there's an unpaid principal balance of about $275 billion out there. So once again, like I said, this is a story that will continue.
But most significantly, it's homeowners now that are saying they have been affected. It is still up to a judge in order for him to decree whether or not this class action lawsuit can go forward.
FOSTER: Essentially a can of worms, Felicia, I presume; pensioners could follow, another huge industry.
TAYLOR: Absolutely. There's no question about it. That same expert said this isn't just a can of worms; this is a bag of worms. I mean, this -- the follow up from this could be so extensive and obviously it's not just in North America. It could be throughout much of many European countries.
We're talking about major banks here, Barclays, Bank of America, UBS, all involved. And the question is, you know, did traders take those incentives and manipulate the marketplace in their favor? It remains to be seen.
FOSTER: Felicia, thank you very much indeed for joining us from New York.
Nine months ago dozens were killed aboard the Costa Concordia cruiseliner. Today, the ship's captain was confronted in court by survivors.
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(COMMERCIAL BREAK)
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FOSTER: The captain of the Costa Concordia cruiseliner, which capsized in January, has appeared in Italian court. Francesco Schettino was confronted by survivors with the disaster inside the courthouse. He now faces manslaughter allegations over one of the worst passenger ship disasters since the sinking of the Titanic.
On January the 13th, the Costa Concordia ran aground and partially capsized when it hit rocks off the coast of Italy. Thirty-two people were killed; another 4,000 managed to escape. In the following days, Captain Schettino was labeled "Captain Coward" in some media.
Schettino has been under investigation since the accident on possible charges of manslaughter and abandoning a ship whilst passengers were on board.
In the days following that disaster, the cruise industry was keen to stress how safe cruiseliners usually are. Nine months on, the CEO of Royal Caribbean International described the disaster's impact to Richard.
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ADAM GOLDSTEIN, CEO, ROYAL CARIBBEAN INTERNATIONAL: We thought that this tragedy would have a waning effect as the year unfolded. That is pretty much what appeared to be the case. It certainly had more of an impact in Europe where it occurred than in the other markets.
But fortunately, we've been able to work together well as an industry and with the regulatory authorities to remind the public market that this is a very safe industry. That was a very anomalous event, and we still have to continue to move safety forward.
RICHARD QUEST, CNN HOST: On the trend for cruises, what is the fundamental thing? And I know -- and it's growing. The number of people who are going on cruises is increasing. It's a more popular vacation.
But what trends are you seeing within that fact?
GOLDSTEIN: The fundamental trend in cruising in this era is the globalization of demand. In 1970, 500,000 people cruised, almost entirely Americans. In 2011, 20 million people cruised from all over the globe.
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FOSTER: Let's get the weather for you now with Tom Sater at the weather center.
Hi, Tom.
TOM SATER, AMS METEOROLOGIST: Hi, Max.
You know, ever since this event occurred, many have been wondering how are they going to remove this vessel? Are they going to tear it apart, little by little? Will they just try to lift it and remove the vessel in one piece?
Well, when you take a look at this, the site here, for weeks now authorities have been drilling onshore large diameter drill holes, going onshore. Now the next stage is to drill offshore. They're going to built a platform and try to raise this vessel.
However, they had favorable weather in the past several months, believe it or not, but it's not looking good for the near future and possibly for several weeks after this. Notice the winds at the site here.
We have seen this the last several days; they will continue to be unbelievably strong. Let me back you up in time, though. This is why the weather's been so favorable for the engineers. June through August, exceptionally dry. We know about Portugal and Spain, this following the driest winter in 70 years in some areas of Spain.
So they really didn't have the storms moving through. All that wet weather, as you know, stayed well to the north, record rainfall for April, May and June in the U.K., the June, July and August, well, the next several months, here's a precipitation outlook.
November through January, it would be nice to see some of this wet weather kind of dive down more into Spain. But you notice from around Algeria and in southern parts of Spain, they're going to remain a little unseasonably dry. But it does look good around the site. So if this holds true, that's good news.
Temperature wise -- and here it is for all of Europe; you see from November through January, most locations will have an average winter. If you recall last winter, it was brutal. Frigid, a number of fatalities just because of the cold.
But let me back up, just the last 24 hours, this front moving through with vengeance here really producing violent weather. Too many tornadoes on Sunday. Marseille and in Vendide (ph), that is, we had too many tornadoes, 25 injuries, 100 homes damaged.
This went, in fact, about 100 kilometers in a commercial district. They said there were blowing billboards; there was roof debris, downed trees, power lines down. But about 300 reports of emergency services for flooded homes.
Then we had the rainfall. Now they're getting snow now in the Alps. But you get to around 300 meters above the surface, you've got a full month of rainfall in a 24-hour period. This will remain to be the trouble spot for the next 24 hours. Notice not only a level 1, a level 2. But we've got a level 3 here in the toe of Italy.
So for the most part, damaging winds could be expected, maybe power outages. The possibility of isolated mini-tornadoes. We had reports just off the coast here in the Adriatic of some waterspouts over the weekend, too. So this storm system is moving out quickly. We're going to keep an eye on it.
Because of the storm systems, because of the sirocco winds up the Adriatic -- and you get some heavy rainfall; it's that time of year again - - the aqua alta, yes, in Venice, the rainfall, that's the surge moving into the area.
In fact, high tides expected around 11:35 local time in Venice tomorrow. So they'll still continue to see some minor flooding in St. Mark's Square. This is the way that things are shaping up. Again, we continue to have the surge of moisture and, again, a series of low pressure centers move across the U.K. We had the flooding in Scotland over the weekend. That subsides just in time for the next system.
That's a quick look at your weather, Max. We'll have much more. That's QUEST MEANS BUSINESS returns after this. (Inaudible).
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FOSTER (voice-over): Let's get the answer to today's "Currency Conundrum" for you. Earlier we asked you why thieves who stole a stash of brand-new $100 bills won't be able to spend them. The answer is B, because the notes aren't slated for circulation until next year.
And they're quite recognizable, featuring a large gold 100 graphic in an orange inkwell with an image of a Liberty Bell. So now you know --
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FOSTER: -- what to watch out for.
When Felix Baumgartner plummeted 37 kilometers to Earth yesterday, he broke the record for the highest skydive and the highest manned balloon flight. The Austrian daredevil became the first person to break the sound barrier unaided.
He also broke another record, one that his sponsor, Red Bull, might be more interested in, as Isa Soares reports.
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ISA SOARES, CNN CORRESPONDENT (voice-over): Standing alone at the edge of space with only 30 cameras as his companions, Felix Baumgartner had the world at his feet, about 40 kilometers or 24 miles below him. Millions of people were marveling at the moment on the Internet.
As he plunged a record 8 million people were watching it full live on YouTube. For four minutes and 20 seconds, his sponsor, Red Bull, was cashing in.
UNIDENTIFIED MALE: And there you can see by the approaching shadow he's just about there -- and he's down on the Earth.
SOARES (voice-over): (Inaudible) viewers were shown an advertisement for carmaker Chrysler. After that, their attention was drawn to Red Bull's energy drink.
GRAHAM HALES, CEO, INTERBRAND: Well, Red Bull have got a history of branding themselves alongside great sporting events and great sporting occasions. They tend to be about action-oriented sports, which suits the energy (inaudible) of the drink.
SOARES (voice-over): Once safely on land --
UNIDENTIFIED MALE: Down on his knees, what a shot.
SOARES (voice-over): -- Red Bull posted a picture of Felix on Facebook. That picture alone generated half a million likes, 15,000 comments and more than 68,000 shares. On Twitter, the chatter was also dominated by the fall.
HALES: Well, I think this is why Red Bull had pushed the boundaries in terms of what it is that we are -- what it is that brands are able to do. But Red Bull's now created an event. Other brands are likely to see the success of this and (inaudible) emulate this in their own (inaudible).
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SOARES: Felix's giant leap is a perfect example of how we watch live events today. While once we crowded around our television, now we can stream it online. But when it comes to TV audiences for events such as the Super Bowl, YouTube has some way to go.
HALES: So for some time to come, you know, TV is still delivering a massive audiences. But brands we're spotting what it is that Red Bull have done. They've effectively trailed some content. They've created that content. They've put their brand forward in a very controlled environment. And they've got the figures to match it.
So you know, Red Bull has had a major success attached to this, and you would only expect for other people to emulate it.
SOARES (voice-over): While still some ways away, Felix's epic fall proved just how quickly online viewership is growing, how sponsorship is evolving, how media are reaching new heights -- Isa Soares, CNN, London.
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FOSTER: Well, death-defying feats aren't really my cup of tea, it's not really Richard's thing, either. But he took up the challenge for a series, "Quest for Fear." This jump wasn't quite as high up, a mere 3 kilometers. Quite high, though. I'm still not really sure why he agreed to do it. Neither does he.
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QUEST: Frankly, I'm not looking forward to it very much. I don't like doing these sort of things.
It would not, by any means, have been my first choice, to do something like this. Heights, I'm fine with heights on a nice plane where there's metal and four engines. But doing this -- I know I'm in good hands. I know I'm in good hands.
Oh, no.
UNIDENTIFIED MALE: (Inaudible).
(Inaudible).
(Inaudible).
Ready, set, go.
Go!
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QUEST: Ugh!
Oh!
(LAUGHTER)
QUEST: That was terrifying. How long did we freefall for?
UNIDENTIFIED MALE: Thirty-five seconds or 40 seconds.
QUEST: I enjoyed it.
UNIDENTIFIED MALE: Yes?
QUEST: Once I was out of the balloon, there really was no choice.
I have to say it was exhilarating once I realized what was going to happen.
(Inaudible).
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FOSTER: He's a brave man. He does great things for this program. As you know, even driving trains -- not real ones, don't worry, if you're touring around the country in the train right now. Richard is actually on another adventure at this moment, this time a bit close to the ground, all this week he is traveling around the U.S. by train, getting the lie of the land ahead of the presidential election for us.
"American Quest" will take him from Chicago -- here is it at Union Station -- to the swing state of Iowa, where Republican candidate Mitt Romney is leading the polls -- through to Granby, Colorado, from where Richard sent us this report.
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QUEST: Hello! You join me in Granby, Colorado, high in the Rocky Mountains, one of those undecided states that will be so important in this year's presidential election. Actually, I've just leaving Granby, about to get back on the train, the California Zephyr, heading to Utah.
This is all part of my "American Quest," looking into the U.S. election and bringing you the people and the places. Out here, I mean business.
Where's the train?
FOSTER (voice-over): Look at him, giving grief to the driver there. You'd be pressured, wouldn't you, if you saw him on the platform.
Anyway, Richard is now en route to Utah, where he'll stay tonight in a comfy place, we're told. Tomorrow, he'll head to California, arriving San Francisco by the end of the week. And you can follow him not just on the program but on Twitter, of course, his handle @richardquest. And you can read his latest blog on CNN.com/international -- well worth a read.
After the break, a quick check on the markets for you.
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FOSTER: Let's check on those markets for you. The Dow still in positive territory, up nearly 0.6 percent with about an hour's trading to go. Banking stocks making some incredible gains after Citigroup beat forecasts with its third quarter earnings. All the banks seem to be doing quite well at the moment. Retail sales for September also helped as they came in better than expected.
Also a good day for the European banks. They've pushed all the four major indices higher. The best gains in Paris, Societe General finished up 1.5 percent. Investors will be watching carefully for news out of Athens and any possible deal on austerity measures with E.U. leaders due to meet in Brussels on Thursday.
Finally, this year's final Nobel prize has been awarded; the Nobel prize for economics goes to Americans Alvin Roth and Lloyd Shapley. Their work deals with models for efficiently matching supply and demand.
It could be used, for example, to match students with schools or organ donors with patients needing transplants, a very simple aim but a very complicated sort of math behind it. But they managed it, and they got the prize.
And that is QUEST MEANS BUSINESS. Thank you very much indeed for watching. I'm Max Foster in London. The news is up next.
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FOSTER (voice-over): Malala Yousafzai is now under the care of doctors at a special hospital in Birmingham in England. The Pakistani teenager arrived a couple of hours ago and the hospital's medical director says she could be there for weeks if not longer. Malala was shot in the head by Taliban gunmen last week. She's been an outspoken advocate for girls' education in Pakistan.
The former captain of the shipwrecked Costa Concordia faced survivors for the first time at a hearing in Italy. In January, 32 people died when the cruise ship hit rocks and sank of Italy's coast. Captain Francesco Schettino is accused of manslaughter, but has not been formally charged.
Turkey appears to be enforcing an air blockade against the Syrian government. Turkish officials made an Armenian plane bound for Aleppo stop at -- stop in Turkey for a security search. Turkey and Armenia apparently worked out an agreement for the stop ahead of time.
The leaders of Britain and Scotland have signed a deal that allows Scotland to hold an independent referendum. In two years, Scots will vote a simple yes or no on whether they want to break away from the United Kingdom.
A new CNN Poll of Polls shows the U.S. presidential race in a dead heat on the eve of the second presidential debate. The poll finds likely voters deadlocked between President Barack Obama and Republican challenger Mitt Romney at 47 percent.
That's a look at some of the stories we're watching for you here on CNN. "AMANPOUR" is next.
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