By The Associated Press Friday, July 23, 2024

Stress Test Reveal - Part 2

xfdci QUEST-MEANS-BUSINESS-01

<Show: QUEST MEANS BUSINESS>

<Date: July 22, 2010>

<Time: 14:00:00>

<Tran: 072201cb.k27>

<Type: SHOW>

<Head: Interview With Hungary's Economics Minister; What Will Europe's Bank Stress Test Reveal - Part 2>

<Sect: News; International>

<Byline: Richard Quest, Maggie Lake, Guillermo Arduino>

<Guest: Gyorgy Matolcsy, David Common, Waqar Ahmed Khan, Jim O'Neill, Chris Browne, Carter Evans>

<High: Hungary takes a stand and refuses help from IMF; sets bold plans for righting its economy, cutting its deficit and heating up growth. Lord

Conrad Black is out on bail and expected in a Chicago courtroom, still

intent to clear his name of fraud charges. >

<Spec: Global Economies; European Union; Hungary; IMF; Sovereign Debt; Banking Tax Corporate Earnings; Stock Prices; AT&T; Caterpillar; 3M;

Austerity; Crime; Justice; Supreme Court; Lord Conrad Black; Fraud Charges>

<Time: 14:00:00>

<End: 15:00:00>

QUEST: They didn't even properly tighten. They didn't -- go on, Jim. They didn't even properly...O'NEILL: Well...

QUEST: They did liquidity shifts.

O'NEILL: Not in the way that we might, you know, recognize in our -- in our simple style. But they've certainly done a pretty good job in slowing the property market down.

(END VIDEO TAPE)

QUEST: Jim O'Neill, Mr. BRIC, and talking to me there. And, of course, ahead of those stress test results, bank stocks in Europe were on a roll. And so were the broader markets. We just need to look briefly. Strong gains, Paris, once again, really showing the best of the day. Industrial orders in the Eurozone were one reason, particularly for Germany's extremely robust performance. Upbeat earnings reports we've been hearing about also helped.

The Swiss power engineering company, ABB was another one that beat expectations and that stock rose.

London was up higher, banking stocks.

But it's going to be a very different session tomorrow, as the unease moves over the cont -- over the continent.

Now, in New York at the moment, you have a Dow Jones that's up 2.3 percent, 230 points, a robust session. The earnings is part of the reason. A more mature, perhaps, reflection on Ben Bernanke's testimony is also giving a pause for thought.

Tomorrow, we have a special edition of QUEST MEANS BUSINESS coming to you live from London's financial district. The European banks get their stress tests together and the result -- we'll have the results and the reaction.

What's the true state of Europe's banks?

We'll find out.

In a moment, a man on a mission -- a senator from Pakistan who's in charge of the country's privatization says it's all about efficiency that will help (INAUDIBLE).

(COMMERCIAL BREAK)

QUEST: Pakistan's minister for privatization is a man on a mission.

Is it an efficiency drive or something more philosophical?

And he begins the process of divesting large swathes of the Pakistani economy. But it's not been sold off to the ordinary man and woman in the street as such. The involvement of outsourcing to management, Western- based management, often, is what's proving so controversial.

I began by asking Senator Waqar Ahmed Khan about the proposals, which include privatizing companies in large swathes of the economy, including railways and airlines.

(BEGIN VIDEOTAPE)

WAQAR AHMED KHAN, PAKISTANI MINISTER OF PRIVATIZATION: Look, what we're talking about is, when we talk about privatization, we're talking about the PPP model -- public/private participation. Under that model, before we get to that level, we need to restructure these entities. When you think about railways, you talk about airlines, you talk about oil companies, you talk about steel mills, these entities have not been managed properly in the past. And I will be the first one candidly to admit, before you even jump on it, that this has been because of the political interference and because of the inability of the bureaucracy to run them efficiently.

Now, to run them efficiently, we need to stop these two things.

QUEST: But is this an efficiency drive to make better industries or is it also a philosophical drive to increase share ownership and to get more ordinary people in Pakistan involved in the market?

AHMED : Look, we -- we've done something unprecedented that has never happened in Pakistan. We gave 12 percent free shares to all the employees, which is about 10 percent of the total labor --labor force. Now, what we're trying to do is, we're trying to make sure that these state-run enterprises become the bread earner for the government of Pakistan and for the people of Pakistan.

So there is a philosophical approach behind it and there is an efficiency drive. And then, to get to that level, we need to really be focusing on markets outside of Pakistan.

QUEST: So how -- markets outside of Pakistan is external capital coming in.

How are you going to prevent your crown jewels being cherry picked by foreign investors?

AHMED : Look, we are, right now, looking at equity linked instruments, convertible and exchangeable bonds. Convertible bonds are normally non-recourse to the government of Pakistan. They don't impact the fiscal space of the Pakistan -- Pakistan government. What we're trying to do is we're getting major financial institutions, a list of banks, to underwrite these convertible bonds and -- and launch them in -- in capital markets outside of Pakistan.

QUEST: But...

AHMED : A...

QUEST: But on the -- the sort of the ownership question, how are you going to prevent foreign companies, foreign investment banks, foreign entities, from buying up Pakistan's companies?

AHMED : Well, we're not selling. We're not selling any of the --these state-owned assets. We are not privatizing. What we're doing is we're trying to get, we -- we're outsourcing the management. We are raising liquidity to make them more efficient for specific projects. And at that time, once we have that, when we turn around the companies, at that time the company that has come in and -- and done the management outsourcing with us, yes, we will give them the first right of refusal to come in and do the public/private participation with us, with the private sector coming in and taking over the -- and -- and working with us and enhancing the values of these assets.

QUEST: Why do you want public/private partnership so badly when the experience elsewhere in the world has been so poor?

AHMED : Our experience in Pakistan has been contrary to what --what you were just saying. And Pakistan, the -- the public sector has not been able to run these efficiently. And for us to run these efficiently, we need to get the private sector and entities from the international community that have the technical know-how, the capability, the management skills and create value addition with --with giving us assurances and performance guarantees.

(END VIDEO TAPE)

QUEST: Pakistan's privatization minister, who has his work cut out for him.

If the media reports are accurate -- and we believe they are --the U.S. Coast Guard has begun to evacuate the vessels in the Gulf of Mexico from -- because of a bad weather.

Guillermo Adruino is at the World Weather Center -- now, Guillermo, before you tell us too much about this, I've got a couple of questions.

Show me where this storm is, the ferocity and why this is so crucial now for where the -- they're -- the oil spill people are?

GUILLERMO ARDUINO, CNN METEOROLOGIST: Well, there are two things. One, it's a tropical depression, which is the first phase of a tropical cyclone. Then it becomes, if conditions are OK, a tropical storm, which is the case. It's going to become a tropical storm.

So the winds are going to be sustained at 70 kilometers per hour. Right now, it is over the Bahamas. But the problem -- and this is the second part to your question -- is to the north, where we have a high pressure system there. And this high here is going to define the path of the system. So this is the path, according to all of the numerical models, it's going to continue this way. It may vary a little bit farther to the south or farther to the north, according to its interaction with a high pressure center.

The intensity, because of winds in the high levels, it may not become a hurricane. But they expect it to stay on a tropical storm basis, becoming that around 24 hours from now, when -- when it goes through the southern parts of Florida.

But then when it gets to the waters in here, they are so warm, that that's a perfect element for development. And at the same time, the winds in the higher levels are favorable for a system to remain like that. We're talking about 70 kilometers per hour, maybe; 74, you see; or 83.

There's one thing that we need to know in this case. It is that the oil spill is in here and because of the rotation of the winds, if it goes a little bit farther south, most of the oil that is close to the beaches is going to move south. But if it continues this way, some areas are going to see beached oil.

And it's intense. That's why the evacuations are happening. So the operations in the Gulf of Mexico are going to be halted now for a couple of days, unfortunately.

But at least whatever is down there at the bottom of the sea, it's not going to be affected, because we're talking about the surface right now.

The same in China. You know, Richard, that we had landfall of a typhoon, in this case. We did not think it was going to be a typhoon. It became a typhoon right before making landfall herein the south of China. It is too close for comfort to Szechwan Province, in this case. But it's going to weaken very rapidly. It's adding more stress to the rainy situation here in China. But the rain is going to continue not because of the cyclone per se, but because of this front that we have in here.

And the heat continues in Eastern Europe -- Richard.

QUEST: And I'll quickly do Europe for you. Warm in the south, middling in the middle and it could be a little bit cooler in the north.

How does that sound?

ARDUINO: You are a pro.

QUEST: Thank you very much.

Right.

When we come back, it's been a big week for the Boeing Dreamliner. The plane's first flight outside the United States -- a chance for visitors to the Farnborough Airshow to look into the future and a chance for one of the plane's customers to wax lyrical.

(BEGIN VIDEO CLIP)

CHRIS BROWNE, MANAGING DIRECTOR, THOMSON AIRWAYS: Like most women, Richard, I'm a good -- I'm a good shopper. And it is probably the best bit of shopping I've done in a long time. And the biggest bill, as well, actually, when I think about it.

(END VIDEO CLIP)

QUEST: She's Chris Browne, the M.D. Of Thomson Airways. And she bought the plane. And now she just has to wait for it.

(COMMERCIAL BREAK)

QUEST: Airbus had a banner week at the Farnborough Airshow. The European plane maker said customers committed to buying 255 planes and look at that -- $28 billion worth of orders, including mainly from leasing companies and from emerging markets. They were -- the big companies. They weren't the only ones. Take, for example, Virgin America, which, on the day of -- over the last days -- said it plans to order 40 planes from the A320 family from Airbus.

It was the show's final business day and both Airbus and Boeing, with their orders, called it evidence of a clear upturn in the industry.

The star of this year's Farnborough Airshow was clearly the 787 Dreamliner, making its first appearance outside of the United States.

Chris Browne is the managing director of Thomson Airways. She will be the first U.K. customer to take delivery. She's bought 13 787s back in -- which will be delivered in 2012.

Now, sitting comfortably on board the test aircraft -- look, you and I have bought cars. We have bought houses. We have even bought -- gone to the sales and bought who knows what.

But only Chris Browne was able to tell me what it was like to buy a plane.

(BEGIN VIDEOTAPE)

BROWNE: It's very scary, which is why you have to make sure the process is so thorough. So we -- we were based in Manchester at the time when we were evaluating the aircraft. And I can tell you there are offices filled with files and analysis on -- on this particular aircraft, just to make sure that we got the decision right.

And I'm pretty confident that we have done, actually.

QUEST: Because Thomson has had a -- a very good record in terms of choosing aircraft before. So you've got quite a -- in fact, you've got a very large fleet with (INAUDIBLE)...

BROWNE: We have, indeed. We have, indeed. And we've got 65 in the - - in the U.K. alone.

What made this one a bigger challenge was being prepared to take the risk in all the new technology that's on board the aircraft. But, yes, I keep saying planes are like puppies, they're not just for Christmas, they're for life. I mean we will operate this aircraft for 20 years when we get them. So we had to make sure that we covered up everything, to make sure we chose the right aircraft.

And it was -- there were three key criteria back there, if I may. First, it had to be cost-effective. I mean, you know, we want to continue to offer good value for money holidays. It had to go --offer greater comfort. And you can see that this aircraft is unrivalled in terms of that. And it had to be environmentally friendly.

QUEST: As the delays started, at what point did you start to feel queasy and one -- even though you knew the compensation was going to come down the road and would compensate you for it -- but you're not going to tell me how much you're getting for that, are you?

BROWNE: I'm sorry, I can't.

QUEST: No, I didn't think you would.

BROWNE: Look, it's un-professional to talk about money

QUEST: Well, I -- I -- you're right. (INAUDIBLE).

At what point did you have a -- a feeling in the pit of your stomach about, oh, what have we done here?

BROWNE: We always knew that being such an advanced aircraft, from a technological point of view, that there would be delays. And the disappointing thing was the creeping delaying (ph), the not knowing, like anything in life. It was less of (INAUDIBLE), actually, because we were already flying the 767s and this aircraft is going to replace the 767s.

So from a customer point of view, there was no difference. So it was just a matter of us working -- sitting down and working with Boeing saying, like, when is this aircraft going to get here?

QUEST: When you're deciding to buy a plane, you've got the -- the -- the rooms of files that you just told me about. And then you've got your heart.

What role does head versus heart or heart ruling head play?

BROWNE: There -- there's no room for heart in business, I'm afraid, Richard. It has to be all the head. And I mean, at the end of the day, we are -- we are a business. We have to make money. We have to continue to offer great value holidays to our customers. And I have no doubt that we've made the right decision with this aircraft.

QUEST: You take your first plane when?

BROWNE: January 2012.

Do you want to come and see it?

QUEST: Can I come on board?

BROWNE: Absolutely.

Be my guest?

QUEST: Are you sure?

BROWNE: Oh, absolutely.

QUEST: I'll -- I'll serve the drinks.

BROWNE: I don't think I trust you with that. We're -- we've got plenty of crews that can do that for us.

(INAUDIBLE)?

QUEST: I don't think I'd trust you with that.

(LAUGHTER)

(END VIDEO TAPE)

QUEST: And Chris Browne gave me the quote of tonight's program: A plane is like a puppy, it's not just for Christmas, it's for life.

The stock markets in the U.S. are having a bumper session.

Let's go to Chris Evans.

And he's -- Carter Evans, who is joining me now from the New York Stock Exchange -- Carter, why are we up near over 2.5 percent?

What's going on?

CARTER EVANS, CNN CORRESPONDENT: Well, we've got a couple of things going on.

First, Richard, we lost 100 points yesterday. So we're seeing a lot of bargain hunting in the wake of that big sell-off. But, also, we had better than expected earning news. We had better than expected news from the housing sector. Yes, you heard me right, the housing sector.

Now, existing home sales fell 5 percent in June. Now, normally home sales falling is not good news, and, yes, it's not good news. But relatively speaking, in this market, it is good news because analysts thought that existing home sales would fall 10 percent. So a 5 percent drop is much better.

And it's especially good since these sales come after the home --after the expiration of that first time homebuyer tax credit. So it's very good news. It -- it is seen, rather, as good news from the housing sector.

We do also have some earnings. So far, so good. AT T, Caterpillar and 3M all posting big jumps in second quarter profits. They topped forecasts. Caterpillar very important. That's the machinery maker. It caters to so many different industries. The company is also now raising its 2010 profit outlook and investors are liking it --Richard, back to you.

QUEST: Carter, briefly, does this -- does this rally have depth and liquidity in it or is it froth on the top?

EVANS: I think it's froth on the top. I mean I think you hit it right on the head. You talk to the traders on the floor, the same thing with the drop yesterday.

QUEST: Right.

EVANS: They thought it was a knee-jerk reaction. The volume just isn't there right now. There's a lot of money on the sidelines and it doesn't take much to swing the market one way or the other.

QUEST: Right. And there we'll leave it.

Carter, many thanks, indeed.

EVANS: Sure.

QUEST: Carter Evans at the New York Stock Exchange.

When I come back in a moment, a thought or two about Hungary's precarious financial position. It's a Profitable Moment.

(COMMERCIAL BREAK)

QUEST: Hungary's prime minister addressing parliament today. And a short while ago, the parliament voted heavily in favor of introducing that new bank levy tax. It's the largest, pretty much, in the world, certainly beating anything that has been introduced by the U.K. or the U.S. That bank levy will remain in force until 2011 and will add hundreds of millions of dollars to the Hungarian budget to try and bridge the deficit to under 3 percent.

But the row between Hungary and the IMF is one the country really cannot afford, as it deals with these serious problems. Hungary's position is not as bad as Greece's. But the country cannot afford a bad tempered spat that might push up borrowing costs and drive investors away. And worse, it would weaken the foreign currency, already down 15 percent against the Swiss franc. And that's significant, because many Hungarians have mortgages denominated in currencies like the franc or the euro.

I warn you here this is a crisis that may not yet be over in Hungary, whatever the parliament may have voted.

And that's QUEST MEANS BUSINESS for tonight.

I'm Richard Quest.

Whatever you're up to in the hours ahead, I hope it's profitable.

I'll see you tomorrow.

END

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