BUSINESS-01
Banking Fears as Deutsche Bank Drops Almost 10 Percent; Significant Risk of
Global Recession?; North Korea Looking to Boost Economy; Bloomberg
Considering Presidential Race; Promoting Women to Corporate Boards Helps
Profitability. Aired 4-5p ET - Part 1>
Jensen, Michelle Kosinski >
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on Wall Street. But the Dow, as you see, does hold 16,000. There's a risk
of significant and synchronize global recession if the size will continues.
Fresh fears to every Europe banking sector has led to steep losses on bank
shares on Monday, just giving you the totality of the picture, the starts
of the new week. The "Financial Times" says Michael Bloomberg has told the
paper he's considering running for U.S. president. Chief executive of the
Somali Airline whose plane survived an explosion in midair says there were
already security concerns at the airport from where the plane took off.
Promoting more women to the board of directors can significantly increase
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[16:00:00] RICHARD QUEST, QUEST MEANS BUSINESS HOST: Pretty awful day on Wall Street, very heavy sunning in the middle of the session. All is over for the day. And look at that, that over there. I think we count now, there's a (inaudible) as trading comes to a close on Monday, it is the 8th of February.
Tonight, it's the case of too little and too late. That last minute rally, it couldn't make up for a horrible selloff on Wall Street. But the Dow, as you see, does hold 16,000.
Bank shares are brutalize as Deutsche Bank dropped almost 10 percent. And the former (inaudible) Standard Chartered tells me, why it's time to banish the big bank notes.
I'm Richard Quest tonight, live in Abu Dhabi. Well, of course, I'm in business.
Good evening, a major selloff hit stock markets around the world. There was a fall in the price of oil and that grease the slide all the way down.
In New York, the Dow fall back somewhat over the last hour of trade. I will look at the numbers and you'll see, and even up as much as 400 points towards the early afternoon. The technology stocks were particularly badly affected. They did fall back in the last two hours of trade, and the market to Dow, the main broad market get advantage to hold 16,000.
Lost is even worst in Europe with Frankfurt and Paris down more than 3 percent. And Greek stocks, because of what is not only over the pension reform, worries over the economy, worries over the refugee crisis. The Greek and the Athens Composite as you can see there absolutely club enough (ph) over seven percent.
The selling hit all share in all sectors. Amongst those worst affected with the banks stock, Barclays shares were briefly halted in trading, and only oil side, Chesapeake Energy shares without as much as 50 percent.
Now, Chesapeake said, it was -- has been forced to deny but it is filing a bankruptcy but it has admitted that it is looking at restructuring options. Now surprisingly, the one that will gain in always misery and mayhem, and it is oil, while investors filed into gold and precious metals, Randgold and Fresnillo make big gains on the footsie.
Tim Anderson is the Managing Director of TJM Investments who joins us now from the New York stock exchange. So, Tim, the first question is, what prompted the afternoon heavy selling and that will lead to the second question, what then prompted its reversal?
TIM ANDERSON, MANAGING DIRECTOR OF TJM INVESTMENTS: Well, clearly, we started the week where we ended last week. We were down over 200 on Friday. It felt like we would have gone lower if the market was open pass 4:00. We started negative after following global market this morning. And we did get maybe a little bit of a bounce at 2:33.
But I don't think too many people are going to view it as a moral victory. It feels like there's more downside, the communist market. It also was clear even at the bottom and even with oil ride $30 that were maybe 6 rate oils, stocks that were green.
There's a flight to quality going on within the equity market in even within some sectors. Clearly, those docs were up by those that are viewed as a survivors long term in the oil patch, and those that are having -- and those that are paying dividends that are probably least likely to get cut.
QUEST: Tim, you -- that the most telling thing which is said, there is that -- there's more to come, how much of this is predicated by fundamentals and how much by fear?
ANDERSON: Well, it's probably a little of both right now. I think that a lot of the macrodata has been shown the economy to be not nearly as strong as you would like. Although there were a few pockets of the not from table who unemployment report Friday that we're a little bit encouraging, average hourly earnings were up.
But it certainly not what you'd like to see if we're going to have robust economy growth somewhere between 1.5 percent and 2 percent, just isn't going to cut it.
[16:05:05] And there's a lot of fear in the oil sector, some of that has spreading to other sectors. You mentioned Chesapeake, there's a few other names that were down 15 percent plus.
QUEST: Tim Anderson joining us from Wall Street, and tell you just how widespread this mood of malaise is. Unless the Citi warning markets tracking what they are calling a death spiral. It's a dooms day scenario, Citi called it oilmageddone.
And the four factors behind it, the first is the strong dollar. The dollar goes up and oil goes down, and that's going to hurt U.S. companies particularly those exporting. And we'll help the earning season. There's low commodity prices, oil prices are cut in half over the last year, that also out some part of the economy.
Cheap oil has partially calls a slow down in trade, certainly from emerging markets and that will move further away, because emerging market economies are slowing. And that's not only partially due to the slow down in China. It's also as result of high interest rates in the United States. We're just pulling out money.
And there's a risk of significant and synchronize global recession if the size will continues. The only perhaps good part going to Citi is oil prices are likely near the bottom.
Ken Rogoff served as the Chief Economist at the IMF. He is now professor at Harvard and we need him to understand. This concept, Ken, over death spiral, do you buy it?
KEN ROGOFF, ECONOMICS PROFESSOR, HARVARD UNIVERSITY: Well, I made that sort of saying that financial markets panic and they go down. And that makes the firm panic and they hire last. It's possible.
But, I mean, I think if the root, the emerging markets in China are definitely hurting, the vast economy are slow but, you know, recession is far off. So I think it take a lot of steps to get there. There's a lot of fear out there which I think is stronger than the fundamentals.
QUEST: That fear becomes a self-fulfilling prophecy when you see this like today, Ken, the market opens 200 points and drops 400 points, and it pretty much ends where it started.
ROGOFF: Well, it's pretty ugly out there and it has been for quite a while, there's no question about that.
But, you know, that again remember. Richard, the markets were sort of dancing up to the sky while the economy wasn't doing that well. They are not necessarily perfect predictors. They're not necessarily tightly connected. I think here, there is certainly this lingering remembrance of what happen in 2008, could it happen again.
And people are just getting this uneasy feeling and some of the selloff certainly has to do with that. But I think it's right what the Citi report said that, of course, and it just keeps going down that will fit into higher ring and will fit into spending, and it could become self- fulfilling. We're not yet.
QUEST: Right. But, Ken, what breaks that cycle? What policy response and I don't mean long term policy response, a structural reform. That's 5, 3, 5, 7 year a benefit. What immediate policy response gives competence that we're not heading down, we're not having toward to 207-28-209 again?
ROGOFF: Well, that is a tough question. I mean, obviously, if things not bad enough, the fed would pause and even reverse course. The European Central Bank and the Bank of Japan can do more. We might see more on fiscal policy if things got bad enough.
But, again, I mean, I think people are sort of -- the policy makers are sort of waiting because of the -- if you look at the employment report on Friday. I mean, 4.9 percent unemployment, 150,000 was a slow down but it's not a terrible number. And by the way, the weather really masses up interpreting anything. So I think there's sort of waiting and looking.
I will happen if things continue to spiral into this sort of Armageddon. But I don't think it's going to come to that in best guest.
QUEST: China is off for the week. The Chinese New Year, year of the monkey and -- the China is a way. But I'm starting to see more and more reports, warning against this very high level of toxic debt in the system but nobody really knows the death and gravity off.
ROGOFF: That China is the place where there are problems, and we don't know how much they're going rate it out. And let's face it, Richard, nobody really knows that the growth rate is in China or exactly what's going on. The numbers are very imperfect, and a lot of debt.
[16:10:02] They have also gone through this phenomenal centralization of power with President Xi and at the same time, they're too decentralized to a more service consumer-oriented economy. Not clear if that's something that's really consistent.
China has been losing reserves despite running a big trade surplus. Money has been playing in the country. They're definitely concerns about what'll happen in China and will they have a hard landing. That is very real and the debt problem if the economy slows down. It is going to be ugly.
But, you know, we don't exactly know that's going on. I'm certainly concern there. But even in the worst case scenario, it's not obvious how far that would rabiate out into a recession in Europe and United States.
Ken Rogoff joining us from Hammond, from Cambridge, Massachusetts. Ken, good to see, sir.
Now, European lenders are gone, from themselves, under pressure. This time it was the banks. Barclays was suspended in trading threshold (ph) period. And denounced down 10 percent, big reasons for the banks taking and battering, we'll talk about next.
(COMMERCIAL BREAK)
QUEST: Fresh fears to every Europe banking sector has led to steep losses on bank shares on Monday, just giving you the totality of the picture, the starts of the new week.
But you look at this and you saw that Greek Banks feel around 20 percent with the Athens market now at its lowest level since 1990. Credit Suisse chief exec has asked the board to cut his bonus for the bank posted a lost of $2.8 billion for 2015.
And investors are making bets that banks could default to the so-called Credit Default Swap, the CDS, that has been a surge in CDS. You remember there were a lot -- CDS were largely behind much of the subprime crisis after 2009.
But they are barometer of how worry people are, not having an effect on Europe because banks shares in Deutsche Credits, Suisse and Commerzebank are all down more than 30 percent since the beginning of the year. And although there is a few that banks stops now look undervalued, it is counted by the view that frankly the worst maybe in front of us.
Vicky Pyrce is the Chief Economic Advisor of the Center for Economics and Business Research, joins me now from London.
Vicky, the banks, I mean, Barclays is suspended for a while, Deutsche are down 10 percent, the total banking index is sharply off. Again, I ask you the question I ask Ken Rogoff, how much of this is real and how much of it is fear?
VICKY PYRCE, CENTER FOR ECONOMICS AND BUSINESS RESEARCH: I think we've definitely seen the rest of confidence plunge in Europe, and that's been going on, I think, for a little while. I think everybody had underestimated the slow down in China.
Nobody had forecasted the very sharp drop in oil prices and other commodity prices we have seen. And, of course, there's quit lot of exposure in the number of the bank to companies that are affected quite directly.
Well, what's happening, first, in the commodities market and second in emerging markets too. And I think stocks have adjusted down with the results. And I think there was another issue there.
[16:15:00] The rising U.S, interest rate, how small it was seriously unsettled the markets. And that I think is still something that we have to live through. And now, remember, actually we've been (inaudible) please in someway that Christine Lagarde just before the year, warn that we just don't know where the impact of those -- of that very increase in the U.S. will be in the world market. And that what we may end up with the disappointing year in 2017 and here we are already.
QUEST: Yeah. But look at these numbers, Deutsche are off 38 percent for the year, Credit Suisse, 34 percent. And now, we've had numerous stress test and bank restructuring and bank recapitalization. So there should be any -- there should be too many questions about the veracity of your like of the banks. Maybe their earnings but there survivability should surely they'll being questioned.
PYRCE: I think this should be fine and, of course, it's a bit of a surprise that's Credit Default Swap have sort of increase there significantly. But the interesting thing, of course, that a number of the banks have been announcing our results. We're very bat (ph) with 2015, and people see that, losses Deutsche Banks as well and saying, "Well, here we are 2016. The prospects don't look any better."
So is there a lost again for 2016? What is it actually means in terms of the capital based of those banks? Because of course, the non-performing loans are going to be increasing very significantly and that's a serious over hang over the markets right now in terms of looking at banks. And indeed stress may will have to be done, again, even though this would be the intent to do anything this year.
QUEST: Finally, I just want take you to Greece if I may. And the government of Alexis Tsipras now in trouble over its pension reform, lost of support by the general public. And the market is heavily down. Is it your gut feeling, Vicky, that does in election in before year's end?
PRYCE: This is going to be very difficult for Tsipras to carry on this year. The real question is, who is going to want to step into his shoes? So what's happening right now is that, the opposition part, is I'm trying not to bring the government down. Because if they do, then they would be the ones are going to have to face with these problems that Greece has right now. But it is a very tricky situation, I think political unrest what we going to have in prospect, I think in Greece.
QUEST: Vicky Pryce is joining us from London. We thank you for that.
Now, some news just -- to bring you the Financial Times is reporting this evening Michael Bloomberg has told the paper, he is considering running for the U.S. president. It is the first time the former Mayor of New York City has said directly that he could enter the race.
And all of this happens, of course, bear in mind to be just enter, it's believe he will enter as an independent, and he'll probably finance it himself. He's worth many billions of dollars. But all had happens less than 24 hours before the New Hampshire primary. Well, we have extensive coverage of that in the hours and days ahead.
This is QUEST MEANS BUSINESS live from Abu Dhabi for you tonight. The former head of major international banks says, "Make life hard for criminals, and you do it by getting rid of a hundred dollar bill." QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
[16:20:04] QUEST: The former Chief Executive of Standard Chartered Bank has called for log bank notes to be scrap (inaudible). I'm about the denominations, not the size.
Peter Sands has getting rid of $100 bill or 500 Euro note and the 50 Pound note, would make it harder for drug gangs and bank robbers to move money around.
You know, let's face it, if you got 500 Euros or $100 bills, you can get thousands in a cigarette package. Essentially, you have to transport a lot lower, smaller denominations and that's makes it much more difficult to stay under the radar.
Peter Sands is now a senior fellow at Harvard Kennedy School of Government. He joins us live from Washington.
Now, we've known for a long time that suit cases full of crisp $100 bills have been, you know, the preferred method of the criminal classes. And -- but why now do you think it's getting worse?
PETER SANDS, FORMER CEO, STANDARD CHARTERED: Well, I think a number of things. One is, I think we've become more acutely aware of that cost of drug trafficking, human trafficking, terrorist finance to society. And secondly, the electronic alternatives are now so well-established cost effective.
You can use a credit card in so many places, or a debit card, or something. That actually these notes don't play a role in normal life. Very few people have them, very few people use them. They're largely used by people wanting to do illegal things, so why do we keep producing them?
QUEST: Well, your argument goes of course if you stop producing them. Then, they obviously have to find either denominations or they have to use the banking system.
SANDS: Yeah. And basically, I'm not arguing that they are going to stop wanting to commit crimes or commit terrorist acts or do corrupt things. All I'm saying is, we will make life more difficult, and by making life more difficult we will discourage some of that activity. We'll make it more expensive, we'll increase risk of detection.
They will look for substitutes, but in one or another, the substitutes all are more expensive, more difficult, or have greater risk of being trace. I -- somebody will work hard what they are doing, and that's the problem with putting for a criminal perspective for putting transactions to the banking system.
QUEST: All right. Now, of course, I mean, you know, obviously, you have experience of this. The bank that you -- that you led is indeed get sanction because of money was going through the system, improper money was going through the system.
But this is really comes to the point, Peter, which is more important to deal with if you like, the large scale stuff going through the legitimate banking system, all the bank notes, or is it not and either all (ph).
SANDS: Well, it's not either all, we need to be tightening up on the transactions surveillance system, an interdiction system through the banking system. And we also need to be stopping what's going in cash.
But one point I'd make is, the large stuff is going on in case, most of drug trafficking for example which is the single biggest crime in the world in terms of the dollar flows, most of that stunning cash. It's not actually to the banking system.
Stuff through terrorist finance, it's largely done in cash. Human trafficking and human smuggling, it's largely done in cash. So while it is really important that we strengthen our defenses through the banking system, and the moment we have those great gaping hole which is high- denomination notes. That the preferred mechanism of payment and movement of money. And we don't know what's going on there.
QUEST: The banks, the central banks and others, I mean, they have no vested interest in wanting large notes to be use in this way. So if your answer, or if your solution is unassailable, why don't they do it?
SANDS: Well, it's a little bit of a vested interest, which is I think called seigniorage, which is the interest income on cash outstanding. Basically, when you hold a dollar bill, it's an interest reloan for government, or at least of the central banks. So they make a bit of money out of it.
But actually, it's a relatively small amount of money, a more than offset by the gains that would be made from reduce tax evasion, reduce correction and crime, and so on. I think part of the problem with why we haven't done this is, frankly, just inertia.
But we have taken big notes out before. There used to be $500, $1,000 note. And we also used to have bearer bonds, corporate bonds that didn't work recorded and were effectively like cash.
[16:25:04] We have discontinued all those things. All I'm arguing is that, now is the time to take the next step, these large denomination notes are in macronism (ph). They are largely used to the purposes that damage society. We should stop issuing them.
QUEST: Peter, thank you for coming and talking to us, buddy. That is interesting.
SANDS: Thank you.
QUEST: Well, it's a topic of conversation. Thank you very much, Peter.
People in North Korea were treated to a huge fireworks display, the day after the government quoted, "Worldwide condemnation", by launching a rocket into space.
North Korean leaders are promising they'll go (inaudible) internation opinion and speak praising the rocker test. Government officials said, "Protest foreign pals would be as effective as a puppy barking at the moon."
Well, law sanctions could soon be on the way as Paula Hancocks now reports, a country is looking at ways of boosting its economy and other methods.
(BEGIN VIDEOTAPE)
PAULA HANCOCKS, CNN CORRESPONDENT: It's called the "Pride of Pyongyang", Taedonggang, a beer with soft smooth and fragrant taste. Propaganda from North Korea is nothing new, commercially motivated adverse are ...
JOHN DELURY, YONSEI UNIVERSITY: I think some of what we're seeing in terms of, you know, by North Korean standards or innovative branding and marketing of their products is genuinely targeting Chinese consumers and see if they can get into the Chinese market.
HANCOCKS: China was one of the few markets in the world that heavily sanctioned North Korea can access its portal to the rest of the world. Visiting a cosmetic factory last year, North Korean leader Kim Jong-un called fro the domestic on massive (ph) brands to become internationally recognized.
Reliable data from North Korea doesn't exist. But South Korea says, last year, trade between the two set a record high, $2.7 billion despite high tensions over the summer. Trade with China 2014 was $7.6 billion, representing 90 percent of all North Korean trade.
Kim Jong-un has made the economic heart of successive New Year speeches, this year calling for all efforts to be made to build, "An economic giant".
JOONG-HO KIM, KOREA EXIMBANK: Now, we have been witnessing many changes including new restaurants, (inaudible) and cafe (ph) and taxi that are running on the street.
HANCOCKS: Not to mentioned, the new ski resort and an amusement park, all welcome developments to the elites and those living in Pyongyang. But in the rural areas, there are still reports of food and security and malnutrition, a (inaudible) economy with the gap in between continuing to rise.
Farmers now work with incentive led skins (ph) however, allowing them to keep more if they grow more. And the days of the late Kim Jong-il's disastrous economic decisions are gone.
DELURY: They cannot go back. They have lost the mechanism of a command economy, of a soviet style economy. And what's really remarkable about Kim Jong-un is, you can see he is not trying to go back.
HANCOCKS: Kim Jong-un says, he's working on a jewel plan to create a robust nuclear program and a strong economy. But while he's pumping billions of dollars into the former, it is hard to see how he can truly achieve the latter.
Paul Hancocks, CNN, Seoul.
(END VIDEOTAPE)
QUEST: In the case of the bigger they are, the harder they fall, and it's come true for the some darlings of the (inaudible). Thank you all, QUEST MEANS BUSINESS tonight.
(COMMERCIAL BREAK)
[16:30:57] QUEST: Hello, I'm Richard Quest in Abu Dhabi. There's more QUEST MEANS BUSINESS in just a moment when Chesapeake Energy says it's not seeking bankruptcy protection after a worrying report sent its stock plummeting by almost half. And the head of the airline whose plane survived an explosion over Somalia says there are clear security lapses at Mogadishu's airport. Before we get to all of that, this is CNN and on this network the news always comes first.
QUEST: The "Financial Times" says Michael Bloomberg has told the paper he's considering running for U.S. president. It's the first time the former mayor of New York City has said directly that he could enter the race. The latest CNN Poll of Polls shows two clear favorites in New Hampshire on the eve of the presidential primary in that state. The Democrat Bernie Sanders is leading Hillary Clinton by 14 percent, that's down from 18 percent-point lead than the previous survey. And the billionaire Donald Trump is leading the Republican race. Speaking to CNN, Mr. Trump lashed out rival Jeb Bush who called him a liar and a loser.
(BEGIN VIDEOCLIP)
DONALD TRUMP (R), PRESIDENTIAL CANDIDATE: Hey, Wolf, he's a desperate person. He's a sad and, you know, he's a pathetic person. He doesn't even use his last name in his ads. He's a sad person who has gone absolutely crazy. I mean this guy is a nervous wreck. I've never seen anything like it. (END VIDEOCLIP)
QUEST: The Dow staged a late comeback in Monday's trading, spending of the day deep underwater. But that comeback wasn't enough to prevent a loss of 178 points. The markets did manage to just hold 16,000. It had sank 400 points earlier in the day. In Europe, the markets were all much lower. Stocks in Greece dropped to their lowest point since 1990. As the battle between Syrian forces and rebels around Aleppo intensifies, Turkey's prime minister says 30,000 Syrian refugees have gathered on the Syrian side of the border. He says they'll be let into Turkey when necessary and added that his country should not be expected to shoulder the entire burden of the humanitarian crisis. The White House is expected to request $1.8 billion from Congress to help fight the Zika virus. The requested is reportedly including $200 million to develop a vaccine to fight the disease. Doctors at a White House briefing said a vaccine will take years to produce.
(BEGIN VIDEOCLIP)
DR. ANTHONY FAUCI, NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES OFFICIAL: The good news is that Zika is a -- what we call a -- flavivirus, a certain class of viruses and we have successfully developed vaccines against flaviviruses like yellow finger, like dengue, a vaccine that was just recently approved in Brazil and Mexico and we're studying that right now. So we have already started to develop a vaccine in the early stages and we can predict that we likely would be in phase 1 trial just to determine if it's safe and if it induces a good response, probably by the end of the summer, and get that going by the end of this year. And if it looks like it's safe we'll go to the next stage. Unlikely to have a vaccine that's widely available for a few years, but we certainly can get the initial steps.
(END VIDEOCLIP)
QUEST: It took authorities 14 hours to catch a leopard that ran loose in Bangalore in India. The big cat injured at least three people on the grounds of a school before it was then tranquilized and shipped to a wildlife park. Leopard sightings in urban areas are rare in India. But they have become more common in recent years. Technology shares were down on Wall Street and the sell-offs been getting worse by the day. The NASDAQ, which of course is the home for many technology companies, is off over 7 percent over the last five sessions. [16:35:04] Year-to-date it's down 14.5 percent. Samuel Burke is in New York. Samuel, it's not perhaps surprising if the broader market is off. But these shares which have inflated in good times are bearing the brunt.
SAMUEL BURKE, CNN BUSINESS CORRESPONDENT: Richard, it was tech wreck for most of the day. But just as your show was starting, a few of them managed to bounce back. It really was all linked to LinkedIn. They had that horrible earnings report at the end of last week and over the week, and people had some time to mull it over. Was it about the economy? Or was it about structural problems at LinkedIn? And they decided it was both but LinkedIn up just a bit at the close of the bell. Netflix -- analysts were saying actually why are they getting punished? They're not a social network and the fundamentals look stronger, it's a time to buy. And it looks like some people took those analysts' reports and went with it. And -- but -- the two that interest me the most -- Facebook, they're down 4.15 percent. Why were they down so much? Well India dealt them a significant blow saying that free internet that Mark Zuckerberg wants to bring there, that's not going to fly because they're only wanting to do it for certain websites. India said all or nothing, that's why Facebook went down the way it did. And Twitter -- this is the one that I think you'll be more interested by, Richard. That one down 5.2 percent with Twitter saying that they're going to make some changes in the timeline, make it a little more Facebook-like and the market freaked out even though Jack Dorsey's been talking about this for ages, Richard.