BUSINESS-01
for Urgent Tax Reform; Facebook Faces Revenge Porn Trail in Northern
Ireland; Rare Access Inside Zimbabwe as Protests Escalate; Israel's Peres
Hospitalized After Stroke; Blackstone CEO Launches Scholarship to China;
BBC Loses "The Great British Bake Off"; GM Unveils All-Electric Chevrolet
Bold. Aired 4-5 ET - Part 1>
Cristina Alesci>
Schwarzman, Frances Quinn, Mark Reuss>
beleaguered bank has now agreed to appear before Congress to explain its
misdeeds. The U.S. Treasury Secretary is calling for urgent reforms to
America's tax system after a major ruling in Europe. The commission
recently handed Apple more than a $14 billion tax bill. A lawsuit over a
nude photo that appeared on Facebook is going to go to a full trial. It'll
take place in Northern Ireland. Zimbabwe's economic woes have spilled on
to the streets and violence is following close behind. Citizens have
organized demonstrations against high unemployment. The former Israeli
President, Shimon Peres has suffered a major stroke on Tuesday. His
doctors say he's an intensive care and on a respirator. The chief
executive of Blackstone says there is a good chance of a war between the
United States and China if misunderstanding between the two countries are
allowed to persist. The BBC lost its hit show "The Great British Bake
Off", the show in its seventh season is to move to the rival opposition
Channel Four. This is the year of Chevrolet Bolt and it can travel 238
miles on single charge. General Motors is hoping to race ahead of Tesla in
the electric car market.>
Africa; Protests; Israel; Profiles; Lawsuits; Education; Asia; Television
and Radio; Automotive Industry;>
[16:00:00] RICHARD QUEST, CNN ANCHOR: What a difference 24-hour's makes. The Dow is very sharply down, off more than nearly 1.5 percent having risen by a similar amount yesterday. We'll get to the reasons why. Now it is time -- 6, 7, 8, 9, 10, 11, 12, 13. No, sir, you're only supposed to do three. It's Tuesday. It's September the 13th.
Wells Fargo closes the stable door after the horse was bolted. General Motors zooms past Tesla in its race for reigns.
And you can't have your cake and eat it too. The new owners of "The Great British Bake-Off" lose two of its key hosts. I'm Richard Quest and we have an hour together, and I mean business.
Good evening, tonight the wagons are circling around Wells Fargo bank. As the beleaguered bank has now agreed to appear before Congress to explain its misdeeds. The opening of thousands, some say even millions of bank accounts and credit cards by customers who didn't request them and had to pay, in many cases fees. As far back as the mid-19th century, Wells Fargo wagons crisscrossed the American heartland. It became an icon and an institution in its own right. Now in 2016, a tactic called cross selling has caused a scandal that's destroy consumer trust in the bank, and cause the bank to circle its own wagons to protect itself.
Remember what I said about how thousands of employees were opening up bank accounts and credit cards for customers who never requested it. Well now, Wells Fargo has announced that it will stop setting sales targets for its employees. It was the setting of those targets that created the pressure cooker environment to open as many accounts as they possibly could to meet those goals as well as that, of course, there will be calls for a claw back in the $124 million payday that was received from the executive Carrie Tolstedt. Now Carrie Tolstedt left the bank. She's in charge of the unit that created the fake accounts that encourage the cross-selling. She conveniently retired with a $124 million in her back pocket.
To recap, the enormity of the offenses last week, the bank fired 5300 staff, roughly one to 1.5 percent of its global workforce. Agreed to pay $185 million in a fine to the Consumer Financial Protection Bureau. But the point about the whole thing today is that Wells Fargo's chief executive John Stumpf, has been called to testify on Capitol Hill. As for the Wells Fargo share price, this shows you how serious it is. Yes, the market is down overall, but Wells Fargo is down 3.2 percent. It's a loss of 1.5 at 46.95. The shares down more than 5 percent since the scandal broke late last week. Putting it all together, the wagons throw up the dust, and the Wells Fargo chief executive has been invited to testify to the Senate Banking Committee. I was joined by the Democratic senator, Bob Menendez, of New Jersey. He will be one of those questioning John Stumpf when he gives his testimony. I asked him what he wants to hear.
(BEGIN VIDEOTAPE)
BOB MENENDEZ, U.S. SENATE DEMOCRAT: When he says he wants to tell the Wells Fargo story, but we don't need the story, we want the truth. We need to understand how the Wells Fargo wagon could roll over 2 million customers. Have over 5,000 employees open up accounts that weren't asked for. Credit card accounts that weren't asked for, and say that it is all of those low level employees who were responsible here.
QUEST: Isn't the big question here just how high up the Wells Fargo management tree there could have been knowledge of unrealistic targets being met, that could only have been met by subterfuge means.
[16:05:03] MENENDEZ: Well, that's certainly a critical issue. How far up and also the how perverse is this within the industry? I'm not sure that this is only unique to Wells Fargo. Since this came out about Wells Fargo, I've been hearing from other quarters that this is not limited to Wells Fargo. So the reality is that you after having dealt with the big banks and their challenges during the Great Recession as a member of the Senate Banking Committee, I want to make sure that consumers are treated on an equal footing. And that's why we need a consumer financial protection board to be the cop on the beat. Otherwise we wouldn't have these actions as we've had with Wells Fargo.
QUEST: we had the great financial crises with all the bad behavior that led up to that and created that environment. And we had the scandals of 2010, 2012 and 2011 of LIBOR and others. It seems to ordinary people that the banks never learn. Because this behavior has happened sense those other scandals.
MENENDEZ: And that is why we have to go after it. You know, that's why I was one of the coauthors of Dodd/Frank. That's why I asked the chairman of the Senate Banking Committee to have a hearing on Wells Fargo particularly, but also to look at industry practices in this regard, and that is why I think that will lead us to ask questions of what is the appropriate penalty so that it isn't the cost of doing business. It's a real consequence to the bank so that they stop their behavior that average citizens can't do.
QUEST: Senator, finally, do you believe ultimately, and I know it's never pleasant to say this, but ultimately it's the criminal law, not civil penalties? The sound of handcuffs and a jail doors clanking behind you that will really get top management attention?
MENENDEZ: If in fact individuals are found to have violated the law criminally, then they should be prosecuted criminally. Where there are civil violations, they should be significant although not the cost of doing business. At the end of the day, the banks should not be above the law, they should not be too big to jail, and ultimately I think this will lead us to a series of questions and actions that hopefully will get us to the right disciplinary processes so no American has to be defrauded by their bank.
(END VIDEOTAPE)
QUEST: The hearings will be instructive, indeed, to see how the bank justifies the actions that were taken by the employees and indeed the culture of Wells Fargo itself. I spoke to the director of the Consumer Financial Protection Bureau, Richard Cordray. The bureau was responsible for bringing the case in the first place, and for levying the large fine of $185 million. I asked the director if he was surprised by what he discovered with Wells Fargo's behavior?
(BEGIN VIDEOTAPE)
RICHARD CORDRAY, DIRECTOR, CONSUMER FINANCIAL PROTECTION BUREAU: This is really shocking conduct for a bank. What you expect when you put your money in a bank is that they're going to handle it carefully. They're going to keep you closely apprised of what they're doing with it, and not do things that would violate your trust. None of those things happen here, and for all the customers who were affected, whether they were hurt by fees or not, this is a real abuse of trust.
QUEST: Do you think in a case like this, the person who has to fall and take responsibility has to be almost as high as the chief executive?
CORDRAY: I don't think that's for me to say, but I would say this, but I would say people higher up, when they put in programs like this, incentive compensation schemes, they know what that's going to do. Is it's going to push people to accomplish the goals that the incentive schemes lead to giving them bonuses. And they will have shortcuts to take to establish those goals, and you need careful monitoring to make sure people aren't taking those shortcuts at the expense of consumers. When that doesn't happen, it raises troubling when questions of responsibility of those higher executives.
QUEST: I realize that the fine and discouragement of $185 million is the largest so far. But between you and me, it's really peanuts in comparison to the resources and wealth of an organization like Wells Fargo. And it pales into insignificance when you look at the sort of penalties that were paid by the banks in the LIBOR trading scandal in the foreign exchange in the interest rate swap set scandals. So should they have been fined and penalties, should they have been higher?
CORDRAY: It appears that there was about $2.5 million in harm to consumers. And then $185 million total in penalties That is a very sharp statement about the extent and severity of the wrong doing even though there was not much damage done to individual consumers' pocketbooks.
[16:10:03] But let me say something else. Which is, there is the fine in this case, which was unprecedented in this type of situation, given other situations to date. There is also the result that you have thousands of employees who have been terminated. Which demonstrates, as you say, the extent of the systematic wrong doing. You also have cascades now of negative publicity for Wells Fargo in terms of whether their customers feel comfortable having their money at a bank where they have abused their trust. All of these things are going to lead to a further change.
QUEST: It comes after the great financial crisis where we had already seen banks behaving badly in the way they lent money. It follows on from bad behavior in LIBOR, in foreign exchange, and if you like, the investment banking side. And 2011 onwards, we see this. Which raises the really troubling ethical question. Sir, do or you think banks ever truly understand what it means to act ethically?
CORDRAY: I think what it shows is that there are still considerable problems. I agree with you. That there would be a problem of this magnitude in the wake of the problems we've already seen at the banks, is surprising. But what it goes to show is that any large organization that tries to operate and manage money for millions and millions of customers has to be itself watched carefully.
By the way, the bank needs to watch itself carefully and have it's on proper systems in place to do its own monitoring. And every bank has a responsibility to do that. But we also need regulators in place who will look over the shoulder of these institutions, find these problems and address them. And address them in terms of changing the conduct at the banks going forward, and penalize them where appropriate to do so. And we're never going to be able, I think, to move away from that system all together and put the banks on an honor system. That's just not going to work.
(END VIDEOTAPE)
QUEST: An honor system for the banks and we talk about this tonight's QUEST MEANS BUSINESS newsletter. It arrives in your email box just after the New York close, any time now, and of course ahead of the Asian market open. Tonight I'm writing in the Profitable Moment about why Wells Fargo is so troubling. CNNMoney.com/quest to subscribe.
The Dow has lost all of yesterday's gains. It closed 240 points up yesterday, but as you can see, we're down 258. So far, 18,000 is looking a little bit dodgy, and the Dow is off more than 470 points on it's moving five days over the last five days.
The IEA reports that the oil glut won't subside as long glut remains there is a downward pressure on prices. And our old friend with concerns about the Fed. Particularly after Brainard's comments yesterday. Look, she's obviously a doubter, she didn't say anything extraordinarily different. But the fact is there is a view now of what the Fed is not going to do in September.
The U.S. Treasury Secretary is calling for urgent reforms to America's tax system after a major ruling in Europe. The commission recently handed Apple more than a $14 billion tax bill. Saying the Irish government had helped Apple artificially lower it's taxes. Now Jack Lew, U.S. Treasury Secretary, is warning that American companies now would claim their foreign tax credits against their bill at home.
In other words, think about it. If you pay tax in Ireland, you won't be paying tax on that same money to the U.S. government. In an opinion piece for the "Wall Street Journal," Lew said "The Apple decision and the bipartisan reaction to it, may present a new opportunity to make reform a reality. That opportunity should not be lost."
Now, Jack Lew has also warned that the penalty undermines Europe's business climate. Joining me now is Martin Shanahan, the chief executive of the IGA Ireland. He joins me now. The industrial development for Ireland, the inward investment arm. Now you're here to talk obviously, about, the wider issues. But let's just deal with the question of the Apple taxes. The Irish government is going to appeal. The Irish government says that Apple has paid all of the tax that it was supposed to pay in Ireland. That's their position, correct?
MARTIN SHANAHAN, CEO, IDA IRELAND: Absolutely.
QUEST: The only problem is the way the relationship with Ireland was structured, it meant not very much tax was paid.
[16:15:00] SHANAHAN: But Ireland's flex tax on activity in Ireland and our revenue service has said, clearly that all tax due from Apple and activity in Ireland has been collected by Ireland. We're not a global tax collector. We have a fundamental problem with the Commission Decision. It is imposing a 2016 Commission view of taxation on a ruling that was given in 1991 by our revenue service.
QUEST: I don't want to get too detailed on this. I want to talk about how you're going to work around this in terms of getting inward investment. But when that ruling agreed that Apple could split its revenues. A little bit to Ireland. A big bit to this company, the international bit, that have many don't sign anywhere. That's effectively was giving Apple a blank check to pay no tax.
SHANAHAN: No, what is happening here, our tax system is set down in statute. Our revenue service has no discretion in relation to how the laws are applied. They gave an opinion in 1991. And we collect tax on activity in Ireland. We fully support that all companies should pay tax. We been a full participant in the OECD base erosion profit shifting initiative. And we are completely compliant with international law.
QUEST: How difficult do you think it will be to make your job to attract businesses to Ireland even with your 12 1/2 percent corporate tax rate. How difficult is it going to be to attract businesses? Now they're going to say, hang on, we can't rely on the promises being made by Ireland.
SHANAHAN: Firstly, the commission has made a decision, but obviously as you said in your introduction, Apple is going to appeal that decision, and the Irish government is going to appeal that decision. So we haven't seen the end of this yet. And that process, which will go to the European courts, may take years to come. Investors will remain with Ireland. They will keep faith with Ireland, because it is an attractive place to do business. It's one of the most pro-business environments in the globe.
QUEST: Ireland, I mean, I don't want to sort of subject to besmirch your good character. Remember, Ireland does have a reputation for attracting businesses. I remember Intel in the 1980s, people say that was a dodgy deal that had been done to bring Intel in. Ireland has a reputation for a favorable tax regime for foreign companies.
SHANAHAN: Richard, we're unapologetic about the fact that we have a competitive taxation regime. We also have one of the most transparent and consistent taxation regimes in the world, 12.5 percent general corporate tax rate. Which is applied to everyone. And it isn't just about taxes, it's about the talent availability. The investment in tech and talent.
QUEST: Europe doesn't like your 12.5 percent, do they. They don't like it. The French don't like it. The Germans don't like it. None of them like it, because it is taking business from them.
SHANAHAN: That may be so that they don't like it, but taxes and national competence, it's not for the European Union to set our tax rate, or interfere with our tax regime. It is a matter for Ireland. And Ireland will remain pro-business. There is no question over our regime. There's no question over our tax rate. Even the commission admitted that in their own press release when they announced the Apple decision.
QUEST: Good of you to come on, sir. Come back when you have more investors to come and talk to us about.
SHANAHAN: Loads of investors coming to Ireland.
QUEST: Well, let's see if they're still coming after this decision.
SHANAHAN: They will be, trust me.
QUEST: Good to see you, sir SHANAHAN: Thank you.
QUEST: Now, when we come back in just a moment, the serious story of Facebook being sued over a nude photo. We'll have that story in a moment.
(COMMERCIAL BREAK)
[16:20:23] QUEST: Welcome back, a lawsuit over a nude photo that appeared on Facebook is going to go to a full trial. It'll take place in Northern Ireland. The 14-year-old girl is suing Facebook saying, it failed to prevent a man from repeatedly posting a nude picture of her. And the girls lawyer said it's a clear-cut case of revenge porn. Samuel Burke, is our technology correspondent and is in London tonight. Samuel, I've read both arguments here. The Facebook argument that says, look, we did what we could. We took the picture down when we were told about it. So I guess -- what more would they like Facebook to have done?
SAMUEL BURKE, CNN MONEY BUSINESS AND TECHNOLOGY CORRESPONDENT: It is an interesting distinction that they're making here, Richard. They're saying Facebook didn't have to stop it from going up the first time, they needed to stop it from going up the second, third, and fourth time. Third and there is indeed automated technology that Facebook uses. If I upload a music video, for instance, they know it is a song from Alicia Keys. This is in ISIS video for example.
QUEST: So, why didn't they?
BURKE: Well, that is what we don't know here, and what we really want to find out from this court case. Because we know that Facebook uses the what's called photo DNA. Which was established by Microsoft at Duke University. It's essentially a thumbprint, Richard, that goes into a photo. So once it's been flagged once, you would think, you would think that that would be it. It would be automatically stopped from going up. But that clearly did not happen in this case.
QUEST: Now Facebook are defending themselves, but not on that ground though, are they? They're saying we don't know the full range of the Facebook defense is at the moment.
BURKE: What we do know is that they said, look, as soon as we got the photo, we took it downright away. And as soon as somebody flag it up again we took it down. And in fact, in a statement Facebook told me by email the following "There's no place for this kind of content on Facebook and we remove it when it is reported to us.nudity and sexual exploitation are not allowed." So basically what they're saying, Richard, is we have the buttons. Everyone knows where they are. You can flag something. We will take it down in a reasonable manner, but the family is trying to make a distinction here. It should be automatic. It shouldn't eve have gone up the second or third time.
QUEST: Final question. Is it inevitable, Samuel, that Facebook that Facebook is going to be enmeshed in these sort of battles. Whether it is last week with the Vietnam photograph, or just questions about its algorithms for trending news stories. They're going to have to accept someday that they are the cornerstone of media.
BURKE: absolutely. And I think they've accepted it. It's quite interesting in doing my research for this story, I found a quote from your very show, from QUEST MEANS BUSINESS, when you had the Norwegians on and they said it should not be machines doing it. Humans should be deciding these type of things when it comes to the napalm photo. And on the other hand, the family is saying machines should be deciding this. At the end of the day, Richard, we have so many problems with Facebook. Some but Facebook is the leader when it comes to really leading the way for showing other social networks the most efficient ways in taking the content down.
QUEST: Samuel Burke, thank you for staying up late with us tonight in London. We appreciate it.
Zimbabwe's economic woes have spilled on to the streets and violence is following close behind. Citizens have organized demonstrations against high unemployment. CNN has gained rare access. David McKenzie reports.
(BEGIN VIDEOTAPE)
DAVID MCKENZIE, CNN CORRESPONDENT (voice-over): The protests now happen every week. The response from Harare's police always brutal. Here a tear gas canister is lodged into a backed commuter van. For 36 years, Robert Mugabe, has depended on the police to enforce his rule to crush dissent. But the dissent is now building from within.
UNIDENTIFIED POLICEMAN: I think people don't know what is actually happening in Zimbabwe.
MCKENZIE: This veteran police officer has taken an enormous risk just to meet with us. We're concealing his identity for his protection.
UNIDENTIFIED POLICEMAN: We were told to beat up everyone who was there, that that was not the initial instruction that we had been given. It came later on.
MCKENZIE (on camera): For the politicians are ordering the police to beat up protesters. Is that the case?
UNIDENTIFIED POLICEMAN: That I believe.
MCKENZIE (voice-over): politicians from the regime that he says will stop at nothing to stay in power. A government spokesman told CNN that it's not the case. He denies that Mugabe's party is ordering the police to attack protesters and they say the protestors are out to damage property.
[16:25:00] UNIDENTIFIED POLICEMAN: the very same people we are beating, some of them are my schoolmates, some of them are my friends, or people that we live within the community. It's a job, but hey, there is nothing you can do.
MCKENZIE: Having to go months without pay, he says he and many of his fellow officers sympathize with the activists that they've been ordered to suppress.
MCKENZIE (on camera): we've spent days trying to get the trust of this group of activists that were following. And were going to a secret meeting. Their aim is to unseat the government of Robert Mugabe.
Hi.
UNIDENTIFIED MALE: You can wait inside.
MCKENZIE: Yes, that's fine. No problem. Will wait inside.
UNIDENTIFIED MALE: I studied --
MCKENZIE (voice-over): Hidden from view, political gatherings like this are taking place in backyards and houses throughout Zimbabwe. Social media is used to organize the movement and stay ahead of state security operators. They face a risk and say federal activists have disappeared, but they are undeterred.
(on camera) Are you afraid the police will strike back?
UNIDENTIFIED MALE: Whether or not they strike back or not, we are not afraid.
MCKENZIE (voice-over): This police officer has seen the orders, and he is afraid.
UNIDENTIFIED POLICEMAN: They talk of use of tear smoke, they talk of use of animals, like dogs, horses and the like then the last one is firearms in that order.
MCKENZIE (on camera): Are you afraid someone is going to get killed?
UNIDENTIFIED POLICEMAN: Yeah, if the momentum of this demonstration continues, I think eventually they're going to use live ammunition. That is my worry.
MCKENZIE (voice-over): Mugabe says the protesters are playing a dangerous game. But his fate in the fate of Zimbabwe could finally be in their hands.
(END VIDEOTAPE)
QUEST: David McKenzie is now back in Johannesburg and joins us. David, how much of this renewed unrest is because Mugabe now in his 90s probably doesn't have that much longer and therefore it is what we're looking at, is the post Mugabe jockeying for power within his own party.
MCKENZIE: I think that is part of it, Richard, and have got both from the ground of these youth protesting, because they feel hopeless. Because the economic situation that they face, and also those stalwarts within Mugabe's party that are jettisoning form his party and pushing from more senior leadership.
I think a lot of this is about the economy in Zimbabwe. The cash has run out. People feel that there is no future. And they see the president who they believe is ailing. Who is he is 92, of course, and they see it's time to push for change. But we have seen this before. The need for change in Zimbabwe and it hasn't happened. But one long time Zimbabwe analyst said this is the perfect storm. Everything coming together at once and it could be the end game, Richard.
QUEST: Ok, with that in mind, as long as I can remember Mugabe being in power, there has been the potential and the reality of civil unrest. I think back in January. I think back to the MDC, now in the opposition. So David McKenzie, how much worse is the situation now?
MCKENZIE: Well, it is different. It is not necessarily worse, but it is desperate. There was a time in 2009 around that time when the Zimbabwe currency became worthless and people's savings were just obliterated. That was a bad time. Before that in 2000 where they were pushing farmers off of their land, that was a bad time. But now it's different. Because of his age of Robert Mugabe, because of this confluence of factors, both political and economic and frankly environmental, because of the drought, hitting a large part of the country.
You have these all coming together and it could be a game changer. But people just don't have access to cash. Meeting people on the street, they aren't able to get formal jobs. They wait for days sometimes to get money out of the accounts, and crucially the government is not able to pay civil service servant salaries. Like that policeman, like the army. That is never a good sign for a government when they can't afford to pay those people that they employ, Richard.
David McKenzie, in Johannesburg. Thank you for that troubling report from Zimbabwe.
As we had to the half past the hour, let me remind of you what happened on the Dow. It's one of those days where you do need to be aware. Down 258 points, a loss of one .4 percent. So the Dow gave back all of the gains of yesterday and some more.
[16:30:00] We done really need to dwell on the reasons too much. It is Fed worry, volatility, and in the usual noxious cocktail as you head toward the prospect of an interest rate rise.
The chief executive of Blackstone says there is a 75 percent chance of a war between the U.S. and China -- but don't panic, unless something is done to improve understanding between the two cultures. You'll hear Steve Schwartzman after the break.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. When the chief executive of Blackstone says, there is a good chance of a war between the U.S. and China. And he believes he's got the solution.
And a super popular "Great British Bake-Off," the television program is off to channel four, after the BBC failed to come up with enough dough. Before that this is CNN, and on this network, the news comes first.