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QUEST MEANS BUSINESS
Brits Hail GM Support for Vauxhall; Small Biz Looks for Cash; Downturn Hits Hollywood
Aired November 17, 2009 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL ANCHOR: A vote of confidence, Britain's business secretary is welcoming GM's support for Vauxhall.
Need money? Good luck. Small business is still scrabbling for cash.
And "I'm a celebrity, get me out of this mess," the downturn hits Hollywood.
I'm Richard Quest, in the next hour, I mean business.
Good evening. Tonight on the program, it's crunch time if you need credit. General Motors got billions of cash from taxpayers. Small businesses though are being starved of the very money they need to survive. And even Hollywood stars are finding that decisions made in good times have now come back to bite them somewhere painful.
Over the next hour, we're going to take a look, who is in credit, who is being short-changed, and who is just plain out of luck. Let's begin with General Motors.
After soaking up $50 billion of U.S. and Canadian taxpayers' money, and seeking billions from -- financial backing from Britain and the German government, now the U.K. business secretary has told CNN General Motors would represent a healthy investment for the British government.
Lord Peter Mandelson tells us he feels encouraged about car workers meeting after the meeting with the boss of GM Europe. He is referring, of course, to Vauxhall Motors. Nick Reilly is the newly appointed head of GM's operations in Europe. He met Lord Mandelson and British union leaders within the last few hours.
They were talking about the future of the Vauxhall factories, GM's British subsidiary, 5,500 jobs are at stake. It was the first face-to-face meeting between unions, ministers, and executives since GM said it was to keep rather than flog off to Magna the European arm. GM has said it may cut up to 10,000 jobs in the region.
After the meeting, Lord Mandelson spoke to Jim Boulden, who asked what the minister made of it all.
LORD PETER MANDELSON, U.K. BUSINESS SECRETARY: Well, I have a strong impression taken away from my meeting with the -- with General Motors today. First of all, I think they have taken the right decision to take on responsibility for Vauxhall and Opel.
I think it makes more sense for General Motors globally. I think it will make them more viable. I think they will have considerable high quality production to draw on in Europe. And I think that will help them globally.
But also, of course, I feel that the commitment they've made to U.K. production is strong. I welcome that. And the British government will work with them in order to bring that about.
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Part of that working with them is state aid, these loans, did you talk specific numbers today as far as how much money they would be looking for from the U.K. government?
MANDELSON: Well, we weren't having a negotiation about specific numbers. But I repeated the British government's decision financially to underwrite what we regard as a healthy investment in the future. But of course there has to be restructuring of the company in Europe. We understand that.
But we want to see is good, strong investment in future production, future products and models using green technologies and other refinements of what they're doing to make sure they're successful in future markets. Now we're going to work with them to bring that about.
BOULDEN: Of course, you are in some ways in competition with the governments in Germany, Belgium, Poland, and Spain, as GM makes decisions on where the cuts will come from. Do you feel you're in a competition with them, or is it just a story about Vauxhall that can tell its own story, or is there a lot of horse-trading going on here?
MANDELSON: To be honest, I think that the interests of the European governments are shared in mutual. We all want General Motors in Europe to succeed. We want it to go forward on the best, most commercial viable basis. And I think all of us, to a greater or lesser extent, are relieved that GM is taking responsibility for its European divisions.
And whilst there are plenty of details about restructuring and financing and the future of individual plants. All of that is to be sorted out. You will find the European governments I think coming together and pooling their efforts to make sure that we all come out of this in the strongest possible way, and certainly we in the German government will be working closely to make sure that happens.
BOULDEN: But you're a bit more optimistic today than maybe you were yesterday?
MANDELSON: Look, this has been a long saga. It has been going on for a long time throughout. Quite understandably I have been standing up for and fighting for British interests. But I don't differentiate British interests from the health and viability of all the European divisions, and of General Motors globally.
It's very important that with the strengthening of markets and their finances, they now complete, I hope by the end of the year, all of the decisions they have to take to remove that lingering uncertainty that has unsettled people, but which I think now can be clarified, cleared up, and all of us pulling together to make sure that the company has a very strong future.
QUEST: Jim is with me now.
Of all the people that General Motors will ever have negotiated with, or discussed with, Lord Peter Mandelson has to be amongst the most wily, and I say that as a compliment to the British business secretary. He is an extremely hard negotiator, but he knows he has got to save those jobs.
BOULDEN: Yes, and remember, he was negotiating with Jaguar Land Rover and now owned by the Indian group Tata. He did not give them money right away. There was a long slog of talks there. So he is not the one willing to come out and just say, we'll do anything to save the jobs here.
What's interesting is that...
QUEST: But he will do anything to save the jobs, with an election next year that -- whether his own party is behind.
From General Motors' point of view, though, their new chap is the bad boy in Germany, the good boy in the U.K. You tell me.
BOULDEN: Well, yes, he went to pains -- Nick Reilly had a press conference in London this afternoon, after meeting with Mandelson. He went to pains to say, look, he thinks Germany has, quote, "calmed down" since the announcement that they were going to not sell to Magna. That was his word, "calmed down." And he thinks that they can now have some serious discussions about what kind of loan guarantees will come out of Germany.
But he did say, very interestingly, after being pressed several times, if they get no help from Germany, it could, quote, "influence" their plans of where they cut jobs and where they don't cut jobs. And also, he is talking about how much money they need. And he did say that GM needs 3.3 billion euros from the governments here in Europe.
And he explained that that's less money than Magna would have wanted. That's one good reason why they wanted to keep GM here in Europe.
(BEGIN VIDEO CLIP)
NICK REILLY, CEO, GM EUROPE: That 3.3 of total funding is significantly less than 4.5 billion, which was required by Magna from the governments. And that was after Magna had put in a small amount themselves. So we have brought down the requirements. We think we have a strong plan that has significantly less risk in it. And so we are essentially taking that plan around Europe.
(END VIDEO CLIP)
BOULDEN: So really, what GM is saying is that the economics are picking up, that they think they can make some good 20 to 25 percent cut in volumes here in Europe, and that could help put them back into profitability, especially in the U.K. by 2011.
What was most interesting to me about this whole day, GM admits they can use U.S. taxpayers' money to help support Europe.
QUEST: Because, of course, once it's into the GM coffers, it's just shareholder money and therefore can be transferred. Did you come away with a feeling who is going to lose the jobs?
BOULDEN: No. No, I honestly -- we listened to everybody today, and what they said is they haven't made that decision yet. They've got plants around Europe that they could cut and trim. He did say they don't have to close the whole plant, they could just sort of slow everything down everywhere.
QUEST: Oh, ah, so everyone is going to get the pain?
BOULDEN: Well, could be.
QUEST: Jim, many thanks, indeed, stay on this story, come back to us the moment there is more to report. Jim Boulden with that.
In Europe, stocks were lower for the Tuesday session. Now that's not to get too concerned, after all, they did hit a 13-month high on Monday. The bourses were down by less than 1 percent, a smaller-than-expected rise in U.S. industrial production dampened the mood.
In the U.K., there was some strong inflation numbers both at the CPI and RPI level, which shows that inflation, it's back, or at least it isn't as far away as they might have thought. Losses elsewhere, Dexia fell 3.5. HSBC down more than 2 percent. Airlines, car-makers were lower, whether it was BAE, Lufthansa, Renault, and BMW, they were down at all said and done.
That reading on wholesale inflation, which was lower in the United States, where there was a lot of talk in the U.S. markets and European markets about comments that President Obama made after his meeting with the Chinese premier, they apparently had discussed the falling devalued dollar. But of course, there was no actual rule on it.
It weighed on oil and on gold.
And if you looked at the markets, whoa, now that's something to get -- ha ha, it's not often you get (INAUDIBLE) that. Up 2.6, barely worth staying awake for.
Almost unchanged, the Dow Jones Industrials, 10,409. The markets are not the most exciting thing at this hour in New York. Max Foster though has the news at the CNN news desk.
MAX FOSTER, CNN INTERNATIONAL ANCHOR: Hi there, Richard.
Czechs are marking the 20th anniversary of the so-called "Velvet Revolution." Thousands took to the streets of Prague, capital of the Czech Republic, on Tuesday. They followed the same routes student protesters took when they were blocked from entering Wenceslas Square in 1989. That set off a chain of events that led to the end of decades of Iron Curtain rule in the former Czechoslovakia.
Spain's prime minister confirms a fishing boat and his crew are free after being held for weeks by pirates. CNN Plus cites a source saying a ransom reportedly was delivered in the waters off Somalia. Jose Luis Rodriguez Zapatero did not address a question of a ransom.
Chinese President Hu Jintao hosts a formal state dinner for U.S. President Barack Obama in Beijing. The two leaders have pledged to fight climate change and tackle nuclear proliferation hand-in-hand. But despite the apparent harmony on the surface, tensions of Tibet, currency controls, and trade barriers did emerge during Mr. Obama's busy trip to Beijing.
Zimbabwe's president uses the U.N. food summit to lash out at the West. Speaking in Rome, Robert Mugabe blames sanctions for his nation's severe food shortage. Critics say Mr. Mugabe's own land reform program triggered Zimbabwe's economic meltdown. But the president says neocolonialist intervention has caused chronic food shortages in his country.
Those are the headlines, Richard. Back to you.
QUEST: Max, many thanks, indeed.
When we come back in a moment, if there has been one subject which has exercised regulators, governments, and you and me, it's the question of banker's bonuses. As the U.K. government prepares to introduce legislation that would allow them to rip up the contracts. After the break, we'll talk to an expert -- a former regulator about whether this makes sense.
QUEST: Welcome back.
If there is one issue that exercises us all, it's the question of bankers' bonuses and the excessive remuneration Now the U.K. government is going to stick the knife into the culture of the bonus in Britain. It's expected to say on Wednesday that it will take laws that will give regulators the power to rip up bankers' contracts if they are offering too much excessive pay.
This would be highly controversial, it would also be the first major government to actually take powers to do such actions. I turn to the former head of the British financial regulator called the FSA. Sir Howard Davies joined me and I wanted to know, would this work? And was it necessary?
SIR HOWARD DAVIES, FORMER HEAD, FSA: I perceive that to be something that may be politically wise, but whether it's absolutely necessary, I'm rather doubtful, because I think at the moment that the FSA, if it expresses concern about bonuses that a bank will go in and talk that through and try to change so that the FSA doesn't express concern. I'd be very surprised if it go to the point where the FSA used legislation to impose its will on banks on bonuses.
QUEST: So why is the government doing it, do you think? What is the purpose behind this? Is it just a populist attack?
DAVIES: Well, I think what it tells you is that the government's own polling must be telling them that the bankers' bonus issue remains very big on the doorstep. And indeed, I think it is because I think there are signs that many people in banks haven't quite appreciated the extent of public disquiet about what has been going on in financial markets.
So I presume that this does reflect good, solid understanding. Because on thing the government is reasonably good at is politics, maybe they're not so good at some other things, but politics, I think, they're good at.
So I think this does tell you that they believe this is an issue that will run and run.
QUEST: If we look at the U.S. situation, where the pay czar, as it's called, has already on one or two occasions sent letters basically saying your remuneration is too high, you're going to have to cut it back, do you think that's a preferable way to the idea of breaking the sanctity of a contract?
DAVIES: Well, I think the position in the United States is very different, because the pay czar is dealing with those companies in which the U.S. government has a stake, is supporting directly with finance. And therefore they have a clear locus (ph). They're like shareholders, effectively.
Now in the U.K., we've got a couple like that, Lloyds Bank and RBS, and I personally think the government should be directly telling them what to do, because that's the shareholder role. And then there is this broader, more amorphous view that they want to push down on bonuses by using the legislation and by using regulation.
And that, I think, is a much more difficult thing.
QUEST: If this legislation is passed, and of course, we have an entire parliamentary year to go, which of course may get broken up by an election. If it is passed, will it hinder the ability of the City of London and the British financial community to attract the right people?
DAVIES: Well, I'm not sure that it will, because I would fully expect the FSA to use this legislation intelligently, and not to go careering around, breaking past contracts, unless there was absolutely no alternative.
I would expect them to engage in negotiation with firms about how they should organize their remuneration, not to generate too many risks for them. So I would not expect it to be a great problem.
QUEST: But do you support this idea of what they're doing?
DAVIES: I don't think it's necessary. I don't think it's necessary to reach for the legislative weapon. I think the FSA has got enough tools in its regulatory toolkit to be able to do this. So I think the legislation part of it is politics.
QUEST: And when we look at the role that banks -- management themselves, shareholders, actually the role that they should play, if you've got to the stage where the government or the FSA has to step in, then surely the banks owners have abrogated their own responsibility.
DAVIES: Yes. I mean, in the long run, it ought to be a shareholder problem. And in the long run, surely we must get back to that. In the short run, of course, the markets are, if you like, not straightforwardly competitive, because there is so much government intervention all over the place in the market.
Quantitative easing, shareholder ownership of banks, assistance of lender of last resort, so you can't say you're looking at a fair market. So at the moment, maybe there is a case for some direct government intervention.
In the long run, yes, we must get back to a position where shareholders are the pressure -- the key pressure point.
QUEST: Sir Howard Davies, former head of Britain's main regulator, the FSA, and also director at the London School of Economics.
Now when we come back -- now let me just remind you, tomorrow on this program, we will have the queen's speech, when that law will be announced. And on tomorrow night's program, we'll have full coverage and analysis on exactly the extremities of that law. That's QUEST MEANS BUSINESS, tomorrow night here on CNN.
In just a moment, our "JobQuesters" are amongst us. There you have, of course, "JobQuesters," they their own employment.
QUEST: Now as you've heard on this program tonight, more than 5,000 people in Britain will be wondering whether or not they'll still have a job at the end of the year or into next year at the Vauxhall factories after General Motors has finished.
It has all raised the question, of course, of unemployment, which is why we on this program have our weekly section where we take you to meet those people who are "JobQuesters." They're out of work. They are seeking jobs. They're going to meetings and interviews.
Tonight, let me remind you of who our "JobQuesters" are. Les Young is from Atlanta, an insurance sales agent. He lost his house. He had to move in with his fiance. And now he is trying to start his own business. As a speech coach for young people, he knows how difficult it is at all ends of the unemployment spectrum.
And Rodrigo Medina, from Barcelona, working in sales, out of work for more than a year. Several interviews but nothing has panned out so far. So tonight, on "JobQuest," we have the meetings, we have the interviews, we have the people out of work.
LISA MATHESON, JOB-SEEKER: The economic situation today, you know, a lot of companies are tightening up and they're laying of employees. And unfortunately, my role was eliminated.
What I've noticed is a lot of times when the economy constricts, that communications professionals are kind of the first group to go. They don't seem to have as much value.
RODRIGO MEDINA, JOB-SEEKER: I'm really excited today because it has been a really productive day. It's not very often that you get two interviews in one day. This is another sales position opportunity. And hopefully it will be an interesting one.
Do you think you have five minutes for us or are you busy?
I went to meet with a good friend of mine from the States. He is a director of development of a big translation company here in Barcelona.
UNIDENTIFIED MALE: I can introduce you perhaps even this morning to the woman that handles all of our linguistic resources.
MEDINA: So he sees the possibility of collaborating with this company as a freelancer.
UNIDENTIFIED MALE: OK, if you want, I can bring her in here and you can just say hello.
So we just talked about how (INAUDIBLE) and the possibilities that he saw inside his company.
MEDINA: I have another interview with a job recruiter on Wednesday. And this is a sales position job through a sales manager for a tool company which I don't know where they're from. So I have that interview on Wednesday, and we'll see how that one goes.
LES YOUNG, JOB-SEEKER: Today I'm going to go over and speak to the community liaison for Representative Hank Johnson's office regarding the youth leadership and development project that I have, and see if we can talk about getting some sources of funding.
This should prove to be very fruitful today.
UNIDENTIFIED MALE: Come on in here.
YOUNG: OK. Thank you, sir.
UNIDENTIFIED MALE: (INAUDIBLE).
Yes, well, what I was hoping to do (INAUDIBLE) -- I'm sorry. Just to...
UNIDENTIFIED MALE: No problem.
YOUNG: Just discuss how can go about getting funding for this youth leadership and development project. And I was coming to you hopefully with some -- asking for some assistance or some advice or some guidance on which direction I can go into.
UNIDENTIFIED MALE: OK. The congressional office itself, of course, doesn't have any funding, but we do have different vessels through the federal government.
How long has your program been in existence, Mr. Young?
YOUNG: About three -- three to four years now.
UNIDENTIFIED MALE: Three to four years?
UNIDENTIFIED MALE: Have you -- what has the outcome been for the students who have been into your program, let's say, the past three years? What are they doing now? Are they productive?
YOUNG: The measurables, yes, yes.
UNIDENTIFIED MALE: OK.
YOUNG: These kids are more productive in class as well as with their communication skills. What we found is we started with them as early as the sixth grade, all the way up into the senior years in high school.
UNIDENTIFIED MALE: OK.
YOUNG: And with that, they have proven to be more effective, having more discipline in class and in school, and they've shown themselves to be leaders, wanting to participate more in community, more involved in community.
UNIDENTIFIED MALE: OK. Mr. Young, I have information. This right here talks about the different grants that are available. Also it has the two federal Web sites.
UNIDENTIFIED MALE: Federalgrants.gov, and also federalbusinessopportunities.gov, those two sites will show you exactly what it is that the federal government has to offer to help individuals and organizations.
YOUNG: Well, this is certainly helpful, Mr. (INAUDIBLE). And I really appreciate your time and effort with this because I didn't know exactly which way to go.
MEDINA: I just had an interview with a local headhunter for a sales manager position for a German tool-maker. And things -- I feel that went really well in this one, because I had a really good feeling with the person who interviewed me, and also I fit the profile perfectly for the position they're looking for.
So if things go my way, they will give me a call, and then I'll be having an interview with their customer.
These next couple of weeks I'll just be searching for other interviews, other positions, and whatever I can get my hands on. So I'll just try not to think about it, and work as hard as I can and then just find more interviews.
UNIDENTIFIED MALE: And how are things at home?
MEDINA: Overall, things are OK. My wife is getting more antsy as just days go on because the window I have is to stay in the apartment we are renting right now is just another couple of months. So overall things are fine, but my wife is getting more antsy and I guess (INAUDIBLE) from me that pressure a bit. I'm just trying to keep as focused as I can to find the job.
QUEST: Our "JobQuesters," and we will be following them right the way through to the end of the year. If you are looking or seeking employment and want to get in touch with us, you think you might make a good "JobQuest," or some thoughts, please drop me an e-mail. It is email@example.com. And we will, of course, always be looking for those candidates for the next...
In just moment, cutting staff, cutting hours, and closing up for good in some cases, all because the vital lifeblood of business was withheld. What happens when credit is withdrawn? It's the missing link in the U.S. recovery, small businesses are scrambling to stay afloat, in just a moment.
QUEST: Good evening. I'm Richard Quest. QUEST MEANS BUSINESS. This is CNN.
As I outlined, tonight's program is all about what happens when the lifeblood of business is withdrawn. That, of course, being credit liquidity and loans. Small businesses, especially in the United States, are being starved as a new report points the finger of blame at the very banks that the government has bailed out.
The U.S. Treasury is focused on 22 banks that received the most bailout money. Now they have cut small business loans by a total of $10.5 billion over the past six months. All at a time when you might have expected them to be increasing loans, A, because they've had government money, and B, because, of course, businesses require it.
Three of the banks no longer offer any small business loans at all. Others have reduced the volume of funds that they're lending.
Now officials, including the U.S. Treasury secretary, Tim Geithner, are to discuss this -- high level talks -- the credit shortage, at a forum in Washington on Wednesday.
It has all raised the question of what happens and how banks can actually not only do more but at least do no harm.
As Maggie Lake found out, help for the small business can't come too soon.
UNIDENTIFIED FEMALE: Are you having a picnic?
UNIDENTIFIED CHILD: We're having a (INAUDIBLE).
UNIDENTIFIED FEMALE: You are?
What's on the menu.
MAGGIE LAKE, CNN CORRESPONDENT (voice-over): Managing a small business in the U.S. these days?
It's not child's play. For Kisha Edwards-Gandsy, co-owner of the New York City Explorers Play Space, these are dizzying, stressful times. Last month, Gandsy met with banks and other lenders at a city-sponsored financing fair to line up new credit. She still has not heard back.
KISH EDWARDS-GANDSY, NEW YORK CITY EXPLORERS: One of our biggest problems is that we don't need enough money. They want to make loans for like $250,000 to $500,000 and we actually don't need that much. They're not going to make enough off of our types of loans, the things that we would need for it to be fruitful for them in the long run.
LAKE: Gandsy's plight is a familiar one across America. Over the past year, banks have slashed lending to small businesses, making 36 percent fewer U.S.-backed loans. New York City officials say it's happening at the worst possible time.
ROBERT WALSH, NEW YORK CITY DEPARTMENT OF SMALL BUSINESS SERVICES: We have seen, you know, people who are looking to keep their head above water. There's no question about it. If you start looking at the loan packages, more of those are existing businesses looking to stay afloat.
LAKE: Businesses like Brooklyn's Crossroads Cafe. Owner Suzanne Meehan is looking to boost her credit lines as sales slow.
SUZANNE MEEHAN, OWNER, CROSSROADS CAFE: There you go.
LAKE: She's already had to shorten business hours and cut staff.
MEEHAN: If this continues more than another, say, six months, something like that, and we don't start to see something turn around, I will have to make really drastic changes. Just another $50,000 or $100,000, something like that, that would directly translate into someone having another job -- or two or three people actually having a job. But banks aren't lending.
LAKE: Industry officials say banks are understandably risk adverse and have been justified in tightening lending standards.
BOB SEIWERT, AMERICAN BANKERS ASSOCIATION: A lot of people just don't understand that bankers are small businesspeople themselves. They're in business to make loans. That's a major source of profit. But given today's economic crisis, you know, bankers and small business owners are -- are being very cautious when customers are coming in and looking for credit.
LAKE: But both our business owners say Washington must force banks to do more, particularly those institutions receiving government aid. They say their neighborhoods need the help.
GANDSY: In a small business, there's a -- a large amount of insecurity around like people don't even know if they're going to be able to survive the holidays. I think that we definitely deserve attention.
LAKE: Deserving of attention, Gandsy says, like other little members of our community.
Maggie Lake, CNN, Brooklyn, New York.
(END VIDEO TAPE)
QUEST: Now you saw Suzanne Meehan in that report struggling to make ends meet at her cafe.
And Suzanne joins me now live from New York.
Suzanne, the core question is, why do you think the banks don't want to lend?
If you're reasonably profitable or there's the prospect of profitability, they are in the business of lending money to make money.
So why do you think they're holding back?
MEEHAN: I think they're just recapitalizing now. I think they don't have -- they still are not recapitalized to the point where they can put more money out for us. And I think unless the Obama administration puts their toes to the fire -- you know, their feet to the fire, I think they will just simply continue, you know, recapitalizing to the extent they need to...
MEEHAN: ...because many of these banks, you know, have things that -- that aren't on their books now that will eventually need to go on their books...
QUEST: That (INAUDIBLE)...
MEEHAN: ...and will create more losses for them.
QUEST: What -- what about somebody -- and forgive me, I'm going to be blunt, if I may...
QUEST: There will be some viewers who will say, well, hang on a second, how do we know that Suzanne Meehan's plans are any good?
She may be running a no hoper business that could be making a loss and why would anyone want to lend her money in those cases?
MEEHAN: OK. Well, because before all of this recession hit, which actually didn't hit our business until last fall, we were grow -- we've been in business for five years. Every year, we were growing at least 10 percent. We've gone from one location to three locations. We have a great product.
MEEHAN: We -- we -- you know, I -- I don't think there's any question that...
MEEHAN: ...that we're a viable business.
QUEST: OK. So how much money...
QUEST: If I had my checkbook here and the Bank of Quest was open, which it's not before you get excited.
But if I had my checkbook, how much would you like me to write a check for?
MEEHAN: I would like a credit line of $100,000 to get me through what I think is going to be a full year of difficulty for all of us, unfortunately.
QUEST: One hundred thousand. It's a...
MEEHAN: Another full year.
QUEST: I mean I don't want to make light about -- it's small beer, as you would say, in the -- in the totality.
Suzanne, many thanks, indeed for joining us.
Suzanne Meehan joining me there from New York.
Now, $100,000 might sound a lot, I suspect, amongst the men and women that you and I are talking to now. We're well aware that it is relatively small money.
Stephen Pegge is from the Lloyds Bank, head of the small business lending panel at the British Bankers Association.
$100,000 U.S. it is small, isn't it?
STEPHEN PEGGE, LLOYDS BANKING GROUP: Well, actually, it's fairly typical. That's an average amount. And we're going to rely on businesses like Suzanne's to pull the whole world economy out of recession. So it is important, if she's got a viable business, that she's able to get financed and be able to grow.
QUEST: The common complaint people are saying is we've got a viable business, but we're not getting through the front door. We're not getting a response. And if we do get a response, it's no.
PEGGE: Well, I think the evidence is that, you know, it's as much a demand problem and a perception problem as a reality one. You know, there are 20 percent less applications coming into us. We still say yes to over 80 percent of businesses who want to borrow from us.
But many people are saying, oh, I hear all this stuff about banks not wanting to lend, I won't even think about investing or talking to the bank.
Now, clearly, there are some businesses that are more marginal and are going to struggle, really, to get through. And, clearly, you know, a bank would not want to take an irresponsible decision by lending when it shouldn't.
QUEST: As we heard in that report, there is a case, though, that we have to remember. The banks are in business now to make money.
QUEST: And don't think you would defend or deny that lending criteria has tightened.
PEGGE: Well, it may have done for some banks. There are some banks that were kind of more prudent during the -- the tough times, like Lloyds Banking Group, who have kind of kept the criteria the same. Fewer businesses are meeting the criteria, so 80 percent saying -- we're saying yes to 80 percent now.
But, yes, things have tightened up, certainly, in some banks. But maybe they were too lax before.
QUEST: Right. You are -- your bank is not majority, but largely owned by the U.K. government.
PEGGE: Forty-three percent shareholding.
QUEST: Are you -- are you feeling the pressure from her majesty's government to lend more, to keep things moving?
PEGGE: Well, we understand that we need to lend more money to help the economy recover and we want to do that.
QUEST: Right. Right.
PEGGE: So we've committed to $11 billion of extra lending a year for the next two years, to help that happen.
QUEST: But has a basically nationalized bank -- and I know you're not fully nationalized, but I think you'd have to accept de facto -- do you believe that you have an obligation over and above what other banks might have to suffer?
PEGGE: Well, I mean I -- we -- I can only speak for us.
PEGGE: And we feel we've got an obligation, a responsibility and a long-term interest to help the businesses in this country and the businesses that are starting up in the future, because, don't forget, people will be losing their jobs and are capable of starting new businesses to -- to get going and -- and take us all out of recovery. It's in our interests, because we're a relationship bank and that's what we're all about.
QUEST: Stephen, thank you very much.
I -- I have a feeling I've -- I put you in a difficult position in the sense of, you know, you've -- you've not only been with your own bank, but a spokesman for the industry.
But thank you and please do come back. You're very -- you're most welcome.
PEGGE: Will do.
QUEST: Thank you.
Good to have you with us.
PEGGE: Thank you.
QUEST: Thank you very much.
Now, when we come back in just a moment, rising demand, there were more passengers, so why were the profits down by half?
It was a bet that backfired for easyJet. And, yes, you guessed, oil was behind it all.
QUEST: Welcome back, QUEST MEANS BUSINESS.
EasyJet is predicting that it will be a tough winter ahead. Europe's second largest low cost carrier says its latest annual profits fell sharply.
Now, this is despite easyJet carrying more passengers. They missed out on this year's drop in fuel prices because it had locked into last year's sky high prices -- proving, of course, that when it comes to dealing with aviation, where you lay your hat in relation to your fuel hedge is of crucial importance.
It was an attempt to hedge its fuel that went very badly wrong. Net profits at easyJet for the year were down some $120 million, down 14 percent from the previous year. All this, of course, at a time when the airline carried more passengers, opened new routes.
Andy Harrison, the chief exec, says he's confident easyJet will carry on increasing its market share. He also told me the fuel hedging strategy will eventually pay off.
ANDREW HARRISON, CEO, EASYJET: There's two things going on with easyJet's results. First of all, I'd say that easyJet has been the best performing European airline. In terms of fuel, what we do is we average. We don't -- we don't speculate on fuel prices. So effectively what that means is we buy a bit of fuel every month and it takes a while for our average to adjust the market prices.
So we've seen an 86 million pound hit to our profits in 2009. But there will be a 100 million pound benefit to our fuel in 2010. So fuel is really all about short-term timing differences to do with our hedging.
The real strength of these results is our underlying yields. We saw a 4 percent growth in easyJet's total revenue per seat during 2009, which is an outstanding performance. And it contrasts with every other airline that has seen a double digit fall in their yields.
And the reason why our yields have gone up is purely consumer driven. We've seen very strong demand for easyJet flights because we offer the best prices to the most convenient airports.
QUEST: At this point, you know, one jumps in to say, we -- are you able to price higher or are you able to get more ancillary revenue or is it a combination of both?
Is it coming from charging for extras or actually on the ticket price?
HARRISON: It's -- most of our yield comes from the ticket price. And it's important to remember we don't set a prices. Our prices are set by the market, both easyJet and Ryanair price to fill their airplanes. And our load factors for 2009 were up to 85.5 percent, which is 1.4 percent higher than last year.
HARRISON: And so our strong yields are a function of strong consumer demand. It's market driven, not set by easyJet.
QUEST: You are head to head, not on every route, but on certain routes. And if you look at the totality of Europe, with Ryanair. It is nasty. It is bitter. And it is often personal.
HARRISON: EasyJet's philosophy is to fly to primary airports, to the most convenient, centrally located airports. That's quite different to Ryanair's network strategy. So the direct overlap between these jetliners is actually relatively small.
There's a much bigger overlap in the press because the media like all these -- the banter that takes place between the two companies.
HARRISON: But the reason why our yields have been so much stronger than theirs is that we fly to primary airports and they do not.
QUEST: Are the likes of British Airways, even with Iberia, Lufthansa with its Austrian and Swiss and BMI, Air France, KLM, we were talking about intra-Europe short haul, are they dinosaurs that will inevitably become extinct?
HARRISON: Well, there's a huge -- there's an increasing gap between long haul and short haul and many of the mergers, such as the B.A./Iberia merger, are around consolidation in the long haul market.
When it comes to short haul, it's a very different business. And easyJet is a highly focused, very efficient short haul airline, with much lower costs than the traditional airlines...
HARRISON: And we will continue to win market share.
(END VIDEO TAPE)
QUEST: Andy Harrison, the chief executive of easyJet. And no doubt - - well, I can tell you within hours of the easyJet results being published, there was a blistering press release from Ryanair, who never take any prisoners, calling into questions all their numbers. The two will go head to head for a long way to come.
The weather forecast -- and it may be warming -- I -- I always get the feeling at this point I can actually, you know, I should have a graph or a map or something.
Guillermo is at the CNN World Weather Center -- now, Guillermo, why -- it's warming up at the moment in Europe. That much I know. But it's the calm before the storm, isn't it?
GUILLERMO ARDUINO, CNN METEOROLOGIST: Yes, for some. But you know what, like Munich, you know, you think of Munich in November, it's cold, right?
The temperature was 17 degrees. It's a record, in fact. And that's not the only city. It has to do with a graphic that I'm going to show you later that I showed you yesterday, actually. And I wish you could have it there, too.
But you see Geneva, Zurich, Stuttgart in the south of -- I love Stuttgart. It's such an elegant city. Very nice. The temperature was very good, too. I don't know if it was elegant or not, but it was very good.
So it is because of that jet stream that we were talking about yesterday that keeps things warm here in the south.
Now, the -- the storm you're talking about is for you, especially, even though I must say that it's not that terrible. We are going to see the arrival of a new system in England, in Ireland, in Northern France, in the Netherlands, in Belgium, in Northern Germany, very soon. And we have here the beginning of it.
Along with it, we'll see winds. But I think we will have to wait for one day. As I was saying yesterday -- yes -- yesterday, Wednesday appears to be the worst of all days. So we have to wait for one more day. We'll see it tomorrow.
The winds in London are 20 right now; Amsterdam 26. And they will continue to go up, especially in here, Schleswig and Copenhagen, Manmour (ph). We're talking about five or six kilometers per hour now going up big time.
Also, within 48 hours, the same thing, the English Channel, the North Sea. Everything is going to be choppy. It's not going to be pleasant, not at all.
But the forecast for London is mostly cloudy in general. Of course, you know, we will see rain showers because they always -- they are always there. But it's not going to be that terrible. I think Ireland and Scotland are going to be worse.
Temperatures, 13, Paris; 14 in London. Things are going back to normal in Vienna. So those records that we saw are going to be long gone. And the delays in the same cities again.
So full (INAUDIBLE). See you on the other side of the break.
QUEST: When General Motors went bankrupt, the various governments coughed up some tens of billions of dollars. When small businesses go under, well, we know there are problems with bank lending.
Now, meet this lot. Well, here we go. Nicolas Cage, star of "Con Air" and national treasure, a victim of two foreclosures. He lost two homes in New Orleans worth $6.8 million. Mr. Cage owed more than $5 million in mortgage payments. The interesting thing is he blames his business manager, who is suing for gross misconduct.
Annie Leibovitz, the New York -- the New York photographer who is -- had also borrowed 20 odd million dollars -- $24 million from a company called Art Capital Group. She couldn't repay the money. She was in serious danger of losing her beloved Greenwich Village home. She finally reached an agreement only after the predators threatened to sell off her photographs, her life's work.
And then, of course, we have Stephen Baldwin, actor and reality TV star, brother of Alec Baldwin. He filed for bankruptcy with debts of $2.3 million. He has a property of a million in New York.
Now, you may well say, hang on, they've got managers, they've got agents, they've got lawyers -- how do this lot go bankrupt?
And if this lot go bankrupt, what about the rest of us?
Annie Leibovitz didn't actually go bankrupt, of course. She just found herself in deep problems.
Frank Cochran is managing director of Celebrity Financial Planning. He dispenses advice to the rich and famous, how to manage their wealth.
FRANK COCHRAN, CELEBRITY FINANCIAL PLANNING, LTD.: It's nice to see you, Richard.
QUEST: It's nice to see you.
Thank you for coming in.
I have a question.
QUEST: What are they doing wrong?
COCHRAN: Well, they're paying a lot of people to give them advice, but they're not paying the right people. The whole point about being a specialist financial adviser, which is what we do, is we manage their wealth, we manage the way that they actually will conduct their -- their pitfalls. And we help them to make the right decisions in the investment market, which is something they're obviously not doing.
QUEST: What about -- I also remember doing a story some years ago about celebrity homes.
QUEST: And I learned then that actually their needs are unique in that they've got to have privacy, they've got to pay more money and blah, blah, blah.
What are the unique factors about making an investment for a celebrity in terms of stocks, bonds and shares?
COCHRAN: Well, a lot of them don't go down the route of stocks, bonds and shares that much. What they've done in recent years is that they've become so heavily involved in the property market. And since the markets have turned sour, these properties still require maintenance. They still reput -- they still require people to look after them and...
QUEST: Where does ego come into all of this, do you think?
Because they might buy pictures of paintings. They -- they want to live the life.
COCHRAN: Egos don't pay bills, though. We do. We help them to make sure that the investments that they have are accessible, they can draw income from it when they need to and they don't end up falling into the trap that a lot of people do when they get new wealth, which is to become asset rich and cash poor.
It's -- it's -- it's a serious philosophy that (INAUDIBLE).
QUEST: Do you have many stars -- and I suspect you're not going to tell me who your clients are...
COCHRAN: Well, (INAUDIBLE).
QUEST: Yes. I didn't think you would.
But they are stars?
COCHRAN: They are, indeed. Of course they are.
QUEST: And when -- when you say -- what -- what's the one thing they all want to buy and that you have to say hang on, enough of that?
COCHRAN: Cars, bling and houses.
QUEST: Talking of -- well, I've got the -- I've got the bling.
QUEST: I've got the brass bell, absolutely.
And you basically say, what, there's a time to buy?
I mean when you've got people like even Sir Elton John, who's had his own share of financial difficulties...
QUEST: ...and you've got the Michael Jacksons, who've had their own share of financial difficulties, it makes you wonder what it is about them.
COCHRAN: It's just down to bad advice. What we purport is that they should have a balanced portfolio and the balance doesn't come in by having five different properties, because as they've all found now, with the recession hitting the property market as badly as it has, if they can't find a buyer for the property, if they can't let it, they're still paying out money to maintain it, to look after it and to -- to make sure that the property is kept in the condition that it is. It's not doing them any favors.
The whole fact that this recession is -- the stock market is leading us out of the recession, if you haven't got money in there, you're lagging behind everybody else.
Many thanks, indeed for coming in.
COCHRAN: It's my pleasure.
QUEST: Very interesting.
Thank you very much, indeed.
COCHRAN: My pleasure.
QUEST: When I come back in a moment, forget celebrity wealth, I'll have a Profitable Moment for you.
QUEST: Finally, tonight's Profitable Moment.
Small businesses around the world are crying out that their life blood, loans and overdrafts, are being strangled by banks busy repairing their balance sheets. You've heard it on this program tonight. Good businesses starved of the credit that makes the economy tick.
The sorry fact is that banks, having made a mess of it, are now refusing to play their full role in ensuring the recovery. It seems banks have been lent billions of dollars but they're fighting shy of lending the money needed to stimulate growth. Some of them are just simply doing nothing at all. Some banks in the U.K., which are owned by the government, have virtually been ordered to expand their loan book.
There are suggestions it is too little and it is still too hard to get a decent loan. Once again, the banks seem to shoot themselves in the foot. They're not the ones who are feeling the pain -- we are.
And that's QUEST MEANS BUSINESS tonight.
I'm Richard Quest in London.
I thank you for your time and attention.
Whatever you're up to in the hours ahead, I do hope it's profitable.
Christiane is next.
That comes after the headlines, which are brought to us from Hala at the I Desk.