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JP Morgan Kicks Off Bank Earnings Season; Apple and iPhone 4

Aired July 15, 2010 - 14:00:00   ET


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Profits jump, worries linger. JP Morgan leaves investors wanting more.

A bruised Apple, as the iPhone 4 threatens to take the sheen off the corporate brand.

And the Dreamliner might sleep a little bit longer. Boeing warns there could be delays to the 787.

I'm Richard Quest. We have an hour together, and yes, I mean business.

Good evening.

Tonight is all about banks and the money men. In the United States, JP Morgan has kicked off the bank earnings season and they have emerged from the financial crisis bigger and healthier than many of its rivals. But its chief executive says it is still not reaching its full potential.

And a tricky day for a debut, KKR makes its long awaited debut in New York.

In China the Agricultural Bank of China, Ag Bank, has become the latest of the big five state-owned banks to list on the market. It is a massive achievement for a banking sector once crippled by bad debt. As you can see, we have a full and busy hour with the banks.

We start with the profits that are up at JP Morgan Chase. It is a downbeat day for one of America's banking giants, nonetheless. Stunning headline numbers are at odds with the weak underlying-underlying trend of the market. Particularly, critical areas of consumer lending and investment banking.

Join me, if you will, in the library.

It doesn't-now look, take that number, and you are saying, Richard, what are you on about? Up 76 percent, $4.8 billion, all rather good. Look underneath those numbers and you see $1.5 billion comes from cost-cutting and lower provisions against bad debt in the future. They have set aside less money for things going wrong. Which is good news, to be sure, but the revenue side was down. Banking revenue down 16 percent, investment banking down some 13 percent, so there was no actual growth in income-real income, if you like.

Not surprisingly, the CEO of JP Morgan says it is still unacceptable to have these sort of results with extremely high level of loans in arrears. And Mr. Diamond says it is too early to say whether or not things are going to improve anytime soon.

Look at the Dow and you see it is off 51 points, just half of 1 percent. That is where the Dow stands at the moment. JP Morgan shares, they are also down. JP Morgan shares down 1.5 percent.

Now, JP Morgan is the first of the big American banks to report results so far. Bank of America and Citigroup will give us their numbers tomorrow.

Another bank facing a major test today, China's Agricultural Bank; an organization which has more customers and is a bank (ph). China Agricultural has more customers than there are people in the United States. That is quite a lot. And for all that, its shares fell flat as they made their long-awaited debut on the Shanghai stock exchange on Thursday. The stock ended the day just 75 percent higher. It will trade in Hong Kong for the first time on Friday.

The shares sale itself is anything but a down squid (ph), $19 billion were raised and a few billion more shares maybe added in the coming days. In terms of dollars it could end up being the world's biggest IPO. China now has four of the world's most valuable banks.

This is how China's biggest banks rate, in terms of capitalization. The Commercial Bank of China, China Construction, Bank of China, and there you have Agric Bank of China. These are the biggest. The rest of the 10 consists of four big American banks, that are also in the running, there. And two based in Europe, albeit, one of them, HSBC, as you gather has its roots in China.

China's economy is still growing at a blistering pace. The second quarter was up 10.2 percent from a year earlier. So, it was a slow down from where things have been previously. So, you have a point of exactly what is happening in the Chinese economy. CNN's John Vause, now, from Beijing.


JOHN VAUSE, CNN SR. INT'L. CORRESPONDENT (On camera): Second quarter economic growth came in at 10.3 percent. Smack bang in the middle of expectations and way down on economic growth for the first three months of this year, which was 11.9 percent. That is because Beijing is taking some deliberate steps to try and cool this economy; concerns about overheating, and also property bubbles, especially in the real estate markets in Beijing and Shanghai. And officials said efforts to reduce the emission in energy intensive industries, had an impact on economic growth.

Other numbers, which have been released, inflation for June, came in at 2.9 percent, slightly lower than expectations. Also, officials say they have created 11 million new jobs in the first half of this year. So, on the surface at least the numbers look good. Strong economic growth, good employment growth, and low inflation.

(through translator): Though we have this good start, we still have to be keenly aware of the volatile situation outside China, and the many difficulties and challenges we face in this country.

VAUSE: And some of those challenges, slowing economic growth in the United States, the debt in crisis in Europe, and also here domestically, there is concern about debt levels in China, after a record lending binge by banks last year; 1.4 trillion U.S. dollars. And there is speculation here the economy begins to slow in the second half of this year, the government may resort to a second stimulus package. But despite all of that, the IMF recently reviewed upwards economic growth for all of 2010 for China. Up from 10 percent, to now, 10.5 percent.

John Vause, CNN, Beijing.


QUEST: China obviously now presents an apparent contradiction. Look, it is really very simple. Growth is apparently slowing down. You heard John Vause talk about that. Some people would have you believe that, of course, the Chinese economy was overheating. It seems they can never get it quite right. On the one hand, it is either too much-it is classic, isn't it? Grandma is either too hot, its too cold. I asked Bob Parker, senior advisor at Credit Suisse Asset Management, if China can really be experiencing both at the same time?


BOB PARKER, SR. ADVISOR, CREDIT SUISSE ASSET MANAGEMENT: If we go back to the first quarter of this year Chinese growth was 12 percent, year on year. There were very clear signs earlier in the year, of the Chinese economy overheating. Inflation was rising really quite sharply, we had classic signs of a real estate bubble in the big cities. Now, the Chinese economy is moderating. I use the word "moderating", to I think a sustainable level of growth between 8 and 10 percent.

QUEST: Is that moderation too much for the rest of the world? It might be very good for China not overheating. But if the rest of the world is relying on that engine of growth then is that a worry?

PARKER: I don't think it is a worry. But I think you should note there is a very interesting change going on in Chinese economic policy. The focus, I think, going forward now is keep domestic consumption strong, keep domestic investment spending strong. Put less of a focus on exports. So I think that the rest of the world can rely on China being more of an importer, the rest of the world I think is not going to be receiving Chinese exports to such an extent.

QUEST: Which is one of the reasons why we are now seeing suggestions that the moderate easing in Chinese policy, fiscal and monetary policy, that being, might actually-the tightening of it, Bob, might actually now be reversed.

PARKER: I think it is over. And the key point which came out of Chinese statistics in the last 24 hours, is that the rise in Chinese inflation is now peaking. Therefore, I think, any further monetary tightening is now over. We may actually see, in six month's time, some easing in monetary policy.

QUEST: The banks, we saw Agric Bank get off into the market.


QUEST: A vast bank by most standards, but a muted response by the markets themselves.

PARKER: Well, I think that is not surprising. And let's just highlight that China, after a very strong equity market performance in 2009. This year, the Chinese equity market, year-to-date, is down by more than 20 percent.

QUEST: Right.

PARKER: Plus, investors, I think are fearful that the Chinese economy may decelerate more rapidly than I'm suggesting.

QUEST: But you don't think that is going to happen? You think-

PARKER: I think the probability of that happening is very low indeed.

QUEST: So, if you are from China, though, JP Morgan Chase, the headline number is very impressive. Up 70-odd percent?

PARKER: Correct.

QUEST: The revenues are down, the fees are down, the investment banking not brilliant. It all came from less debt.

PARKER: Less provisions for bad debt.


PARKER: I think one trend, actually, in the American banking system, is that after $1.7 trillion of provisions for bad debt, over the last two and a half years, the trend now-for all the banks, not just JP Morgan Chase-is for lower provisioning. But you make a very good point, which is that the revenue generation in investment banking I think, on trend, is going to be lower. Partly because the regulators are demanding more capital and less leverage and I think the investment banking environment, not just for JP Morgan, but for everybody, is becoming more difficult.

QUEST: We've seen-one swallow a summer doth not make.

PARKER: Right.

QUEST: So an Intel and ALCOA can not be taken as being a rearing good second quarter earnings season. But it is looking quite optimistic?

PARKER: I think for the second quarter, and I think that we can forecast this also for the third quarter, that ex the banking sector, ex the a number of other sectors, where there is too much spare capacity. We are going to see good corporate earnings numbers. And the IT sector, I think is going to be one of the leading corporate earnings.

QUEST: This is your last visit to us before the summer break.


QUEST: So, I'm going to give-I'm in a good mood today. You can choose. Do you want to do traffic lights with China or with earnings?

PARKER: Let's traffic lights for the next quarter, perhaps.

QUEST: The third quarter?


QUEST: Not even this quarter that we're just reporting?

PARKER: No, let's go for the third quarter.

QUEST: My word!

PARKER: I'm going to go for green on the third quarter.


QUEST: There you are. A green from Bob Parker for the third quarter, and we haven't even dealt with the Q25 of this quarter. Incidentally, next week we will be looking at the Q25 with the U.S. and earnings season. The red balloons, the green balloons, they'll all be back right here on QUEST MEANS BUSINESS.

We will be back with BP, who is back on track with their own critical test in the Gulf of Mexico. In a moment there is a progress report and well, could the company's poor safety record actually get it banned from deep sea drilling? In a moment.


QUEST: So to the trials and tribulations of BP and the Gulf. A U.S. House committee wants to put BP firmly in the penalty box. It has approved a proposal to block companies with poor safety records from getting new offshore exploration permits. Now, the ban would be for seven years. The 10 deaths from the Deepwater Horizon disaster would place BP squarely in that camp.

For the latest efforts to gauge the capping of the well, Ed Lavandera joins us.

Ed, we know that there are issues. Have they actually-let's run through this quite quickly-have they actually begun closing the valves and testing the pressure in the well bore?

ED LAVANDERA, CNN CORRESPONDENT: They have begun moving some things preliminarily here, but we haven't gotten word that this integrity test has gotten underway full bore. So we are waiting on the official announcement from them and it could take six to 48 hours.

Actually now, I'm being told, that we have just received word that the integrity testing is underway. That news, literally, just coming us right now, Richard.

QUEST: And what they do is they basically close the valves and if there is good pressure, or high pressure, in bore that means the casing is holding?

LAVANDERA: Right. They will begin kind of shutting everything down. Right now there are five ways for oil to escape from all the machinery that is down there on the bottom of the Gulf of Mexico. They will close up all five of those and then begin taking pressure readings and kind of comparing notes every six hours over the course of the next 48 hours. So, they will be monitoring closely to make sure that well bore, that well casing, that goes deep into the earth, isn't damaged. If the pressure drops that tells them that somewhere down there, along the line, oil is leaking out. And they don't want that to happen.

QUEST: Ed, I need to just ask you, this prospective ban that the House is looking at for oil companies-you may have seen the story that those who have had more than 10 deaths-it would be a serious blow to BP if it was suddenly not allowed, because of Deepwater, and others incidents, not to continue to drill deep water in the Gulf.

LAVANDERA: Not only to BP but to any kind of-you know, you probably heard a lot of talk recently about here in the U.S. about the moratorium on deep water drilling. Kind of trying to scale back and investigate this particular disaster much more closely before companies, all oil companies, get the go ahead to continue deep water drilling. Wherever you go along the Gulf Coast here of the U.S. they find that to be a very troubling situation. In fact, they call it the "second disaster" here.

Because as weird as it might sound to people around the world, given all that these people are dealing with this disaster and this environmental tragedy here, many, many thousands of people, tens of thousands of people depend on the oil industry for a livelihood as well. So they are very concerned that any kind of effort to control what these companies can do here will just drive away business and take the jobs with them.

QUEST: Ed, finally, we can hear the ferry, the train whistle, we can see turret (ph) behind you. Is there-

LAVANDERA: There you go.

QUEST: Is there a feeling of crisis there, or as the summer moves on, are people now coming to accept it?

LAVANDERA: I think people are realizing that, and remember this is a region that has dealt with so much natural disaster over the last five years, that people are kind of beginning to understand that this isn't a process, a clean up process, that will take a couple of months. This will take several years for everything to kind of get back to normal. And, for the people who live off the waters, the seafood industry, the tourism, are very concerned about what it means long term. I mean, will people stay away from the Gulf waters for fishing and swimming and vacations? And what does that mean? Until they get a real handle on what the long-term effects are going to be, I think, many people are going to be very anxious about what will happen in the future.

QUEST: Ed Lavandera, who tonight gets the award for continuing to in the face sirens in the background. Many thanks, indeed.


On a very pleasant-looking day in New Orleans.

Now, the plane maker Boeing says it is making sure it gets the testing right on the Dreamliner before it delivers them to customers. Now, does this mean a kink in the delivery schedule for a plane that is already more than two years late? The latest news from Boeing, in a moment.


QUEST: Boeing has warned customers waiting for the first Dreamliner to be delivered that they may have to wait a little bit longer. It is certainly not the first time that we've heard this sort of thing from Boeing. The Dreamliner is the 787, which has had its maiden flight, and is now currently undergoing extensive testing necessary for certification. Ayesha Durgahee is with me.

Ayesha, what has happened this afternoon, it is a bit confusing.

AYESHA DURGAHEE, CNN INT'L. CORRESPONDENT: Well, it is not clear at this stage whether there is any cause for concern. But I've spoken to Boeing. And they have said that their plan is still to deliver their first 787 to its launch customer, All Nippon Airways, by the end of this year, in the fourth quarter of 2010.

QUEST: So they were intending-they've always been intending to deliver, in the latest schedule, November, 2010.

DURGAHEE: Exactly. But they have confirmed that there is a risk that this could slip, the first delivery could slip into the first quarter of 2011.

QUEST: Why would this happen? Why would they need to do it?

DURGAHEE: Well, that is exactly what I asked Boeing. And they said well, there could be any number of problems, that they didn't really want to explain, but they did say that they are not going to make any formal statements because they are still confident that they will be able to deliver the 787 by the end of the year.

QUEST: Right, OK. So they are saying they may, but they might. They hope to, but it is possible they won't?

DURGAHEE: It is touch and go.

QUEST: What is the game that they are playing at here?

DURGAHEE: Well, it is not really clear. So, I think it would be unfair to say if there is one specific problem that we don't know about. But the good news is-


DURGAHEE: -that the 787 will be flying to the U.K. on Sunday for the Famborough Air Show that starts on Monday.

QUEST: So, once again, so we'll get a chance to see the air show-at the air show, the Dreamliner, and gauge just how far it is along the testing process?

DURGAHEE: Yes, and this will be the first time that the public can get up close and personal with the 787.

QUEST: Now, are you looking forward to seeing this thing when it flies?

DURGAHEE: I am. I'm quite excited, yes. Seeing it land on Sunday, at 9:00 o'clock, at local time.

QUEST: 9:00 o'clock in the morning, on Sunday?


QUEST: That is what you call dedication to the aviation-she won't be alone. I have to say that I'll also be there.

Look, you have got something on your lap, which regular passengers and-will be well familiar with.

DURGAHEE: Yes, I was going to come and talk to you about aircraft seatbelts. And due to new safety regulations and enforced by the FAA, in the U.S., more airlines are installing more modified versions of one of these.


DURGAHEE (voice over): Roads are now cleaner and greener littered with hybrid cars, and the aviation industry, after playing catch up, has caught the biofuel bug. Trying to develop viable alternatives to jet kerosene and designing more fuel efficient aircraft.

It is not just exhaust fumes that have fueled changes in the aviation industry. Now innovations at the front of the car have inspired a way to increase safety on board, the airbag.

Airbags were first introduced in cars in the 1970s. And front seat airbags are now industry standard.

(On camera): The seatbelt manufacturer AmSafe has taken this airbag technology from behind the wheel and integrated it into the seat belts that you find onboard aircraft.

BILL HAGAN, FOUNDER, AMSAFE: The airbag relies on a modular, battery- powered crash sensor that is mounted under each seat position. And the onset of a deceleration event, the onset of a crash event, that would be severe enough to be-to pose a hazard to the passenger, all of this happens in about 70 milliseconds, which is less time than it takes to blind your eye.

As they are being cushioned by the airbag, their weight actually pushes most of the gas out of the airbag, so it is slowly lowering them down into a safe braced position.

DURGAHEE: Since 2008, 30 airlines have added the airbag seatbelts. And more airlines are expected to follow suit. Following the FAA's so- called 16 G rule, which took effect last October. The rule requires passengers to be able to withstand forces equal to 16 times Earth's gravity. While the new 16 G regulations does not mandate the use of airbags, some airlines see this as a good option for meeting the requirement.

EASA, the European Aviation Safety Agency, says it hopes to enforce 16G regulation by the end of 2010, or early next year. Even so, Air France, and Cafe Pacific, have already begun to install the seatbelt airbags.

KEIRAN DALY, AVIATION CONSULTANT: If an airline does choose to put these belts across all the seats in all their aircraft, which they are not required to do by regulation. It is hard to get away from the fact that they are really implying, come and fly with us, because you would have this extra level of safety that you won't have with out competitors. So, it is an unusual situation, where there is a real possibility to have effectively two levels of safety between different airlines.

DURGAHEE: Experts say, remember that aircraft seating is already considered pretty strong and safe. And about 80 percent of plane crashes are survivable. Still, some see the airbag seatbelt as another step toward safer flying. Ayesha Durgahee, CNN, London.


DURGAHEE: So, Richard, this is the airbag seatbelt.

QUEST: Right?


QUEST: And it is suitable for adults and for children?

DURGAHEE: And children. AmSafe says this is safe for children to use because the airbag deploys out and away from the face.

QUEST: Finally, briefly, a lot of passengers, as your report talked about, will be well familiar if they have flown in the Herringbone-

DURGAHEE: Herringbone Aviation, yes.

QUEST: Upper-Class Virgin and Air New Zealand, and Air Cafe and the like. But you are saying this will happen to much more-to many more passengers in the future?

DURGAHEE: To many more passengers in the future. And whether or not the airlines will just say, well, they are cutting out some of our seats, you might as well do the whole cabin.

QUEST: Many thanks. Keep in touch with us. Many thanks, indeed.

And we'll be Famborough together, on Monday. The program incidentally comes to you live from Famborough on Monday evening. Assuming we are still talking to each other.

In just a moment, in many things Italy is known for leading trends, rather than following them. It is jumping on the bandwagon this time. Silvio Berlusconi, Italians being told to join the austerity club. We'll feel the pinch, in just a moment.


QUEST: Hello, I'm Richard Quest. QUEST MEANS BUSINESS, this is CNN, where the news always comes first. And we have received this story in the last few moments.

Iran's Fars New Agency has reported a suicide attack in a mosque in the southeastern city of Zahedan. Fars is quoting Iran's deputy interior minister as saying several people have been killed, several more injured. There is no clear casualty count at this time. Emergency crews have reportedly arrived at the scene. And, of course, as soon as we get more details on this story it will be brought to you as quickly as we can.


QUEST: Emergency crews have reportedly arrived at the scene. And, of course, as soon as we get more details on this story, it will be brought to you also quickly as we can.

Our other headlines tonight, the Vatican has announced new guidelines following the worldwide scandal involving the sexual abuse of children by priests. The rules include expediting the most urgent cases and relying on the pope to defrock a priest without a former -- formal Vatican trial. Critics say the rules don't go far enough and they insist the church must protect public safety by openly naming credibly accused clergy members.

Newly released Cuban dissidents are speaking out about their time behind bars. Seven freed prisoners arrived in Spain on Tuesday. They say the conditions there were deplorable. They lived amongst vermin surrounded by human excrement. They also say they weren't given enough water or access to medical care. More prisoners are expected to leave Cuba for Spain in the coming days.

Bill makers (ph) have voted to legalizing same-sex marriage in Argentina. It's the first Latin American country to so do. The senate debated it for 14 hours into the night and to early morning before a vote was taken. The bill has already passed the lower chamber of congress. President Cristina Kirchner says she will sign it into law. The law will give same-sex couples equal marriage rights, including the ability to adopt children. The proposal had been widely protested by -- on religious grounds.

US officials are telling CNN the Iranian scientist gave the United States valuable insight into Iran's nuclear program and was paid $5 million for doing so. That scientist, Shahram Amiri, returned to Tehran with a totally different story. He denies knowing any nuclear secrets. He said he was kidnapped by CIA agents. Washington calls him a willing defector who has changed his mind.

So, tonight, the computer company Apple is facing a mounting crisis over the iPhone 4. There's news that one of its engineers warned about the Smartphone reception problems and the company ignored that. And now the company is coming out fighting by holding a press conference at its Silicon Valley headquarters tomorrow.

CNN's Jim Boulden joins me now -- Jim, how bad is this?

JIM BOULDEN, CNN CORRESPONDENT: Well, you know, it's interesting, Apple very rarely gets itself into this kind of conundrum, where it has to defend itself. And if you read the blogs and you read what people are saying, there are a lot more critics about Apple this time around than you see for any product in recent history. You know, there was a point at a time when Apple could do no wrong. And you saw that in the share price. And now, when it comes to this product, they -- no matter what they say, people seem to be countering and correcting them.

QUEST: Let's remind ourselves, Apple initially said -- we were -- with this phone, which its -- that there was nothing wrong with the antenna at all.


QUEST: They then came out and said that it was all to do with the -- the stop...

BOULDEN: (INAUDIBLE) well, no. Then they said it was AT&T carriage issues in the States.


BOULDEN: So they said that it's hanging up because of carriage issues. Then they said it's the software that shows the signal strength...

QUEST: And, actually, you didn't have a very good signal to start with.

BOULDEN: Yes. So -- so you shouldn't think you're getting a dramatic loss. And they said, well, don't hold the left hand side of the bottom. Then they said you could buy a bumper, which is sort of a -- out of protection -- and that that would solve the problem.

QUEST: What about this engineer with Apple, who's not been put up for an interview?

BOULDEN: No, he wouldn't be. It's -- it -- you know, there are a lot of bloggers follow Apple religiously. And so somebody leaked out that he would have -- he would have told Steve Jobs and others, when they were looking at different options, that this option was not a good option when it came to the -- to the signal and that some of the carriers, when they tested it, also said it was not a good option.

But all that's in the past. Now we have to say what's Apple going to do?

And, you know, we talked to some -- or CNN talked to some of the Apple users and iPhone users in New York today. And here's what they said Apple should do.

QUEST: Please.


UNIDENTIFIED MALE: I think they should replace the phones, every single one of them that they made and that is faulty, they should replace the phone. This is people -- these are people paying a lot of money for a product and not getting what they paid for. It's (INAUDIBLE).

UNIDENTIFIED MALE: I've read that it's going to cost them a billion- and-a-half dollars and that, obviously, there's a lot of money and they don't want that hit. But let's be real. Apple is a company that's worth hundreds of billions of dollars and they can afford that.

UNIDENTIFIED FEMALE: I surrounded it with rubber and that's not the solution. The solution has to be internal. They are going to have to correct the mechanism that makes it faulty.

UNIDENTIFIED FEMALE: I don't think people are going to want a recall, because people are not wanting -- not going to want to drop off their phone for a while for any kind of repair. But I think that they should do whatever they can to help to make people happy. It's a -- you know, it's - - it's Apple.


BOULDEN: It's amazing how you can just walk up to the Apple store and find so many intelligent people who have a lot to say about this product. That shows you some of the conundrum, I think, that Apple is in.

QUEST: And it shows you, if we look at the time line, Jim, of -- of - - of the problems that have happened, it shows you why this is so serious for Apple.

BOULDEN: Well, we've said in June -- early June, Apple announced the iPhone 4 and everyone -- they had just come off the successful launch of the iPad and everything.

QUEST: Right.

BOULDEN: So it's fantastic, new phone, great things about this new phone. Those went on sale the end of June, just in New York, Tokyo, France, Germany and the U.S. And they sell an enormous amount. And they said 1.7 million sold within three days.

Then July 2nd comes out, what I like to call the stunned letter, which is where Apple admits -- and I've never seen an e-mail like this from Apple before...


BOULDEN: -- they admit that they got it wrong (INAUDIBLE)...

QUEST: They were stunned to find that it was -- the software was wrong.

BOULDEN: All -- and not just the iPhone 4, the iPhone 3...


BOULDEN: -- 2, 1.

QUEST: Right.

BOULDEN: It's been wrong all along since 2007. Now, we come to tomorrow. Now I've followed Apple for a long time. For them to hold -- they always have these Apple media days and they have the fun stuff in San Francisco. But to hold a press conference at its headquarters at Cupertino, that's very unusual. But we don't know what they're going to say.

Are they going to defend themselves?

Are they going to offer free bumpers?

Or are they going to say...

QUEST: Are they...

BOULDEN: -- we need to do a fix?

QUEST: OK. Is -- the only question I need to know from you tonight, besides what they're going to answer tomorrow...


QUEST: -- which you're not going to -- which we don't know, is, is this a crisis for Apple?

BOULDEN: Well, it's a short-term crisis. People love to -- to bring it down when they think that they've done something wrong.

QUEST: All right...

BOULDEN: They have been arrogant, let's be honest. They have been arrogant about this.

QUEST: Is this their -- is this their Prius brakes...


QUEST: -- like Toyota.

BOULDEN: No, no, no. No. Because the -- there seem to be some leaks in the last few hours on the Web. The bloggers love this. And they say that there's going to be an internal bumper fix -- that's one of the theories -- and that it may already be in the works and that may be what we hear tomorrow. A lot of people are saying that we're going to get a recall...

QUEST: So what -- so is...

BOULDEN: Are we going to see a recall?

I mean that -- that would be stunning.

QUEST: Humble pie all around.


QUEST: Humble pie.

Jim, contrition and humble pie, not from us, but (INAUDIBLE).

Right. We'll talk about this tomorrow. You'll be watching it for us tomorrow.

BOULDEN: Absolutely.

QUEST: That much I can assure you.

We will be back with more in just a moment, because tomorrow's Tweeting event is going to be all about Apple.

We'll be back in a second.


QUEST: Alcoa had reported earlier in the week.

Intel has reported excellent numbers.

And now in New York, stocks that are trading on the New York Stock Exchange have been really moving quite sharply. They've been reacting, of course, to some economic news and a new neighbor.

Alison Kosik joins us now from the New York Stock Exchange -- good evening to you, Alison.

An interesting day on the Street.


QUEST: Economic news very much back in vogue.

KOSIK: It really is. Today, traders are really focused on the economy. We got some information about the manufacturing sector and it disappointed the investors here. Separate surveys by the New York and Philadelphia Federal Reserves show that manufacturing activity, it rose in June -- in June, but not as much as they were hoping for. It -- it grew at a weaker pace.

Traders are also looking at the decline in initial jobless claims numbers. The good thing is, is that they fell. But the thing is, is that the level is still very high, the level of jobless claims still at 429,000. Also, the Producer Price Index, it's down again. So that is kind of reviving these worries about deflation -- Richard.

QUEST: And, Alison, you're too young to remember the junk bond kings, RJR Nabisco and KKR, barbarians at the gate. But KKR very much a talk of the market today.

KOSIK: You know, you flatter me, but gosh, you know, I do rent movies, by the way...



QUEST: Oh. Oh.


QUEST: I cannot...

KOSIK: And "Barbarians at the Gate"...

QUEST: I covered KKR buying RJR Nabisco in 1988-89.

KOSIK: A great movie about capitalism, right?

QUEST: Right.

Tell me what happened today.

KOSIK: You know, KKR, right now, you know, the -- they've -- they've branched out today. They are in the New York Stock Exchange. But I'll tell you what, the ideal market is really dicey these days. It's a really tough environment. And for KKR, you know, they've got a lot behind them, as you said. You know, they invented the leveraged buyout.

So they made their debut today at a NYSE, opening at $10.50. They're not doing so hot, Richard. Right now, they're down to $10.40 and their rivals, Blackstone and Fortress, are up. Blackstone up more than 1 percent. Fortress up more than 3 percent.

They're just not getting off to a really good start at this point.

And it's really taken a long time for them to get here. It's taken years. In 2007, they were going to come out but were delayed. A year later, the financial crisis made them back out. And then, of course, they opted to merge with their European publicly traded funds. And then they went public today.

But once again, it's a really tough environment to do this. Investors not really jumping on the stock at this point -- Richard.

QUEST: Alison Kosik, many thanks, indeed.

KOSIK: Sure.

QUEST: At the New York Stock Exchange.

KKR -- Kohlberg, Kravis & Roberts, for those of you who are perhaps -- may be on -- on the younger side and don't necessarily remember things.

Now, Barack Obama says that battery power could electrify the U.S. economy. It could lead to a future that's less reliant on oil. The U.S. president is at a ground-breaking ceremony for an electric car battery plant in Holland, Michigan, the home, of course, of -- well, Michigan, the home of the combustion engine industry.

Suzanne Malveaux joins me there from there now -- Suzanne, the president is -- is bashing hard for battery power.

But is anyone listening?

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, there are a lot of people who are listening, Richard. But there are some naysayers here. And they don't really know what to make of this, whether or not this is really going to go anywhere. This was a ground-breaking ceremony for a company, LG Chem Power Plant here in Holland, Michigan. And what the president was saying is that give this some time, but by 2013...

QUEST: Hold on...

MALVEAUX: -- this company is expected to be able to produce anywhere from 15 to 20 million batteries a year. These are special kinds of batteries, advanced batteries that would power electrical vehicles, hybrid vehicles, that kind of thing.

The president also saying that this would create some 450 jobs, initially, including hundreds of construction jobs.

This is very important, Richard, as you know, for the people in Michigan. Michigan has the second highest unemployment rate, only second to Nevada. It's got 13.6 percent of folks who are unemployed here. So, yes, they are listening when it comes to this plant, because they want to know whether or not they're going to get, actually, some of those jobs.

And here's how the president put it. He said it was not just a matter of the economy, but also the environment.



BARACK OBAMA, PRESIDENT OF THE UNITED STATES: These are jobs in the industries of the future. Just a few years ago, American businesses manufactured only 2 percent of the world's advanced batteries for electric and hybrid vehicles -- 2 percent. But because of what's happening in places like this, in just five years, we'll have up to 40 percent of the world's capacity -- 40 percent.


OBAMA: So for years, you've been hearing about manufacturing jobs disappearing overseas. You are leading the way in showing how manufacturing jobs are coming right back here to the United States of America.


MALVEAUX: Now, Richard, that all sounds great. But here's the rub. The federal government, with stimulus money, actually put in $151 million for this company to go ahead and actually break ground in this new plant. This -- the state of Michigan, through taxpayer dollars and taxes incentives, provided $130 million. So they pretty much have been funded by Michigan, as well as the federal government, this private company.

Where is this private company, however, Richard?

This company is actually a company that is in South Korea. It's not an American company at all. And so there are some critics who are saying, why shouldn't we see this as Michigan taxpayers simply -- simply subsidizing a foreign company, a Korean company, to create this new power plant?

Now, I had a chance to talk to the governor of Michigan, Jennifer Granholm, and here's how she responded to that question.


GOV. JENNIFER GRANHOLM (D), MICHIGAN: They're hiring American people. And they are partnering with an American company called Compact Power. Truly, we cannot be victims of globalization. We have to go out to the globe and say, if you want to do business in America, you need to invest here and hire American workers. These are going to be American workers that are employed at this plant.

And, you know, frankly, all the batteries right now in the world are all manufactured in Asia. So if we want that technology to come to the United States, we want to be able to recruit the companies to come here and hire our citizens and, hopefully, as they are here, partner with an American firm.


MALVEAUX: So, Richard, this really is kind of a -- a mediate -- a go- between, if you will. This is a -- an intermediate step. This is not, ultimately, what the United States government wants to see happen here. They realize they are dependent on these Asian countries, these foreign companies. Eventually, the goal is, is to have those American companies be able to produce these new kinds of batteries.

But in the meantime, they recognize that they are dependent on those foreign companies to produce this kind of new technology and take advantage of it, because, ultimately, it's going to create those jobs.

QUEST: Suzanne, before I let you go, one thing I want to refer to. The Senate in Washington is voting on the final passage of the financial reform bill that's taken a torturous time to wend its way. We're just looking at some live pictures of the process taking place now -- Suzanne, if this bill goes through, when taken with the health care bill, can we say that this is a -- a major achievement for the Obama administration?

MALVEAUX: Absolutely, Richard. I mean this is one of the main things on the domestic agenda that the president has been trying to push through. It has been very difficult to do. This is something that the president can basically check off the to-do list. Health care reform was huge. Wall Street regulations, financial reform, also a very big accomplishment.

You should know, however, Richard, like in -- in the larger scheme of things, in the environment, however, recent polls are still showing that the American people don't necessarily see this. They don't necessarily -- they're not necessarily convinced of the president's success. Only 40 percent or so believe that he's handling the economy well.

So despite some of these successes, he still has to get out here, like he did today, to convince the American people that things are going in the right direction.

QUEST: All right. Suzanne Malveaux joining me from Michigan on that part of the story.

Now, as we've just been talking about, the financial reform bill, which, of course, follows on from the financial crisis. Italy looks set to follow several of the other European neighbors down the road -- the road that is called austerity. The Italian senate itself has now voted to back Prime Minister Silvio Berlusconi's plan that will trim the budget deficit in Italy by $32 billion. Italy's house of deputies will vote on it later this month, before it passes into law. If everyone says yes, then the ax will fall largely on local and regional government budgets. And that points up to local taxes going up. There will be cuts in services. Central government department budgets will be frozen and squeezed. Public servants' wages will be frozen. Women will be made to work longer before they retire and some state pensions will be deferred.

Italy plans to clamp down on tax dodgers to raise more revenue. Italy's deficit is not the worst you'll find, especially in Southern Europe. It's around 5.3 percent of GDP. The government wants to get back to mastric (ph) levels by -- to 3 percent by 2012.

But, of course, the real issue for Italy is not just that it is also competitiveness within the euro and, crucially, the total jet -- debt to GDP.

A downbeat session for the stocks in the big European markets. Look at the numbers and make of them what you will. The weak manufacturing data that came to us from the United States fed the fears about what was happening to the global recovery. Bank shares the big fallers on the back of JPMorgan Chase. Barclays off 4.25.

In Paris, BNB Bolivia down 4 percent.

You're updated with the markets and the main economic news of the day.


We'll be back in a moment.


QUEST: It is summer -- well, at least a Northern Hemispheric summer. And that usually means it's all going to be rather cheerful. Although that pressure -- that low pressure there's been over northern parts of -- some parts of Europe.

Guillermo is at the World Weather Center.

You see, I do listen to what you say. That northern pressure over...


QUEST: -- Northern France, Germany, that one over there, yes, has it gone yet?

ARDUINO: No. And, actually...


ARDUINO: -- it caused a tornado in Belgium. So it's bad.

But you know what, Richard, I was -- thank you for saying the summary in the Northern Hemisphere. I have a summer home in Argentina, the city of Mar del Plato. We got snow last night. So of course it's wintertime and we're dealing with summer -- winter.

Low pressure, then; severe weather will continue to pop up here. Unfortunately, the low continues to hang over Britain. And I was checking out in the London City Airport reported like five or six hours of rain every. So five or six instances within 24 hours. So it's not that bad, but we have bad weather.

The problem is, also, for those who do not have the rain. And I'm talking about all the way to Russia. We have records there. And it's going to continue. It is not five or six degrees above average, it's like 13 degrees above average. Russia, Estonia, Finland, as well.

You see these four cities, Moscow included?

Thirty-three degrees. So records. This year is going to be one to remember for both reasons. The winter was extremely cold and the summer is being extremely hot.

Thirty-three for Kiev. So you see the east continues to have hot weather. Vienna, the capital of Austria, with 34 degrees. Berlin, 34. London, 23. Temperature-wise, we're not doing that poorly, but we will continue to see the rain.

So look at these observations. Avenelle (ph) -- I think that's the right pronunciation -- also in Belgium here, winds in excess of 130 kilometers -- 146 kilometers per hour. In the Netherlands, a tornado. So this is because of that system that you were referring to.

So I've chosen these five -- yes, five cities that are posting some delays because of weather -- London with winds and the rain showers, Amsterdam and Brussels.

I mean come up with a lot of patience if you are flying into those cities or out of those cities, because you may see some problems.

It can get worse. You know, it can get worse. You know, I was reading Washington, DC, Reagan Airport -- National Reagan Airport. No power in several of the check-in counters. So they were sending advice -- the advice of print out your boarding card at home. Don't go to the airport without it, because there's no power.

You see, it could be worse.

OK, so that's the area where we'll have some bad weather. Also, we have the British Open taking place.

What kind of weather are we expecting?

Figure it out. Rain showers, of course.

And we have the -- the cyclone that is actually intensifying a little bit. That soon will go through Hinan (ph). And now it has changed the path. It's in the South China Sea in Asia. Most of the bad storm is in the -- the bad weather is in the south. But you see, it is pretty big and it is going toward Vietnam. So even though it goes through Hinan toward the northern sections of Vietnam, most of the bad weather is in the south. So that's where we will get most of the rain, because that's the main problem with this system. Winds now 111 kilometers per hour -- Richard.

QUEST: We thank you for that.

And thank you for the ammunition that you gave me about your Argentinean summer home...

ARDUINO: Excellent.

QUEST: -- which will be filed suitably away, along with your Spanish vacations will be used indiscriminately against you at regular intervals.

ARDUINO: I like that.

QUEST: Guillermo at the World Weather Center.

Now, one of the high points of last night's program was our discussion with the Heinz chief executive, talking about what it takes to be a really successful CEO.


BILL JOHNSON, chairman, president & CEO, H.J. HEINZ COMPANY: Now, I got up this morning and went five-and-a-half miles in a run. And I try to do that every day. I've been in Russia, Eastern Europe, Turkey, Asia, the last couple of weeks. And you just sort of acclimate to it. And the -- the secret is just to keep going, to keep disciplined and to keep focused on the task at hand.


QUEST: Now, that was Bill Johnson, the chief exec of Heinz, talking about his life as a CEO. He's complied this book based on interviews with chiefs of 27 of the large corporations. And we've had a lot of e-mails from you about what makes a good leader,

But this one I really want to share with you tonight, sent from Tony Granaf (ph) of Stockholm in Sweden.

First of all, look at the picture of Tony. Tony, I'm told, is on the left. I'm assuming that's the -- the Swedish boss. We also have permission that it's Major Anderson who's next to him. I believe Tony -- I'm sorry, Tom. Tom Granaf (ph) might be a major himself.

But Tom says the following on the question of leadership: "Leadership is when you lead the way when others find it difficult. Leadership is standing up, being polite and taking the heat when everything else goes wrong. Leadership is landing the plane when both engines are out, as in Sully in the A320. Leadership of Special Forces -- Special Forces leads the way. Leadership are great parents. Leadership is opening the door for an older lady."

So it's on leadership.

What do you think?, Twitter atrichardquest.

A Profitable Moment after the break.


QUEST: Tonight's Profitable Moment.

While we've been on the air, the U.S. Senate has finally voted in favor of the financial reform bill in the United States. We talked about it a second or two ago, a major achievement for the Obama administration.

These are pictures of the Senate still in session as it continues on with its processes.

The vote, when it finally came, in what was a controversial measure, was 60 votes in favor, 39 votes against. The U.S. Senate will now send that measure to President Obama.