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QUEST MEANS BUSINESS

Goldman Sachs Slump; Eurozone Rescue Plan at Risk

Aired October 18, 2011 - 14:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


MAX FOSTER, CNN ANCHOR, QUEST MEANS BUSINESS: Goldman cracks. The bank posts its second-ever quarterly loss as a public company.

Cracks appear in the Eurozone rescue plan as Moody's warns France.

And can China crack its growth problem without risking a hard landing?

I'm Max Foster in for Richard Quest. This is QUEST MEANS BUSINESS.

Cleaned out by the crisis. But only the second time since going public Goldman Sachs has posted a loss. It is a big one as well. Worst than expected and stock market volatility is actually getting the blame here. Goldman lost $393 million in the third quarter. Most of Goldman's operations actually did OK. The problem came from its own investments.

And they were actually a pretty big problems. Just three months ago its investing and lending units lost almost $2.5 billion, including $1 billion on the stock markets alone. Chief Executive Lloyd Blankfein blamed the uncertain economic picture. The uncertainty has hit Goldman's own share prices in recent months.

Now, when the financial crisis hit back in 2008 the U.S. government helped bailout Goldman to the tune of $10 billion. Now later that year, it reported its first ever-loss as a public company and that was at $2 billion.

There we have it there.

First-ever loss there in around 2009. And if we take you on to later on that year, within the year the times got back again, they got more positive really. Record numbers in the first two quarters of 2009, in fact. Now shares this year have fallen by more than 40 percent, if you take the ups and downs into account. Although believe it or not, they are currently up by around 2 percent.

Joining me now is Roger Freeman. He's an analyst at Barclays Capital.

Before we start we do have to point out that Barclays isn't just a competitor of Goldman, it also does business with them, too. So that is the formalities done with.

But thank you so much for joining us. Just explain to us, on the face of it these figures-

ROGER FREEMAN, ANALYST, BARCLAYS CAPITAL: Thank you.

FOSTER: -do seem very dramatic. But Goldman is blaming the markets for that. Is that a fair accusation?

FREEMAN: Well, look, I think it is a fair accusation for any dealer, on almost any quarter, that market conditions are going to dictate the outcome of their earnings. That is one of the reasons they get lower valuations, you know, on a price to earnings basis.

With this quarter, as you were pointing out in your prelude, there, is the decline in the stock market caused some-and also some widening debt spreads and especially high yields caused their investing and lending segment, those investments there to be marked down. And there is really not much you can do about that. I think the silver lining is that they are not cash losses. They are unrealized losses and they will come back when markets rise. I think that is why the stock is actually up a bit today.

FOSTER: So this is a temporary blip, you say. When you look through the accounts, actually, it is just riding the wave right now. And things will come back, because they are good investments, fundamentally, in the current conditions.

FREEMAN: Yes, those are-they would have generated-I think if the stock market had not been down in the quarter, they would have had positive earnings. Now they still would have been sup-par relative to what we have become accustomed to. And quite frankly, that is a function of as much their lack of deployment of capital to facilitate trading, as it is investors remaining on the sidelines as well.

I think the macro issues hanging over the markets are impacting global investing behavior and that is just reducing the revenue opportunity.

FOSTER: Investors are very nervous. Goldman investors as much as everyone else. Do you think the chief executive can convince executives to stick with the bank and share the view that you are sharing with us, right now? Because it is a tough place to put, you know, it is a tough decision to put your money anywhere right now.

FREEMAN: It is. But-and you are right. There are in financials there are a lot of, you know, quote, "cheap stocks." Goldman is a high quality franchise, we believe. It is trading at, you know, 70 percent or so of book value. Eventually there is, you know, something has to give. Either there is a top line story that is going to drive the returns higher, or they are going to have more flexibility to recapitalize.

We think they have to much equity to begin with. Actually, it is interesting, this quarter is the biggest net decline in their share count since they went public. Or least in the eight years or so we had in our model. So there is a net capital return story building here. And at these prices that is accretive to their book value. It is value enhancing.

FOSTER: OK, Roger Freeman, at Barclays. Thank you very much, indeed for joining us with that analysis.

Now, Goldman Sachs happens to be one of the companies included in our Q25. The Q25 is the exclusive index we roll out every earnings season to help you make sense of the deluge of profit reports from major corporations. Each quarter we hand out green chips to companies that exceed our strict criteria. And red chips goes-red chips to those that miss these criteria. Anything in between we open up to debate.

Now, this is the second day of our Q25, this time around. So far the reds outnumber the greens by a slight margin. Let's get right to today's companies with Felicia, who is here in London. Maggie, of course, joining us from New York.

And let's begin with Goldman and other financial institutions reporting today, Bank of America-but Goldman met none of our criteria, despite the long term prospects. That is not fair to say, isn't it. So, automatically we are going to give them a red.

Felicia, what about the other bank we are talking about today?

FELICIA TAYLOR, CNN BUSINESS CORRESPONDENT: The Bank of America; this is an interesting story. Because they have a little bit of fuzzy math, which we have seen in some of the other banking sectors as well. And you have to admit, financials right now are just not the place to be. They haven't recovered yet. They have something about $4.5 billion worth of fair value adjustment. What does that mean? It means that they can actually define what their losses and their-what their losses and abilities are, and to find them for themselves; which is an odd thing to be able to do, frankly.

The real danger, though, is whether they are going to have a presence in China. They had a one-time benefit from the sale of China Construction Banks. So that means will they be able to have a lending presence in China, and the answer is probably not as great as what it was, so, I give it a red.

FOSTER: Red it is, Felicia.

Now, Maggie, you have been looking beyond the financials, at a company that is seen as a barometer, in many ways, in the world economy. It is sold everywhere.

MAGGIE LAKE, CNN BUSINESS CORRESPONDENT: Yes, Coca-Cola, Max. And we have a very similar story here, to when we talked about Pepsi yesterday. You know, you would think this is a really tough environment when you have exposure to consumers everywhere struggling. But once again, Coke, right there with Pepsi, neck in neck. This one gets a green. They are increasing their worldwide volume, their global volume. While at the same time, even in weak markets, they are being able to push through price increases.

They have got big production costs. That is a worry for them, but they are passing through those prices and the strength, again, similar with Pepsi is coming from those core brands. They are not acquiring it. It is organic growth, which is rare these days, so they get a green.

FOSTER: OK, there wasn't much debate there, Felicia, but there is two other companies we talked about today. Extremely interesting companies talked about them a lot. But, Johnson & Johnson, what did we-well, summarize what we decided.

TAYLOR: Johnson & Johnson is a bit of a interesting company. Because they have got great presence in a lot of the emerging markets and that is where they have had their biggest growth, up about 16 percent. But their domestic sales in the United States were down about percent. So it is kind of a hit and miss there.

But the CEO gave corporate guidance up a nickel for the entire year, which is incredibly good. And they also had two drugs that were approved by the FDA. So moving forward the company seems to me like a green.

FOSTER: Yes, Maggie, you ought to look at the guidance, haven't you, on this one?

LAKE: Yeah, we gave this one a green, but it is grudging and the more I looked at it the more grudging I felt about giving this a green. Listen they had a lot of problems with recalls. They seem to be moving through that. I think that is why they are sort of raising that bottom part lower end of their guidance.

But they are getting a lot of competition from generics on prescription drugs. They have a lot of ground to make up on those over the counters. They have to spend money on incentives that is going to cost them. And even that global growth that we saw, a lot of that was due to currency fluctuations. Favorable now, but analysts say it could get tougher in the coming months. So they get a green. It was an OK quarter, but watch this one for next time.

FOSTER: A grudging green no less.

In terms of guidance, we also got some quite good guidance, as well, from IBM, but again, a debate there because it is not clear cut.

LAKE: Yeah, yeah. I wasn't sure if it was me or Felicia.

FOSTER: Yes, Maggie.

LAKE: Yes, you are right. Listen, yes, this was-this is an interesting one. But this is really mixed. In the end I think it gets a green. They were priced for perfection. So first sales miss in five quarters-very, you've got to watch this, because the services are growing. That is what they do now. The concentration is growth on service contracts. It was growing but it was starting to slow down. The back log was a little lighter and slower. They are very exposed to that slow down in government spending.

So analysts are concerned about that the stock is getting slammed on that, but they do have a really good emerging markets story, global growth story.

Don't they, Felicia? And that, I think, bodes well for their positioning for the future.

TAYLOR: Yes, that is exactly what I would agree with. And they beat estimates. So in this kind of economy that is an incredibly good thing. Some of the businesses that are doing really well are their Smarter Planet business. Those sales were up about 50 percent. Business analytics were up about 19 percent. And their smart-you know, the cloud sales actually doubled. So there is definite growth for IBM out there.

And their position in markets such as Europe, Middle East and Africa, and their growth is about 9 percent. So I'm with you on-there is some concern there, but I still give it a grudging green, too.

FOSTER: Harmony, here, isn't it?

(CROSS TALK)

(LAUGHTER)

FOSTER: Thank you both very much indeed. Felicia, Maggie, thank you for that.

Now it is banking stocks, we've been talking about them today. But they pushed the Dow up, so far, this session as well. Let's talk about today. Let's look at where the markets are right now.

Up 117 points on the Dow, up just over 10 percent. JP Morgan Chase and Bank of America leading the way really. Bank of America up more than 6 percent. In fact, almost all of the shares, in the Dow are in positive territory. Only IBM is lagging behind. It is down around 5 percent now. Investors not quite as forgiving, I don't think as Maggie and Felicia.

Now, Europe can't seem to get a break right now. Another day, another challenge. France is on the defensive this time around. Greece is bracing for a showdown. And we have those stories up for you next.

(COMMERCIAL BREAK)

FOSTER: A new challenge hits the Eurozone. During an already momentous week in the long-running debt crisis, France is now promising to do everything it can to defend its top credit rating. It is under threat after Moody's Investor Services hinted it might put a negative outlook on the country's AAA rating within the next few months.

Now, in a world where no good deed goes unpunished, it seems, France is feeling the heat, in part, because it is helping bailout crisis hit French and European banks. Moody's says the economic turmoil is making it more difficult for Paris to get a handle on the country's growing debt.

France is the second biggest contributor to the European Financial Stability Facility, better known as the Eurozone's $600 billion bailout fund. It is the fund's top credit-sorry, is the fund's top credit rating also at risk? Well, it is a pressing question, especially as the Eurozone gears up for Sunday's unveiling of its grand plan to bring the debt crisis under control.

Now, a hit to France's credit rating would leave Germany smoldering (sic) any future bailouts. Germany is already feeling plenty of pressure. The public backlash against the bailout is running high there. And investor confidence has slipped to its slowest in almost three years.

Now, French banks were hit very hard in Tuesday's trading session, dragging the CAC 40 lower. Societe Generale tumbled almost 5 percent. BNP Paribas and Credit Agricole also finished sharply lower. And less than an hour after the European close Standard & Poor's announced it was downgrading 24 Italian banks.

On the plus side, Germany's benchmark managed to finish higher. Bloomberg reports that Chancellor Angela Merkel said this Sunday's planned EU Summit is an important step, but others must follow that.

Now, still about Greece, a short time ago the prime minister appealed once again for Greek lawmakers to approve more sweeping austerity measures. George Papandreou spoke out ahead of a vote in parliament later this week. At the same time angry workers are calling for the mother of all strikes on Wednesday and on Thursday. Europe's most debt stricken country is already in the grip of smaller walk outs by a range of workers from journalists to rubbish collectors.

CNN's Diana Magnay joins me now, live, from the heart of Athens-Diana.

DIANA MAGNAY, CNN INTERNATIONAL CORRESPONDENT: Hi, Max.

Well, the question is how do you reduce the public deficit to an extent and keep it that it is socially acceptable. You know, at what point do you break a society. And it is interesting because I compare what I have seen in the streets today to the last time that I was in Athens, when that second bailout was agreed in July.

Now you've got piles of garbage accumulating in the streets because the municipal workers are striking. For the last couple of weeks we have seen sit-ins in ministries in other public buildings. You just have a sense that the seams of the society are beginning to be split, but you know, austerity really, really hurting. That every single Greek citizen feels the weight of it on its shoulders.

As you said, that vote on Thursday is critical. It is expected to pass. It will bring through new austerity measures, more jobs cuts, 30,000 job cuts in the public sector. And ends collective bargaining agreements in an attempt to liberalize the work market, which is something that the troika is calling for. You know, it's assessment, in detail, is expected this week. It shows that the government is making steps to bring the deficit down, which is why the next tranche of money will be released, if the government votes on it.

But it is also saying, you know, we need structural reforms, we need the public sector, the fat in the public sector to be cut out. And you need to really put your money where your mouth is and make sure that that happens. And that is why you will have the unions out on the streets tomorrow and the next day, in protest at what they say is austerity. That they are not prepared to put up with it.

FOSTER: Diana, is there a sense there, or a realization that actually around Europe and around the world the focus is much more towards Spain and Italy right now and people are thinking maybe we should just let Greece go. Do they feel deserted in any way? Or are they still very much focused on getting this next round or money in?

MAGNAY: I think they are focused on getting this next round of money in and I think people here believe that their future is in the Eurozone and not out of it. That it is not so much as a (AUDIO GAP) point of discussion should we leave-should we go back to the drachma, that is not what people here want to happen. You know, a forward turn (ph).

I think that the people's priority right now is to look after themselves. They are not really looking at what is happening in Spain, in the rest of the Eurozone. They are looking at what austerity means to them and whether they can continue along a path where they really don't seem much, sort of solution. They don't really see how this vicious circle of debt can be removed, or how they can ever continue to grow.

And growth is really the key word here. How, when you have a recession for a fourth consecutive year, can Greece ever pull itself out of this debt circle? And begin to actually grow, begin to be able to pay it's workers again, Max?

FOSTER: OK, Diana, in Athens. Thank you very much indeed.

That would be throughout the week as those Greek stories keep emerging.

Now, coming up, the devil is in the detail for the man behind one of Macao's most glittering resorts. We'll show you why in tonight's edition of "The Boss".

(COMMERCIAL BREAK)

FOSTER: In tonight's edition of "The Boss" the trick is in the detail. Take it from our boss in Macao, Francis Lui. Four months after he opened his casino resort, the Galaxy Macao, Francis is still focusing on what needs to be improved or ditched. Here is what he found on "The Boss".

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE (voice over): Previously on "The Boss", a good sport. Francis Lui puts his best foot forward by giving back to the local community.

FRANCIS LUI, VICE-CHAIRMAN, GALAXY ENTERTAINMENT GROUP: The gaming industry is not for everyone, and this is why we are at the point where we need to connect with the community.

UNIDENTIFIED MALE: The deck of the Galaxy Resort in Macao is a haven of relaxation. But for Francis Lui this isn't the time to dip one's toes or put the feet up. Today he's putting his team through their paces.

LUI: If these people want to have a drink or a snack, how is service?

Right now since this is only the fourth month of our operation there are still millions of things we think which we could improve on to make our customer experience better. So all these matrixes, how do we actually measure and how do we improve this kind of thing? I would say that we meet on a weekly basis to make sure that we go through some of the suggestions and make sure that we check upon all these decisions, how they make plans? How do they execute it? What is the end results?

UNIDENTIFIED MALE: With its wave simulator, sandy beach, and landscaped garden, the pool deck is the jewel in the crown of the Galaxy Resort. And Francis knows it.

LUI: Nobody would imagine that, you know, in an urban city, like in Macao, suddenly you have all of this lush landscaping done. It is very much like I said, close your eyes and you thought you were in (UNINTELLIGIBLE) already.

UNIDENTIFIED MALE: For Francis this is a major victory over the competition.

LUI: We know that we have to maximize the size of a piece of land because this is one of the biggest advantages we have over our other operators here in Macao. And we did. And this is why we built a 52,000 square meter (UNINTELLIGIBLE) deck, which basically half of the size is going to be our pool, and this is one of the biggest pools in the world.

UNIDENTIFIED MALE: In this instance, size matters. Four months on from the launch of Galaxy Macao, this boss admits to having missed a trick.

LUI: On a high day usually we could find almost 3,000 people wanted to come and use the pool. On even an average day it would be booked (ph) by 500, 800 people wanting to use the pool. So, if you ask me if we should have get it back and do it again, I want to make the pool even bigger.

UNIDENTIFIED MALE: The pool deck has other teething (ph) problems. Getting guests from A to B efficiently has proved difficult.

LUI: The short-term solution is pretty simple. We are going to build some kinds of boxes around certain areas, such that we could be able to divert traffic and make sure that it come in and out in the right directions, which is working very good for us at the moment. I think the longer-term solution is that we might have to make some changes as to how to enter the pool deck area, but we think that we have a solution, we have a plan. We are going to work on it this wintertime. By next year we think the pool deck is going to be more effective.

A lot of people love-fall in love with this pool area.

UNIDENTIFIED MALE: In an ever-changing market Francis knows he has to assess his strengths and his weaknesses.

LUI: We are asking the guests to bend-

UNIDENTIFIED MALE: Push his product further and never rest on his laurels.

LUI: I think in the future non-gaming is going to be a major battle, among all the operators. I thin the customers coming to Macao already get used to just gaming. I think they are wanting more. Other than gaming what else, you know, the property could be able to offer them? To make sure that they want to come back.

UNIDENTIFIED MALE: Next week on "The Boss":

UNIDENTIFIED MALE: eHarmony has sometimes tended in its messaging to be overly serious and we have got a little bit ahead of ourselves, when talking to the end user.

UNIDENTIFIED MALE: He knows what he wants, but can Sean Cornwall crack code of love in a tough new market? That is next week on "The Boss".

(END VIDEOTAPE)

FOSTER: Well, what goes up, must come down. They say while China's economy keeps on growing it is already heading for a crash landing, some say. We'll ask the experts for their opinions after the break.

(COMMERCIAL BREAK)

(NEWSBREAK)

FOSTER: Welcome back.

I'm Max Foster.

More QUEST MEANS BUSINESS in just a moment.

But first, here are the -- the news headlines for you.

The Israeli soldier held captive by Hamas for more than five years is now back home in Northern Israel. Gilad Shalit appeared pale and thin and underwent two medical evaluations. He seems to be in good health, though. His freedom came at a high price, the release of more than 1,000 Palestinian prisoners.

About two hours ago, Shalit's father spoke to reporters.

(BEGIN VIDEO CLIP)

NOAM SHALIT, GILAD SHALIT'S FATHER (through translator): Today, we come to the end of a long, exhausting journey which began in July of 2006 and has come to an end four years, he says and four months later in October 2011. Gilad has come home.

(END VIDEO CLIP)

FOSTER: Jubilant crowds of Palestinians greeted the return of the prisoners in Gaza and the West Bank. The Hamas government staged a massive rally in Gaza City. In Cairo, Hamas' leader in exile, Khaled Meshaal, said the swap is a glowing chapter in Palestinian history.

(BEGIN VIDEO CLIP)

KHALED MESHAAL, HAMAS LEADER IN EXILE (through translator): This -- this victory is a result of the -- of the negotiations that was -- that was led by the -- by Hamas. And I say that humbly. This is the -- this is the result of -- of an intelligence, an intelligent mind and a very -- and a -- and strong heart and the ability to discover now also to check all the -- the -- the Israeli mind games.

(END VIDEO CLIP)

FOSTER: Hillary Clinton has been meeting with Libya's interim leaders on Tripoli. The U.S. secretary of State arrived early on Tuesday to show support for the nation in transition and to discuss new joint initiatives. She also spoke to Libyan residents, advising them to focus on the future rather than settling old scores.

Nine percent growth would be a miracle for most developed economies right now. In China, it's getting people anxious. GDP grew 9.1 percent there in the last three months, according to the government. But with each quarter this year, growth has slowed a little. And as the temperature of the economy falls, the worry is that China could be in for a hard landing.

There are a few worrying signs, it has to be said. Housing prices are starting to level out. Stock markets are struggling, with the Shanghai Composite down 15 percent this year. And while inflation is slowing, at more than 6 percent, it's still pretty high, much higher than last year.

Earlier, I spoke to Eswar Prasad.

He is the former head of the IMF China Division.

He's now a professor at Cornell University in the US.

I asked him if these GDP numbers should have us worried or if they're just a blip.

(BEGIN VIDEOTAPE)

ESWAR PRASAD, SENIOR FELLOW, BROOKINGS INSTITUTION, PROFESSOR, CORNELL UNIVERSITY: What is remarkable is how much has been made of a small decline in the bottom line number of GDP growth, which was 9.1 percent for the third quarter, compared to about 9.5 percent growth over the past year in previous quarters.

But underneath those numbers lies an important story, that growth in China is really becoming a lot less reliant on export growth, because, in fact, net exports seem to have slightly contributed negatively to growth in the first nine months of the year.

Instead, domestic demand, as shown, for instance, by strong industrial production and retail sales growth, have remained very strong.

And the big question now for China is whether their domestic demand can continue to maintain momentum if external demand remains weak.

FOSTER: And is that enough for China, because they're still heavily dependent on exports, aren't they?

And, clearly, exports to the West are going to suffer because the Western economy is in such a terrible state?

PRASAD: It's true that the U.S. and the European Union account for about 40 percent of China's exports and China has traditionally been quite reliant on exports.

But it turns out that, in fact, over the last decade, and especially during the global financial crisis, what really kept China's growth going was investment growth. And that is something that can be pushed along fairly easily by expanding bank credit.

Now, whether this is good for China in the long run, whether this is sustainable, whether this is welfare improving growth for the average Chinese household remains an open question. But in the short run, China certainly has the ability, through bank financing and through government stimulus programs, to be able to keep growth going, at least for the short- term.

FOSTER: And we saw the reaction today from the markets. It was a negative reaction to any sort of loss of growth in China, because it's seen as the great hope in the global economy right now.

But actually, the economy is slowing down at a slow pace is actually what the world economy wants, isn't it, because we're talking here about a soft landing as opposed to a hard line -- landing. And this suggests a soft landing?

PRASAD: Indeed, a soft landing for China is what China and the rest of the world would very much like, if it comes along with the rebalancing of growth toward domestic demand driven growth, especially with private consumption picking up much of the slack.

Now, in China, inflation still remains in territory that is cause for concern. Consumer price inflation is still running ahead of 6 percent and there is a consensus if it stays at that level, China may be forced to tighten very hard.

But, of course what happens in China is really crucial for the rest of the world. For comparison purposes, the U.S. is about a $15 trillion economy. China is about a $6 trillion economy.

But in the U.S., in the best case scenario, we're going to get 1 to 2 percent real growth, while China is showing 9 to 10 percent real growth.

So China really has become a prime driver of world growth. And whether China can maintain a soft landing or if it gets ended up into a hard landing is going to have pretty serious global repercussions.

(END VIDEO TAPE)

FOSTER: Well, there you are.

Let's get a check of the stocks in the U.S., with less than an hour- and-a-half left in the session.

Alison is at the Stock Exchange.

And it's been a choppy, choppy day, to say the least. China has played into that, as well as the euro, I guess.

ALISON KOSIK, CNN CORRESPONDENT: It has. Yes, it -- yes, definitely China has played into some of what you're seeing in the markets, to make markets sort of go down. But we've definitely seen stocks pick up steam. Right now, the Dow up 121 points. The NASDAQ up about 22. And the S&P 500 up 1.3 percent.

Also, it's the earnings that are really helping the markets today. And you mentioned Q25 at the top of the show. You know, results have actually been mixed, especially from the major U.S. banks. Cost cutting, mixed revenues, special charges and sales of businesses have some here on Wall Street confused about the results.

But the financial sector is among the best performers right now, with Bank of America leading the way, following its earnings. B of A, right now, is at the top of the Dow 30. Shares are up right now. That's after the close and after the close, though, the focus, which is from big banks to the tech sector. We're going to be getting results from heavyweights Apple, Intel and Yahoo!.

Endless estimates are quite bullish on those. So we're going to see if the trio can meet those targets -- Max.

FOSTER: And we were talking earlier about Goldman Sachs and how the - - the chief exec was blaming the markets for his bad results.

Is that a view that's been accepted on the trading floor there?

KOSIK: It really is accepted. I mean, you look at a lot of these investment banks, especially Goldman Sachs, I mean, gosh, Goldman Sachs posting only the second loss since the company went public in 1999. You know, a lot of these results are based on -- on investment trading. And it's just not there as it used to be. And -- and, you know this, a lot of just investors, big and small, are keeping a lot of money on the sidelines. It's why we're seeing the investment banking portions of these big financial firms taking a big hit.

But the I -- the irony in this is Goldman just reported that it will still pay bonuses to some of its employees. That kind of adding to the frustration and the disconnect between Wall Street and Main Street -- Max.

FOSTER: OK, Alison, thank you for joining us from the Stock Exchange, as ever.

Now, Ben Bernanke has just been speaking about the role of central banks in Boston. The chairman of the U.S. Federal Reserve said the central banks need to be responsible for financial stability as well as monetary policy. He also spoke about the Fed's plans to team up with other central banks to inject dollars into the financial system. Bernanke said central banks have a natural role to play as lenders of last resort.

So that was an interesting speech, in the end.

Meanwhile, a new weapon in the battle against malaria. We'll hear from the CEO of GlaxoSmithKline about a new vaccine his company has developed. It can be revolutionary.

(COMMERCIAL BREAK)

FOSTER: It's been long feared, but a report out today from the World Health Organization suggests that humanity may finally be starting to win its battle against malaria. The WHO says deaths from malaria have fallen by 20 percent in the past decade. A third of the countries where the disease is endemic have made progress toward eliminating it. Three countries have completely eradicated the disease in the last decade, but it's still a problem.

Most dess -- most deaths are in Africa, where a child dies every 45 seconds as a result of malaria.

Now, the fight against malaria may have taken another step forward today when GlaxoSmithKline published the results of a trial of a new vaccine that they developed in conjunction with the Bill and Melinda Gates Foundation.

In trials involving children in Africa, the vaccine reduced their risk of developing malaria by half, would you believe?

I spoke to Andrew Witty, the CEO of GlaxoSmithKline, and asked him how big a step forward this is.

(BEGIN VIDEOTAPE)

ANDREW WITTY, CEO, GLAXOSMITHKLINE: In this trial, if we took 1,000 children, they, without the vaccine, but with bed nets, they suffered about 1,500 attacks of clinical malaria. With a vaccine, that number went down to 750. So the -- the absolute impact is pretty significant.

FOSTER: And an interesting collaboration with Bill and Melinda Gates on this, right?

So you're a commercial business, profit-making, working with a charity toward a common goal.

How has that worked?

WITTY: It's worked very well. We've been in partnership together for the last five or six years. So GSK began this project in the mid-1980s. The part -- as we've progressed, the Bill and Melinda Gates Foundation came alongside, along with others, including another organization called MVI PATH, that specialize in this kind of area.

Together, we've been putting together the funding and the network of clinical research centers we needed to do this trial. And -- and it has worked extremely well, actually. I think we all know what we can contribute, not just money, but skills, knowledge, connectivity. And I think it is -- it's a little bit of a prototype for how to get these sorts of things done.

FOSTER: Well, producing the vaccine is one thing, isn't it?

Actually getting it out to young children is another.

I spoke to Bill Gates about this before. And his concern is often that these drugs are too expensive for the people that need them.

So tell us about the price point and how this drug is actually going to get out to the people who do need them, people who don't have much money -- any money.

WITTY: Well, as I said before, you know, we've been at this for 30 years. The last thing we're going to do is to allow price getting in the way of access to this vaccine for the people who need it in sub-Saharan Africa.

So I made it very clear two years ago that if we were successful in developing this vaccine, we would price this vaccine at the cost of goods plus a 5 percent markup. And that 5 percent markup will all be reinvested back into research for further malaria advances and other neglected tropical disease.

And what we're now focused on is bringing that cost of goods down as far as we possibly can.

FOSTER: Global business leaders very concerned this week about what's going on in the Eurozone, what's going on with Greece, working toward these meetings at the end of the -- of the week involving the politicians.

Can I just get a sense from you how concerned you are, as a global business leader, about the situation here in Europe?

WITTY: If I step back for a minute and say, look at the whole world, because when -- when we live in England or we live in Europe and get a little bit focused on the Eurozone issue, you know, we're seeing a world with very different dynamics. So almost 40 percent of GSK'S business is in the emerging markets. We continue to see very strong growth, very strong, in our sector, demographic moves of people into the health care sector. And we see -- we continue to see different types of economic recoveries or challenges playing out in the U.S. compared to in Europe.

So Europe is a key area of -- of concern, if you will, as we all wait to see what really is going to happen. But I -- it's also worth remembering, it's just one part of a very much bigger mix, at least for a company like GSK.

FOSTER: But when you speak to market suggests, they're concerned about the global picture now, aren't they?

We're having these sort of GDP figures come out from China which weren't as great as we were expecting, the U.S., where you are, is struggling, Europe.

Is -- is -- it's still a struggle, isn't it, even in those emerging markets?

WITTY: Well, I think, though, there's no question that we're seeing an amelioration of growth across the world. We're seeing a reduction in GDP in places like China, as you say. But the reality is, they come in from very fast growth to fast growth, or from fast to quite fast. So these are still very, very significantly growing economies.

And for businesses like GSK, we continue to see tremendous opportunities in those countries.

So, yes, might it be a little bit slower going forward than in the past?

But this is still going to be a very dynamic part of the world.

I also think for companies like GSK, of course, we like to see economies grow. But we can grow our business by taking market share from other competitors. And I think as businesses, you know, we need to stay focused on how we source growth, whether it comes from the market growth or whether it comes from us outcompeting our competitors.

(END VIDEO TAPE)

FOSTER: Now, I'm going to speak to Guillermo because he's going to give us the weather news around the world -- hi, Guillermo.

GUILLERMO ARDUINO, CNN METEOROLOGIST: Hi.

I want to talk about Europe, because, you know, things have changed dramatically here. We see nothing on this map. But as a I find my clicker -- which I have it in here -- I click it and we go. Then you'll see that conditions are cold. We have a system that is actually dipping down and it's bringing the cold conditions along.

So those night days -- nice days -- are long gone. The situation is changing dramatically in Europe. There may be some exceptions and I'll look for them. But you see, as the system gets down in here, it brings the cold air that we get all the time at this time of the year. And that is going to continue.

So far, as the map is showing, also, the situation is improving into Turkey, because we have some bad weather conditions in here. But we will have to wait a little bit until that moves away and things get better.

But the warm weather continues in the Mediterranean Sea for the time being. A totally different story in the north. If you are stuck at an airport in Northern Europe or you were there for a little bit, you see the situation has improved. In the Netherlands, also in Northern Germany. But Central and now Southern Germany are going to see the arrival of the system bringing the unstable weather conditions.

France, it's not a good place to be and especially right now, with the front going to the north. But very soon, conditions will get a little bit better in that area.

Italy braced for some seems, too. We see evidence of snow as we speak in the northern parts, in the higher elevations in the Alps. And we have seen this for the last days.

Northern Africa is going to see a little bit of the impact of that system, too.

But let me focus a little bit on Turkey and Cyprus and the Middle East, because for days, we've been reporting on these seems that actually, it's taking -- they're moving away and it's going to improve the situation a little bit. Don't be surprised if you see some snow, especially in the northern parts of Turkey and Armenia.

This map actually maps -- clear the -- draws the situation very clearly with the cold conditions practically encompassing the entire continent, except for, as we said at the very beginning, the southern parts. We don't see any 30s anymore. We see just a little bit of 20s left, 26 in Madrid, 21 in Rome and also Athens at 20.

But the east, that was warm for so long, is now getting the influx of the cool conditions.

So these are your highs. If you are in Europe or going to Europe in the next days, remember, these numbers are the high temperature of the day. So London is not going to get above 12 or 13 degrees, which means that early months and evenings are going to be cooler than that -- Max.

FOSTER: OK, Guillermo, thank you very much, indeed, for that.

ARDUINO: Thank you.

FOSTER: And now, when we come back, as Greece considers another dose -- dose of austerity, we found out what effect the economic medicine is having on ordinary Greece.

(COMMERCIAL BREAK)

FOSTER: It is a crucial week for Greece, as momentum builds toward Sunday's E.U. Council meeting. The Greek parliament is due to vote on yet another set of austerity measures later this week, which means things probably won't improve any time soon for ordinary Greeks.

From Athens, John Defterios on how the crisis is playing out for the people.

(BEGIN VIDEOTAPE)

JOHN DEFTERIOS, HOST, "MARKETPLACE MIDDLE EAST" (voice-over): From any vantage point, Athens could look to the Acropolis to find inspiration from their rich past. But on the streets of the nation's capital, three years of deep recession, unemployment and resistance have shaken the foundations of its people.

Enter the city's central market and you'll find Mihalis Vardakis. He has numerous pots on the stove, preparing classic dishes for lunch.

MIHALIS VARDAKIS, CHEF AT THE ATHENS CENTRAL MARKET (through translator): I don't know if inside of us that flame of hope is being extinguished. At some point, we hope we'll come back to our old way of life, but we believe there is no hope.

DEFTERIOS: Mihalis, like many others in the market, reminisces about the short window in time, after entering the euro in 2001, and just before the Olympics in 2004.

VARDAKIS: What I'll tell you is very simple. If you had come to this restaurant in 2002 at this time, there would be nowhere to sit. There wouldn't be a chair for you to sit and eat. You would have to wait 10, 15, maybe even 20 minutes.

DEFTERIOS (on camera): The central market has served as an agora, or meeting point, for Athens for generations, the same sort of concept sprung up just a few blocks down the road in Espiria (ph). It was going to be the hub for artists and new media types. It blossomed during the Olympics with all the development funds coming in. Now, it's a bit tarnished.

(voice-over): In this neighborhood, a bakery famous for its kuluri (ph), or sesame-covered Greek pastry, shares the same building with one of the city's well known designers, Aslanis (ph). This once uber trendy pocket of Athens is showing obvious signs of economic strain.

Behind the very public and vocal protests of the salary increases and rising taxes are those who have tipped over the edge.

Panagiotis Voulgaris was an assistant chef at a hotel and a homeowner, a product of the boom times after the euro when loans were easy to get.

Today, he serves food to fellow homeless residents at a shelter.

PANAGIOTIS VOULGARIS, HOMELESS CHEF (through translator): If someone told me just a year-and-a-half, two years ago, that I would find myself in this situation, homeless, I would tell them they're joking with me. Finally, I realized it in a very ugly way.

DEFTERIOS: Those in the shelter are part of a new dark trend that social workers call the neo-homeless -- middle class people who have joined the ranks of those who can no longer cope.

ARIS VIOLATZIS, CLINICAL PSYCHOLOGIST: Greeks who are not desperate ever, it's a climate, it's a culture, it's the wine, it's you name it, the noise, the sun, that have always been hopeful and outgoing.

Right now, Greeks are not outgoing anymore. They are skeptic and anxious.

DEFTERIOS: And it is getting worse, as suicide rates in the country, according to the charitable organization, Klimaka, soared 40 percent in the first half of the year.

VIOLATZIS: We did not expect to face this kind of trouble. Therefore, our mental health services, as a country, and our hospitals, as well, because these things are associated, did not expect to be so overburdened.

DEFTERIOS: In Athens' oldest and largest state-run hospital, a new reality has set in. Unable to trim doctors, nurses and staff due to labor contracts, its chief executive is trimming costs by working more effectively. He's reduced operating expenses by $100 million, about 40 percent in the past year.

MICHAIL THEODOROU, CEO, EVAGGELISMOS HOSPITAL: We have about 50,000 patients per year. It -- it's a real war. It's a real war in the management area to -- to achieve these kind of reductions and to support the system, to support the hospital in order to work productively.

DEFTERIOS: It's part of an effort to try and cope in today's Greece.

John Defterios, CNN, Athens.

(END VIDEO TAPE)

FOSTER: And John is there all week for us, so watch out for his reports.

Now on this program, we really look for the best, even on Twitter. Which is why tonight's Tweets from the Top come from some of the most influential people in social media -- on social media.

American business magnate Mark Cuban Tweeted: "If Occupy Wall Street really wants to change corporate structure and impact the economy, talk to shareholders."

Economist Nouriel Roubini Tweets: "Goldman Sachs makes a compelling case that third quarter GDP growth is 1 to 1.5 percent. Even if those estimates may be closer to 2.5 percent, it will be revised down to 1 percent."

Dan Alpert -- he's the managing partner at Westwood Capital. He Tweets: "Bank of America earnings are apparently the financial equivalent of Cheez Whiz -- no natural ingredients, all fillers and stabilizers. Not so stable," he adds.

Well, after the break, we'll bring you a list of the most choppy markets that have their ups and downs today. We'll bring you the latest from Wall Street.

(COMMERCIAL BREAK)

FOSTER: Let's have a look at the markets for you now.

In the U.S., stocks have clawed their way back into positive territory after yesterday's floor -- falls. It was a very choppy day even today, up 1 percent now, China, euro, all playing into that, of course.

Another day of decline, though, for those European markets. U.K. inflation figures drove the FTSE down. But France's CAC suffered from the biggest fall amid worries about the country's credit rating. Some concern it may be downgraded.

Only Germany's DAX made it into positive territory.

In Asia, the markets also took a knock. It followed Germany's warning that Europe's financial troubles may drag on for some time. The Hang Seng in Hong Kong recorded the biggest fall, as you can see. Tokyo's Nikkei fell 1.5 percent, dragged down by shares in Olympus, which dropped almost 9 percent.

Rebounding out of the region, the main Australian benchmark lost around 2 percent.

And in Shanghai, the Composite lost more than 2 percent. That was after China's third quarter GDP came in below forecasts and some way down on the previous quarter.

That is QUEST MEANS BUSINESS.

Thank you so much for watching.

I'm Max Foster in London.

The news is next.

END