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QUEST MEANS BUSINESS
JP Morgan Suffers Huge Losses; Market Place Africa; Spanish Real Estate Market; Latest on Greece's Troubles
Aired May 11, 2012 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
NINA DOS SANTOS, CNN HOST: JPMorgan's $2 billion blunder, Jamie Dimon plans errors blocking this in bad judgment.
In Spain, the government has forced banks to satisfy 30 billion euros and third time unlucky in Greece as the socialist leaders fail to form a government. I'm Nina dos Santos, and this is QUEST MEANS BUSINESS.
Good evening. Shares in JPMorgan Chase are sinking after the bank made a spectacular $2 billion trading blunder. The affair is raising concerns that America's biggest banks and not only too big to fail but perhaps too big to govern. The trades were carried out by the arm of the bank that's actually managed to manage risk -- made to manage risk.
The bank's chief investment office, based in London, took just six weeks to rack up these kind of losses. The chief executive, Jamie Dimon, blamed errors, sloppiness and also bad judgment by his own staff. And in a conference call investors, while he says that the bank had only itself to blame.
(BEGIN VIDEO CLIP)
DIMON: The new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored. The portfolio has proven to be riskier, more volatile and less effective an economic hedge than we thought.
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DOS SANTOS: Let's go to Felicia Taylor, who joins us now live from New York.
So start off, Felicia, there's so many unknowns about this. We don't really know how big the trades were. We don't know how much of a portion this loss was of those kind of trades, and we don't know whether they're going to have to write down more in the future.
FELICIA TAYLOR, CNN CORRESPONDENT: Yes, absolutely right. You know, but the thing is, they're in the business of managing risk. And the question is if you can't trust JPMorgan to manage risk, who can you trust? And that's what the regulators are really going to be looking at.
But what we do know is that Bruno Iksil, the person who was in charge of executing these trades, would make very large trades at any given moment. Granted, it took a long time to accumulate these kinds of securities and credit default swaps and other sorts of derivatives.
But what is indicative to the marketplace is that the market can see when there's these kinds of market moving trades and therefore on the opposite side they can actually trade against it. And that's what happened here.
There were enough market moving trades happening that there -- the opposite side -- and obviously somebody is going to make money off of this -- was able to step into the marketplace and do that. So are champagne corks popping somewhere on Wall Street because somebody certainly was able to profit from this?
But moving forward, you know, the question for JPMorgan Chase is what does this do to their reputation? They were known as sort of the king of Wall Street, or rather Jamie Dimon was. And they had a stellar reputation. This is a blemish on that. And one analyst told me that, you know, you can build a reputation over years and lose it in one day.
And when it comes to risk management, this is what they were known for best. And if they can't navigate through this, then, you know, one has to question whether or not moving forward they're going to be able to do so. And it's interesting to hear the viewpoint from Jamie Dimon back in January of 2011, what he says about risk.
(BEGIN VIDEO CLIP)
DIMON: I think when you plan for risk at all, you've got to assume there are going to be issues you don't always understand. And you don't always know what the path is going to take.
(END VIDEO CLIP)
TAYLOR: So even says sometimes you don't know where the trades are going to. That's a huge unknown. I mean, one has to presume that the CIO, the chief investment office, which is there to hedge risk for the company, would sort of presume that they were making safe bets. But evidently, at the end of the day, things can change on a dime. Nina?
DOS SANTOS: Yes, or on a Dimon perhaps, at this point, Felicia.
DOS SANTOS: The other thing we should point out is that this comes at a time of increased regulation for the financial services industry everywhere, not just in the United States.
Now a lot of people have speculated that something like the Volcker rule wouldn't have even helped it, because it's unclear exactly what JPMorgan was doing, whether they were actually trying to hedge their bets or prop (ph) trading.
Right, and the question that I posed to an analyst earlier was, you know, would this have been, quote, "in violation" of the Volcker rule? And his reaction to that was, well, first of all, we don't even really know what the Volcker rule is going to stand for, because it hasn't been implemented yet. That's not happening until July.
But the point is, you know, firms are not supposed to make these kinds of risky bets at their profit. And they're also not to make any kind of risky bets especially when it comes to the direction of the marketplace. They're supposed to hedge against certain positions that are within their portfolio. That's OK.
But if you're hedging against purely for profit's sake, then that's not OK. And that's what the question is here. We don't have the answer to that quite yet. Whether or not that's going to become apparent, we don't know. The only thing that truly, you know, you've got to give Jamie Dimon some credit for is the handling of this.
But the reason he had to come out and be so sort of transparent about this and issue that conference call, which was a surprise to everybody on Wall Street, was because it's going to take a long time to unwind his position. If it was that easy, they would have just reversed course right away and taken a small loss. These losses could increase.
It's potential that they could make money, but probably not, that the losses will still increase between now and the end of the year, Nina.
DOS SANTOS: OK, great stuff, Felicia Taylor there, joining us live from New York.
Now as Felicia was just saying, all of this comes as something of an awkward time for Wall Street. The U.S. government is in deep talks to try and stop banks from taking these kind of risky trades, and that's something that the banks are desperately trying to resist here. We're talking about what is known as the Volcker rule.
It's all part of U.S. President Barack Obama's plan to try and reform Wall Street through what's called the Dodd-Frank Act. Now after the financial crisis, President Obama actually wanted to stop banks from taking some of these massive risks, such as the kind of trades that eventually sent people like Lehman Brothers out of business in 2007.
Part of that is, as I was saying, the Volcker rule. What it's done is this is named after the former chairman of the Fed, Paul Volcker. It aims to try and stop U.S. banks from dealing too heavily with hedge funds and also other private equity groups. It would also stop proprietary trading. That is what's known as prop trading.
In other words, when banks use their own money to make trades and not their clients'. Jamie Dimon was repeatedly asked about this issue on JPMorgan's conference call, the one that Felicia Taylor was just referring to before. And he was also asked whether or not it would strengthen the government's case for reform.
Now he said that these kind of trades didn't specifically violate the Volcker rule, but they did violate the Dimon principle. And he did, however, admit that the timing of these kind of losses would no doubt help his critics.
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DIMON: It is very unfortunate. But the fact of this is this does not change analyses, facts, detailed argument. It is very unfortunate. It plays right into all the hands of a bunch of pundits out there, but that's life not to deal with that.
(END VIDEO CLIP)
DOS SANTOS: One man pushing for banking reform is the U.S. Democratic Congressman Barney Frank. He is ranking member of the House Financial Services Committee, and he's also been saying, quote, "JPMorgan Chase, entirely without any help from the government here, has lot, in this one set of transactions, about five times what they claim that financial regulation is likely to cost them."
He says that the loss underscores the need for tighter financial regulation and federal regulation of trading by banks going forward.
Well, the core of JPMorgan's disastrous deal may be a financial contract called a credit default swap, often referred to as a CDS. What this is is a complex scheme blamed for contributing to the mortgage meltdown back in 2007 and 2008. And at the heart of it is basically a bond.
What we're talking about here is an insurance policy here, as you can see. It's essentially an IOU. First of all, a bond is an IOU, which is issued by a government or a company. They sell these to investors to try and raise money. It works out pretty well for the investor here, because this company will continue to pay them interest as long as they own the bond.
But it can also be risky for the investor, because if this company actually goes bankrupt, they can see their entire investment disappear overnight. And that's where that kind of insurance policy I was talking about there comes in. It's basically an insurance policy that's sold by a third party, one that pays off the company issuing the bonds and if -- or pays off if the company issuing the bonds goes bankrupt.
And people investing in these kind of bonds often buy them basically for peace of mind, because they're likely to get their money back even if that company that they've bet on heavily goes under. But here's where it can get messy.
Let me just show you. If you take a look at what we're about to show you now is that anyone can actually buy these insurance policies, even if they don't own the bonds that the policy insures.
And that means there's almost no limit on the number of people who can actually hold these kind of insurance contracts on the bonds issued by any given company or government. So the real trouble comes when we see a lot of bankruptcies. What that does is that can trigger a whole range of credit default swap contracts that basically make that part of a market collapse.
In other words, the whole scheme can collapse. Now here's a question for you. How big is this problem? Well, it's estimated that there are almost $28 trillion worth of credit default swap contracts actually outstanding in the market today.
If you compare that to the total size of the world economy in terms of GDP, the world bank puts that at $63 trillion. You can see that it's a significant chunk here of the world economy and a staggering amount of money riding on these very complex deals which, history has shown us in the past, can sometimes go very, very wrong.
Next, sandbags (ph) for Spanish banks. We'll be taking a look at the new rules designed to protect against bad loans in (inaudible) troubled (inaudible) sector.
DOS SANTOS: And Spain's property bubble continues to improve. The Spanish government is demanding banks now collectively set aside $39 billion designed to protect themselves against bad real estate loans.
Well, banks that don't come up with the money themselves will be forced to take it from the government at a pricey 10 percent interest rate. Well, Spain's economy minister says that it's just vital to restore confidence in her nation's banks.
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LUIS DE GUINDOS, SPANISH ECONOMY MINISTER (through translator): Without absolute certainty about the solvency of the situation in the banking sector, a financial recovery becomes much more difficult and it is much more difficult because if there are doubts or uncertainty about the bank's situation, it will be much more difficult for the banks to raise capital, which affects their ability to lend.
(END VIDEO CLIP)
DOS SANTOS: So the buffer announced today comes on top of already the $70 billion Spanish banks report to have set aside just in February. And the news sent shares in the country's banks ever deeper into the red. That, in turn, hit the Madrid main index, the IBEX 35, as you can see, which lost about 0.7 of 1 percent on the Friday close.
Well, Europe has its eyes on Spanish banks. It's family has the eyes on the back of its head, perhaps, on Greece's political uncertainty. (Inaudible) party leader Evangelos Venizelos has failed to form a coalition government now. He's the third party leader to try since Sunday's election.
And now it's down to the Greek president to try and get the three parties working together. If he doesn't manage to do that by Wednesday, well, new elections will just have to be called. Let's go over to our journalist, Elinda Labropoulou, who joins us on the telephone from Athens with the latest on this.
So Elinda, it's looking increasingly likely that we're going to see the Greeks going back to the polls perhaps a date for that could be June the 7th?
ELINDA LABROPOULOU, JOURNALIST: Obviously a date hasn't been set at this point. But it does seem increasingly likely that Greece may need to go to a new round of elections since all three of the main parties has failed to form a coalition. The last meeting (inaudible) Venizelos and (inaudible) the coalition of the radical left elected (inaudible) is over.
There has been no agreement between the two. The leftist leader has said that what he was asked to do is take part in the pro-bailout (ph) government with a left alibi (ph), something that he could not accept. So now what happens next is that the PASOK leader has to go to the president and say that he wasn't able to form a coalition, and he will be doing so tomorrow at 1:00 pm.
Once that is done, the president will pull the party leaders in and ask them to try and form a national unity government. That's the last minute solution. And if that does not happen by the 17th, the president (inaudible) will new elections. So there is a chance that a last minute solution may be found. But it is a slim one at this point.
DOS SANTOS: OK, Elinda Labropoulou joining us there live on the telephone from Athens. Many thanks for that.
Charles Dallara is the managing director of the Institute of International Finance. He's actually the man who negotiated on behalf of Greece's private creditors when they took a haircut earlier on this year. And he joins us now live from Washington.
This is a very interesting time to be talking to you, Charles, because you know many of these protagonists here, like Evangelos Venizelos. How confident are you that things will work out well for Greece in the end?
CHARLES DALLARA, MANAGING DIRECTOR, INSTITUTE OF INTERNATIONAL FINANCE: Well, I think we have to exercise some patience about the Greek political process. We need to let it run its course. It certainly is full of volatility and uncertainty today. But it shouldn't surprise us that the Greek people have sent a clear message that they want a change of leadership.
I am still reasonably hopeful and I would say reasonably confident that Greece will find its way forward, that it will stay in the Eurozone and that it will move forward with the overwhelming bulk of reforms to which it has committed. But we need to allow the political process to run its course in the days and weeks ahead.
DOS SANTOS: So let me get this right. You're confident that Greece is going to stay inside the Eurozone. People like Citigroup are putting their chances of the Greek euro exit at 75 percent.
DALLARA: Well, with all respect, that's one man's opinion or one woman's opinion, and I don't tend to share it. I think at the end of the day, what we are experiencing here is not just an austerity program. The people, the citizens of Greece have undergone a tremendous amount of pain in the last few years, as the economy has contracted steadily now for well over two years.
The fact of the matter is that what this program is about partly is additional difficult reforms, but also substantial financial support from the Eurozone and the rest of the world in excess of 150 billion euro, which should ease the pain of austerity and actually help recapitalize banks, allow them to extend you credit and get this economy going again.
So I think when leaders of Greece, whomever they may be, face the hard choices that loom ahead in the days and weeks and months ahead, that it's highly likely that they will realize that the course ahead minimizes pain if you stay in this Eurozone. It maximizes it if you leave it.
DOS SANTOS: You say that it's one person's opinion. In fact, the recent news poll covered by Bloomberg shows that 56 percent of over a thousand investors that they polled said that they thought that Greece would be out of the Eurozone by the end of this year. So it's not just one person. That may be your view.
Let's turn our attention towards Spain now, because that's another issue. We're seeing contagion to another peripheral country here. The problem with Spain could be much, much bigger. Would you expect haircuts for other European countries?
DALLARA: No, I really don't. I think that the depth and breadth of Greece's debt problems are unique. A country like Spain has a much more manageable level of debt relative to GDP, a much more manageable fiscal position than Greece found itself in at the start of the crisis 21/2 years ago.
Spain is going to have to take difficult steps. They've already taken some, a bold, courageous labor market initiative which is already working its way through the economy; difficult fiscal adjustments and now we see Spain coming to grips with the problem of its banking sector. It is difficult and it's not yet entirely clear whether there is sufficient capital within Spain to cope with this.
But I do believe that Spain is moving to get a handle on the banking sector problems and that they will get on top of it.
DOS SANTOS: On the flip side, though, many investors said, well, it could be like Ireland's. First of all, they're tackling the banks, trying to get them to recapitalize, perhaps even giving them loans at 10 percent interest to force them to recapitalize. But that could force the country to get a bailout anyhow.
DALLARA: The Irish banking situation and the Spanish banking situation are quite different, however. The Irish banking problems were focused on the large mainline Irish banks. In Spain, the banking sector problems have much more to do with the savings banks, which are distributed around the country than the large globally oriented banks, which are at the heart of the banking system there.
I think the scale of the problem in Spain is also much more manageable than it was in Ireland. They both had real estate sector bubbles that burst. That's certainly true. But I do believe that the scale of the banking sector problem in Spain is manageable.
It will take aggressive effort on the part of the government with the support of the central bank and, of course, the private sector, to come to grips with it. And it'll take cooperation by the provincial leaders in Spain, who will need to, I think, operate within the framework of discipline that has now been set by the central government.
DOS SANTOS: Let me ask you this. What do you make of the ECB's endeavors to try and provide cheap loans to these kind of countries' banking systems and they just end up spending it on the country's own debt? What is it creating, is potentially a long problem further down the road and an artificial market for the bonds of countries like Spain?
DALLARA: Well, I believe that the ECB's liquidity support program for Eurozone banks has actually been well framed and well executed, and I would encourage continuation of it in the months ahead. I do believe you've put your finger on a dilemma. Are these funds used to finance the recovery of credit in the private sector? Or are they used to support the sovereign debt?
Over time, the sovereign debt needs to regain its own freestanding credibility in the marketplace. And the way to do that, in my view, is not to focus on short-term budget cuts, but to frame credible medium-term budget consolidation programs complemented by structural reforms, and stay with it.
I believe that Spain, Italy, Portugal, are all in the process of doing that. And I think that over time this will pay dividends. But we should not force these countries to undergo excessively deep budget cuts in the short run. We saw what that did to Greece. It only deepened the recession further. And I don't think it's wise to repeat that in Spain, Portugal or Italy.
DOS SANTOS: OK, Charles Dallara, (inaudible) thanks ever so much for joining us, (inaudible) live, the managing director of the International Institute of Finance.
A "Currency Conundrum" for you out there. Now this is the Double Eagle $20 coin. Nearly half a million of them were minted in the United States from 1933. And today's conundrum is why were no Double Eagles like this sold before the year 2002?
Was it, A, because of the hefty price tag; B, because the coin was thought to bring bad luck to its owner; or C, because owning this coin could have gotten you arrested? We'll have those answers for that interesting question later on in the show.
(Inaudible) quick look at the currency world now. JPMorgan and the political turmoil currently underway in Greece are all sending investors scurrying to safe havens.
And as such, well, the U.S. dollar is at a three-week high against the British pound, which has just slipped off of a three-month high against the euro in turn. The euro is flat against the U.S. dollar. When it comes to the Japanese yen, it's yet again rising.
DOS SANTOS: Welcome back. JPMorgan came through the financial crisis relatively well compared to some of its rivals. And this massive loss that the firm has come out with now raises some fears that there might be more (inaudible) at other banks. On Wall Street, financial shares are currently hitting a two-month low at the moment. JPMorgan is leading those losses as you'd expect.
As you can see, down about 8.7 percent at the moment. The bank says that it could face another additional $1 billion loss in the second quarter of the year as a result of the (inaudible) market volatility we've seen. Other big bank shares also are significantly lower in today's session, notably Citigroup, Morgan Stanley and also Goldman Sachs. As you can see, all of those in the red.
Let's go over to Alison Kosik for a roundup of today's trading. Has been a volatile Friday. And, Alison, so JPMorgan, obviously, hitting the headlines. This loss was quite a bit bigger than anybody could have expected, and it also came out of the blue.
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: It really did. It did come as a shock to Wall Street. But the overall markets, if you look at them, they're pretty much holding their own. You know, the major averages are flat right now, but then pretty much in the green a little bit. You know, some better than expected economic data is offsetting JPMorgan's huge loss,
And index of consumer sentiment hit a four-year high this month and inflation remains subdued. But as you mention, shares of JPMorgan are really taking a huge hit. Other banks getting dragged lower as well, as you said. All of those shares, including Bank of America, Goldman Sachs and Morgan Stanley, all lower today as well.
And the reason you see that happening is because Wall Street's worried about what kind of bets those other banks are making. You know, this is sort of bringing back all those shades of 2008 and bringing back a lot of those questions, including are these too-big-to-fail banks engaging in risky activity of their own? But there's not necessarily a macro issue going on here.
It could just be specific to JPMorgan Chase, and that's one reason we are seeing the market pretty much take this in stride. One analyst says stock prices are attractive at the moment, and the alternatives don't look better, so you've got investors buying into the market even when these kinds of shocks are happening, Nina.
DOS SANTOS: Yes, taking off a few days to get back above the flatline, hasn't it, but eventually on Friday it seems as though we've managed to do so. Alison Kosik, as always, many thanks for that.
Well, European banking stocks were also hit by the JPMorgan debacle. Barclays lost nearly 3 percent when it comes to (inaudible) Paris. That one fell by 2 percent. The border (ph) markets were also hurt quite a bit earlier on, but managed to close higher, as you can see there, after some encouraging U.S. consumer confidence figures.
We also saw signs that Spain may be getting to grips with its banks. London's FTSE 100 put on about half of 1 percent. The DAX in Germany climbed by 1 percent and the CAC Quarante in Paris, as you can see, ending the day just shy of the flatline.
Well, they once called him America's least hated banker. But now Jamie Dimon admits his bank has been, quote, "stupid and sloppy." We'll take you deeper inside the JPMorgan affair after this break.
NINA DOS SANTOS, CNN HOST: Hello and welcome back. I'm Nina dos Santos. These are the main news headlines.
In Greece, the third attempt to form a coalition government has failed. (Inaudible) party leader Evangelos Venizelos left on Friday with the leader of the Democratic Left Party that failed to make a deal. Well, it's now down to the Greek president to try and get the parties working together or else new elections will be called.
JPMorgan Chase's stock plunged on Friday after the giant U.S. bank announced trading losses of $2 billion since the start of April. Other bank stocks were hurt in turn. The bank's CEO, Jamie Dimon, said that the losses could still get worse.
The Spanish government will be forcing banks to set aside $39 billion to protect against bad real estate loans for this country, while its bank economy minister says that its rivals restore confidence in the country's banks, banks that don't come up with the money themselves will be forced to borrow it from the government at a high rate of interest.
Those huge protests across this Friday (inaudible) Syria following (inaudible) deadly suicide bombings in Damascus. The opposition is accusing the regime of trying to withdraw the defeat plan there, but the regime claims that, quote, "terrorists" carried out the attack that killed (inaudible) people.
Former News International executive Rebecca Brooks says that the British prime minister, David Cameron, sent her a message of support when she resigned from her post last summer during the phone hacking scandal. Brooks is testifying on Friday at the Leveson inquiry into media ethics in London.
DOS SANTOS: Errors, sloppiness and bad judgment, those are the words that could haunt Jamie Dimon for the rest of his career. Just days after describing his optimism for the economy, when the JPMorgan chief has had to explain massive losses of $2 billion since just the month of April. He's been CEO of JPMorgan since back in 2006, making $23 million just last year.
He also sits on the board of the New York Fed, and it was during the financial crisis that this person really made a name for himself. He managed to buy Bear Stearns and also Washington Mutual for what most analysts saw as bargain-basement prices. Those deals helped JPMorgan's share price to recover much faster than some of its rivals on Wall Street. That did wonders for this man's reputation, as you'd imagine.
Let's just take a look at some of the comments that have been made about him. "The New York Times" once called him America's least hated banker. He's also been on "Time" magazine's list of most influential people no fewer than four times.
Earlier today I spoke to David Kellehar. He's the president of the financial reform group Better Markets, and I asked him if this incident was really going to kickstart the campaign for reform on Wall Street.
DENNIS KELLEHAR, PRESIDENT, BETTER MARKETS: Well, they're saying it's unclear, and we don't know all the facts.
But if the Volcker Rule, which is supposed to ban proprietary trading, which is banks making big bets with their money, which may result in big wins or big losses, is designed to address, it's pretty clear here that there was a big bet made and there was a big loss. So if the Volcker Rule is promptly implemented as proposed, these types of big losses and big gains are prohibited.
If it was a hedge, there would be another side to this, and therefore a loss would be offset by a gain. That's what a hedge is supposed to be doing, and that's what the banks are supposed to be doing rather than swinging for the fences.
DOS SANTOS: You say that it's a really big figure here, but we're talking about a $360 billion bet. And there is that $2 billion of that, that's only about half of 1 percent. It is a huge bet, but some people would say that's not an enormous loss (inaudible) speaking.
KELLEHAR: Well, first of all, we don't know all the facts and I'm not even sure it was a $350 billion bet. That was the amount of assets that were allocated to the CIO office where this risky trade was done.
What we do know is we had a very complex high-risk trade in illiquid derivatives by a bank that is subject to this federal safety net, which means ultimately this bank is backed up by the U.S. Treasury in the federal -- and the U.S. taxpayers. The whole point of financial reform is to prevent more bailouts.
And the reason we need financial regulation and reregulation of these banks is because their high-risk activities, you get $2 billion, $3 billion there, $14 billion here and before you know it, you've got real money.
And you might want to remember that back in '08, what happened is many of these proprietary bets built up over time unseen, and the result was, for example, Citigroup had to write off $40 billion. There was one trade alone at Morgan Stanley in 2007 where they lost $9 billion.
And the problem right now is nobody knows what kind of high-risk derivative bets these banks are engaged in. But what we do know is they get the upside, but the taxpayers get the downside.
DOS SANTOS: Yes, but banks perform essential functions to society here, especially big Wall Street banks like JPMorgan.
KELLEHAR: Well, and you're right, and what the rules are supposed to do is that they're supposed to be providing those services. And in providing those services like making loans --
DOS SANTOS: (Inaudible). Are you saying they're not providing these services?
KELLEHAR: What I'm saying is that when they're making big bets with their own money, that's got nothing to do with their customers or providing services. That's got everything to do with making big hits to hit their revenues so that they get big bonuses.
That's what proprietary trading is really all about. If they wanted to service their clients and in connection with that having inventories that they want to hedge or market make, then they could do that in a way that's not high-risk, but it also doesn't have high profits. And that's really what this comes down to.
DOS SANTOS: What would you like to see happen here?
KELLEHAR: Well, to be honest with you, I think the first thing that has to happen is there has to be a full, independent investigation of what did happen here, and that means the Department of Justice should appoint a special prosecutor.
The reason for that is is that Jamie Dimon and JPMorgan are very powerful politically connected bank and the regulators whose conduct themselves should be looked at here who were in the bank over the last month. So the first thing is the full investigation.
Second thing is a complete analysis of their risk and management controls, because a month ago, Jamie Dimon dismissed any concerns about this as a tempest in a teapot. Thirty days later, he's looking at a $2 billion to $3 billion loss, and there were 850 million shares of JPMorgan stock traded in that month, based on the statements that he made a month ago.
And now the stock is down, I just saw, something like 8 percent. So clearly their management and risk controls leave a lot to be desired, and we need an investigation that's independent so the report can be made to make sure that these types of things don't happen again.
(END VIDEO CLIP)
DOS SANTOS: Lloyd's of London has a vision for growth in emerging markets (inaudible) about strategy. Up next, we'll hear the 13-year plan (inaudible) and find out how other companies are protecting itself against the crisis in Europe.
DOS SANTOS: Welcome back. Let's get your answer on the "Currency Conundrum" now. Why were no 1933 Double Eagle coins (inaudible) before 2002? That was the question we asked you early on in the show. The answer is C. It was illegal to own the coin until 2002.
A British coin dealer was actually jailed back in 1996 when he tried to sell the coin to an undercover federal agent posing as a coin collector. The coin is also one of the world's most expensive (inaudible) 2002 (inaudible) Double Eagle coins was actually sold at auction for a price tag of $7.6 million.
Now the insurer, Lloyd's of London, has set out its long-term plan for growth called Vision 2025. What it'll do is cash in on rapidly expanding emerging market economies.
And the 13-year plan will also internationalize Lloyd's underwriting community before it calls powerful hubs in some of these key markets overseas. Lloyd's says that it's going to be bringing benefits not just to the company but also to the city of London and the U.K. economy as a whole. Of course, we're in the midst of a recession. U.K. economy needs all the help it can get these days.
John Nelson is the chairman of Lloyd's of London and he says that Vision 2025 is all about seizing opportunities. Earlier he told me that the company was well insulated from the effects of the crisis in Europe.
(BEGIN VIDEO CLIP)
JOHN NELSON, CHAIRMAN, LLOYD'S OF LONDON: Our assets are really held in very liquid securities, cash or near cash government bonds or corporate bonds. So we do look obviously at covenants.
So for example, our exposure to Eurozone government bonds, particularly in the southern part of Europe, is actually -- we don't have any as a market. We reduced that exposure more or less to nil some quite a time ago.
DOS SANTOS: The one thing that comes out of all of this is the potential for a financial transaction tax, perhaps according to Volcker Rule, more financial regulation. Is that something that would worry business leaders like you across the city of London?
NELSON: Most definitely it would. And we think that a financial transaction tax is precisely the wrong thing to do if we want the U.K. and Europe to show signs of growth, because part of the engine for growth for Europe, just -- not just the U.K. -- is in financial services.
And in fact, the prime minister, David Cameron, said today at the launch of our Vision 2025, he made a very specific point that this government will oppose any sort of financial transaction tax.
DOS SANTOS: So you've spoken about this vision for 2025. What is your vision for 2025, given the way how things are going in Europe, it's not looking particularly positive. We can be in a very different situation financially a number of years on from here.
NELSON: What is going on outside the developed world is, as you know, a huge amount of industrialization and commercialization in the emerging growth countries. That will produce a very significant expansion in the market that we operate in. And what this strategy is designed to do is to make sure that Lloyd's is in a position to capture its fair share of that business.
DOS SANTOS: Mind you, some of these emerging markets have inherent risk for insurance underwriters as well, you know, notably we take a look at some of the natural disasters that have happened in some of these countries. They are high-growth areas, but they're also high-risk.
NELSON: Yes, and that is what Lloyd's specializes in. That is what we have. We have the best conglomeration of underwriting expertise in the world here in London at Lloyd's. And if you look at last year, where we had a really -- the second worst year for catastrophes on record, a total amount of claims for the entire market of over $100 billion.
Lloyd's emerged from 2011 with its capital absolutely intact at record levels. Our rating at A plus. And that is a true testament to the expertise we have here, and really to your point, underlines that we do have the talent and the ability and the professionalism to assess these risks properly.
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DOS SANTOS: And on that note, it's time to say goodbye. That's it for this edition of QUEST MEANS BUSINESS. I'm Nina dos Santos in London. (Inaudible) for joining me. MARKETPLACE AFRICA is next and have a great weekend.
ROBYN CURNOW, CNN HOST: Welcome to MARKETPLACE AFRICA. I'm Robyn Curnow. We're in Addis Ababa, Ethiopia. Now necessity has made innovators out of many Africans, in poorer places like this, people come up with creative solutions for their everyday life. Well, let's start the show by looking at examples of African innovation.
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CURNOW (voice-over): This is Professor Mohamed Sanad. He works in the faculty of engineering at Cairo University, and this antenna has just won him the new innovation prize for Africa. His investigation is the world's first mobile phone antenna that is designed to significantly reduce the human body's exposure to cellular radiation.
MOHAMED SANAD, PH.D., EGYPTIAN ANTENNA SCIENTIST: It's a dream for every scientist to be able to make a difference in the world, and that's my dream and I hope I can do that.
CURNOW (voice-over): But despite his success, Professor Sanad says he and other investors in Africa are held back.
SANAD: We have problems because as I said, many organizations in Africa and the government still they didn't realize the importance of investing in high technology. So it's a new thing for Africans and for most of African governments and organizations. But it's getting changed and this competition is approved for this.
CURNOW (voice-over): Ambassador Walter Fust is the chairman of the African Innovation Foundation, one of the organizations behind this new innovation prize for Africa. He says these are exciting times for African ingenuity.
WALTER FUST, CHAIRMAN, AFRICAN INNOVATION FOUNDATION: And I am absolutely convinced and we have see now by launching this first African innovation prize and the prize awards that there are more novelties coming out of Africa.
NKEPILE MABUSE, CNN CORRESPONDENT: I'm Nkepile Mabuse at the Silverbird Media store here in Nigeria's capital of Abuja, the only store accredited in this city to sell one of these, Africa's own version of the iPad. It's appropriately named Inye, which means first in the local Igala language. It uses the Google Android operating system and its maker says it's half the price of the iPad.
Nigeria is the biggest market here on the African continent with 160 million people and no Apple store. So Inye is hoping to bridge that cap.
Saheed, we're talking at an interesting time, when demand for the new iPad is said to be off the charts. But Africa's never really been a big market for Apple. Is that a gap that you're trying to fill?
SAHEED ADEPAJO, INYE OWNER: Exactly the gap we're trying to fill here in Africa. What we've realized is that the Apple company in the U.S. have no presence here in Nigeria, probably because they have a huge market in America and in China.
MABUSE: So if I buy one of these, what do I get?
ADEPAJO: What you get in one of these is you get the latest Android 2.0, which --
MABUSE: You use the Google Android --
ADEPAJO: -- Google Android.
ADEPAJO: Also you have access to the marketplace. That gives you access to different applications.
MABUSE: OK. But there are challenges. I mean, you've only sold 80 in year one and you launched in year two last year May. You haven't sold a single device. Why?
ADEPAJO: Probably because we're trying to get funding so we can bring the price point as low as we can. Venture capitalism here is still young. I know there are people that invest a lot in (inaudible) projects like (inaudible) state technology firms are still very new within Nigeria.
MABUSE: And is that discouraging for you?
ADEPAJO: Sometimes it is, but I do know that if you have seen lots of other stories of startups, I know how long it takes them to get funding. So I know if you go and say for as long as you can and try and get as much credibility behind your brand, you will get funding either locally or internationally.
DAVID MCKENZIE, CNN CORRESPONDENT: I'm David McKenzie (ph) in Nairobi, Kenya. This is the iHub. It's a technology collective some 7,000 members, venture capitalists, developers, just people trying to invent new things. (Inaudible) a young Kenyan who's finding a way to use a cell phone when people are in a tight spot so they can get help.
So, David, why did you develop this application?
DAVID LEMAYIAN, TECH INNOVATOR: Well, I developed this application mainly because of my brother, my younger brother. I thought about his safety and our safety in totality. So I was thinking about the kidnapping that I heard about from my family friends and it is getting too much.
MCKENZIE: So how does it work?
LEMAYIAN: As you can see, I've already set up my brother as one of the in case of emergency contacts.
MCKENZIE: And you've got this huge red button there.
MCKENZIE: So it's like literally hitting an alarm.
LEMAYIAN: Exactly. It's simply, it's easy to use, it's on your home screen on Android (inaudible).
MCKENZIE: So if you're in trouble, paint a scenario. What would you do?
LEMAYIAN: Unlock my phone, have the home screen button, press it. And in five seconds, it locates you and it sends the (inaudible).
MCKENZIE: So the phone positions where you are and sends that to your contact.
LEMAYIAN: Exactly. The importance of Africans developing for African problems is because we are the ones who really understand what is needed, what are the limitations and what can be done.
MCKENZIE: So what do you hope for this product?
LEMAYIAN: So what I hope for this product is that people will actually feel safer as they walk, and they move around. And we're actually really getting it back on the scene. I mean, we're already in beta testing and people are already saying we're feeling safer because we have this application.
CURNOW (voice-over): Political and business leaders have gathered for the World Economic Forum here in Addis Ababa to talk about opportunity on the continent. So we sat down with Ory Okolloh, Google's policy manager for Africa, to talk about where she things Africa's innovative future is headed.
CURNOW: Here at WEF you're talking about innovation, what have you got to say?
ORY OKOLLOH, GOOGLE'S POLICY MANAGER FOR AFRICA: I think what we're saying definitely along with all the statistics around economic growth, African countries getting more stable, is this realization that there is a lot of energy being unleashed.
But it's coming to the forefront because this -- the can-do nature that Africans have always had, which I what I prefer to call it, always sort of can-do and may do (inaudible) circumstances.
CURNOW: What are the challenges for innovators in Africa?
OKOLLOH: I think there are two big challenges. One is always the perennial question around funding. But beyond that is also sort of the business skills, how do you sort of take your ideas to market that the idea could be innovated, but how you package it, I think is an area I'm seeing the innovators need to improve. I think that the other big challenge is access to the market.
Africa, as you know, it's very fragmented in terms of being able to do business. And really, for you to grow, your idea needs to be not just in Kenya, but needs to at least service the economic -- the East Africa community, for instance.
CURNOW: (Inaudible) how important is creativity to economic growth and is it enough to change people's lives?
CURNOW: So how do Africa's pioneers take their innovations to the market, and more importantly, how does innovation spark new jobs, growth? Well, for our "Face Time" interview this week, we sit down with Emeka Okafor. He's one of the judges for the new innovation prize for Africa and has a technology blog.
FELICIA TAYLOR, CNN CORRESPONDENT: How do you see innovators in Africa as opposed to innovators in other countries, whether it's in Europe, whether it's in other emerging markets or in the United States? How is it different in Africa, and how can that best be promoted and utilized?
EMEKA OKAFOR, MAKER FAIRE AFRICA: Some of the differences may stem from the lower income levels and lower infrastructure bases you have within Africa. So for example, you know, you don't have the kinds of research budgets in African countries that you may easily come across here in the United States or in western Europe.
Innovation tends to have more of a utility purpose to it because there's an immediate need. Many of the fabricators and hackers or makers or whatever you might choose to call them have an urgent need to increase their incomes, build up on what they don't have.
So there is this sense of urgency around what they're doing. That may differ somewhat from what you could consider the makers in the United States that have more disposable income and have the luxury of time and the resources to quote-unquote "tinker."
TAYLOR: And what is Maker Faire Africa?
OKAFOR: Maker Faire Africa is an annual assembly of innovators, inventors, tinkerers, fabricators that occurs in a different African country every year.
It's essentially a place where we feel those who are of a creative disposition across all disciplines can more or less not just display what they're doing but interact with their peers, the public and everyone else in an environment where the operative term was "What have you made? What were you making?" and an environment where it wasn't your pedigree, your background, your education that mattered, it's what you had put together.
TAYLOR: So what are the biggest challenges that remain?
OKAFOR: In what terms?
TAYLOR: For inventors? For innovators in Africa?
OKAFOR: Well, inventors and innovators across the world, they generally face the same set of challenges. It's just that in Africa, they're largely magnified. One is developmental costs, you know, I have this good idea. I've been able to fabricate and put something together.
How do I move it through the processes and phases of prototyping, before we even get to the point where we can say we have something that may be of -- may be absorbed by a market, a business and so forth? So there's that.
Communication, our recognition that what they're doing is important. There's a need. You know, we have business types who are looking for solutions, but there isn't that much of a connection between their need and those who might be working at it.
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CURNOW: Well, that's all from us on the streets of Addis Ababa. I'm Robyn Curnow. Remember you can find us at CNN.com/MarketplaceAfrica. Goodbye.