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Spanish Borrowing Costs Soar; World's Oldest Bank Gets Downgrade Warning; Russia Readies $40 Billion Crisis Fund; European Markets Rebound; Decisive Policy Action Needed; Wall Street Rallies; Walgreen's $6.7 Billion Deal With Alliance Boots

Aired June 19, 2012 - 14:00   ET


RICHARD QUEST, HOST: Spain is paying heavily for cash as borrowing costs hit a 12-year high.

In Greece, reports of a coalition government imminent.

And overexposed. The flash of guerrilla marketing provokes a storm at Euro 2012.

I'm Richard Quest. I mean business.

Good evening. No short-term solutions, only Central Bank salvation. That seems to be the world tonight, certainly as it relates to Spain, where the country finds no relief from the bond market vigilantes. The only alternative may be a call on the ECB to help bring down the soaring costs of borrowing from Spain.

Now, the Spanish borrowing costs -- if you join me over in the library, you will see. Look at this, 12-month note -- the 12-month note on the Spanish yield is 5.1 percent. They were attempting to sell $3.75 billions in short-term.

Now, that rate at 5.1. Last month, the rate was 3 percent. So, it gives you an idea, 2 percent increase in just over a month. It makes recapping the banks much more difficult.

You'll recall that although they've asked for the money and it's been granted, or at least they're working out the deal, it will be some time -- excuse me -- before we know the full cost. And indeed that will only really come after we get the independent auditor's report.

If Spain has got some problems, then obviously there are worries in Italy, where the third-largest bank has been threatened with a downgrade. MPS said -- it's said to be the world's oldest bank, established in 1472.

Well, it may be old, but it's being downgraded. S&P said it is struggling to fill a $4 billion shortfall and, at this rate, 1472, we might wonder what else goes after that since and until.

Russia has agreed a $40 billion crisis fund. It's a preemptive move to fight European contagion. Now, the idea here is that Russia will capitalize Russian banks if necessary by as much as this much money. In other words, they are getting the war chest ready in case what happened in Spain and Italy eventually ends up in Russia.

In this scenario, European markets had a strong session, despite the concerns. Spanish and Italian stocks bounced back from Monday's big falls.

Some investors, when you put it all together, now believe that intervention from the ECB is the only answer, and that may even be imminent. It encouraged some buying on the major indices. Look at the numbers.

The fundamentals remain weak in Germany, though. The ZEW survey showed the sharpest fall in business confidence since 1998.

We need to actually discuss the severity, particularly as it relates to Spain, and to put into context whether this banking crisis is actually an issue in the wider economy, what are the fundamentals.

Tobias Blattner is the European economist from Daiwa Capital who believes only a change in policy from the ECB or leaders like Merkel will have an effect. I put it to him that Spain was now shut out of the debt market.


TOBIAS BLATTNER, EUROPEAN ECONOMIST, DAIWA CAPITAL MARKETS: It is, definitely. I think now -- obviously, for now, because the debt stock of Spain is still at a relatively small size, they can actually still make -- they can still maintain the market excess in particular because the domestic banks have so much funds.

But obviously in the longer run, interest rates like the Spanish government has to pay right now are simply not sustainable.

QUEST: The domestic banks only have so much money because they are basically getting it in through the left door from the ECB and sending it out the right door.

BLATTNER: Precisely, exactly. And I mean, if we look, actually, at the balance of payments data from Spain, then we see that the foreign investors, in particular at the beginning of the year when we had that good sentiment in the market, they used that opportunity to actually reduce their exposure to Spain and also to Italy.

So, we really see that actually now this is turning into a balance of payments crisis, and the Spanish government is critically hinging on the need of the domestic banks.

QUEST: What are the options available, not just to the Spanish government, but to the eurozone leaders now?

BLATTNER: Well, I think there are only two options left right now. Either the ECB changes its position and actually will now be open to sustained and open-ended purchases of Spanish government bond, and that would effectively bring down the Spanish interest rates.

Or I think the European leaders, and Merkel, obviously, in particular, is now willing to embrace that mutualization and I think some sort of a euro bond.

I think any other sort of policy measure right now would probably not have any effect, because we have seen how the markets have reacted over the past two weeks to seemingly positive news, and none of that had helped. I think now there's really a decisive policy action needed.

QUEST: Let me play devil's advocate, here. The markets are being downright mischievous troublemakers here. There is absolutely no reason for Spanish bond yields to be at 7 percent other than some manufactured fear of what could happen. The banks are perfectly able to be recapitalized by the funds that have been promised already by the eurozone.

BLATTNER: Indeed. But I think it's still the fear, obviously, and I think it's normal that the investors are right now asking for a higher-risk premium, because simply they do not know what else is coming.

We have seen that the Spanish government, I think, lost a lot of credibility in the way that it handled Bankia, when all of a sudden, two weeks later, the sums were a multiple of those that they had said before.

So, all of that, I think, makes the investors, obviously, anxious, and then we have that general, I think, risk aversion right now. And that is resulting in, I think, these very high interest rates that the Spanish government has to pay right now.

QUEST: All right.

BLATTNER: And we also have to see.


QUEST: Tobias Blattner from Daiwa.

With such concern, you might well wonder why is the Dow Jones Industrials up more than one percent, over 100 points? Alison Kosik is in New York. Now -- come on, Alison. There's got to be a reason why -- because frankly, Spain seems to be in as much trouble as ever, Greece still doesn't have a government. So, why is the Dow over a hundred and some up?

ALISON KOSIK, CNN CORRESPONDENT: Well, for one, Spain and Greece are still a concern to Wall Street, but you wouldn't guess it today, clearly. But I think what you're seeing is Wall Street putting Spain and Greece on the back burner.

And today, it looks like Wall Street moved on to the next best thing, what the Fed is going to do. The US Fed, of course, is in the middle of its two-day policy meeting. And what you see on the screen, all that green, Richard, is optimism. That's all about optimism that the Fed could introduce some sort of stimulus.

So, could be any one of these things. Will the Fed continue Operation Twist? Though that may not be enough for Wall Street to continue this kind of rally. You know, Wall Street is really hoping that the Fed will wind up announcing another round of bond buying or some other type of stimulus.

But you know, one analyst told us he doesn't think you're going to see any kind of QE that the investors are expecting, which could wind up setting up the market for a big disappointment tomorrow afternoon, Richard.

QUEST: All right. All right. Ben Bernanke has said on numerous occasions he stands ready to do that which is necessary. In recent speeches, he's repeated the worries about the eurozone. But there is really very little out there that suggests QE3 is about to be launched tomorrow.

KOSIK: There really is little out there. But you can't keep -- hold back Wall Street from hoping, right Richard? And then, you have to remember, it could be some sort of watered-down version of a QE. It may not be like the QE 2, it may be some other kind of version.

Fed always says they've got an arsenal of tools. They can be kind of creative, I think, in coming up with some sort of QE if necessary, so you never know what they can come up with, Richard.

QUEST: Interesting deal in the drug sector. Ally -- Alliance Boots and, well, indeed, the deal that was announced today. What's behind that?

KOSIK: Exactly. So, yes, we're watching shares of Walgreen's down about 6 percent. The drug store chain is going to be spending almost $7 billion to buy a 45 percent stake in the health and beauty retailer Alliance Boots. Wall Street, by the -- Walgreen's, by the way, has an option to buy the rest of Boots in about three years.

And here's why this is interesting, Richard. Many US companies are trying to reduce their exposure to Europe, and here you have Walgreen's doing the opposite, because it's trying to combat it's weak US sales.

So, what will wind up happening is this company could be the largest buyer of prescription drugs in the world. It will give it pricing leverage over drug companies, certainly, so -- What's interesting about this deal, though, this is an all-cash deal. Investors right now aren't buying into it, Richard.

QUEST: Alison Kosik in New York. We will talk Fed when we know more about that meeting tomorrow. We thank you, Alison, in New York. I wouldn't put necessarily -- but what do I know? -- money on a QE3.

We'll be live in Athens after the break as the country edges closer to a coalition agreement. And we'll look at the lure of London property for anyone in continental Europe with any money left. QUEST MEANS BUSINESS. It's Tuesday, good evening.


QUEST: It is almost impossible to know exactly where one should put money these days other than in a sock in a -- under the mattress, where it might not lose.

But when traditional investments appear risky, money does go looking for new homes, and for those who can afford it, London's property market looks like a safe retreat from the continental crisis, as one London estate agent told Jim Boulden.


RUPERT DES FORGES, KNIGHT FRANK: London historically has always been a defensive asset class for the last 20 or 30 years. And we are finding that the more turmoil there is out there and potentially might be, you're seeing an increasing focus on this city once again.

We are sitting here in June 2012 at about 15 percent above where prices were a year ago, and they're about 42 percent above where prices were at the bottom of the market in April 2009.

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Two, three years ago, we would've talked about Indians and Chinese investing in London, and five, ten years ago, Russians, as well. And now, we're talking about continental Europe, especially the southern part of the continent. Does that mean there's even more competition for a limited number of properties here?

DES FORGES: Yes. Certainly, you are seeing wealth in particularly the Mediterranean countries are facing a lot of the crisis at the moment, picturing on London once more. The main plays are from those Mediterranean countries, that being Spain, Italy, and Greece particularly.

BOULDEN: So, you feel a lot of interest from Greece last year, but it's tapered off. Why do you think that is?

DES FORGES: I think what basically has happened is that it was anticipated by people who had money to invest here or to put into assets here, we saw a lot of activity in the early part of 2011.

BOULDEN: From the Greeks?

DES FORGES: From the Greeks. And again, I'm talking about largely who are people who are familiar with London and largely have assets here already and who are adding to that portfolio. So, they're thinking about, perhaps, their children, their grandchildren. They're storing well.

BOULDEN: If there is an economic crisis in the next few months, and there is turmoil with the euro, what do you expect to happen to this -- to this market in central London?

DES FORGES: Well, our view is that as -- historically, this market has always performed very well. As the world has got more difficult and more there's turmoil out there, London has always been this bedrock asset. And we've seen that post 2008 Lehman's.

It's a small marketplace and has global attention. It has a very tight supply. And therefore, for that reason, our view is that you may have a period where the market freezes up a little bit, but I think ultimately, the impact on prices will be minimal. In fact, our view as an organization is prices will continue to lift through the rest of this year.

BOULDEN: And you've seen more Germans lately and more Scandinavians?

DES FORGES: Yes, we have. We have. And Germans are very interesting because they've always been the slightly elusive pot of gold. It's obviously a very wealthy industrialized country, when you compare to the numbers we have from the Mediterranean companies. But I think it's an indication of people again thinking about protecting wealth.

We've seen a significant uptick in interest from particularly the sort of Mediterranean countries in the last months -- few months. Also from France, pace elections there.

BOULDEN: I've been hearing anecdotally that the French, very wealthy French, were leaving France or putting more assets into London. But you're seeing that specifically?

DES FORGES: Yes. There's no doubt about it. I think probably you are seeing existing French owners buying more here, but certainly there are some people who are considering moving here full time, and they're looking in the family house market, rather than just investment apartments, like this. So, it's a slightly different play, but there's two stories, there.

BOULDEN: So, that tells you that French families are thinking of relocating here because price -- they think taxes are going to up under the new president.

DES FORGES: I believe that is the case, yes. Yes.


QUEST: Now, to Greece, which could have its coalition government within the next hour. Party leaders are reportedly close to clinching a deal that would give the country its first elected government in 20 -- in 222 days. Matthew Chance is following developments in Athens. Matthew joins me now on the line.

Matthew, when I left you -- or when I left Athens this morning, there was talk it was going to be New Democracy and PASOK with maybe Dimar. So, where do we actually stand tonight?

MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT (via telephone): Well, I think talk of a coalition has consolidated around those three parties. Obviously, New Democracy, led by Antonis Samaras, the party that came in the lead in these elections.

But in a coalition with PASOK, the center-left socialist party and with the Democratic left as well. Those three parties together would have enough of a majority to govern the country with some degree of stability.

But what we've seen over the course of the last day is the -- the inability, I suppose, at this point, of those three parties to come together very quickly, at least, in a coalition agreement. They're negotiating back all sorts of things.

And here's the interesting thing. I've just learned this recently over the past hour or so. Usually, when parties get together to forge a coalition agreement, they're horse trading about who's going to get the finance post, who's going to get the Defense Ministry, the Foreign Ministry, things like that.

On this occasion, the stumbling block is that none of the two -- the other two parties, neither PASOK nor the Democratic left, want any of their MPs to take a cabinet post. They want all the cabinet posts to be held by New Democracy MPs, so poisonous do they understand running Greece to be, Richard.

QUEST: Now, he had a three-day mandate. Started yesterday, goes on today. So by rights under the constitution -- I'm not a constitutional expert on the Greek economy -- it would be Wednesday or Thursday at the latest when New Democracy and Samaras's mandate expires.

CHANCE: Yes. The time being given is midday local time Wednesday, tomorrow. So, they've got all this evening and all tomorrow morning to finalize this. And already, the leader of PASOK, the center-left party, has come out and said that he's having a meeting tomorrow morning local time at 10:00 with his MPs to finalize a decision about whether or not they can take part in this coalition.

QUEST: All right.

CHANCE: And so, the expectation is still that there will be a coalition, but they're taking it right up to the wire.

QUEST: Matthew is in Greece tonight, where I saw from your picture earlier today -- hot day, now.

So, to tonight's Currency Conundrum. Every year, the International Banknote Society names a banknote of the year. So, last year, was the international banknote of the year from Kazakhstan, from Canada, or Gibraltar? We'll have the answer later in the program.

Now, there are the rates. The euro's on the rise as a result of that hope of a Greek bailout that it might actually take place. It put on nearly one cent against the dollar, which has slid against most major currencies on expectations of further monetary easing. That creates inflation, and that reduces the monetary base. Those are the rates --


QUEST: -- this is the break.


QUEST: The Millennials. And now, our look at those who are trying to make it. In New York Michael Burbach is at one of the most crucial junctures of his life. His art school studies are coming to an end, and now the next, of course, quest is to actually get onto Broadway and, hopefully, get an audition that will get him a part. Well, it sounds so easy when I say it to you at this time in the evening.

Joe Braidwood, on the other hand, in London is realizing the limits of his own powers, which is always a difficult thing to a Millennial to come face-to-face with, a restriction that proves they're not omnipotent. Hey may want to call the shots, but there comes a time when you need backup. They are The Millennials.


UNIDENTIFIED CORRESPONDENT (voice-over): Previously on the show. In London, the making of a Millennial. We went back to the earlier years to speak to Joe's dad about his son's drive.

STEVE BRAIDWOOD, JOE'S FATHER: Joe, when he was a toddler, was very precocious. He would talk to adults as easily as he was talking to other kids.

UNIDENTIFIED CORRESPONDENT: And in New York, future plans. Michael spent an afternoon with Richard Quest to discuss his dream and his Millennial ambition.

QUEST: What is the next chapter?

MICHAEL BURBACH, ASPIRING ACTOR: The next chapter is taking everything that I've learned and applying it to starting my career.

UNIDENTIFIED CORRESPONDENT: Before the next chapter begins, Michael has one final test, perhaps his easiest so far: his graduation.

BURBACH: The four years went by so quickly, and I jammed so much amazing stuff into them, and I'm so excited to start the rest of my life.

UNIDENTIFIED CORRESPONDENT: Treading the boards once more at New York's historic City Center, Michael and more than 200 of his fellow students don traditional cap and gown and fill the stage to the strains of "Pomp and Circumstance."

Across the United States this spring, thousands of Millennials have been graduating and entering one of the most challenging job markets in many years. At Marymount's more low-keyed ceremony, Michael sits in the first row as he awaits his big moment.

UNIDENTIFIED MALE: Faculty, administrators, family, friends, and members of the class of 2012.


UNIDENTIFIED MALE: Welcome to Marymount Manhattan College's 63rd commencement exercises.

UNIDENTIFIED CORRESPONDENT: Finally, the moment arrives.

UNIDENTIFIED MALE: Will the candidates for the Bachelor of Fine Arts please rise and approach the stage.



BURBACH: My plan right now is just to out there and send my head shot to everyone I know and go out and audition and pound the pavement and do everything I can to just get myself out there. I'm probably going to have some sort of a job to hold me over, like waitering or something, but I'm not going to give up until I get a job.

UNIDENTIFIED CORRESPONDENT: Two weeks later, fresh out of school, Michael shares an update on his Facebook page.

BURBACH: I spent all day with Ben Stiller on the set of his new movie. Not bad for my first acting job post-graduation. You've got to start somewhere.

UNIDENTIFIED CORRESPONDENT: In London, Joe is starting his day by welcoming a new member of his team.



BRAIDWOOD: I'm kind of introducing her to various people around the office. So, this is Ruth. She's joining us as head of comms.

BARNETT: Hey, nice to meet you. How's it going?

UNIDENTIFIED CORRESPONDENT: Ruth is SwiftKey's new head of communications. She'll be taking over some of Joe's workload.

BRAIDWOOD: Ruth's going to be taking control of our amazing press coverage and all that stuff. Well, there's the taking things off the plate problem, which I've had for some time. And obviously, the more help we get across the entire company, the easier it becomes to actually be more organized with dealing with things.

But I think it's -- it's more about having faith in someone that you really trust to do a great job in such an important part of the business.

UNIDENTIFIED CORRESPONDENT: As the chief marketing officer, Joe covers all of SwiftKey's media in Europe and the United States, and that means a heavy amount of traveling and a whole bunch of unread e-mails.

BRAIDWOOD: I have been struggling to deal with all my e-mail, to make sure that I'm addressing absolutely everything in my -- in my to do list, because it's -- I think one of the metaphors I use is it's like juggling. There will be balls that you drop because if you're not pushing yourself, if you're not doing absolutely everything you can do, you're inevitably going to be underperforming.

So -- but in trying to do as much as I possibly can to further and progress what we're doing with this business, I'm taking responsibility for things that I can't completely and utterly satisfy.

UNIDENTIFIED CORRESPONDENT: While Joe is traveling, Ruth will make sure they don't drop the ball at home.

BARNETT: So, I used to be a tax analyst, but a couple of years ago, so I'm going to be interrogating all of you to get really up to speed on exactly how it's going to work here.

UNIDENTIFIED CORRESPONDENT: For Joe, Ruth's addition to the team is a huge relief, even if it does mean some competition.

BRAIDWOOD: I think everyone sometimes feels slightly stressed that they're going to be outperformed by others. But I think that that is a really, really important feature of what it is to drive yourself and what it is to stay committed and focused on achieving things.

UNIDENTIFIED CORRESPONDENT: Next week on The Millennials, Joe stops the office for the bar as he lets off some steam with friends. And in Johannesburg, Milli opens up about work and burnout, only on The Millennials.


QUEST: Love the idea of competition arriving. That will soon put Joe Braidwood, see how he feels when he's got to keep an eye over his shoulder at what she's up to. Anyway, good stuff.

Now, coming up, a tablet computing with a touch of Windows. So, Microsoft says it's going to make a tablet called the Surface, and we need to discuss what makes it stand out --


QUEST: -- from the crowd.


QUEST: Hello, I'm Richard Quest. More QUEST MEANS BUSINESS in a moment. This is CNN, and on this network, the news always comes first.

Britain's foreign secretary says a Russian ship that's believed to be carrying helicopters and weapons for Syria is apparently heading back to Russia. The changing course comes a day after a British insurer canceled the ship's coverage for insurance, making it unable to dock at a foreign port.

The ruling party leaders in Pakistan are trying to figure out exactly how to proceed after a stunning decision by the country's Supreme Court. The justices ruled that the prime minister Yousaf Raza Gillani is not eligible to hold office. That's because of a contempt condition back in April.

There's a huge crowd in Cairo's Tahrir Square at this hour. Protesters are angry that Egypt's military rulers have increased their grip on power in the wake of the presidential runoff. The Muslim Brotherhood's Mohammed Morsi and the ex-prime minister Ahmed Shafiq both say they have the mandate of the people. No winner has been declared.

The Canadian man suspected of killing and dismembering a university student in Montreal will make his first court appearance today via a video link. Luka Rocco Magnotta faces first degree murder and other charges in connection with the May murder of Jun Lin, a student from Canada.

Reports out of Athens indicate that Greece could soon have elected government again. Three of the four biggest political parties are currently holding talks on forming that coalition. Leaders are signaling that things are going well.


QUEST: Its software runs on 90 percent of the world's computers, but its presence in the tablet world is just about nonexistent. Now with its own tablet in the offing, Microsoft is going for the hardware market, too. Microsoft's Surface, as it's being called, will beef up the traditional tablet.

It doesn't run on a mobile operating system like iOS Android. It will run instead a new version of Windows. It will have Office and the tablet's foldout cover will double as a keyboard. Those features are some of those that set it aside from the competition and it might be those features that make it attractive for surface work as well as surface play.


ALEXIS OHANIAN, CO-FOUNDER, REDDIT: I think where Microsoft can hopefully win is the fact that, yes, they still win the day in enterprise. Apple has, for lots of reasons, not even tried to touch all those megacorporations that, you know, could see this as an entry point for tablets for their employees.

You know, I don't know about you guys, but I still just use my tablet primarily for things that are not at all work related. It's mostly games and browsing.


QUEST: Now gaming the only market where Microsoft has seen some major hardware successes. If you join me at the CNN super screen, to date, Microsoft has sold roughly 70 million of its Xbox 360 consoles. It brings in more than $56 billion. And Microsoft will be hoping its Surface tablet goes the same way rather than following in the footsteps.

So Xbox clearly a hit. But what about Zune? Zune zoomed straight into nowhere. In 2006, it was a music player. It was supposedly an answer to the iPod. It was late in the game, poorly constructed, poorly reviewed, never got a foothold in the market and disappeared almost as quickly.

So then we have the hardware that Microsoft designed for a phone. It was in 2010. It was called the Kin, but kith and kin didn't last long. They were a disastrous flop, taken off the shelves just six weeks after they launched, even though it did have a QWERTYUIOP keyboard.

So the Surface is the first commercial computer that Microsoft has designed and intends to sell itself in its own hardware. It's up against well established competition. The research firm IDC says iPad accounts for 62 percent of all tablet sales. Nick Wingfield is "The New York Times" technology correspondent. He joins us now from Seattle via Skype.

You know, Nick, the core question, if it's not -- well, A, is it an iPad killer, and if it's not, does it actually do the trick of being a respectable alternative?

NICK WINGFIELD, TECHNOLOGY CORRESPONDENT, "THE NEW YORK TIMES": Difficult to answer entirely at this point, because there are so many details yet to be announced. But from what I saw of the device yesterday, it's a credible competitor to the iPad if Microsoft delivers on all of the things that they're promising.

But there are still some absolutely critical things that they need to answer, namely how much will it cost. We don't know that yet.

QUEST: Right. But one assumes that they are going to make sure, at least at the cheaper end or the lesser end, it is comparative and competitive with the iPad.

What I noticed about it and what I liked and beside the foldout keyboard that comes with were things like the USB port that adds (inaudible) -- one imagines it would have some form of Flash in it or it would at least be compatible. One imagines that it would be a lot more computer friendly, if you like.

WINGFIELD: Well, one matter -- one imagines that that might be the case, but until we start plugging the device into our printers, into our cameras, into all of these other things, we don't really know. I mean, they say that it's going to be more business friendly. But I think until we see more details, until we see the product on the market, it's difficult to answer.

QUEST: On this question, with Microsoft now going into competition, direct competition with its best customers, the Dells, the HPs, the people who normally license Windows to put into hardware, is this because they've basically realized that these other companies are making no serious inroads into tablet technology?

WINGFIELD: I think that's safe to assume. One analyst I spoke to called this a referendum on Microsoft's partners, that essentially if Microsoft wants to do right in the tablet market, it needs to do it itself, or better, that it needs to do a product that can serve as an example for the rest of its hardware partners, who are not investing the kind of money into research and development and innovation that Microsoft's competitors are.

QUEST: Finally and briefly, do you see out there -- and you watch this stuff on an hourly, minute-by-minute basis, do you get the feeling that out there is an anti-Apple backlash waiting for a machine or a device, a tablet device that is smart, cool, sexy, whatever you want, but also does the trick?

WINGFIELD: I don't know if I'd call it a backlash. On the contrary, I've been astonished by the level of consideration that Apple has started to get among business customers with the iPad and the iPhone. And they're not really even pushing it that hard themselves.

I think if they were to push it harder, they'd probably get more business uptick. But we still don't see some things that business people want in these tablet devices and that Microsoft aims to deliver with its products.

QUEST: Nick, I know that you are itching to get your hands on one and give it a proper road test. When you do, we expect to hear from you -- after you've filed, of course, for "The New York Times;" then the next thing you do is come up on Skype for us. We thank you for that in Seattle. And we're also looking -- I'm looking forward to getting me hands on it and giving it a road test.

Coming up next, risk under the microscope on Capitol Hill as JPMorgan's chief exec again on the defense.




QUEST (voice-over): The answer to our "Currency Conundrum" now, well, which was the banknote of the year in 2011? Was it from Kazakhstan? The 10,000 tenge note is the answer. It features the Kazak Eli monument and commemorates 20 years of independence for the country.


QUEST: We're not entirely certain -- I certainly don't know why it was chosen for that, but it was the Kazakhstan note.

JPMorgan Chase chief exec Jamie Dimon's wrapped up his second day of testimony on Capitol Hill. He faced tougher questioning today in the House of Representatives than from the Senate. Lawmakers are still trying to get to the bottom of the multibillion-dollar trading loss.

Maggie Lake is in New York.

Now last time he was heckled and there was some -- I mean, it was almost unctuous, you know, would you like to have a seat and have and take your time and maybe go to private and have a cup of coffee, and while you think about your answers, Mr. Dimon. Today there was none of that.

MAGGIE LAKE, CNN CORRESPONDENT: No, there wasn't. It was tougher, but you still didn't see Jamie Dimon break a sweat. I mean, in many ways, these lawmakers are outgunned. The subject matter is complicated. You get the sense that a lot of them are still reading off of notes prepared by staffers. I mean, to be fair, Richard, this is tough stuff.

But it is the -- these are the finance committees. They need to know about this stuff if regulators are ever going to get ahead of it. So clearly after what happened in the Senate, the House, being a bit tougher on Jamie Dimon, there was a little bit less question about the exact nature of the trade this time, and a little bit more time spent on the bigger themes of financial reform. Are you too big to fail? That came up with almost every representative asking some form of that question.

The interesting thing for me this time around is that they were really making a link as to why there was all these hearings, why there was the need for reform. The link to the U.S. taxpayer with one representative from Wisconsin asking why JPMorgan wasn't spending more time and more of this money getting back to the basics of banking. Have a listen.


REP. SEAN DUFFY (R), WIS.: Why, then, weren't you taking this excess deposit and investing those dollars here with American businesses, American consumers, instead taking those excess dollars, backed up by the American taxpayers or the FDIC, and sending them over to London to make very complex -- ?

JAMIE DIMON, CEO, JPMORGAN CHASE: It's not either-or. We have $700 billion of loans. We've got $200 billion of short-term investments in central banks around the world that handle cash flows for our corporate clients.

And we've got a $350 billion double-A-plus securities portfolio. Any valid loan that comes in the door that we can make, small business, middle market, wherever you are, we try to make those loans.


LAKE: It wasn't really an answer to the question, though, as you can see, Richard. So in that respect, it was a little tougher for Jamie Dimon. One thing he was really clear about is that he doesn't think there's anything or any bank should be too big to fail, and that includes JPMorgan. If they're in that situation, they would be allowed to go bankrupt.

When pressed about whether that was a possibility, he said it was about as likely as the moon hitting the Earth. So, you know, clearly a little bit of sort of arrogance, you could say, still exists, even after what we saw in '08. But Jamie Dimon's still sticking to his guns and doing what is the, you know, investors and shareholders thought was a pretty good job again, fending off some of this criticism.

QUEST: The moon hitting the Earth. All right, Maggie Lake, thank you.

Talking about moon and the Earth, and the sun and the stars, Jenny Harrison's at the World Weather Center for us this evening. Good evening.

JENNY HARRISON, CNN METEOROLOGIST: Good evening to you, Richard. I'm going to start with conditions out in your part of the world, of course, across Europe, bit of a break from the really consistent rain we've seen in the last couple of weeks.

Now that's not to say there's not more on the way, but you can see instead of the last few hours, quite a few thunderstorms have been pushing up from the south. So much of France, eastern Spain and eventually cross into Germany, that is where we have seen some of the more unsettled weather in the last few hours.

You can see all these showers and thunderstorms streaming through. Want a few more showers across into Scotland, but so for the most part not a bad day. However, there is, as I say, another system. That is it, waiting in the wings. This system in the south that'll head through across into Germany, more showers generally. That system and then the other which is currently in place, that'll push off towards the northeast.

So we're not looking at any particularly bad conditions in terms of long thunderstorms, long lines of them, anyway. But what we are seeing instead is a real warm-up across central and eastern Europe, just pretty much actually like the extended outlook we showed you back in March, when it did say that this portion of Europe would have temperatures above average throughout much of June, certainly.

And look at how much above average. Vienna, 34 this Tuesday; the average is 24. The list goes on and generally all of these cities about 7 to 10 degrees above the average, certainly for this time of year. So what does that mean for the football matches, both I think just about got underway this Tuesday.

Well, you can see with the cooler weather is across areas of Poland, but in Ukraine, of course, that is where the heat really is on. So right now, we're at 26 in Kiev and across into Gdansk, it is 20 degrees Celsius, not as warm there.

We've seen, of course, showers and thunderstorms coming into Poland. That is why the temperature also has dipped down in the wake of those. But there is some more rain in forecast, scattered showers across much of Ukraine, but not for the next few hours apart from Kiev. We could be seeing a few rain showers come through.

Temperatures mid- to high 20s Celsius, winds are fairly light, but it's better conditions in eastern areas of Ukraine as you can see. They're clear night there with temperatures 18 to 21. There's that rain heading into the U.K. again. There's some fairly heavy rain embedded in that system, 21 your high on Wednesday. And 23 Celsius in Paris, Richard.

QUEST: Jenny Harrison at the World Weather Center.

In just over an hour from now, the U.S. government will unveil its Trafficking in Persons report.


QUEST: So in just over an hour, the U.S. government will unveil its Trafficking in Persons report. It is known at the TIP, T-I-P. The State Department says it's the world's most comprehensive look at the nature and scope of human trafficking and what governments are doing to tackle the problem.

Hala's with me from Washington to talk and preview the report and joins me now.

This report, it's an annual event. It is one of the very few reports, isn't it, that crystallizes the issues and who's doing what, where and when?

HALA GORANI, CNN CONTRIBUTOR: Right. And it's based on a tier system, in other words, there are three tiers and countries are either in tier 1 -- that means that they recognize that they have a problem human trafficking and sex trafficking and they're doing something about it; then there's a tier 2 and then there's a tier 3 of countries who are not recognizing publicly that they have problems with human trafficking and doing nothing about it.

So it's going to be interesting to see in about an hour's time, based on this TIP report, what countries are listed as making an effort and what countries are listed as looking the other way. This is a report that is very comprehensive. It's hundreds of pages long.

And it addresses issues that affect more than 20 million people who are victims of forced labor or sex trafficking, and what needs to be done in order to combat really this worldwide problem. The United States, by the way, Richard, is included in this report and has been for the last three years. It wasn't at first.

I spoke just a short while ago, here at the State Department, with the man in charge of the office tasked with combating human trafficking and forced labor, and this is what he told me about the TIP report. Listen.


LUIS CDEBACA, AMBASSADOR-AT-LARGE, U.S. STATE DEPARTMENT: Well, the annual Trafficking in Persons report here at the State Department's about 12 years old now. It came in the year 2000, when both United States and the United Nations updated our old slavery approach.

GORANI: Right.

CDEBACA: Put together a new way of thinking about this that said that governments needed to act through prevention, protection and prosecution. So not just development type of a way of thinking about this, but the bad guys need to go to jail.

GORANI: Right.


GORANI: All right. There you have it. In about an hour's time, the Trafficking in Persons report will be unveiled, and CNN will be covering it, Richard.

QUEST: Hala's at the State Department in Washington for us this evening.

Hala, we thank you for that.

And as part of our "Freedom Project," "CONNECT THE WORLD" brings you live coverage of the department's Trafficking in Persons report. A comprehensive look at which nations are fighting to end modern-day slavery and which are looking the other way. The TIP report is Tuesday 2100, just an hour and 10 from now.

You can learn more about the CNN "Freedom Project" on our website if you go to, and there's you'll get the facts about modern- day slavery and what people around the world are doing to fight it, a section that shows how you can help, it is there. It is at

It was the brief encounter that cost more than $100,000, Nicklas Bendtner's underpants have never been more controversial. While we'll explain why he won't be paying any fines in a moment.


QUEST: Now some breaking news to bring you that I just need to -- the Ministry of Foreign Affairs in Ecuador has read out a communique to press conferencing creatures (ph) saying that Julian Assange -- you'll remember the WikiLeaks gentleman who is wanted in Sweden in various sexual offenses cases -- apparently Mr. Assange, having lost his deportation claim with the British government, is currently at the Ecuadorian embassy in London, and he has requested -- formally requested asylum.

And one of CNN's stringers was at the press conference and has confirmed this to us. And we expect to have more details on that. But it does appear as if Julian Assange, having been on bail and having lost his deportation request or case in the U.K., is now in the Ecuadorian embassy in London, seeking political asylum.

We'll have more on that.

Now from Korea to Kenya, Europe to the U.S., advertising agencies are doing their level best to make headlines, and not always for the right reasons. So tonight, we have a veritable hat trick of PR controversies that you'll want to consider. Join me at the super screen, super screen for super mess-ups, you might say.

Here we go. This is Korean Air, who launched a new route to Kenya. Unfortunately, the choice of their wording left quite a lot to be desired. There -- for some reason I -- it's -- doesn't seem to want to do it for me this evening.

The -- anyway, (inaudible) passengers are being urged to enjoy the grand African savannah and the indigenous people full of primitive energy. Needless to say, #primitiveenergy went immediately viral on Twitter. Korean Air has tweeted an apology.

Now Adidas, the footwear company, Adidas has made its own apologies, marketed new sneakers with shackles. Now it's supposed to illustrate desirability of shoes. Others saw it as a reminder of slavery. The Reverend Jesse Jackson calls it appalling and insensitive.

Another sportswear controversy at Euro 2012, Nicklas Bendtner was fined $126,000 for revealing sponsored underwear, ambush marketing from the bookmakers Paddy Power, which should have been over there -- I do beg your pardon. It should have been over there for looking at that. We had hoped that Jim Boulden was going to talk to us about all this, but in the ways of the world, Jim --

JIM BOULDEN, CNN CORRESPONDENT: Nice to see you again.

QUEST: Nice to see you. Welcome back. Oh, no, it's me that's come back. I'll have a "Profitable Moment" after the break.


QUEST: So tonight for our "Profitable Moment", Microsoft is officially in the world of tablets. And whilst it's very easy to beat up on the big boy in the computer industry, frankly, only a fool would bet against them.

The strategy may seem a little puzzling in some areas. Essentially, they're cutting out their biggest customers like Dell and HP by making the hardware themselves. And it can't have seemed necessarily the logic of shooting yourself in the foot by beating up on your own customers.

However, remember, Microsoft does have a huge arsenal of its own, more than $50 billion in reserves, in fact. And you can bet every last one that it will turn its tablet into a true competitor. Look at the Xbox. It's proof that with the full force of the company behind it, Microsoft can muscle in on a new sector and make it a success.

While the launch was a success, it might even be a game-changer. When it comes to tablets, Microsoft is only just scratching the Surface.

And that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest. Whatever you're up to, I hope it's profitable.


QUEST: The headlines tonight for you: Britain's foreign secretary says a Russian ship believed to be carrying helicopters and weapons for Syria is apparently heading back to Russia. The change in course comes a day after a British insurer canceled the ship's coverage, making it unable to dock at foreign ports.

The ruling party leaders in Pakistan are trying to figure out how to proceed after a stunning decision by the country's Supreme Court. Justices ruled that the prime minister Yousaf Raza Gillani is not eligible to hold office because of a contempt conviction back in April.

There are huge crowds in Cairo's Tahrir Square this hour, protesters that are angry that Egypt's military rulers have increased their grip on power in the wake of the presidential runoff. The Muslim Brotherhood's Mohammed Morsi and ex-prime minister Ahmed Shafiq both say they have the mandate of the people, but no winner has been declared.

The Canadian man suspected of killing and dismembering a university student has pleaded not guilty to all charged. Luka Rocco Magnotta denies first degree murder amongst other charges relating to the killing of Jun Lin, a student from China. He's making his first court appearance by video link.

And those are the stories we're watching for you on CNN. Now live, Christiane Amanpour.