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EU Averts Split with Deal to Bailout Spanish and Italian Banks; Barclays Boss Bob Diamond Under Fire Over Bad Behavior; Stock Market Surge After EU Summit Deal

Aired June 29, 2012 - 14:00:00   ET


RICHARD QUEST, HOST, CNN QUEST MEANS BUSINESS: Shout joy, for acquired its money for Monti. The Euro project moves forward.


DAVID CAMERON, PRIME MINISTER, ENGLAND: They need to play each other a football, but when it comes to Euro zone, they should all be on the same side.


QUEST: Italy and Spain in the final, from finance to football, we couldn't have written it any better ourselves. And even the markets are on side after a day of losses, a result. I'm Richard Quest, it maybe Friday, I still mean business.

Good evening, tonight, Europe is breathing a sigh of financial relief. A summit of Euros only that have yield its results and vintage some of the steam from the continents simmering financial crisis.

As Matthew Chance now reports, the deals that were drawn up require dedication, unity and of course compromise.


MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT (voice-over): You expected the German Chancellor to make such a u-turn. Proud name, as she's being dubbed, went into this crucial EU Summit demanding more austerity.

She left 13 hours later, brawl beaten by her counterparts from southern Europe. Agreeing to demands from leaders like Mario Monti of Italy for financial assistance.

ANGELA MERKEL, CHANCELLOR, GERMANY (through translator): Yesterday, I at least, ten times I have met with Mr. Monti, that we went on to a special room and talked together, but we talked together all the time about special formulation and then talked a bit about football.

CHANCE: Afterwards, the Italian premiere whose country thrashed Germany in the Euro 2012 soccer championships the day before couldn't resist the jib(ph) of Berlin's expense.

The EU Summit deal coupled with the 2-1 result was, he said a double satisfaction for Italy.

The French President at least less gloating.

FRANCOIS HOLLANDE, PRESIDENT, FRANCE (through translator): And I think, if I give you my personal opinion, nobody has won or lost, it was Europe, it was Europe who won.

And it is the Euro zone in particular that was comforted and strengthened, reinforced and that was the only objective.

CHANCE: What's being agreed marks a significant change in Europe's handling of its debt crisis. Struggling banks can now be injected with cash from Europe's bailout fund.

The debt will essentially be shared by Euro zone states. European Central Bank can now use bailout funds to buy sovereign debt as well. A move to lower borrowing costs in countries like Italy and Spain.

HERMAN VAN ROMPUY, PRESIDENT, EUROPEAN COUNCIL: We agreed on something new which was a breakthrough that the banks can be recapitalized directly in certain circumstances and the biggest of the most important condition is that we have to put in place a single supervisory mechanism.

CHANCE: That mechanism, the European body to make sure Europe's banks all follow the same rules. It's one of the few concessions Chancellor Merkel extracted the Europe's emphasis shifts from austerity to easing the economic pain.

Analyst say, it may offer some of the control to which Germany's leader is so adamantly called. Matthew Chance, CNN, London.


QUEST: Now, Europe's stock markets, you don't need me, you don't need to be a rocket scientist to look and see exactly. To show you the enthusiasm, let's just take the Xetra Dax, which is up 4.3 percent.

The day started way up but it opened and it never -- well it never looked back at all. It was like that and it was pretty much the same with Paris as well.

A very sharp gain that all -- that maintained its momentum drop -- of course -- the Milan, the two markets that were most affected, Spain that will get directly capitalized banks after the European banking union.

And Italy which will, if it requested, gets government's purchases from the EFSF and ESM through the ECB. So, that was the -- that was the very boyish market that were on Friday.

And it's not just the markets that are pleased with the (INAUDIBLE) outcome. Sweden's Prime Minister, Fredrik Reinfeldt, told me on the phone from Brussels that this time the crisis talks delivered.


FREDRIK REINFELDT, PRIME MINISTER, SWEDEN: I think both are the substantial we have seen in a long time.

The EU by patent is now in place, a growth packed with both resources and some of the best burdens concerning service markets, the centralization of Europe and together with that a Euro zone package when it comes to market interventions.

QUEST: Only Euro zone agreements. Do you believe that there are now sufficient, firstly, to calm the markets as with regards to Spain and Italy. And Secondly, to create confidence that the zone is on loss firm footing.

REINFELDT: Well, I'm very positive that it has a good results for Spain. I think it needs the combination also with further reforms in these countries.

But of course this will mean openings for use of the capitalization of banks which has not being possible before but, we should also notice that when they say so, they also ask at the same time for introduction of European supervision.

QUEST: What role will you and the non-Euro area countries take in this very important process that now moves forward towards close-up banking union and fiscal union, that the Council's president says he hopes to have by December 2012?

REINFELDT: Yes, exactly. And this is very important, Sweden has a big financial sector, not as big as United Kingdom, but still, most of the job is actually nowadays cross-border.

So, we have a trust worthy national supervision but we also need to look into what does it mean? If you construct a European supervisions, should it just be for the Euro zone or could it also add trust worthiness to Sweden?

And we don't have the answers to that, I'm secured that we will work altogether to look into how we can do this and at the end of the day the ten countries without the euro as a currency could take the decision not to join this supervision.

QUEST: Right, but at the moment, are you minded to be in or out of banking union?

REINFELDT: That must be based on the decision, what kind of impact this supervision will have on the financial sector in Sweden. And this comes down to individual bank, big Swedish bank called Nordea, which is both Swedish and Finnish.

So it's partly in Sweden, partly in the Euro zone and these kinds of things need to be taken into consideration.

QUEST: Finally, we saw the report that the Spanish and the Italians basically said to you, all right, you're not getting out of here until you do a deal with us on what we need.

Was that the way it went?

REINFELDT: Well, this is very often like this that countries come with different kinds of red lines for things they want to see put through.

I think this was one of the most substantial meetings I've being attending and actually delivering results.

And I'm very clear on that, both the EU patent and the writings on the growth package is very good for mine orientation towards more of free-trade and open markets.


QUEST: That's the Swedish Prime Minister, Fredrik Reinfeldt talking to me on the phone earlier. Spanish and Italian bond yields fell sharply after the EU announced the remodelling of the blocks rescue funds for obvious reasons.

Spain is going to get the money directly, Italy can get it if it ask. Mohamed El-Erian is the CEO of Pimco, the world's biggest bond investment firm.

On the line from California, he told me earlier that today's news and announcements and important first step, but EU leaders will need to build on it quickly.


MOHAMED EL-ERIAN: It is definitely most substantive that what we've seen earlier and also much better than expectations. So, that's why people are getting really excited. However, it is not the breakthrough that Europe requires.

So, Europe is catching up with its crisis but it's not getting ahead of its crisis yet.

QUEST: Germany seems to have given ground on the northern countries to Spain and Italy on issues like conditionality and bond purchases.

But, Italy still has to request assistance, doesn't it?

EL-ERIAN: Yes, Germany gave some grounds. If you look at the details, does it -- kind of qualifications. And if you step back, there are certain realities, we still don't have a road map for the four critical pillars.

Fiscal union, political union and the banking union to accompany the monitory union, first thing. Second, the operations of the fire-walls are difficult and they're not sufficiently funded.

Thirdly, just like you say, you don't want to ask for assistance, if you're Spain or Italy, you're really worried because if you ask, you may be shut out of market.

So Richard, it's a good step, and an important step, but they better build on it quickly.

QUEST: And that's really the question, isn't it? Because under Van Rompuy's plan and his full building blocks and towards the future, they basically targeted between now and the end of the year.

Isn't this really where the fist -- sort of the gloves come off and people start getting nasty?

EL-ERIAN: Yes, I mean, they're hoping that they'll get the ECB to chip in and help. Which is not obvious, but the ECB is a critical element. What they've got to be careful is that we're seeing accelerated capital flows.

First, from the peripheral countries to the core and secondly, from Europe as a whole to the rest of the world. So if they don't move quickly, they're going to become irrelevant because it is the capital flows that are going to determine where Europe goes next.

QUEST: Pulling those strands together tonight for us. But with knowing the limited expectations, the better than expected results, would you say the Euro zone sleeps easier tonight?

EL-ERIAN: I will tell you, it sleeps somewhat easier but it will not have a good night sleep. There're simply too many issues to worry about. So, yes, it sleeps a little bit better, it may be getting three hours instead of two.

But it's not getting the full six to eight hours.


QUEST: Mohamed El-Erian there. Now, for the last two or three weeks, we have had these two magnificent stories going in Europe. You have had Euro 2012, the football and you have had Euro zone, the economic crisis.

For Euro zone 2012, the world of football and finance have come together, sovereign debt and soccer have never being so close, thin line.

And if you think I am wrong, have a chair and join me at the super screen. All right, so, let's start with England, England critics will always say the prime minister is accused of being austere, he's accused of being dividend.

He doesn't want to be part of it so when David Cameron and the England team came on the defensive, they were left outside.

Pretty much as they have being in the whole Euro debate.

Then you end with Greece, think about Greece, lucky to be there at all, the plucky side lacking leadership and then you get prime minister Samaras and the striker Samaras.

Though they all sound as the striker, and the two of them come together and brilliantly put Greece well and truly back in the game.

But not for long because Angela Merkel comes in and knocks them out and makes it clear who the winner is.

But Mrs. Merkel has met her match, in this case, it's Merkel versus Monti. The plucky you knew Italian technocrat, wipes the smile off her face and not only is it -- you couldn't write this.

You got a Samaras and a Samaras, and now we've got a Monti and super a Mario and another Mario, Mario Balotelli. Italy gets the results over Germany, and once again it's Italy that's taken over into the lead.

On the other side, look at that, Spain. Which have being bailed out with its banks and feeling gland, but now, the right moment, manages a beat over Portugal and gets to the final.

So pulling the strands together to prove that Euro 2012 and Euro zone, this summit, the Italians and the Spanish both beat the Germans and everybody else.

And now, the two of them will go head-to-head, the Rajoy and the Monti and the best of all, it's a Portuguese that actually will have the final say.

It's the Portuguese referee and Jose Manuel Barroso, the man from Portugal and the former prime minister. I promise you, you couldn't write it.

Coming up after the break, a strong day for the market, we will be live on Wall Street to see why the Dow is up so far.


QUEST: In London, Barclays shares fallen under 1.5 percent, grim for the bank, it lost nearly 20 percent of its value this week after paying a record fine for fiddling interest rates and being excoriated by prime minister's bank.

Even the "Financial Times" said that the chief executive Bob Diamon should step down over the scandal. Today, ahead of the Bank of England refused to say, if it thought Bob Diamond was a fake improper person to run the bank.

Mervyn King did say Barclays "Deceitful, manipulation of libor, revealed wider cultural flaws in the British banking system.


MERVYN KING, GOVERNOR, BANK OF ENGLAND: There must be many people who work in the banking industry today. Who know that they are honest hardworking and feel that they've being let down by some of their colleagues and indeed their leaders.

What I hope is that every fund, everyone now understands that something went very wrong with the U.K. banking industry and we need to put it right.

That goes to both the question of culture in the banking industry and for the structure of the banking industry.


QUEST: I do love the side there where something must be done but not necessarily work about who has to do it.

Felicia Taylor is in New York on the floor of the New York Stock Exchange for us this evening. I'm just with Ken, all right. Ken has some serious answers to give us. Why is the market up 200 points on an average Friday in June?

FELICIA TAYLOR, CNN CORRESPONDENT: Oh, but Richard, this is not an average Friday in June, we had some decent news coming out of that EU Summit, we are at the highs of the day.

But nevertheless there are things that investors are worried about, and that is that Angela Merkel could still walk away from this deal.

KEN POLCARI, MANAGING DIRECTOR, ICAP: She could because if she doesn't -- listen they've come to the agreement that they want to have this one banking supervisor across the whole 17 nations.

And so they shook hands and they said yes, it sounds like a good idea until it happens though, it hasn't really happened, right?

And so if they decide, if one or two countries decide we don't like this idea and decide to walk away, then she could say, you know what? I'm out too.

Which is, they're then going to throw the whole thing right back into a tizzy right? And so there're lots of still uncertainties, the doubles into details as they say and so they don't really know what the details are yet.

People are just kind of on hope, right?

TAYLOR: The good news is that we saw yields come down on both Spanish and Italian bonds. The problem with the U.S. rally is that it's not on great volume. Well, explain that to us.

POLCARI: Well, OK, because if investors around the world and in this country really thought that this solution was so realistic that it was going to fly through it, no problems.

You would have seen big interests, you would have seen big institutions really putting money to work. Usually volume will explode right?

We've done about 2.2 billion shares in total today, you would have seen at least double a triple at it. If this were really real that people thought here it is, they fixed it, we're going forward.

And we're not seeing that at all, quite honestly, we're seeing the opposite. You might say well, it's a Friday in the summer, no with this deuce because this deuce is too big right?

People have being expecting this, this has being going on -- so as managers and investors around the world have being waiting for this. And all this says is that they're not really sure yet.

TAYLOR: So it would have being an even greater rally. And the other concern though is that now, Italy is going to feel a little bit more comfortable to come to the table and ask for some help.

POLCARI: Well and that's right. And I think we saw that there were a number of new theoretical(ph) say that in fact said, after this agreement last night that you know Italy could come to the table without feeling like they were doing something wrong.

And that you know the -- but the union that were around them was there to help them and that it wasn't going to have that negative tone to it.

And quietly honestly, you saw the yields come down, you see the market up. Europe was up across the board, and so in that sense that's a good thing.

But this story is far from over, this -- you know -- this little meeting this weekend is not necessarily going to completely fix it, it's going to - - investors are going to take the next couple of weeks and watch how it unfolds.

TAYLOR: Speaking of the next couple of weeks, take it forward for us for U.S. earnings, is that beginning to happen? We heard from Ford warning that things may not be so great. Why is that of concern?

POLCARI: Well, listen, we've heard of the last couple of weeks, this probably in this country, 55 or 60 stocks have already pre-announced and they pre-announce below what the estimates were, right?

And so they're warning people don't be so optimistic, and we've seen what they've done. They punished those stocks from the day they that pre- announce, earnings will start to come down but it is a concern because investors as we move in to this, there's being a lot yield.

We've seen what the micro data has done over this last quarter.

It's not real positive, and so people are very cautious and so once we start to see that, then you'll get a better tone for the market.

But now don't forget, these stocks have pre-announce, they've already punished them, and so now the estimates have come down.

So in two weeks when they announce these earnings and they beat the number, everyone is going to go -- everyone is going to see, look how great this is.

Don't get fooled into that because I think -- just don't.

TAYLOR: Have a great weekend. Ken is great as always. So, don't be fooled by the rally, it doesn't look like it has as many legs, it's one of a thing.

QUEST: Exactly my point Felicia which is why I -- well there we are. All right, Felicia Taylor in New York.

Currency conundrum for you. Thirty years of searching, two treasure hunters from the island of Jersey have discovered a whole lot of coins iron age.

How much do you think there're a whole lot of iron age coins could be worth? 150,000, 1.5 million, $15 million for the iron age coins found in Jersey.

After the break, the Euro soaring, these are the rates and this is the break.


QUEST: The deal reached by Euro zone leaders last night is a step forward towards a centralized banking union, that much is clear.

The block 17 different regulators are to be replaced with one centralized supervisor. Alex Stubb is Finland's minister for European affairs and foreign trade, on the line from Brussels.

He told me the new regulators, a step in the right direction. And there're still details to be ironed out.


ALEX STUBB, MINISTER FOR EUROPEAN AFFAIRS AND FOREIGN TRADE, FINLAND: The basic and big news from this summit is the banking authority. That was long coming and we really need it.

I think this one will put a little bit more oof into what we call it that union. Some of the measures that were taking regarding Spain and Italy will hopefully drive down their interest rate.

So I think the results of this summit were actually quite good.

QUEST: Can Finland live with the banking union as put forward on the table?

STUBB: I think the bottom-line of the banking union that you have an independent authority inside the ECB. It's a good one and we'll have to iron out the details which have to do basically with deposits, guarantees and resolution funds.

We'll have to have a look at those in the next few weeks. But the basic structure is OK by us.

QUEST: Finland does have some problems, doesn't it? With some of the areas of the agreement for Italy and some of the agreements for Spain.

Specifically on the seniority question of the debt.

STUBB: Well, the seniority question on the debt is very clear for us, once it is linked to the ESM as all of the loans are, the seniority stands with the ESM.

But then if it is linked to the EFSF, as it is in short term for Spain, then the system is a little bit different but I think we can live with this particular and specific case.

But for us, seniority remains with the ESM, there's no question about it. That is our interpretation and it just remains so --

QUEST: Except --

STUBB: If there needs to be a change on it that requires unanimous decision and that won't happen.

QUEST: Except under the agreement just reached, seniority under the ESM is not guaranteed, is it?

STUBB: It is guaranteed. I've heard different types of press reports around it but our interpretation is loud and clear, no changes on that particular case has being made.

The only specific difference is while the EFSF still stands, the short term mechanism and Spain uses in that particular case, seniority falls.

But once it goes back into the ESM, seniority of the ESM remains.

QUEST: The governor of Bank of England said that he didn't believe that we were half way through the crisis earlier in the week. Do you think this puts us over the edge into being a bit better?

STUBB: I think this was a good day for trying to solve the crisis but might seem has been for a long time but the EU usually goes in ten years crisis cycles.

So in 2000 it was about the institutions, in 1980s it was about enlargement, in the '80s it was about the internal market, in the '70s it was about oil.

So we're going to be looking at a longer period of difficult and turbulent times but in the meanwhile what we're trying to do is one, solve the crisis and two, create rules and regulations, which means deeper integrations, more pulling of sovereignty, so this crisis won't repeat itself.

QUEST: Alex Stubb of Finland, this is QUEST MEANS BUSINESS, I'll be back after the break.


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.

Stocks in the U.S. and Europe have risen sharply on the Euro Summit agreement to tackle Europe's debt crisis. Euro leaders agreed on a package of measures that say should reduce tensions in the Eurozone.

Egypt's president-elect is pledging to create a civilian state. In a speech to tens of thousands of people in Tahrir Square, Mohammed Morsi takes office on Saturday. They'll have to contend with Egypt's military, which still retains broad powers.

In the U.S. state of Colorado, some 36,000 people have had to leave their homes to escape a massive wildfire. Officials say forests and neighborhoods are going up in smoke at an alarming rate.

Katie Holmes and Tom Cruise are to separate and divorce. The actors are planning to divorce after nearly six years of marriage. They have a daughter together, 6-year-old Suri.


QUEST: The chocolate company, Nestle, needs to do more to combat child labor, is the conclusion from the Fair Labor Association. It says Nestle is still making chocolate from cocoa farmed by children. Nestle has joined forces with the FLA to find out just how widespread child labor is, as Fionnuala Sweeney explains.


FIONNUALA SWEENEY, CNN CORRESPONDENT (voice-over): Nestle is the first chocolate maker to partner with the Fair Labor Association to evaluate its supply chain. FLA investigators traveled to the Ivory Coast early this year, visiting 87 cocoa farms and interviewing more than 500 people. Now they're reporting the results.

AURET VAN HEERDEN, PRESIDENT, FAIR LABOR ASSOCIATION: We found a number of actors, key actors, along that procurement chain, who were not aware of exactly what the standards were, particularly on child labor, and who were not trained to live up to those standards. So there's a communication and awareness and training gap.

SWEENEY (voice-over): The FLA identified several risks in terms of labor standards in the areas of child labor, forced labor, health and safety, discrimination and compensation.

For more than a year now, the CNN Freedom Project has been documenting the disturbing link between the chocolate you consume and child slavery in places where cocoa is produced. No country farms more of it than Ivory Coast.

In January, we brought you the documentary, "Chocolate's Child Slaves," shocking pictures of children working with machetes and hazardous chemicals. Some said they were held against their will, forced to work, and many told us they never get paid.

UNICEF estimates that more than 200,000 children could be involved in some of the worst forms of child labor. That's a staggering number, considering that in 2001, the entire cocoa industry made a joint commitment to stamp it out. Still, the problem runs deep.

HEERDEN: We're dealing with a cultural environment in which this is somewhat traditional and you're dealing with an economic environment of extreme poverty, where, frankly, a lot of farmers can't afford to hire labor and to pay them a decent wage. So we have to really take into account the cultural and economic realities of the people involved.

SWEENEY (voice-over): The Fair Labor Association says it will be a long haul to improving labor conditions in Ivory Coast, but says the Nestle plan offers a good starting point -- Fionnuala Sweeney, CNN, Atlanta.


QUEST: I spoke to Nestle's operations chief, Jos, Lopez, and I asked him whether the FLA report you've just heard about is confirming what Nestle has known for some time.


JOS_ LOPEZ, EVP OPERATIONS, NESTLE: It is not that we have been doing nothing and all of a sudden we realize, thanks to a report which we have requested to get, and then we get moving. My sense is that what we want to do here is to prove that it can happen. We will work with the world foundation, with the World Cocoa Foundation and build schools.

We will work with the international Cocoa Initiative and gather the cooperatives and put people there, extensionists and agronomists to give training on the farmers. We will work with the government and their action plan.

We will work with the certifiers so it is true that what is new is poorly an expression of the will to assemble everybody, to break down these silos and to get the action moving instead of each one of us trying to give its own interpretation of what is happening and his own answer.

QUEST: Would you agree with me that the biggest agent for change, the one body more than any NGO, more than any government that can actually bring about the real change that you and I and everybody else wants, is the customer, are the chocolate companies, are the purchasers, because you, sir, have the economic might and muscle to make it happen?

LOPEZ: Eventually things will have to translate in every part, including the consumers, because there is, of course, to extracting these type of raw material from the plantations in remote areas. And economic costs but also social costs.

And then there is a cultural environment and the reality out there. So yes, it will require efforts beyond just our company, beyond governmental efforts, into making the people understand that that supply chain is very complex and requires everybody's understanding of what value is created and where issues are actually related.

QUEST: How much relies on EVPs, CEOs, chairman, board members, basically saying, we will not tolerate such behaviors, and we insist that our company starts to move in the right direction?

LOPEZ: There is no way that long-term a company like ours can accept a situation like this. And so it's matter of how fast, how well and how many people are going to have to participate in getting these sorts of problems behind us.

We are determined to make real impact and hopefully also to be used as a lighthouse to show others that it's just a matter of getting started. And, yes, it requires that top management makes that kind of commitment.




QUEST (voice-over): Time for the answer to today's "Currency Conundrum," after 30 years searching the same field, two Jersey treasure hunters uncovered a horde of Iron Age coins from about 50 B.C. How much are they worth?

Well, could be the answer's C, one early estimate put them at around $15 million. Reg Mead is one-half of the treasure hunting pair. He joins us now from Jersey via Skype.

Reg, I know you didn't search them for the money by any means. What was the driving force that kept you going back, year in, year out, to find these things?

REG MEAD, TREASURE HUNTER: I wish I knew. It was one of those things we just had to complete after hearing a fascinating story of a farmer that disturbed an old tree trunk and the coins spread all over the field. We just had to keep going till we found them.

QUEST: So did you ever get despondent and think, look, we're really wasting our time here, even if they are here, we don't stand much chance of finding them?

MEAD: Yes, it happened several times, especially in the wet, windy days on this island, its horizontal rain.

QUEST: So quick question, I need to know, everybody wants to know, A, how much do you think they're worth, and B, under Jersey law of treasure, do you stand any chance of keeping them or getting any money for them?

MEAD: Yes, the first question, worth, haven't got a clue. All we know is there was a mass weighing nearly a ton of silver coins. We don't know what their worth is.

The second part of the question, yes, we're very confident, because we've declared them under the old practice of trove, which says providing you abide by certain rules and you declare them within a reasonable time and they are declared (inaudible), you will get the full monetary value.

QUEST: We wish you luck in making sure you get the monetary value. But more importantly, I know, Reg, you did not search for the money, you searched for the ambition and well, I mean, amazing story, that you kept going. Many thanks for joining us. I look forward to seeing one of those at some point.

OK, Reg Mead, searching with a metal detector.

Jenny Harrison is at the World Weather Center with her whatever you call those prongs that -- what do you call -- you know what I mean. They're the water diviners that you find where the water is?

JENNY HARRISON, CNN METEOROLOGIST: Let's just stick a prong outside right now and it'll set fire to whatever you've got, a piece of toast on the top, it'll be toasted in no time, it is so hot across the U.S. I'm going to start talking about that.

In fact, let me just start up by showing you this. This is last week, this image coming from NASA, the areas in red, up to 12 degrees above average, in particular, Colorado. This is one of the reasons the fires have been so bad.

They've spread so quickly because of the heat and therefore the drought, but also the really, really dry areas that, of course, those fires have been rushing through. But this heat now is across the south, the southeast, dangerously hot and now we've got warnings in place that actually involve 27 states, over 100 million people under some form of heat warning or heat advisory.

It's an area the size of Portugal, Spain, France, Germany and Poland combined. And this is what the temperatures will be in Memphis over the next few days, well above 100 degrees Fahrenheit, 39 on Saturday. In Atlanta, 41; that is about 106 degrees Fahrenheit.

Now there are some rain showers coming in. It'll cool things off a little bit, but temperatures will stay well above the average, 36 in Dallas, the same in Denver. There is that 41 in Atlanta, not that hot in Europe. There's some warm temperatures across central regions. That's also where the thunderstorms have been erupting the last few hours across there, areas of Germany.

This is the system coming in. It's going to stay across the north as we go through the weekend, very warm again across the south, and that warm air is pulsing (ph) up towards the north. The more warnings across Germany into Saturday morning for those severe thunderstorms, 18 Celsius right now in London. It's been a rather breezy day for Wimbledon.

The winds will stay pretty brisk over the next few days. Still the chance of showers, the biggest chance on Monday, about 60 percent. The temperature will be lower. As for the football, that's of course on Sunday. It's taking place in Kiev, and Kiev just far enough away not to really be impacted, so partly cloudy conditions, good temperatures.

You can see the rain meanwhile across the north and the west and temperatures across the continent, 27 in Berlin on Saturday and 33 in Vienna. But what about the Olympics, Richard, you asked me about this last week. I told you I'd get to it.

Remember, July-August, it straddles the end of one month, the beginning of another. The average temperature 21, the overnight low 14. But in the past, it has got up to 34. It's been as low as 6. We should have about 61/2 hours of sunshine every day. On average, throughout a month, we'll see 12 wet days. We'll tell you more detail, Richard, of course, as it gets closer.

QUEST: We will indeed. I'm going to hold you to it. I'm writing these numbers down. Jenny Harrison, we thank you for that.

And that is QUEST MEANS BUSINESS for tonight. Thank you for making time to join us this week. I'm Richard Quest. Whatever you're up to in the hours ahead, I hope it's profitable.




ROBYN CURNOW, CNN HOST: You're watching MARKETPLACE AFRICA. I'm Robyn Curnow. Now these stalls and shops in downtown Johannesburg sell consumer goods, food, hair care products to people who don't have a lot of extra cash.

But what do marketing managers, for example, know about these consumers, what they really want? Marketing research does help. But some companies are now starting to send their staff to places like this and into the townships outside Johannesburg to find out what people really want.

CURNOW (voice-over): Africa's 1 billion consumers are an increasingly attractive business proposition. Many have more dollars in their pockets than ever before.

ANDY COETZEE, SOWETO STYLE EXPERIENCE: The way I thought we would do this is to --

CURNOW (voice-over): In this unremarkable car park on the outskirts of Johannesburg, this small collection of business men and women are gathering to go on a hunt for more information about these low-end consumers.

COETZEE: For you to glean the insights that you think you would need, you need to talk to people. Simple as that. This is your industry. The opportunity is for you to get as much insight as possible.


CURNOW (voice-over): A growing number of businesses are sending their staff on these so-called consumer immersions. This group worked for insurance and mobile phone software companies. They hope by spending time in the Soweto Township, that they can meet existing customers and learn how to attract new ones.

NKHENSANI RIKHOTSO, CUSTOMER RELATIONSHIP MANAGER: I come from these communities. This is my market. But you know, the more that you do business, you get into corporate, you go thinking one direction.

VIVIAN MOTSHWANE, JUNIOR SPECIALIST: With our company, we launch in the product for (inaudible). So today I think it's going to be very important for us to be able to get the idea, the concept, how the people relate to this.

COETZEE: We're just going to go inside there. And there's a group of old ladies there.

CURNOW: With this group of pensioners, one of their key concerns is how to pay for their own funerals and those of their friends and relatives. Many of the women have already taken out insurance to help with the high costs. So for those working for the insurance companies, it's a chance to learn about what products work and which don't.

UNIDENTIFIED MALE: Let's say the people are there and that happens within the group.

CURNOW (voice-over): This immersion is also a rare opportunity for these consumers.

COETZEE: The corporates are generally -- they live in a glassed house. And they are so out of touch in a sense of what the mass markets opportunities are.

CURNOW (voice-over): Clayton Hayward (ph) is the CEO of a mobile phone software company. He also agrees that many corporate companies are out of touch with the mass markets.

CLAYTON HAYWARD, CEO, MOBICOVER: I think it's just, I suppose, corporate arrogance is really the biggest culprit. Usually you're happy playing a corporate and I believe this is what the market want. And the market actually don't want it. So they force products down the market's throat because they believe that the market actually needs those.

CURNOW (voice-over): But companies should ignore these lower-end consumers at their peril. Household spending in Africa is projected to rise to $1.4 trillion by 2020, according to a report by Mackenzie (ph). The growth in spending on consumer goods, telecoms and in banking will offer the largest opportunity to businesses, they argue.

COETZEE: Let me explain to so many things, some of their concerns, for instance.

My pension money was stopped.

CURNOW (voice-over): After a brief meeting in the living room of Mama Anna, another pensioner who's concerned about how she'll pay for her own funeral, the group is split up and set the task of making their own way through Soweto, using the same method that most of their customers actually use, the public taxi.

COETZEE: This exercise is really to give the guys broader confidence that (inaudible) move around in this environment and also to find out what language is used as a communication tool.

UNIDENTIFIED FEMALE: (Inaudible) the signs. There your --




UNIDENTIFIED FEMALE: That one goes out there. I mean --

CURNOW (voice-over): With a little local help and some frantic hand gestures, the group make it into the right vehicle.

According to Mackenzie (ph), Johannesburg, along with Cape Town, Lagos, Alexandria and Cairo, are predicted to be in the top five consumer markets in Africa by 2020. And even in lower income neighborhoods like this one, the signs of economic vibrancy are obvious. Large shopping centers have been built to chase after consumer tastes and their expanding wallets.

COETZEE: There is (inaudible) people to the malls is that it just shows my clients that there is a mass market, but there's also this wasted infrastructure within this mass market. So it's not vastly different from the world that they know.

CURNOW (voice-over): But in South Africa, at least, it's penetrating groups like this one that could prove the most lucrative for businesses. This is a stock sale, an informal savings group with a long heritage in this country.

For many, these groups serve as a savings bank account and a savings scheme. Each month, the members add a small amount to the collective pot, and this is then made available as loans or grants. There are around 800,000 stock sales in South Africa, with 11.4 million members.

According to one study, these groups handle nearly $4 billion, making them a huge economic force. But despite this potential, this group of entrepreneurs and small business owners still feel neglected by corporates.

TSIETSI MOHALE, CHAIRMAN, SOCIAL CLUB: I think we are detached from each other. Maybe it's why we don't help each other. But if they would come as you come, I think they will lend more and they will better their product.

CURNOW (voice-over): So what have these business men and women learned from their consumer immersion?

FLOYETTE MATLHAHLANE, MARKETING ADMINISTRATOR: Yes, I think there's a miscommunication between the insurance and then the people on the street of what are we trying to do.

UNIDENTIFIED MALE: I wanted to confirm or deny a few things. And what it confirmed is that our market is still not that homogeneous market that we thought it was.


CURNOW: OK. After the break, we speak to Unilever, the multinational company, about their efforts to understand African consumers better.



CURNOW: Rama margarine, OMO washing powder, just some of the products produced by Unilever, the consumer goods company. Well, for this week's "Face Time," I sit down with Frank Braeken. He's the executive vice president for Africa for Unilever, and we chatted about selling to the poorest of the poor.


CURNOW: How do you differentiate between your markets in Africa?

FRANK BRAEKEN, EVP, UNILEVER: I am somewhat ashamed to admit that we are still very much in learning mode about what the differences are within Africa. For a long time, even we as Unilever, with our long history, have been thinking about Africa as something monolithic, you know. If it works in one market, it works everywhere.

And in many ways, of course, South Africa has been the inspiration of many of the things that we adopt across the continent. So basically copy pasting makes us an advertisement. It is very clear and increasingly clear that there is really differences between the different countries.

So what we now increasingly do is we think much more in terms of subclusters, where you have East Africa, East Africa, where you have West Africa, where you have southern Africa. So it is more about how you define the brand next, how you bring it to the consumer, that we localize, that we make relevant for the local consumer.

CURNOW: And it's so important, particularly now, isn't it? There's so much competition.

BRAEKEN: Yes. Unfortunately, we -- many people have started to discover Africa. And that is a good thing for Africans, by the way, for the African consumer. It's probably the best things that happened to the African consumer. For us, that has meant that we had to drive up a gear in terms of innovation.

CURNOW: Would you say companies like yours have underestimated the African consumer?

BRAEKEN: Definitely. And it's funny you say that, because it's exactly the expression that I used. I like to say that African consumer has been underestimated, underserved and underserviced.

And underestimated, with that, indeed, what I mean is like we have looked at it a little bit generically, like they're Africans, you know, a little bit patronizing generically. Now we start to take the African consumer seriously.

CURNOW: And we're not just talking here about this emerging middle class. We're talking here about sometimes the poorest of the poor.

BRAEKEN: Absolutely.

CURNOW: An old granny, perhaps, who has a dollar to spare or a young single mother, who knows that she wants to spend a little bit extra on her children's products.

BRAEKEN: Absolutely.

CURNOW: It's the collective spending power that's so powerful, isn't it?

BRAEKEN: Absolutely. Now, the emerging middle class is only one part of the story. I think the real story is that we, through innovation, through organizational capability, we reach down. We go deeper. By having a product that is more affordable, you reach down. So, suddenly, you have more consumers in your catchment area. Right?

Organization capability, by building organizational distribution strength, we are now having doubled the number of stores we go to physically, up to over 400,000 stores. We have doubled it in the last two years, last 2-3 years. So certainly, your products can be found in more places in Africa.

So you expand your catchment area. That to us is the real story of our growth in Africa at this moment.

CURNOW: Five years, 10 years, 20 years from now?

BRAEKEN: I'm very, very optimistic about Africa. But I say it always with a tinge of hesitation, because one of the big risks is that we get carried away, and therefore, forget to talk about the real challenges that are still ahead of it, challenges such like infrastructure. Let's not forget about that.

Challenges like good governance/corruption, it's there. We should not stop talking about these things, because the opportunity is so big. Challenges like talent and capabilities. African talent, you know what, if we really want to continue growing Africa in all industries, not only in our industry, can you imagine the amount of engineers and marketeers and accountants that Africa is going to need?

So we have to keep on talking about the real issues and then I am sure that Africa can continue that path that it's on now, and we will see easily many, not only Unilever but many other companies easily double in size from what they are today.


CURNOW: Well, that's it for me, Robyn Curnow, here in Johannesburg. A reminder: you can find us online at But until next week, goodbye.