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Stress Tests; Spain out of Recession; German Yields Up; European Markets Dragged Down; S&P Ends Four-Day Streak of Record Closes; Time for Tea; Starbucks Pricing Row; Piers Morgan's New Book

Aired October 23, 2013 - 16:00   ET



RICHARD QUEST, HOST: W stands for Wednesday, Wall Street, and Where are the Gains? For today, it is Wednesday, October the 23rd.

A touch round stress test. The ECB wants banks in better shape.

Starbucks wants to be known for tea and its grande coffee concoctions. The chief executive tells us it's not such a tall order.

And Bill Marriott wants what his customers want. The octogenarian is keeping up with the millennials.

I'm Richard Quest. I mean business.

Good evening to you this evening. The wheels are set in motion. The European Central Bank today announced it will carry out the most ambitious review yet of Europe's banks. The ECB wants lenders to be ready for the so-called single supervisory mechanism that's due to start in late 2014.

Now, previous stress tests have been criticized for not being strict enough. Well, these may be strict, indeed. Shares of some of the eurozone's top banks fell as the prospect of being put under the microscope so sharply.

Commerzbank down 4 percent, UniCredit was off 3 in Milan. Santander, Spain's largest bank and, of course, one of the largest banks in the world, down 2.3 percent, and BNP Paribas in Paris, the bank was off 2 percent. All this because the stress tests are coming and it may reveal what's underneath.

The ECB says this exercise is on an unprecedented scale. It will involve, they believe, 130 institutions in 18 member states.

Now, these are the banks as they are at the moment: a bit battered, lack of transparency, smudged windows, all looking rather grim. The new tests will last 12 months, and they are going to be designed to see just how much money -- how much new capital needs to be put into the banks under three areas.

Firstly, risky behavior. In other words, what sort of leverage, lending, and what sort of balance sheet risk is being carried by the banks? Then you've got toxic assets. The quality of the assets. Is there anything smelly in the books of the bank? And finally, the ability to carry and withhold shock. The absorption capacity.

Now, we don't know yet what, for example, deep recession, sovereign default, currency crisis, all of these things are involved. If they do get it right, well then you'll start to see, for instance, you'll start to see greater transparency in the banks as better information comes through.

Then the roof will be repaired in some shape or form, with corrective action: larger cash reserves, bigger buffers. And finally, the bank overall. It will improve the confidence. Get it right with these stress tests, and you end up with a pristine institution.

I spoke to Nick Beecroft, chairman of Saxo Capital Markets, and I put it to him that the stress tests are exactly what's needed to make big, beautiful, safe, strong, banks.


NICK BEECROFT, CHAIRMAN, SAXO CAPITAL MARKETS UK: I think this is just a really a massive exercise in reverse engineering. The ECB started out with the mission that they had, which was to create something just strong enough, tough enough, to gain credibility, but not too strong such that it frightened the horses so queues were forming outside the banks around Europe.

QUEST: There is a feeling that there's something rather nasty and smelly still lurking in Europe's banks and we need to get the drains up again. Do you subscribe to that view?


BEECROFT: Well, there's certainly a huge elephant in the room in the sense of the huge holdings of sovereign debt which are held by some rather weak peripheral banks. And that's the problem with this stress test, it hasn't really done anything to address that.

They've chucked in some little, if you like, nice to have in terms of they're looking at gross liquidity ratios, they're going to look at whether banks are using the LTROs rather excessively, and it promises they'll judge them harshly if they do.

But they're still giving sovereign assets the same treatment and no attempt to correct that potentially catastrophic link between banks and sovereign debt.

QUEST: When this process is over, what do you believe needs to happen next? Do Europe's banks, or many of them, need to be recapitalized?

BEECROFT: I suspect there will be quite a lot of that, especially in the periphery. The ECB was at pains to point out today that governments had better be ready to help, given that they obviously are expecting a lot of banks to be rather short of the required capital.

The banks on notice, the governments on notice, they've got a year to get their act together, and also a year to agree that the ESM, the European Stability Mechanism, can be used for bank recapitalization. There are still some voices in Germany that are against the wholesale use of that in this context. So -- but the whole point is we have a year to sort that out.


QUEST: That's the European bank stress test. Staying in Europe, it's time to think about growth. At last, Spain is out of recession, says the central bank. GDP just the smallest smidgen you can possibly imagine. Out of recession by one tenth of one percent growth in the third quarter from the previous three months.

And only -- put it into perspective -- Spain has endured nine quarters of decline. We knew it was going to be out of recession, as I heard from the economy minister, Luis de Guindos, at the IMF and World Bank meetings a few weeks ago. He was confident then about the future.


LUIS DE GUINDOS, SPANISH ECONOMY MINISTER: Despite the sufferings, despite the hardships, there is light at the end of the tunnel, and I think that we are getting closer to that.

QUEST: You really think so?

DE GUINDOS: I think so.

QUEST: Even though this -- the emigration numbers from Spain are quite worrying, the unemployment numbers are --

DE GUINDOS: The unemployment numbers are awful, but when you look at the dynamics of the labor market, and when you look at our projections, you start to see that next year we'll have growth again and that we will have employment creation again.


QUEST: So, Spain is growing. In the United Kingdom, a robust recovery is underway, says the Bank of England. This has led some economists to predict that the bank will raise interest rates sooner rather than later. We wind it on.

In Germany, borrowing costs have now hit a two-year high. Demand lower than expected at a bond auction. It all had a yield, as you can see, pushed up the yield as they're obviously trying to entice people into the market. As Europe returns to growth, Germany's attraction as a safe haven will diminish, and of course, money will flow to other markets.

Bank shares, we've mentioned, the big fallers in Europe. And what did it do overall? It dragged down the main indices, with Milan and Madrid the hardest hit, Milan off 2.3, Madrid, the IBEX down nearly over 1.75.

In London, where GlaxoSmithKline fell 2 percent on a -- basically, a profits warning. Third quarter sales of pharmaceuticals and vaccines, they dropped 61 percent in China, which perhaps isn't surprising, remember the issues of procurement and corruption that GSK is experiencing in China at the moment. And now, that is being reflected in its results, and the share prices down 2 percent.

We're seeing weakness on Wall Street tonight. The S&P pulled back. This is how the market has closed, just nine minutes after the closing bell. Down 54.3. Alison Kosik's at the Exchange. I'm guessing that, Alison, is the final number that we would expect to see on the Dow. What was the main driving force in New York today?

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: The main driving force? You saw investors needing to put their finger on the sell button. I heard a couple words being tossed about on the floor, like "bloated" and "over- bought." Talking about the S&P 500.

So, what we saw today, investors taking profits, giving the bulls a rest. Traders saying, you now what? This is just a buy. After such an amazing run in such a short time period for the S&P 500, which had those record -- basically had a record run over the past several days.

Mixed earnings from those big companies, like Caterpillar and Boeing, that really drove the trade today, one trader saying, you know what? Momentum at this point, it's taking a breather. But this trader I talked with said it's more of a pause --

QUEST: Right.

KOSIK: -- especially since what you saw today was just not a whole lot of volume behind the selling. Richard?

QUEST: The market in -- closed, in fact, globally, there really is no other market trading. It is that period of the day when New York has closed and New Zealand, Australia have yet to kick in with the Thursday trading session. Everything's quiet in the global markets for the moment.

When we come back, time for tea, and you are invited. It's the QUEST MEANS BUSINESS tea party.




QUEST: Milk and sugar? Now, there you are. Enjoy it. Poppy Harlow's here. Welcome back. It's tea time on QUEST MEANS BUSINESS. Well, it is just after 4:00 in New York. Poppy is invited, and so are you.

Now, when it comes to tea, back in 1946, George Orwell declared, "One strong cup of tea is better than 20 weak ones." It's his famous essay, "A Nice Cup of Tea," which explains the proper way to prepare the drink.

And perhaps Starbucks should have a look. The company that brought you the Grande Caramel Frappuccino light with a whip is venturing into the more modest tea business, and as you can see here, we have a variety of them. Poppy's with me. Poppy, we're familiar with the Starbucks Coffee --


QUEST: -- not as nice as the bone china. But what are they doing now?

HARLOW: This is a whole other jump for Starbucks. So, we're used to seeing things like this, a grande latte or an ice frappe lapppuccino (sic) or whatever you --

QUEST: What is it?

HARLOW: -- whatever you call it. I don't know what that is! But it's what we're used to from Starbucks, right? A frappuccino, a latte. But now, I give you this. The cup looks the same, but it's tea. It's all tea. What Starbucks is doing -- they bought this company, Teavana. Here's the menu from the store that opened today.

They bought it about a year ago, and now they're opening tea bars -- not coffee bars -- tea bars all around the world. The first one opening today in New York City right near us on the upper East Side.

This is another expansion for Starbucks. They have gone from buying a juice company to a tea company, really expanding outside their core business. So we sat down today with Howard Schultz, the CEO of Starbucks, to ask him what does this expansion mean? What should we read into this big picture?


HOWARD SCHULTZ, CEO, STARBUCKS: Well, people don't realize, we've been in the tea business for the last 40 years, but coffee has drowned out the category of Starbucks. The tea category is twice the size of coffee globally. It's a $90 billion category.

HARLOW: What does that mean? More people want it?

SCHULTZ: More people are drinking tea and more people are familiar with tea all over the world than they are with coffee. We think there's a unique opportunity to reinvent tea in the same context the way we reinvented coffee.

In the store you're sitting in today is a shrine to tea. In the analog years, we built espresso bar for coffee, theater romance of coffee, customization. We're going to do the same thing for tea.

HARLOW: Will these stores become as ubiquitous as the Starbucks on our corner? Do you see that happening?

SCHULTZ: I don't -- no, I don't think you'll see thousands of Teavana stores in the US. You might see a thousand over the next five years or so --

HARLOW: Right.

SCHULTZ: -- in the US and Canada. I think there's a massive opportunity for Starbucks to bring Teavana and create Teavana around the world, especially in Asia.

HARLOW: It all makes me think, how elastic is this brand? How far can you go without making a misstep? Because if you look at the expansion -- the rapid expansion in the mid 2000s, you admitted it yourself, we were doing too many different things.

SCHULTZ: Yes. Well, I think we learned great lessons from those years, and I think the big lesson was a sense of entitlement and hubris entered the company. The company is as successful as we've been the fast years, has never been more disciplined, more humble, and we're not making those mistakes again.


QUEST: That's the chief exec of Starbucks. I have to say, no matter what they may serve their tea in, frankly, it can't be as good as the beautiful china from the Plaza Hotel here in New York, who kindly gave us this, when they serve a decent cup of afternoon tea.

Now, forget about tea. We all know that Starbucks has been hot water recently. Chinese media has complained that the company charges customers in China more per cup. Apparently, there's nearly 20,000 Starbucks stores around the world. Well, when it comes to the grande latte -- we went out to see if all Starbucks are equal, and if not when it comes to coffee, what's the big difference in the price of a cup?



QUEST: It has become a staple of the morning routine, the Starbucks grande latte. Here in New York, $3.95 before tax. Now, for the rest of the world.

DAVID MCKENZIE, CNN INTERNATIONAL CORRESPONDENT: China is the center of this brewing controversy. A cup of grande latte will cost you 30 kuai, that's about $4.92. After state media trashed Starbucks about its pricing, Chinese have trashed state media saying that perhaps it's all just a bit of a storm in a coffee cup.


SHASTA DARLINGTON, CNN INTERNATIONAL CORRESPONDENT: Here in Sao Paulo, the grande latte, as it's called, costs 80 reais and 30 centavos, that's about $3.80. Now, they are already 62 Starbucks coffee shops here and room to grow, considering this is the second biggest coffee-consuming country in the world.


JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: I don't think I've ever ordered a grande latte before, but here in London, it's about 2 pound 50 for this drink. I calculate that at around $4.

Now, here in the UK, Starbucks has come under fire for some of its tax policies and for actually admitting there are too many branches. But I would say $4 for a cafe latte in central London, not bad.


UNIDENTIFIED MALE: Grande latte for Sumnima! Here's your latte. Thank you.

SUMNIMA UDAS, CNN INTERNATIONAL CORRESPONDENT: Thank you very much. So a grande latte, it's still quite a new trend in New Delhi as Starbucks only entered the Indian market about a year ago, and it cost me 176 rupees or $2.87.

It's cheaper here than many other countries because Starbucks sources its coffee beans locally, so no freight charges are required and the operating costs are much lower.


QUEST: This is the way the cups stack up, whether it's New York, London, Sao Paulo, Delhi, or Beijing. The purists amongst you will no doubt shriek, "PPP!" Purchasing Power Parity! Have we accounted for the fact that a dollar here may not buy as much or more somewhere else?

Well, maybe not. But the principle remains. Enjoy your coffee.


QUEST: Now then, we brought this, of course -- well, Poppy did -- with tea and coffee, to Howard Schultz. What did he have to say about this?

HARLOW: We did. The chief executive of Starbucks, I just spoke to him a few hours ago, and I asked him what is his reaction to the report from CCTV that calls it "unreasonable price-setting" by Starbucks. And frankly, are the prices higher? Listen.


SCHULTZ: They are higher in China, and I think what we've done in the last 48 hours, I think, is very important, and that is we've been completely transparent and up front with the reasons why. And as a result of that, I think we've calmed people down and we've gotten the benefit of the doubt.

They're higher because we have made significant investments in China to build a major business in which we've hired 20,000 people. We've invested significantly ahead of the growth curve to build an even bigger business, and our cost structure is higher there. So, we're not apologizing for it, we're explaining it.

HARLOW: Is this going to make you change prices? Is it something you're considering?

SCHULTZ: We are investing significantly ahead of the growth curve now so the prices will remain the same for quite some time.

HARLOW: You told me maybe a year or so ago, you said, "China holds perhaps the biggest prize of all in terms of the future of our company." I wonder if you're concerned at all about perception, pushback, losing that core of the Chinese customer that has come in droves to Starbucks.

SCHULTZ: Well, the Chinese business today for Starbucks is unique in that for the first few years, we had tourists and ex-pats. That was our customer. Today, it's Chinese nationals. We are, I think, highly respected and admired in China for the kind of company we are.

We are still bullish on China. I think at times, there is navigational issues that you've got to work through.

HARLOW: Right.

SCHULTZ: But we are committed to building a major business in China, and this is just one issue that we will overcome.


HARLOW: Well, there you have it, right from the mouth of the CEO, the chief executive of Starbucks, Richard, saying we are not apologizing, we are not lowering prices, this is the way it is, and we'll see it if affects their business in China. So the media response so far backing China in a very strong way. Can I have a piece of cake?


QUEST: You've been eyeing my --

HARLOW: I've been eyeing it.

QUEST: -- my cake with coveted eyes.


QUEST: My Aunt Charlene made this, and the answer is no, you can't, I need it for later.


QUEST: Coming up next, we go from tea to a Brit at the CNN anchor desk in New York. Were they talking about me? No, they're talking about that other chap, Piers Morgan. We'll break down this television wall between us and bring you Piers on QUEST MEANS BUSINESS in a moment.


QUEST: Now, this is the back wall of QUEST MEANS BUSINESS studio, and through this door, we enter the lair of "Piers Morgan Live." But there's no Piers Morgan, he's in Los Angeles.

So we've snuck in to our next-door neighbor because Piers recently published this book, "Shooting Straight." It's about his experiences in New York: "Guns, Gays, God, and George Clooney," his first three years sitting over there as a CNN presenter, and the many people he's interviewed on his program.

As a fellow Brit in this city working for the same company, I was keen to find out more. So, I went along to his office on the floor above to find out more about Piers.


PIERS MORGAN, HOST, "PIERS MORGAN LIVE": Who would've thought you and I would end up in New York, Richard Quest? You think it's baffling enough that I am. I feel the same way about you.

QUEST: When you came and walked into this building, what did you think? And you saw what you were about to undertake?

MORGAN: I was always quite intoxicated by the whole concept of CNN, even from when I was working in British newspapers and remembered the 91 Gulf War, when CNN made its name. It just seemed so incredibly exciting, breaking news, to be the place that was about breaking news.

QUEST: On gun control in the United States, you refer in the book -- you say when the shopping mall shooting in Oregon, you said, "This is happening all the time. When will anyone do anything about it?" Why did you think it was your role to be the -- the person who was going to carry the call?

MORGAN: Well, because primarily, I'd been down this road before. I'd seen this movie, and it was Dunblane in Scotland. And anyone who was involved in covering that as I was remembers: 16 kids, age 5 years old, blown to pieces in a school shooting.

And what was fascinating were the parallels to Sandy Hook, which came just after that Oregon shooting, where you had virtually the same number of children, same kind of age, all killed by a lone -- a lone shooter.

But in Britain, the left and right on the political divide came together, the media came together, the public came together, and draconian gun control was introduced, which has been indisputable, incredibly successful.

QUEST: You and I roughly are the same age. I'm a bit older.

MORGAN: Are we really?

QUEST: I'm a bit older. A little older.

MORGAN: At least a decade difference.


MORGAN: I'll take your word for it.

QUEST: Much as you'd like to believe that.


QUEST: We've both had to learn to tweet.


QUEST: You've been much more successful at it than I have, but we've both had to do it with a certain avarice and purpose.


QUEST: Not because we particularly want to.


QUEST: But because that's the way you communicate.

MORGAN: I was always the anti-tweet guy. I couldn't understand what Twitter was. It seemed a ridiculous, vacuous waste of time.

And then I remember being in this office and a guy called Steve Krakauer, who was my digital producer, he came and said, "You've got to get involved in this" before we went on air. He said, "Because if you do and it really takes off, you could have a huge follow account, and if you have that, that can drive ratings."

And there was a moment about two months later, when I interviewed Charlie Sheen at the peak of his powers, and I sent one tweet about Charlie Sheen saying, "In five minutes' time, change the schedule, Charlie Sheen live for the hour." When we got the ratings back, the ratings leapt 500,000 in those five minutes.

QUEST: There was a quote in the book on ratings when there was a blip. The bad blip.

MORGAN: Terrible! Horrendous!

QUEST: You came in and you saw the blip, and you, quote, "I felt physically sick. Genuinely, I wanted to go into my office, lock --" This office.

MORGAN: This office.

QUEST: Let's hope you didn't.


QUEST: "Lock the door and puke in the trash can."

MORGAN: I did it right in that chair.



MORGAN: That's how I felt. It reminded me of the worst days of being at "The Daily Mirror" when you would for no apparent reason have this calamitous rating, and you would spend hours, as I did with this one, self- analyzing. Where did we go wrong?

There'd be no apparent clue. It was a normal show, a normal night. And then, slowly but surely, you piece together the reality. We had aired an interview with Jane Lynch from "Glee" by complete accident up against "Glee" itself.

QUEST: What have you got up here?

MORGAN: Well, these are some of my interviews. Oprah, the very first interview there. They were supposed to give me 40 minutes, gave me two hours. Could not have been more delightful. My kids here.

People tell your kids that -- they obviously, they must miss you. And I say, yes, but look what happens when they come to America. There's my oldest boy with Beyonce where she's leaning in as if somehow she's the crazed fan. That goes on his Facebook page, and I buy myself another month of absentee fatherism.

QUEST: Will it be another three years?

MORGAN: Well, some people describe me as the Samuel Pepys of the modern era, with my diaries. Others have been less kind. I simply record these in diary format because I think people, when they read through it, can live themselves what they went through, and perhaps get a perspective from somebody who has a lot of opinions.

I don't expect you to agree with all of them. But I do expect to try and stir debate. And I would love to be at CNN in three years' time doing another book about whatever's happened in that period.

Because I can't think of a more engrossing time to be at the center of world affairs, right here in New York in America, where you just feel -- and I'm sure you feel the same way -- that economically and in terms of superpower status and everything, this may be the most challenging period America has ever faced.


QUEST: And the book's called "Shooting Straight: Guns, Gays, God, and George Clooney" by Piers Morgan. Piers is in Los Angeles. Eat your heart out Piers. The takeover is complete! We'll be back in a moment.


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

The German government says it has information that Chancellor Angela Merkel's mobile phone may have been monitored by the US National Security Agency. Mrs. Merkel is said to have conveyed her concerns to President Obama during a phone call a few hours ago. The White House says the president assured the chancellor the NSA is not spying on her.

The Pakistani prime minister, Nawaz Sharif, has met with Barack Obama at the White House. US drone strike policy is expected to dominate the talks. The two leaders are also expected to discuss the situation in Afghanistan and the economy.

In Australia, firefighters say that the worst of the crisis has been averted, although the threat is not over yet. More than 60 bush fires, 26 of which are uncontained, are still raging in New South Wales, and 1500 firefighters are battling the flames.

The world got a fresh glimpse of baby Prince George at his christening today. The Archbishop of Canterbury conducted the ceremony at St. James's Palace in London. Prince George is the son of William and Catherine and third in line to the British throne.

A very interesting quarterly reporting season in the United States, and you need look no further than the stock market to see how investors are having great difficulty understanding what's going on. Stocks are off their record highs. And just look at the companies' decidedly mixed results that we got from two major Dow components. Firstly you get Boeing. Now Boeing raised forecasts, it had strong revenues and earnings in the third quarter. The chairman and CEO Jim McNerney said the company's weathered uncertainty within the U.S. defense sector which is a crucial problem and challenge to how Boeing was moving forward. And then you look at Caterpillar which has cut 2013 outlook. The revenues down as well as from 55 to 58 billion. Direction of U.S. fiscal policy remains uncertain. So here we have two companies -- Boeing which has managed the crisis, and Caterpillar weathering it particularly on the fiscal issues.

Robert Shapiro is the former U.S. Under Secretary of Commerce and is now Chairman of Sonecon. Robert, the -- this is fascinating, isn't it? Because we've rarely had a situation where monetary fiscal corporate policies are all entangled, and seemingly battling each other.

ROBERT SHAPIRO, CHAIRMAN, SONECON: Yes, and of course it depends on what your market is. You know, Boeing managed to manage its market which is now a few national airlines and the Defense Department well, although, you know, quarterly earnings for a company like Boeing are a little less significant because they depend on a small number of very large contracts than it would be for Caterpillar. My -- I haven't looked inside -

QUEST: Right.

SHAPIRO: -- Caterpillar's numbers but my expectation is that a lot of this reflects the bad economy in Europe -- the soft economy and the softening economy and much of Asia.

QUEST: The -- here in the U.S., admittedly everybody's still walking 'round slightly hung over from the debt ceiling crisis.


QUEST: But these drip effects of economic warnings that could be holding the U.S. economy back are starting to become seriously and of great concern.

SHAPIRO: Well, I think that's correct. It's -- the fact is business has been wary of significant investment commitments before this because of uncertainty about how strong the economy is going to be, particularly in the face of wrong-headed policies like the sequester. And at the same time I think that we know that the display by the government of its inability for several weeks to get together and fund itself and its uncertainty over the debt limit, damaged consumer confidence. This is an economy which runs on, mainly, consumer spending both here and abroad, so very troubling.

QUEST: Are you fundamentally concerned about what might happen in the next round of budget negotiations? Bearing even though we've had leaders from both sides pretty much saying there will be no further shutdown. Do you still think it's a real possibility to go the brink again come February?

SHAPIRO: Unfortunately, I think it is. The fact is that last time we had leaders saying there wasn't going to be a shutdown. John Boehner didn't want a shutdown, Mitch McConnell didn't want a shutdown, certainly the President didn't want a shutdown. The shutdown was forced on them by the Tea Party faction, the radicals in the House. These are a group of people who see the interests of the United States in a very different way than the leaders of the Republican Party, much less the President. And so I am concerned -

QUEST: Right.

SHAPIRO: -- I think it's likely, most likely, that the leadership and the people who finance the Republican Party will put sufficient pressure, but it can't be guaranteed, and the fact is I think that if it were to happen again, we would really begin to -

QUEST: Whoa -

SHAPIRO: -- introduce a political risk premium into U.S. interest rates and lending.

QUEST: You just said if it was to happen again and gave me a bout of indigestion after the tea we had been enjoying earlier. Robert Shapiro, many thanks for joining us.

SHAPIRO: Any time.

QUEST: A short time ago, Carl Icahn said on Twitter that he'd sent a letter to Apple's chief executive Tim Cook. The billionaire investor says he plans to reveal all when he launches a new web site on Thursday. Icahn is said to be pushing Apple to increase its share buyback program. Now, you remember of course, Icahn's been causing mischief and mayhem. Apple's share price -- if we take a look at this -- rebounded. It's up nearly 1 percent. It fell on Tuesday after the iPad launch -- excuse me -- because that's not perceived necessarily to have been the strongest launch that it's had. Same with iPads because iPads will now be available at T-Mobile, and the company, at least in the United States, and the company hopes to make the tablets more usable on the go. T-Mobile has very much been forcing the issue of roaming, chink roaming, unlimited roaming and data.

Joining me now are John Legere, chief executive of T-Mobile USA to explain. Joins me life from Bellevue, Washington. John, good to see you, sir and -

JOHN LEGERE, CEO, T-MOBILE USA: Good to see you.

QUEST: -- I need to declare an interest -- I am one of your subscribers, so for the complete -- no, don't applaud for the complete avoidance of confusion.

LEGERE: I got your iPad right here.

QUEST: No, (inaudible). I need to ask you before we talk iPads, you came out with this revolutionary policy -- free data roaming, free text, course what's been the effect? Have you had any early numbers? Because you're betting the ranch on this new policy.

LEGERE: You know, Richard, thank you for asking. I'm sure somebody like you with your show appreciates what we did. It's only revolutionary in the fact that we called out one of the biggest pain points that customers hated, and one of the biggest gouging by carriers that has gone on forever with gross margins in a multi-billion dollar industry of 90 to 98 percent. So it's not like we gave anything away. You know, I mean, if you go to Canada -

QUEST: But -

LEGERE: -- you go to Europe -

QUEST: I just -- I'm going to jump in here --

LEGERE: -- (inaudible) small usage.

QUEST: I just want to jump in because -

LEGERE: Yes, please.

QUEST: -- because what we saw in the most recent numbers while AT&T and Verizon are losing subscribers, you're gaining subscribers. And what I need to know is are you -

LEGERE: Beautiful.

QUEST: -- are you seeing an acceleration of that yet in the numbers?

LEGERE: And AT&T just announced earnings about a half an hour ago and by the way they had about 370,000 adds in tablets but negative in phones. We announced earnings on the fifth, but what I can tell you for the second quarter of this year which we all announced, we had more post-paid telephone subscriber additions than Verizon, Sprint and AT&T combined and it's because of the succession of Un-carrier 1 , 2 and 3 eliminating contracts, anytime upgrades, free international data roaming and now unleashing tablets. And it's a very simple thing, Richard. When looking at the pain points that customers hate about the industry, and when making changes to you know just reduce these crazy restrictions that carriers put on that cause them ridiculously high profitability -- and, trust me, it's a profitable venture for us since international data roaming, 200 megabits of free data for life on tablets, zero down on tablets ranging from a Google mix of (inaudible) dollars a month to the iPad Air 26. You know, in very - - what we're trying to do, Richard, is get people to use their iPads in an untethered way --

QUEST: All right.

LEGERE: -- with the free data and then simple, flexible plans. And we can't wait to get one to you.

QUEST: Well, there's no answer to that. No answer at all. John, thank you for joining us from Bellevue, Washington. I want to talk more about this when we get more results from T-Mobile. Obviously the line now slight delay. One piece of news (inaudible), GlaxoSmithKline sales in China. You heard me talk about it earlier in the program. They plunged more than 60 percent in Q3. Britain's biggest drug maker has been suffering in the Chinese market after the bribery and corruption scandal. Overall sales for the rest of the company rose by 1 percent.

And GSK doesn't only make medicine. Its consumer health products include brands like Horlicks, Glucophage and Aquafresh. The firm's toothpaste factory in the U.K. produces more than 400 million tubes of toothpaste a year, and that means never switching off the machines on the production line.


QUEST: Marriott's Courtyard brand turned 30 years old this week. Courtyard was the second brand with the hotel chain, and this is the executive chairman, Bill Marriott, outside the first Courtyard. That picture was taken it was in 1983, and of course that first Courtyard by Marriott was in Atlanta. Now, Bill Marriott, 81, has been in the hotel business for nearly 60 years. From Washington I spoke to him about how business travel has involved and how he is keeping up with the millennial generation.

BILL MARRIOTT, EXECUTIVE CHAIRMAN, MARRIOTT INTERNATIONAL: We were really looking in Courtyard as new way to grow our business. We were building big city hotels and big suburban hotels, and we decided to ask our customers what they wanted in a new hotel and we spent a million dollars to find out they wanted a better room and a lower price. And I said to my people, "Well, that doesn't make a lot of sense, does it? Why would we spend a $1 million to find out the obvious?" But, we went ahead, we built the first Courtyard in Atlanta, and we've been adding two Courtyards every month since. And so now we have 950 Courtyards, we're in 38 different countries and we have about 140,000 rooms. So, we continue to grow the brand, we're adding another -- we have another 180 Courtyards in the pipeline, and it has a lot of legs to it. It's the fastest growing segment in our business and we're really proud of what we've been able to do.

QUEST: When you start a brand like Courtyard, you obviously as you just said, you have the research, be so ever expensive as it may be. But you also had to go with a gut feeling, don't you? You've done it again with additional -- the Marriott has done it again with Edition. How important is that intuitive feel for what you think is next?

MARRIOTT: Well I think the intuitive feel comes from your experience in the business. I've been in the business now for about 58 years and I've had some experience in it and understand a little bit about it. And I think the intuitive feel is a buildup of the experiences you've had through the years and also the opportunity to listen to your customers, listen to your associates, the people you work with, employees on the front line, find out what the customers want and do the best you can to fulfill their needs.

QUEST: What's the next big, better thing? Because I know viewers watching are going to say, 'All right, this is the man -- Bill Marriott's the man who's given me this, he's given me that. But I need to know what is next.'

MARRIOTT: Well, right now we opened our first Edition Hotel in London and we're getting ready to open one in New York and one in Miami Beach. And these are high lifestyle hotels, they border on luxury and we've joined forces with Ian Schrager was the creator of boutique hotel brand rethink this new brand of Edition will have a lot of appeal to the millennials -- to the younger travelers who want a hip place to stay and want a active public space and restaurant.

QUEST: You have a good story, don't you that you tell in the blog of when you were looking at wallpaper and you were looking at hotels that have been designed for millennials. That you frankly didn't quite follow what was going on.

MARRIOTT: Well, it's hard for me at 81 to become a millennial, and so I have to rely on my great team to tell me what the millennials want and also the research with the millennials, telling us what they want. And it's different from what I wanted when I was growing up in the business and different from the way we've designed our hotels for many years. But we're on the leading edge now with a lot of new designs for all of our brands, and we'll be ready to meet the millennials. They're over 50 percent of our business now, so we really have to make sure that we're appealing to them and giving them what they want.

QUEST: That's crucial. That's a fascinating statistic -- more than 50 percent of your business is now millennials. So, no matter what somebody over 80 thinks, you have to pay attention to that.

MARRIOTT: We sure do.

QUEST: Bill Marriott talking to me from Washington. Jenny Harrison's here with the weather. Jenny.

JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: Richard, I'm going to start off first of all with conditions in Australia. My goodness, it is a slowly improving picture. The last few hours of course the rain and those very strong winds did pass through. Right now we've got winds coming from the northwest at 24 kilometers an hour, but not before we had some huge wind gusts reported. Look at this in Sydney -- 83 kilometers an hour and the temperature actually reached 33 Celsius, the average is 23, so when you combine those two, that is why Wednesday was the day that it was we were fearing it so much and of course the rain has come down nowhere near the average for October which is 77 millimeters. But it's still a cause of total fire ban, but again unlike Wednesday, we've not got any of the severe or extreme conditions, instead it's just very high. So, still of course not out of the woods, the conditions are certainly better for the next few days.

Still got some very brisk winds and still of course variable directions as well. Those winds are coming in, but it is a better picture and the temperature for the next few days is going to stay in the mid 20s Celsius Friday -- the high of course -- and so closer to the average. So the firefighters have got much more of a good chance in the coming days ahead.

Meanwhile in Europe, all those clouds streaming in from the west and very heavy rain in there. Some scattered showers further towards the north. You can see the showers heavy at times coming across the line of the Alps and snow mixed in there of course as you might expect. You can see this system moving through here towards Friday, so there's the snow, we've got the scattered storms, we've got rain pushing into Portugal and Spain -- some very heavy rain there. But all is not lost. It's that day of the week of course. We're looking ahead to the weekend, so it's still very warm in nice places around Europe. So if you fancy a bit of a weekend getaway to a nice island such as Cyprus, (inaudible) it's Saturday and Sunday, 27 and 26, good clear sunny skies. Mild in the overnight hours. And then how about a nice city break to Barcelona? Well again, the temperatures are pretty good. Quite cloudy on Saturday but still some good sunshine between the cloud. More sunshine on Sunday and a high of 26 degrees Celsius.

But that rain is pushing towards the southwest and in fact we're going to see some very heavy rain of course -- areas such as Spain and that is why we've got some warnings in place -- you can see there -- as we had Wednesday into Thursday. But overall, it's sort of that picture really across much of Europe, Richard.

QUEST: I like your weekend retreats. Looking forward to some of those. Jenny Harrison at the World Weather Center. In a moment, L'Oreal says green can be beautiful. The French giant has a bold new eco-friendly strategy. And as we continue our fiesta of chief execs, the L'Oreal CEO after the break.


QUEST: And this is where the magic takes place. These are the magicians making sure it happens. L'Oreal wants to make sure Mother Nature remains beautiful. The world's biggest beauty company has announced a sustainability strategy that includes reducing its carbon footprint by 60 percent through to the year 2020. Earlier, I spoke to L'Oreal's chief exec Jean-Paul Agon who was in Paris, and I asked him when it comes to these strategies, you have to do more than just lip service.


JEAN-PAUL AGON, L'OREAL CEO: (During) the first few years, we redefined a lot about the L'Oreal Company. We redefined the mission which is to offer beauty to all women and men around the planet. We redefined our strategy which we called universalization. We redefined the objective which is to win over 1 billion new consumers. And now we think it's time also to redefine our commitment in terms of sustainability. And that's why we made this announcement today. A great commitment in terms of sustainability until 2020.

QUEST: If it hits the bottom line. Now I know there's an argument that says if you do sustainability right, it actually increases profitability over the long run. But in the short run, are you prepared for an increasing cost if that comes along?

AGON: If it comes along, yes, but as you just said very truly we really believe that it's a (vicious) cycle. Because in fact sustainability improves your business because you know what we have to understand is that consumers and stakeholders all over the world are now expecting companies to behave sustainably. So for us, it is the only way to go.

QUEST: We must just finally and very briefly talk about economics and what you're seeing in the business. Europe is finally out of recession and growing again. The U.S. has its problems. As you look at your business, how are you going to manage these very challenging economic moments?

AGON: In fact for us the beauty market it's still growing. Of course the growth is different depending on the regions of the world. There is -- the market is almost flat in Western Europe, but L'Oreal's growing thanks to market share gains. The market is slightly growing 2, 3 percent in the U.S. and North America in general. And we are growing faster than that, thanks again to market share gains. And the market is still very dynamic in many places of the world you know -- in China, in India, in Brazil.



That is the chief executive of L'Oreal. We'll be back with a "Profitable Moment" after the break.


QUEST: There are some things that are just absolutely priceless and timeless. A lovely phrase that we English often say, 'Oh, I could murder a nice cup of tea.' Really nothing else will do the trick. And what a program we've brought for you tonight. Thank you. Think about it -- the CEO of T-Mobile, CEO of Starbucks, CEO of L'Oreal and of course Bill Marriott, former chairman and CEO of Marriott. Now, that's what I call a refreshing brew. Enough "Quest Means Business" for tonight. I'm Richard Quest live in New York. Whatever you're up to in the hours ahead, hope it's profitable. I'll see you tomorrow.