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QUEST MEANS BUSINESS
US Markets Hit Record Highs; NASDAQ Prices Halted; New Banking Paradigm; European Markets; Serbia's Ambitions; Jordan's Economy; Islamic Banking; Super Storm Sandy One Year On
Aired October 29, 2013 - 17:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
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RICHARD QUEST, HOST: Well, I'm not surprised an hour ago they were cheering and clapping. This was the scene at the New York Stock Exchange. Appropriately, it was Pivotal that rang the closing bell. We're on a roll, the S&P and the Dow, all close at a record high on Tuesday the 29th of October.
In our program tonight, Jean-Claude Trichet tells us the only way to prevent a banking crisis is change the culture.
Jordan's finance minister tells us what he's doing to prevent a financial crisis in Jordan.
And Peugeot's chief executive tells us how the company's overcoming its own crisis.
Lots of crises. I'm Richard Quest, I mean business.
Good evening to you. An hour ago, the New York market closed and it was a record day on Wall Street on the eve of a crucial Fed decision. If you join me, you'll see just how the day ended. And it was a robust performance, the Dow closing up 111 points. The S&P also hit a record high, too.
The NASDAQ finished at its highest level since September of 2000. And if you see at the top there, get right in there and you'll see. We closed at the height of the day. So the momentum picked up throughout the course of the trading session.
A lot of this is because the Fed is widely expected to keep stimulus measures in place in their latest meeting, which began today, and also, of course, there are some very robust earnings coming out in the third quarter reporting season.
The market may have been strong, but the NASDAQ, which also, indeed, finished very strongly as well, experienced a glitch. Prices halted briefly.
The NASDAQ composite stopped updating around -- you can see there. Again, it couldn't be clearer. The NASDAQ had a glitch around 1:00 PM. The index resumed at around -- oh, I don't know, quarter to 1:00 (sic). And stocks listed on the NASDAQ, I'm told, were not affected.
To put into perspective, since we're here, just look at how the NASDAQ has fared over the last -- since the beginning of October. It's really an extraordinary performance, which shows the robustness in the market.
Regulators, however, are flushing out the scandals and the skullduggery running through Europe's banking system, which is our other major story tonight. It's a clean-up that's a costly business for chief executives. Here in the boiler room, you will see exactly how for banks in Europe and elsewhere, it was time to get off the drains.
Let's start with Rabobank, the Dutch bank, which of course had to -- CEO resigned after the bank paid a billion dollars in fines by regulators for fixing libor and eurobor.
Other scandals that took place: Deutsche Bank, where there's a foreign exchange inquiry underway, possible manipulation of the market, and they've had to put more money aside for legal costs. There's a war chest, now, at Deutsche of $5.6 billion.
UBS -- get the drains up! Litigation, a Forex inquiry, it's been told to hold more capital for legal risks.
And if all this wasn't bad enough in Europe, Lloyd's Bank, even though it is heading towards some form of privatization, is setting aside an extra $1.2 billion for the misselling of personal protection insurance. Lloyd's has already set aside 7.5 billion pounds, more than $10 billion.
Now, how did the banks fare overall? If you look at the prices on the banks, the UBS fell 7.7 percent. Lloyd's fell 2 percent. Deutsche Bank gained nearly a percent after falling more than 3 percent earlier on.
The financial crisis and these sort of goings on demonstrate clearly the need for more effective supervision of banking, so says Jean-Claude Trichet, the former president of the European Central Bank, who was talking to Nina Dos Santos, and he says a new banking paradigm is essential.
JEAN-CLAUDE TRICHET, G30 CHAIRMAN AND FORMER ECB PRESIDENT: One of our major conclusions, based on 60 interviews all over the world, was that what was very important is to have a permanent exchange of information -- of dialogue, I would say permanent dialogue, at all times. And even more, perhaps, when there is nothing dramatic in the ear in order to be sure --
NINA DOS SANTOS, CNN INTERNATIONAL CORRESPONDENT: Between supervisors and the board of the bank?
TRICHET: Between the supervisors and the board of directors in order to be as sure as possible that the governance of the institution would be well understood by both the supervisors and the board of directors and the risk culture would be understood correctly by the board of directors, and that we will have this mutual trust permitting to really penetrate the institution as well as possible.
DOS SANTOS: The ECB has now taken on new powers that will be supervisory powers of about 136 banks in the region. Is that a good thing? Is that a bad thing? Are they well-equipped to do so?
TRICHET: The ECB is the head of the euro system, and the euro system is the grouping of all the central banks of, not only in that case of the euro area, but as you know, the single supervisory mechanism goes over onto both the euro area stricter censure.
So, I think they have all of the competences that are necessary, and they will also recruit on the private sector, and I think it's very good, and in academia. But we will -- it's work in progress. But I think the work has started quite well.
DOS SANTOS: How important is this banking union for shoring up the eurozone once and for all?
TRICHET: I think that banking union is part of the single market of financial services, and it was the ambition of the single market itself, of course, to have a single market for, I would say, all manufacturing. That also are all service, and amongst the services, the financial services.
So, I think it's a good -- a very important advance in the direction which, obviously, in the crisis proved absolutely overdue.
DOS SANTOS: You were at the helm of the money of the eurozone for so many years. It seems as though recovery is on its way. The green shoots are well and truly upon us, are you convinced?
TRICHET: I would say this is no time for complacency. History's not written, and we have to elevate the growth potential of Europe, as well as, I have to say, we have to elevate the growth potential of all -- absolutely all -- advanced economies.
QUEST: Jean-Claude Trichet with some sobering thoughts. Now, a number of big movers took place in Europe today. You can see how the markets closed. The Helsinki markets did the best of the day. In London, there was a strong performance by BP, which climbed 5.6 percent. It boosted the FTSE to a five-month high.
UBS, what we were talking about earlier, the banking crisis, drags Zurich lower, that's off half a percent. Nokia's 7 percent lifted Helsinki. Now that, of course, is essential, because Nokia predicted higher profits at its network unit. You'll be aware, of course, that Nokia is about to sell its handsets division, or merge it, more to the point, with Microsoft.
Serbia wants to be the 29th member of the European Union. The process will take time, and the government knows it has work to do to turn the economy around. Lazar Krstic is Serbia's finance minister, and he joins me now from London.
Minister, the -- Serbia is determined to become a member of the Union. There is opposition at some level, and your country has to make some pretty dramatic changes. So, when will you join?
LAZAR KRSTIC, SERBIAN FINANCE MINISTER: The ambition is to join in 2020, and you're right, there are several big steps we need to take. There is more than several, I would say, but the first three are probably the fight against corruption. It's normalizing the relationships we have with our neighbors in the region. And then the finances and economy and turning that entirely around.
QUEST: Yous see, the criticism will be that -- and you'll be -- you're obviously aware of this -- that joining the Union is not just economics, it's not just about fulfilling the chapters in the negotiation. It is a cultural question.
And if there's been one criticism of recent members, it's that they don't necessarily aspire to the same cultural issues of democracy, transparency, freedom of information, and all those other areas.
KRSTIC: I think you are right, it is a civilizational choice, and I think we've made that choice. We have already taken steps in that direction.
And not least, actually, in the domain of the Ministry of Finance. We have only over the course of last month, basically, came out very transparently with what our figures have been over the last five years and the dramatic increase --
KRSTIC: -- in the public debt and the deficit. That's something that is a precondition for fighting it, I think.
QUEST: And if you look at the way your economy is performing, obviously, unemployment, 24, 25 percent, very high at the moment. And also, there's been very high interest rates, again because you obviously are not part of a much tighter monetary union. One imagines your longterm goal is not only EU but eurozone.
KRSTIC: I think that's right. The -- but we have more pressing issues at hand that we need to deal with. There are -- first and foremost, we need to consolidate our fiscal deficit and stabilize our public debt, which we aim to do --
KRSTIC: -- in a three-to-four-year period. And I think with that, with the macroeconomic stability as well as with the current account deficit being reduced, which is something that has started to happen over the last year or two.
With increase in the exports, I think, we will be on a good path to essentially attract investment, which is the reason I'm in London today as well. And from there, also boost the economy. I think that's the recipe.
QUEST: Yes. As a finance minister, I just want to take you into some deeper water. Our lead story tonight, the banking scandals, the billions of dollars being paid in fines. Minister, you must be as horrified as anybody at a banking crisis, a banking culture that basically resembles a roulette wheel. What can be done about it?
KRSTIC: Well, we've been facing some similar issues over the last year, year and a half in Serbia as well, and we have just this past week had a merger of one of the banks that were more problematic with another healthy bank.
And I think it's something where -- just points out to the importance of regulation and how it's implemented. It's one of the priority tasks for us to essentially consolidate our state banking -- the part of the banking sector that has state ownership.
But the also monitoring the private banks and then acting on it timely, I think, is going to be critical for the financial stability in Serbia. And obviously, I think it's been --
KRSTIC: -- the topic across the globe.
QUEST: So, 2020 is the target date. Well, you and I hopefully will talk several more times in between then and now. Minister, thank you for joining us, the Serbian finance minister on the line from London.
When we come back, more ministers. This time it's Jordan's finance minister, who talks about how the country is bearing the strain of the country's conflict next-door in Syria, which has taken hundreds of thousands of refugees into Jordan. The costs, humanitarian and financial, and the minister says as for Jordanians, subsidies have to stop. In a moment.
QUEST: Now, Jordan's central bank governor says the cost of harboring Syria's refugees has cut his country's economic growth by nearly half, at least for the forecast. Almost a third of Syria's 2 million refugees are now in Jordan.
It's a drain on the country's limited resources, and just one of the country's economic challenges. Nothing, of course, we're discussing on economic issues should detract from the very real humanitarian suffering taking place.
But if you look at Jordan, and from Jordan's point of view, not only is there the Syrian refugee issue, but there's also the disruption to Egypt's cheap natural gas supply. There's the damage to the Sinai Peninsula pipeline, all as a result.
There's also rising oil prices. You have tourism that's been hurt by regional tensions in an economy that has 10 percent of GDP from tourism and is a crucial part of the country's economy.
Jordan's raising an extra $1.25 billion on the bond market -- and this is a really interesting bond, because the US is baking the bond, US aid, and that helps cut Jordan's borrowing costs. I asked Jordan's finance minister how he's managing with all these difficulties.
UMAYYA TOUKAN, FINANCE MINISTER, HASHEMITE KINGDOM OF JORDAN: It makes life very difficult, because the slowdown in the regional economy, the instability, again affects tourism, affects, FDI flows, affects exports. So really, we go back to GDP growth. It dramatically lowered our GDP growth from 6, 7 percent to 3 percent.
QUEST: And you also have the issue of the Syria refugee crisis on your doorstep --
QUEST: -- happening now. You're having to spend -- can you quantify what that's costing you?
TOUKAN: Honestly, to -- we asked, now, USA to do a study with the World Bank to get, really, all the aspects of the costs. Not only direct costs on health, education, and other services, but also it's affecting the host community. For instance, the housing sector and so on. The security spending. But a very rough estimate we quoted in Washington, probably, $1 billion, $1.5 billion to date.
QUEST: So, in this situation, as the -- it appears to be getting worse in Syria, and there is no immediate relief for your self other than through these bond issues and things like that, what are you going to do?
TOUKAN: Well, we have to manage very carefully and continue with the reforms. I really believe that economic reforms -- for instance, we spent a lot on subsidies, energy.
QUEST: Too much.
TOUKAN: Of course, I think too much, yes. But at some --
QUEST: But every time the government and His Majesty has attempted to pull back the subsidy fuel, there's been an uproar, and you've had to backtrack on it. So, how are you going to handle that situation?
TOUKAN: I think we have to continue to take the measures. We are committed. We have a standby arrangement with the IMF, and we are committed to implementing those reforms.
Now, it is true people in the region, in generally, really, they're not in the mood for fiscal discipline and higher taxes or higher fees. But then, how can we finance the needs of the Syrians and our own population?
QUEST: So, to pull this full circle, the economy is fundamentally solid. But it has got these headwinds of the Arab Spring, the Syrian refugees, lower tax revenues, higher expenditure.
QUEST: If you do not grasp and grapple with this urgently, Minister, you will have a balance of payments crisis and you will have a financial crisis.
TOUKAN: Exactly. Exactly. And this should not happen. Of course, in all those reform measures, by the way, the lower income groups should not be affected. We're not hurting the vulnerable groups or low income groups.
But really, those higher income groups, why should we subsidize fuel or electricity or food items for them? That system is wrong.
QUEST: That is the minister of Jordan, the finance minister, talking to me earlier.
The world of Islamic finance may have an unlikely new hub in the British capital. The UK plans to become the first non-Muslim country to issue Sharia bonds, or sukuk. It's a form of debt which complies strictly with Islamic principles and rules.
The UK prime minister, David Cameron, says Islamic finance will keep London not only at the heart of global investing, but also will give a run for places like Dubai and Islamic financial centers.
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DAVID CAMERON, PRIME MINISTER OF BRITAIN: In plain language, this means the creation of a new way of identifying Islamic finance opportunities. It is, if you like, a world-leading Islamic market index. It is another global first for the city of London and yet another reason why London can be one of the great centers of Islamic finance anywhere in the world.
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QUEST: The prime minister was speaking at the World Islamic Economic Forum in London. The Islamic Bank of Britain was the first regulated Islamic bank in the UK, set up in 2004. Its managing director is Sultan Choudhury, who was at the forum and joins us now from London.
Sir, the -- the concept of Islamic banking is well-known and it has been well-practiced for many years. But can you see London being able to take part in the wholesale environment for Islamic banking?
SULTAN CHOUDHURY, ISLAMIC BANK OF BRITAIN: Oh, well, absolutely. London is already a strong, obviously, wholesale center in terms of banking and finance, and Islamic banking, of course, does rely on global trade flows and financial transactions. And of course, it's well-placed. London's extremely well-placed, and --
QUEST: Except, of course --
CHOUDURY: -- today -- yes?
QUEST: Sir, this -- the restriction or prohibition on making profit - - now, I know Islamic banks do get a return on an investment and they do pay -- so, it's not -- but the concept is total alien to the city of London.
CHOUDHURY: Far from it, actually. I think in Islamic Sharia Law, profit and trade is actively encouraged while, of course, interest is prohibited. And we distinguish between the two.
And so I think there is no conflict, because London originally was a big center of merchant banking, and of course, Islamic banking has some similarities with the old-fashioned merchant bank concept in wholesale sense.
QUEST: So, where would you like to see it develop? How can you -- obviously at the retail level, there's an element of Islamic banking already taking place in the consumer level. But at the wholesale level in the city of London, how can you forecast it developing?
CHOUDHURY: Well, I think you'll see a number of consequences of today's speech by David Cameron. There's been a lot of work put in by the foreign office and an Islamic task force, culmination of nine-months' work, where the primary output has been this announcement of the sukuk, an Islamic bond.
Now, I think that's going to trigger a lot more issuance in the private sector as well. I think you'll see corporate sukuk being issued --
CHOUDHURY: -- potentially by corporates in the UK bringing in foreign direct investment into those companies. So, it's enlarging the investor base for UK PLC.
QUEST: Sultan Choudhury, thank you for joining me from London this evening. Much appreciated. Good to talk to you.
Now, the struggle after Hurricane Super Storm Sandy continues. It's one year on from it, and we're going to look at a business that's still rebuilding. QUEST MEANS BUSINESS.
QUEST: It's now one year since Super Storm Sandy slammed into the US East Coast, and still many victims of the storm haven't recovered financially. The bad weather devastated parts of New Jersey, New York, and New England, that much you know. In the US alone, 117 people were killed, 69 more died in Canada and the Caribbean.
Now, Sandy caused tens of billions of dollars in damage, and efforts to rebuild have been slow. The victims are struggling with the cost of repairs. And that's certainly been the case for Adam Weprin. A cafe owner in lower Manhattan, he still hasn't been able to reopen his business since it was flooded in the storm. Maggie Lake went to hear his story.
ADAM WEPRIN, OWNER, BRIDGE CAFE: I remember the last food order that we took. Five, six, seven days a week, you're in a restaurant. You see the same faces. It becomes a home.
MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT (voice-over): Adam Weprin remembers the day Sandy hit. He says it left him feeling numb.
LAKE (on camera): How high was the water in here when it came in?
WEPRIN: Two to three feet in this room. In the kitchen, it was five to six feet. You see where the building line was? And the basement completely filled --
LAKE: Where do you start?
WEPRIN: Where do you start? And there's no blueprint, and there's no plan for that. There's no emergency plan for that.
LAKE (voice-over): The question of where to start was quickly followed by how to pay.
WEPRIN: You go into survival mode. Bridge Cafe has always been like a younger sibling to me. So, we're finding the money and we'll get it running again.
LAKE: Progress has been painfully slow. You only have to compare the scene today with last December, when we first met Adam.
WEPRIN: The hardest thing after seeing the devastation --
LAKE: Back then, the worst part was the uncertainty.
WEPRIN: We don't know how bad the building really is. Our electricity is completely destroyed. But this is the walkway. Ovens all need to be replaced. The floor needs to be replaced.
Welcome to the kitchen.
LAKE (on camera): What will be the kitchen again.
WEPRIN: Contractor says it's 65 percent. I don't even know how to measure that.
WEPRIN: It's coming along
LAKE (voice-over): That 65 percent has cost Adam his savings and taken over his life. With the January opening now in his sights, giving up is not an option.
WEPRIN: What would I do?
WEPRIN: What would I -- I mean, at this point, I've been doing this for so long, this is just what I do. And I know other people have asked me to go into other restaurants, and the thing about this restaurant that makes the Bridge Cafe special to me is it's the oldest commercial-frame building standing in New York City. That's a history. And as my mother said--
LAKE: History that's worth saving?
WEPRIN: Not just worth saving, it's -- it has to be saved.
LAKE: Maggie Lake, CNN, New York.
QUEST: The Bridge Cafe under the Brooklyn Bridge which, of course, is exactly what we're delighted to show you every evening on the program.
Coming to you live from New York, QUEST MEANS BUSINESS. When we come back, Peugeot in production. We hear from the brand chief exec on its new hybrid model and, more crucially, how the company's dealing with getting a global brand back into existence.
QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. This is CNN, and on this network, the news always comes first.
US intelligence agency chiefs have told Congress that allegations of spying on millions of French and Spanish citizens are, in their words, completely false. Some American lawmakers are calling for a few review of the NSA surveillance programs and a possible ban on monitoring allied heads of state in the aftermath of the furor over recent spying allegations.
French officials have arrived in Niger to bring home four hostages freed by al Qaeda militants. The men were kidnapped in 2010 in the city of Arlit. The French foreign minister says negotiations led to their release and denying that any ransom has been paid.
Turkey has unveiled a new undersea rail tunnel linking Asia and Europe in Istanbul. It's a multibillion-dollar project and it will cut the commute time across the Bosphorus from more than hour to about four minutes. When fully operational, trains will be able to carry 150,000 passengers an hour.
There's anger in Israel as 26 Palestinian prisoners are due to be released within the hour. It's a goodwill gesture that's part of an agreement aimed at reviving peace talks. Israeli Prime Minister Benjamin Netanyahu has called it one of the most difficult decisions he's had to make. Now our senior international correspondent Matthew Chance is at the West Bank for us tonight and joins me. A goodwill gesture -- Israel has in the past released many prisoners -- dozens on some occasions. Why is this one more controversial if it is?
MATTHEW CHANCE, SENIOR INTERNATIONAL CORRESPONDENT: Well, this is a (AUDIO AND VIDEO GAP)
QUEST: And we appear to have lost -- I do apologize to you. Matthew Chance was there on the West Bank, but as you can imagine, their communications can often be a little bit on the tricky side, and unfortunately there you saw an example of that. If we get Matthew back and we can hear what he's saying, then obviously we'll bring it back to you. So, we'll carry on with our business agenda this evening. Peugeot unveiled a new production line today. It'll turn out new engines which are lighter and more economical and less polluting than previous models. The French carmaker's invested $1 billion in the project. I was talking to Peugeot's brand chief executive, Maxime Picat, and we needed to range on a lot of stories and a lot of areas. Obviously, the future Peugeot in Europe and worldwide, the question of global and European economics -- and what about this new technology and what the consumer wants?
MAXIME PICAT, PEUGEOT BRAND CHIEF EXECUTIVE OFFICER: We have started about an affordable car, a car that has good performance and environmental friendly. With the 208 Hybrid FE we have already took two of these as (inaudible) pillars, and clearly the target for us for the coming years will be to make all this technology affordable.
QUEST: Fundamentally, though, Europe is still producing too many cars. That is an inescapable fact, isn't it?
PICAT: That situation in Europe we know that they are over capacities. We are ready to take a difficult decision like the closure of the Aulnay plant as that will be done in the coming weeks. And thanks to that situation, we will improve our production utilization rate, and this clearly will help us to make the turnaround in Europe that we need. So it will be more efficient in term of industrial environment, and it will be with better products like the new 308 that we launched some weeks ago.
QUEST: And as you are launching the new brand like the new 308 and the new hybrid and all these other things, and you're taking measures like closing the factory you referred to. How far along the restructuring for Peugeot Citroen do you believe the company now is? And how much more do you think still has to be done?
PICAT: Currently, in our situations, we have two priority which is a turnaround in Europe and accelerating outside Europe. We have gas consumption which is too high, but we have already announced that we will do better than our target which was halving the gas consumption in 2013. We've got quite a strong financial security of 11 billion euros, but clearly we still need to improve our global business case and to accelerate our development outside of Europe. This is the reason why we've got partnerships and we want to use our partnership to accelerate.
QUEST: And finally, that is the core of the strategy now, isn't it? To (pop) Peugeot back as a global brand, and I wonder how difficult you think that's going to be.
PICAT: I would say that we've got 120 years of history. We are quite well known in many parts of the world, we have excellent products coming to the market and, thanks to our acceleration outside of Europe -- it's almost 50 percent of our sales outside of Europe -- we will be able to make that turnaround and to become once again or to come again a global player and a global brand.
QUEST: The chief exec of the brand for Peugeot. Now back to Matthew Chance on the West Bank where 26 Palestinian prisoners are due to be released. With me, Matthew, I do apologize. We certainly lost your sound when you were talking, so please feel -- please do carry on from where you left off.
CHANCE: Yes, thanks, Richard. Hopefully you can hear me a bit better now. We were talking about the controversial nature of these releases. Well, these are all part of a U.S.-brokered set of commitments that -
CHANCE: -- were made by the Israelis to really bolster the Israeli- Palestinian peace process that was set into motion after a three-year hiatus back in July, the Israeli's agreeing to release 104 prisoners all together. The latest batch of 26 of them are set to be released over the course of the next hour or so. We're standing here outside the Ofer Prison which is an Israeli prison in the West Bank from where the majority of those prisoners will be released. All 26 of them have been convicted of murders inside Israel. All of them have served prison sentences of between 19 and 28 years. The next couple of hours they'll be reunited with their families here in the West Bank and will be given a hero's welcome. They're seen as heroes to the Palestinian cause here in the West Bank, and indeed, Israel has more than 5,000 Palestinian prisoners still in its jails and the Palestinians want eventually -
CHANCE: -- all of them to be released, Richard.
QUEST: Right. And just to clarify what you were saying -- so I heard correctly -- all of those being released have already served substantial sentences?
CHANCE: Yes, between 19 and 28 years. So these are people that've already served significant terms. But it's still been controversial in Israel. We've had protests from the families of the victims of the Israelis that these released prisoners killed and were convicted of the murder of. They're saying that you know they don't want these people released at all. There've been attempts by politicians to prevent the release going ahead on moral grounds, all of them failing. They're putting a great deal of pressure on the right wing coalition led by Benjamin Netanyahu, the Israeli prime minister. As you mentioned, he said this decision to release these prisoners was the most difficult one he's had to make since he became prime minister.
QUEST: Matthew Chance on the West Bank for us tonight. And we'll be following that in the hours ahead as when that release takes place. Coming up after the break, if you got to grade the commander in chief, in other words, the president of the United States, imagine he was a chief executive -- how would he do? In a moment.
QUEST: Been a rocky day for President Obama's team. The head of Medicare Marilyn Tavenner said she was sorry for the problems plaguing the Obamacare health care web site. The botched launch was the subject of congressional hearings and the NSA, National Security Agency, chief general Keith Alexander has denied accusations that millions of phone calls are being collected by his agency. And of course as the fallout continues, some are questioning President Obama's accountability and status as a leader. And it's made us wonder, because if you bear in mind that the chief exec is the person at the top, it made us wonder if President Obama were a CEO, while he may not be in danger of losing his job, but would he be in danger perhaps of causing some hiccups with his shareholders and stakeholders. My next guest is the author of a study about why chief executives get fired. Now the top five reasons -- they mismanage change, they ignore customers, they tolerate low performers, they are denying reality and more talk and not enough action. In other words, they just keep telling you what they're going to do but they don't actually get it done. Mark Murphy is the CEO of Leadership IQ. He joins me now from the CNN Center. Mark, good to see you, sir.
MARK MURPHY, CEO, LEADERSHIP IQ AND AUTHOR OF "WHY CEOS GET FIRED": Richard, great to talk.
QUEST: Now, when I read your survey which is a few years old, but I looked at it and I looked at the criteria, and I thought -- my word, this is President Obama's latest fiascos. He didn't know about it, he wasn't part of the leadership, he's denied what happened initially. How would you rate him as a CEO?
MURPHY: Well, there are two issues that really come up. One is, when you look at the challenges he's facing, clearly the mismanaging change, tolerating low performers are the two things that we would point out and say, yes, probably those are the big risk points. The other thing I would say though is when you look at something like mismanaging change, Obama does have one challenge that the typical business CEO does not have, and that is typically in a undergo a change after (inaudible) of business -
MURPHY: -- organization, you can fire your opposition. In this case, he's got the opposition over which he has no control --
MURPHY: -- and that gives him a little bit tougher challenge.
QUEST: But if we talk about the sort of challenges -- let's take for example the idea with the 'I didn't know' or he didn't know that they were spying. Now, that's very similar of course to Bob Diamond, the former chief exec of Barclays who quite rightly says, 'well, I didn't know that Libor was being fixed in the bank.' Does it wash with you?
MURPHY: Not entirely. There is certainly -- the two big things a leader has to focus on is the direction for where we're going -- that ties into the change effort. But then, you've got to have the clear lines of information. And I will say that one of the worst signs for a CEO is whenever you're not the first person to get the bad news, that's -- in our studies -- that usually spells the ouster of that particular CEO. So, that's not a great sign.
QUEST: All right, Bob Diamond lasted quite a long time. Ron Johnson, former CEO of J.C. Penney went from Apple, J.C. Penney, poor execution in the reform after that, and also the other one that we can talk about, Leo Apotheker, the former CEO of H.P. In his case, he came to H.P., both those men tried to change strategy, spectacularly failing and losing their jobs. What do we learn from that?
MURPHY: There are three basic kinds of change. There's crisis-driven change which is where, OK, the sky is falling, we've got to move quickly, there's visionary change which is change that basically says we're going to a better and future state and then there's logistical change which is the kind of change that says, all right, we may not have the world's best platform for change, but at least it's not going to be that difficult. What has happened with Obama, and this is very much the case in J.C. Penney and Hewlett-Packard as well, is that you kind of lose the battle for the crisis. Is there really a crisis? Well, I don't know, we maybe lose that. Do we get the buy-in vision from our folks? No. So, what we're left with oftentimes -
QUEST: All right.
MURPHY: -- is a change that is predicated on not being all that difficult. And as we saw with the web care -- the web site for the healthcare.gov, we saw a J.C. Penney that when you rely on change that is just logistical, it often doesn't work out if there's even one bump in the road.
QUEST: We'll have you back. You're a regular. You will be a regular on these leadership issues. Mark Murphy --
QUEST: -- from the CE -- from the CNN Center. Now, Ray Davis is the chief executive of Umpqua Bank. He has written extensively on leadership including his upcoming book which I'm going to show you. It's called "Leading Through Uncertainty." He joins me in the C Suite this evening. Good to see you, sir.
RAY DAVIS, CHIEF EXECUTIVE OFFICER OF UMPQUA BANK: Good to see you.
QUEST: We need to get down to these questions of leadership.
DAVIS: Why not.
QUEST: You are a maverick by your own admission. You don't always follow traditional leadership principles, and you have been enormously successful in your bank.
DAVIS: So far, so good. You know, I tell you what, I think leadership is the key for any successful chief executive, and I think the biggest -- if I could -- you could sum it up in two words -- it's motivating and inspiring people. And if you can't motivate and inspire people, step aside. You've got to get out of the way.
QUEST: It's more than just taking charge, though. Anyone can take charge.
DAVIS: I think so, yes. I think anybody who is a natural -- who is a leader -- can certainly lead companies and lead people. But you have -- again, I keep coming back -- you have to be able to motivate and inspire people.
QUEST: Are you born to do it or do you just learn to do it?
DAVIS: You know, I think it's a little of both.
DAVIS: I know -- it's a copout. It is.
DAVIS: It is a copout, totally, but there is a little of each. I think some of it can be learned, and I think some of you just have to have a little bit of maybe the maverick you talked about, and you just say 'I'm going to do it.'
QUEST: What do you find the hardest part about being a chief executive? You took a small bank in northwestern United States and you turned it into a -- not a particularly big bank -- but an extremely successful bank.
DAVIS: Yes, it's been very good. It's been a good ride for us, and there's no question, if you go back to what made it work for us --
DAVIS: -- it was creating a value proposition which enabled us to compete against our competitors with more than price. And that's rare.
QUEST: Did you -- what do you find difficult about leadership, and about being a CEO? Is it firing people? Is it strategy? What's the most tough part?
DAVIS: None of those. The hardest part -- and it's actually not making decisions. The hardest part, I believe, is getting the information to make a decision. The decisions come pretty easily. Once you have enough information, it's normally black or white. There are gray times when the gray matters when you have to make a call, but I think most of the time, that they're pretty well decided if you can get the information you need.
QUEST: And to bring it full circle for our discussion --
QUEST: -- you heard my questioning earlier. President Obama --
QUEST: If that's classically what it is, he obviously just wasn't getting the information.
DAVIS: I think that's pretty clear. I agree. Totally. And it's unfortunate. It truly is. I mean, what's unfortunate is exactly what's been going on in Washington, D.C. period, but it's time to make things right, it's time for them to forget about the past, let's move forward, let's get things going with America.
QUEST: I've got to ask you, as a leader, as a CEO, and you look at what's been happening in Washington, D.C. -
DAVIS: How do I look at it?
QUEST: Yes, God, thank you.
DAVIS: It's very discouraging. It's wrong. I think a lot of people go to D.C. who are elected with great aspirations to do good things, and when they get there, the system tears them apart. And I think that we've got to establish ways where we can get new blood, good qualified people to run for office who are willing to make change. And so far -- yes, actually that's one of the major roles of not only those CEOs you were talking about, but the job of a leader is to be able to create and execute on change.
QUEST: The book is called "Leading Through Uncertainty." Thank you, sir.
DAVIS: Thank you.
QUEST: It's how Umpqua Bank emerged from the Great Recession better and stronger than ever.
DAVIS: Thanks you so much.
QUEST: Many thanks indeed.
DAVIS: You bet.
QUEST: Now, when we come back, more chief execs, this time battling rising costs, when we come back, the CEO of Jet Blue who have grown the airline and (taunting) millennials. "Quest Means Business," good evening.
QUEST: We're well and truly in earnings season, and JetBlue's quarterly earnings missed Wall Street's estimates because of rising fuel costs. U.S. Airlines still reported a jump in net income from the same period last year and JetBlue broke its own records for Q3. I spoke to the president and CEO Dave Barger -- always good to have Dave on the program. He joined me on the phone from JetBlue headquarters in Long Island City. And, tell me about the fine balancing act, because if you look at the revenues and the business they grew, it's about the same.
DAVID BARGER, CEO, JETBLUE: Yes it is finally balanced. No doubt about it, Richard. I mean, as we take a look at you know finally into the second half this year, we're seeing somewhat of a normal environment. I mean, the first half of this year -- I don't want to dwell on having a hurricane in our backyard, but there was an impact of the revenue environment, and so I think we're now seeing the strength of what JetBlue is all about. And the growth that we saw in -- the revenue growth -- really from the standpoint of exceeding the capacity growth, very, very, very positive.
QUEST: I'm not going to give you the tired old argument that you've heard from me a million times about destroying the low-cost model and surely doing these things of extra amenities is going to disturb your cost base, you know that much better than I do. But what I'm going to twist it 'round and says you have to do this if millennials and lifestyle passengers are demanding it.
BARGER: By definition, we're not a discounter, right, because first of all we hatched in New York. We have 150 seats on an A320 where you can put, jeez, a hundred and -- I believe it's a 168 or 174 seats on the airplane. We don't overbook. We assign seats. We're not nickel and diming, and so we don't live in that space, but we're not a so-called you know network in the legacy alliance carrier either. And your point about you know the millennial, the new customer, somebody who is looking for the lifestyle type of product, you bet. This is where I believe that we live, and when I look at 300 million customers plus flying our company this year, in how we're seeing our growth, and the demand for our growth, and also that would be JetBlue if you go all Wi-Fi flight. That would be JetBlue to do broadband into the airplane. Not Wi-Fi from you know ground-based, satellite system -- or ground-based telephone systems -- this you have to listen to your customer base. That's what we're doing.
QUEST: Dave Barger, the chief exec of JetBlue talking to me earlier. So, it was very nasty in the U.K. in large parts of Europe. Jenny Harrison's with us at the World Weather Center. And here, very pleasant in New York, but I did put my overcoat on for the first time with a hat and a scarf.
JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: Well good, I've got the (inaudible), it's going to be little bit cool this week as we said. And my goodness what a difference a day makes across in Europe. You said of course yesterday it was all about feeling later in the day. It was all about the little clearing up because the trees that came down, the travel disruptions, so, a lot of catch up really this Tuesday, Richard, but it's been a pretty good day all 'round. Quite a bit of cloud coming out so from this little disturbance here just sitting in the Western Med. That'll sit there for the next day or two. Temperatures are noticeably cooler across much of Europe in the wake of that system that came through. Look at this, it's just dropped, so I see 7 Celsius in London, 7 in Paris right now with 10 Celsius in Madrid. So, feeling a lot more autumnal heading into winter of course there as well. But in the last few hours, it has just been a case of very, very wildly scattered showers across much of Western Europe. So nothing particularly heavy. Winds of course are a lot lighter, but still we are in that sort of blustery, showery weather pattern. The jet stream very active across Northern Europe as it goes through the next couple of days. And then it'll bring more of those showers quite across much of Europe, and that little low I just pointed out on the satellite, that's going to just sit there and spin and bring a few more showers in that area as well. So this is what it looks like in the next 48 hours. So, quite a bit of cloud across Central Europe, and things are a little bit cooler, but it's fairly quiet, it's fairly calm, the rain is across the northwest and that system in the Western Med. One or two delays at the airports. A few yellow boxes popping up -- of course from low clouds and some foggy conditions in Frankfurt in the overnight hours on Wednesday, Glasgow as well has got quite a bit of cloud in the afternoon hours. And then we'll also (inaudible) some stiff winds in Copenhagen in the afternoon, so maybe 45 minute delays there. And then you can see temperature-wise on Wednesday when the sun comes out in between the cloud, not too bad -- 16 in London, 13 in Paris and 24 Celsius in Rome. I just want to remind you what was happening of course this time last year -- 28th of October. This is a satellite image of Superstorm Sandy. Here it was on the 29th. A massive storm, this one. It was 1,800 kilometers across. You know what happened. It was really about the storm surge. Just a reminder, this is what happened to one of the piers there, this is how it looks now. Continue of course to rebuild in some areas. This is an amazing picture. This really shows you the storm surge. Look at all this -- all this sand and everything -- all the debris that was just swept through all these homes. But look at it now.
HARRISON: It looks fantastic. They really have managed to put that all back together, so the sum is not quite put back together, Richard, but a lot of it is.
QUEST: And though -- you and I were showing -- you know I was just thinking -- there'll be an argument that says, Jenny, why did they put it all back where it was?
HARRISON: Where it was before, yes.
QUEST: If it still -- next -- we could talk about that another occasion. Jenny Harrison at the World Weather Center. When I come back, it's "A Profitable Moment."
QUEST: These are very strange days for tonight's "Profitable Moment" short and sweet. No matter what is happening in the real world, the financial markets just keep going on a tear. The Dow and the S&P, again, close at a record high. And that's "Quest Means Business" for tonight. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, I hope it's profitable. I'll see you tomorrow.