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Global Markets Slide; Emerging Market Volatility; Ukraine Violence; Choppy US Session; Euro Group in Brussels; European Fortunes, Arsenal Shirt Deal; Kenya Tax Dispute

Aired January 27, 2014 - 16:00   ET



MAGGIE LAKE, HOST: Good grief! After two dire days, Wall Street takes a breather. If only the rest of the world was so sedate. It is Monday, January the 27th.

Tonight, the emerging market malaise. Currencies and stock markets are tumbling from continent to continent.

You can count on us. Germany's finance minister tells CNN Europe will be there for Greece.

And Arsenal's latest transfer isn't a new player, it's a new shirt offer.

I'm Maggie Lake, and this is QUEST MEANS BUSINESS.

Good evening. We are expecting Apple to release its quarterly results this hour. We will bring you those numbers when we get them. First, though, the Dow barely made it into the black on what has been a bruising day for stock markets around the world. Investors are fast pulling out of riskier assets in the emerging economies and looking for safety.

There's concern about what the slowdown in Fed stimulus will do to emerging markets, who've benefited from all the easy money washing around in the system. Asia markets played catch-up Monday with Friday's losses with devastating effect.

European markets saw further losses. Greece was particularly hard hit. And we saw sharp falls in emerging markets. Argentina and India down more than 2 percent, Thailand down just under 2 percent.

The volatility can also be seen in the emerging markets. In Turkey, the central bank called for emergency meetings to deal with the lira slide. The currency has suffered its sharpest monthly drop in several years, and it's not just due to concerns about Fed tapering. A corruption investigation launched in December has targeted the president's allies, threatening political instability.

In Indonesia, the rupiah led slides in Asian currencies. Asia is particularly affected by China's slowdown in growth. Indonesia is seen as especially vulnerable to a slowdown in Fed stimulus because it imports more than it exports.

And in Argentina, the peso remains close to a record low. It fell more than 20 percent last week as investors tried to digest the government's changes to currency regulations. Today, the government set a new limit on dollar purchases.

At the World Economic Forum in Davos, Colombian president Juan Manuel Santos told CNN contagion within the region is a possibility.


JUAN MANUEL SANTOS, PRESIDENT OF COLOMBIA: I think the markets have started to differentiate. They don't treat Latin America as a whole, they differentiate between countries. But of course, many still see the region as a region and in that respect, it will affect the rest of the countries.


LAKE: Rachel Ziemba is director of emerging markets for Roubini Global Economics, and she joins us now, live from London. Rachel, thank you so much for being with us today. This is a question I've been asked --


LAKE: -- all day. We're talking about the Fed tapering as being one of the triggers for this emerging market sell-off, and yet, this has been telegraphed forever. We knew it was happening in December and markets seemed to be taking it in stride. Why now are we seeing the fallout?

ZIEMBA: I think there is some worry about Fed tapering, but really, I think it's about emerging market risks and fragilities. It's about investors questioning how sharp the slowdown will be in China and just questioning how much growth there'll be in the end. It's about the confluence of political risk in Thailand and Ukraine and Turkey.

And it's particularly punishing those countries and central banks that have not made the best use out of the global liquidity conditions. Places like Turkey, that have really struggled to attract longterm capital and haven't used some of the time they were allocated.

LAKE: Rachel, in the global markets we face now, investors seem incredibly skittish and sort of when you see one of these events happen and they sell everything in emerging markets, are we likely to see some differentiation? Are there some countries where people -- it's overblown and people shouldn't be selling, and some others that are worse off? Sort of walk us through the triage, here.

ZIEMBA: Sure. And I think this will be a story of differentiation. In the heat of a sell-off, people sell everything, and often well- performing liquid assets, Mexican assets, Polish assets, others get dumped, particularly if people want to take profits.

But I think this is going to provide some opportunities for people to position in stronger credits. Now, that means countries like Mexico and Colombia, it means Malaysia in Asia, also the Philippines.

And then, I even think there's going to be some differentiation among the so-called "fragile five." And we think that countries like Indonesia and India are better places to be.

And we also think the big part of this story is how much of the downside risks are price in. I think you're getting paid fairly attractively to hold Brazilian debt, for example. It has the highest real and nominal returns.

LAKE: Right.

ZIEMBA: But I'd stay away from the basket cases.

LAKE: Yes, but --

ZIEMBA: Countries like Turkey.

LAKE: I want to talk about Turkey, because I've seen in notes --


LAKE: -- people saying that is where, if there is contagion, if there is a bigger risk to the system, that as what they are concerned about. Do you agree with that, and why?

ZIEMBA: Yes, so, I think Turkey is -- stands out as one of the countries that has a large current account deficit, weak quality of finance. It's struggling to attract longterm capital.

Now, it doesn't have an awful lot of credit, but it does have a lot of short-term external debt. And so it ticks a number of negative boxes in my book. South Africa ticks a number as well.

But none of these countries that I'm mentioning have as weak balance sheets as Argentina, which as we saw, sort of gave up its control of the exchange rate this week. Or Venezuela or Ukraine, which have, I would say, the weakest balance sheets in the EM and frontier space.

It's important to remember that we're not -- that EM balance sheets have improved a lot since 1997. Most of them are borrowing in local currency. And we've seen some adjustment to Fed tapering. So, I wouldn't lump everything in one basket, but we are looking at a world where investment returns are probably going to be lower in a variety of asset classes.

LAKE: Right.

ZIEMBA: But we actually think people should be positioning for a world where EM growth is stabilizing and the valuations, especially in EM equity --

LAKE: Right.

ZIEMBA: -- are going to start looking attractive as they get expensive in the US.

LAKE: Rachel, very important distinctions you're making there, and thank you for sharing them with us. Rachel Ziemba from --

ZIEMBA: My pleasure.

LAKE: Roubini Global Economics, joining us there from London.

Well, Ukraine -- you heard us just mention it -- Ukraine's currency has also taken a hit in the past few days. Its main opposition group has today announced it will resume negotiations with the government. The announcement by the Ukrainian Democratic Alliance for Reforms party follows several days of unrest.

Protesters have also left the country's Justice Ministry, which they had been occupying. Diana Magnay reports on the fast-changing situation in Kiev.


DIANA MAGNAY, CNN INTERNATIONAL CORRESPONDENT (voice-over): Violence in the eastern city of Dnipropetrovsk. The east, a traditional pro- government, pro-Russian stronghold, now even here, anti-government protesters clash with police.

In Lviv in central Ukraine, protesters try to hold the gates of a barracks to stop the police unit based here from traveling to Kiev, the power base of the opposition, which wants closer ties to Europe and new elections.

Every few hours, the press service of the protest movement tweets out a new map like this, showing the unrest across the country. Mass protests, marked in pink, spreading across the east, whilst they say the blue and yellow shows where protesters have seized municipal headquarters. The information seems to fit with what's coming in from local reports.

Masked men in Kiev stand guard outside the Justice Ministry, temporarily taken over by demonstrators.


MAGNAY (on camera): This unit came down here to show their solidarity for the action taken at the Justice Ministry last night. It was seized by the protesters, who broken in through that window. We asked them what they're going to do now that they're here.

They're not entirely sure, but the Justice Minister says if they don't clear that building, he'll ask for the National Security Council to call a state of emergency.

MAGNAY (voice-over): And clear out they did, a few hours later, keeping guard outside, though, not wanting, they said, to escalate the situation.

"We have a de facto state of emergency anyway," this man says, "because many activists have been killed and captured. They're in prisons right now for no reason."

Anatoliy Grytsenko is a former defense minister, now with the protesters. He believes if the army were brought in should a state of emergency be called, many soldiers would join the protest movement.

ANATOLIY GRYTSENKO, FORMER UKRAINIAN DEFENSE MINISTER: One third of all those tents, weapons, will be here on this side because people in uniform, soldiers, officers, they are sick of this, and they have families and they do not tolerate all this stuff.

MAGNAY: The current defense minister maintains there's no plan to call in the troops. Meanwhile, Kiev is quiet for now, but protests are spreading, and clamor for resistance getting louder.

Diana Magnay, CNN, Kiev.


LAKE: Here in New York, corporate results are keeping investors on edge. Alison Kosik joins us now from the New York Stock Exchange. And Alison, looked like a pretty rocky day.

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: It really was. This was quite the session that was not one to write home about, a choppy session, as the market came to the realization that 2013 is no more, that 2014 is here and this pullback is happening.

But there was some focus on earnings today, one from Caterpillar, the machinery maker reporting a much stronger than expected profit. Its revenues fell, but also topped forecasts. Caterpillar also gave a positive full-year outlook. Shares ended more than 5 percent higher.

Google also made headlines today, although we saw shares drop about 2 percent. Google said it's acquired London-based DeepMind Technologies reportedly for $400 million. Now, DeepMind describes itself as an artificial intelligence company that specializes in machine learning. Experts say this DeepMind tie-up could benefit lots of Google's products, like its foray into driverless cars. Maggie?

LAKE: All right. Thanks so much, Alison.

KOSIK: Sure.

LAKE: Coming up, the German finance minister says it's not all doom and gloom. As the money men and women of Europe meet in Brussels, Wolfgang Schaeuble tells Richard Quest of his vision for the European future.


WOLFGANG SCHAEUBLE, GERMAN FINANCE MINISTER: You can be sure, Europe will go on on this successful way of European integration.



LAKE: The Dutch finance minister says the problems in the emerging markets are unlikely to infect Europe. Jeroen Dijsselbloem, who's also president of the eurogroup, was speaking as finance ministers arrived in Brussels for talks on the Greek bailout and European banking union proposals. He said European investors need not worry.


JEROEN DIJSSELBLOEM, DUTCH FINANCE MINISTER: I think they have quite different, separate issues. I don't think that there will be any contagion coming from those kind of risks in emerging economies back to the eurozone, no.


LAKE: And once again, we are looking at very different fortunes for the eurozone's two biggest economies. In France, unemployment has hit a record high, 3.3 million people were jobless in December. That's an increase of over 10,000.

But next-door in Germany, business confidence is up. One think tank polled 7,000 executives who said they expect 2014 to start strongly.

Well, at the World Economic Forum in Davos last week, Richard Quest caught up with German finance minister Wolfgang Schaeuble, whose predictions for the whole Europe are pretty positive.


SCHAEUBLE: I think generally we have to continue they way we've paved the last couple of years because you are right, growth is back, but it's a modest growth. Overall, it's not -- we can have a little bit more growth.

But if we want to achieve sustainable growth, we have to continue and bring our fiscal policy in order and especially to go on in structural reforms. Structural reforms are an ongoing task for everybody, including Germany.

Because the world is changing at a tremendous speed. And if you don't continue to work for reform, for adapting a new -- you lose competitiveness.

RICHARD QUEST, CNN INTERNATIONAL: Europe has lost considerable competitiveness in the past, which it is now regaining. Now, Germany, of course, has the lessons of the early 90s to fall back on and certainly knows a thing or two about regaining competitiveness. So, what would you advise other European countries to do?

SCHAEUBLE: Everyone has to reform their labor markets. We did it, and we did it successfully. Spain did it very successfully, France has announced that it will do it, as I think it's needed. And we have, of course, structural reform there are a lot of things to do. You have to open your markets.

In Germany, we have to make a lot of reforms. We have in Germany to continue in our energy policy, we have to work for a secure -- security, but to prices which are fit to be paid not to lose competitiveness. Everyone has to look and to care on competitiveness.

We have to have in mind Europe together, we are about 10 percent of the world population. We have a wealth production of 25 percent, but we spend -- social expenses -- about 50 percent of the world social expenses. And that will be -- is only possible if we continue to remain competitive.

QUEST: The periphery countries have shown great progress. Those countries that are -- have been in programs are now coming out.


QUEST: There is still the issue of Greece and what will happen after the next review. What do you hope is going to happen?

SCHAEUBLE: A Greece that -- Greece has been in a very difficult situation, but if you take the level of Greek problems some years ago, Greece had made tremendous progress. They're on a good course. Population in Greece has to suffer a lot of cuts and reforms, and it's not easy to be exacted politically, socially. But they do it in a successful way.

And by the way, I think it's important that we know everyone has decided to hold Europe together. Sometimes there was doubt, all of the world, whether we would continue to work together. You can be sure, Europe will go on on this successful way of European integration.

QUEST: It was a close thing. It was close. People did wonder whether it was going to happen. And it took a lot of effort to keep the thing together.

SCHAEUBLE: Yes, but look, we have made tremendous progress. If you look at the European integration of 15, 16 years, we -- of course, we always have problems, but if you look in the medium term, it's a tremendous success story. We would be crazy to give up. And therefore, we are totally convinced we will continue.

Even in Greece, the population had several times to decide whether they want to stay or not, and always when they had to decide, they decided we want to go on.

QUEST: And the -- with that in mind, if Greece requires further assistance, that will be forthcoming?

SCHAEUBLE: If Greece will need further assistance, we will consider as we -- and we will do what is needed. But we will not decide in advance. We have already declared when we negotiated the second program on Greece that if needed after the end of this program, we will take what is needed. You can rely on European solidarity.


LAKE: Well, Richard also got the lowdown on the German finance chief's opinions on the crisis in the world's emerging markets. We'll have that later in the show.

Next up, though, Arsenal Football Club splashes $50 million on a new signing, but this time, it's not a player.


LAKE: The English Premier League side Arsenal are changing their kit maker for the first time in two decades. The London team have ditched Nike to sign a $50 million a year deal with the German sports brand Puma.

A spokesman for the company said the deal was the biggest it had ever brokered. Puma will become the official kit supplier from July the 1st. Our resident Arsenal fan Jim Boulden has more.


ARSENE WENGER, MANAGER, ARSENAL: This is a big moment for our club.

JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT (voice-over): While Arsenal fans may have wanted to hear manager Arsene Wenger announce a new signing or that he was renewing his own contract, the big moment was, in fact, more at the business end of sport. Arsenal is ditching Nike for Puma.

IVAN GAZIDIS, CEO, ARSENAL FOOTBALL CLUB: We've had a really productive -- an excellent partnership with Nike over the years, and it would be wrong of me not to acknowledge the part that they've played as the club has progressed.

BOULDEN: But the Nike ticks will be moved from the shirts and from around the Emirates Stadium by July when Puma becomes the North London team's official kit sponsor.

BJOERN GULDEN, CEO, PUMA: Deals like this have three values. One is the commercial value of it, how much can we sell of Arsenal and Puma stuff.

BOULDEN (on camera): Yes.

GULDEN: Then it has a marketing -- how can we develop Arsenal and Puma as a brand across the globe for distribution rights. And then it's the image thing.

BOUDLEN (voice-over): Neither side will say how much the deal is worth and, unusually, how long the deal will last. Nike was Arsenal's kit sponsor for 20 years.

Arsenal wanted a partner now that is not tied up with Europe's other major clubs, and not one so small that it would struggle to expand Arsenal's presence in Asia and the Americas.

GAZIDIS: Puma really give us the scale, but also the ability to focus on us very individually and to be able to think about how Arsenal wants to be represented around the world. So it was a very good mix and a very good fit for us.

BOULDEN: Puma says landing its first major English club is a big part of its strategy to push further into football against the top two, Nike and Adidas.

BOULDEN (on camera): Of course, whether it's a Nike tick or a Puma on the Arsenal shirt, the bottom line for the fans who sit here is how much of that money will be spent on new players come this summer.

Jim Boulden, CNN, at the Emirates Stadium, London.


LAKE: Well, you heard there from Puma CEO Bjoern Gulden at the Arsenal news conference. After the deal was signed, he sat down with Jim to explain why the deal is so important for Puma.


GULDEN: If you come to our offices, you will see that we have a lot of passionate people that happen to be very, very big Arsenal friends. Enthusiasm on this project from the marketing people to the sign people to the distribution people has been enormous. And I think that's what he's referring to, that there has been extremely a lot of positive energy in this process.

BOULDEN: And it's not just about having the Puma on the shirt. It goes much deeper than that.

GULDEN: Well, deals like this have three values. One is the commercial value of it, how much can we sell of Arsenal and Puma stuff.

BOULDEN (on camera): Yes.

GULDEN: Then it has a marketing -- how can we develop Arsenal and Puma as a brand across the globe for distribution rights. And then it's the image thing. So all these things together makes it a very, very important deal for us.

BOULDEN: And you're trying to get to be even more football --


BOULDEN: -- as for Puma, because you are firmly number three behind Nike and Adidas. You seem comfortable with that.

GULDEN: Both Adidas and Nike have done a good job. They are much bigger than us. We are kind of the underdog, coming from a different side. We are making progress on product. I think we have gotten together a huge asset base that is starting to become very, very good. We signed Balotelli just a couple of weeks ago.

So I feel very confident that we can improve and make sure that our retailers and our consumers will get a very good product and that will give us growth. And then what the other two are doing, I can't impact that anyway --


GULDEN: -- so that's why we're optimistic.

BOULDEN: You did have to pull your sponsorship for the South African football team for match fixing allegations. So, there's always a risk there.

GULDEN: Well, in other contracts, we have to behave and our partners have to behave in a way, and if that's not the case, then the partnership ends.

BOULDEN: And on a more positive side, you did just resign Usain Bolt for another -- six years, is it?

GULDEN: Well, Usain stands for everything that Puma is. He's the fastest guy in the world, he's a fantastic ambassador that we will use even more. He will run at least until Rio and he will run in Puma. And then after that, we will see. I think we will work with Usain Bolt as long as we are alive and he is alive.

BOULDEN: Why does this make financial sense for you, if you are firmly number three? What is it for the bottom line?

GULDEN: When you do a deal like this, you make a lot of analysis what it can bring to you, both from the commercial side, from an image side, and the marketing side. And the sum of all this makes this for us a good deal.

In today's business, you can't do emotional deals, you have to do them when it makes sense for your business.


GULDEN: And we, the people inside the company and the people on our board were convinced that this was the right thing to do, and that's why we did it.


LAKE: Some of Kenya's top athletes are threatening to stop representing their nation because of a controversial new super tax. Kenya's revenue authority says income from sporting events overseas is now considered taxable.

Long-distance runner Wesley Korir says that means athletes will have to pay tax twice. Korir says 30 to 35 percent is already taken by the country where the athlete competed, 15 percent goes to the agent, 10 percent goes to the manager. And Korir says athletes will now have to pay an extra 30 percent tax to the Kenyan government. That would leave between 10 and 15 percent of the winnings left for the athlete.

Kenya's revenue authority says athletes who can prove they've paid tax abroad will not be charged twice. MP and former Boston Marathon winner Wesley Korir told CNN's Nima Elbagir the tax authority has not provided enough clarity.


WESLEY KORIR, KENYAN LONG DISTANCE RUNNER AND MP: If you go anywhere in the world, people know Kenya because of athletes. Because of the amazing athletes. The only time a Kenyan national anthem is sung out of this country is when an athlete wins a gold medal.

So it's -- those are the things that we as athletes feel like we're not appreciated because the government does not pay you for that, the government does not pay you salary. It's your volunteer job. You volunteer to run. You wake up in the morning, you go running, and then you go out there to brand Kenya.

NIMA ELBAGIR, CNN INTERNATIONAL CORRESPONDENT: Well, the Kenyan Revenue Authority says that what they are asking of you is what they would ask of any Kenyan citizen. They're saying that the tax that you are taxed on abroad will be exempted when it comes to being taxed in this country.

KORIR: But one thing Kenyans need to know is, OK, you keep saying that what we're asking you is what any other Kenyan citizen. Now they compare us with teachers, they compare us with doctors, they compare us with all these.

Do they get taxed outside? No. Do they get their salary outside of this country? No, they get it from this country. They get it from the taxpayers' money of this country. We don't get -- our salary does not come form this country.

ELBAGIR: You have no government funding?

KORIR: We have no government funding. And that's another thing, too. That's another issue that athletes want to be heard from. We have no -- zero -- government funding. The government does not even care how you live. They don't even care what you eat.

They don't even care how you got there. They wait until you've gotten there, you've gotten there yourself, and when you get there, that's when now the government now wants your money.

ELBAGIR: So, you could see a situation where athletes were seeking other nationalities?

KORIR: Oh, yes, definitely. We will see -- these athletes who have been training for this country, they're big athletes. It's not they don't have an option to go anywhere. They have a lot of options, but they have chosen to stay in this country because they love their country.

But now, if their country doesn't love them, they don't have an option, but they will seek for greener pastures somewhere else.


LAKE: Google is shelling out big bucks to acquire an artificial intelligence firm. A look at what Google could do with this technology coming up later on QMB.


LAKE: Welcome back, I'm Maggie Lake. Here's a check of the top news headlines we are following this hour.

At least 45 people have been killed and two dozen more injured in an attack on a market in northeastern Nigeria. Witnesses say the gunman drove into the village on four-wheel vehicles pretending to be traders. Police suspect the militant group Boko Haram is behind the attack. We'll have more details on this from Nigeria in just a moment.

Egyptian state media said military leaders have cleared the way for a presidential run by army chief Abdel Fattah al-Sisi. The general led the overthrow of Mohamed Morsi last year. He's considered to be a clear favorite for president should he decide to run. Al-Sisi is expected to announce a decision soon.

The U.N. special envoy to Syria says he's still hopeful that Syrian peace talks underway in Geneva can achieve a cease-fire. Right now, negotiations are deadlocked. The Syrian government and opposition cannot agree on a political transition.

Ukrainian President Viktor Yanukovych is meeting with opposition leaders once again as unrest spreads across the country even to his main power base in the East. He's scheduled to -- a special session to Parliament for Tuesday. Catherine Ashton the E.U. foreign policy chief has announced she will also fly to Kiev tomorrow 48 hours earlier than planned to help diffuse the situation. The Olympic torch stopped in Russia's volatile Dagestan region today. It was shuttled from the airport to the stadium and relayed under tight security. Dagestan has been at the heart of an Islamic insurgency.

We want to break away from business news for just a moment to bring you an update on the violence in Nigeria. Dozens of people have been killed in an attack on the northeastern town of Korari. Police suspect that Boko Haram militants opened fire on a village market. Journalist Aminu Abukakak joins us now on the phone from the nearby city of Cono. Thank you so much for being with us today. Can you tell us what we know at this point? Have we confirmed who is indeed responsible for this attack?

AMINU ABUKAKAK, JOURNALIST IN CONO: Yes, the police assume that the Boko Haram for being behind the attack although there's no -- any -- clear indication that Boko Haram is behind it. But given -- going by previous attacks in the region that was claimed by Boko Haram -- indicates -- all things does now point to Boko Haram being behind the attack which also -- which also be has all the hallmarks of the sect..

LAKE: Aminu, we're hearing that as many as 45 people are dead. Can you give us an update -- has that number of casualties grown in recent hours?

ABUKAKAK: Yes, (inaudible) attack because when Boko Haram attacked the village -- the other part -- a small army of soldiers (inaudible) in the village. And it took time before -- before more troops could be deployed and Boko Haram went in shooting (inaudible) and burning of homes. And when troops arrived much later -- hours later -- they had found at least 45 bodies and six dozen injured according to police authorities.

LAKE: The government has been struggling with violence there for some time. Do we know what their response is going to be?

ABUKAKAK: Well, from the most recent -- recently -- the president (inaudible) changed -- fired all the army chiefs and put in new ones. And it's yet -- it's not yet clear what other strategies they're going to employ. (inaudible) strategies (inaudible) the situation. (Inaudible) dialog (inaudible) effort in the region is highly impoverished and so much poverty in the region. We don't know (inaudible) will be, but in recent months the military have stepped up military operations against Boka Haram in that part of the country.

LAKE: All right, journalist Aminu Abukakak giving us a live update from Nigeria. We appreciate you joining us this evening. Thank you so much. And we will be right back with more in just a moment.


LAKE: Every other Monday we introduce you to executive innovators -- top industry leaders and visionaries from around the globe. Today, we meet the executive at the helm of one of the world's leading luxury hospitality brands -- Peninsula Hotels. With just nine properties and a tenth opening in August, Peninsula prides itself on being selective in getting even the smallest just right. Patricia Wu found out how Peninsula is using innovation to redefine the guest experience.


PATRICIA WU, JOURNALIST AND CO-ANCHOR OF "CNN NEWSROOM, LIVE FROM HONG KONG" SHOW: It is the grand dame of Hong Kong. Since these doors first opened 85 years ago, the Peninsula has been synonymous with tradition and luxury. From its fleet of 14 Peninsula green Rolls Royce Phantoms to its iconic afternoon tea service. And while the Peninsula prides itself on the past, it hasn't lost sight of its future.

CLEMENT KWOK, CEO, THE HONGKONG AND SHANGHAI HOTELS, LIMITED: We respect that heritage, but on the other hand, you have to change with the times. To think about what do your guests want?

WU: The CEO of Peninsula's parent company, Clement Kwok, is raising the guest experience to new heights requires innovating in three key areas -- design, technology and service.

KWOK: People use the word innovation a lot. To me, innovation doesn't have to be big things, it can be small things.

WU: And that's reflected in Peninsula's just-completed $58 million renovation of its 300 guest rooms.

KWOK: Bedside panel we have which is -

WU: The new showpiece that brings the details together -- a custom- designed tablet that controls almost everything, and all in 11 different languages.

KWOK: Now, once you press this, not only does the language change on this panel, it changes in all of the other panels around the room as well.

WU: It's no surprise that Chinese is at the top of the list. Kwok says the increasing spending power of guests from Mainland China can be seen here, but he points out that most discerning travelers are interested in the same thing -- quality.

KWOK: You don't want to try and change your product to follow the sort of customer origin trend, you want to have the confidence that you have a product that people would want and they would want to come and experience.

WU: When it comes to anticipating their guests, every need -- the Peninsula takes it a step further, and this is where the magic happens. At Peninsula's in-house research center, they take gadgets apart and then customize them for their guest's needs.

INGVAR HERLAND, GROUP GENERAL MANAGER, RESEARCH & TECHNOLOGY: We want to make something that is more unique and very much more user-friendly (inaudible).

WU: That technology is installed and fully functional model rooms where it's tested and retested before being given the green light.

KWOK: We can all go and stay overnight and test the air conditioning. What happens if you wake up in the middle of the night -- do you bump your knee on anything? If you're in the bathroom, does it all work?

WU: It's a detailed process that is a part of every major project, including Peninsula's tenth hotel opening in Paris later this year. Technology moves so fast, how do you know it's still going to be applicable or relevant?

KWOK: You know, technology is important, but at the end of the day, it's a facilitator. There's no substitute for knowing your guests directly.

WU: An acknowledgment that while innovation is a critical part of the Peninsula's long-term strategy, the reason behind it hasn't changed

KWOK: You know, at the end of the day, hospitality is quite a simple business. It is the art of caring about your guests, being genuine and thinking about how best to look after them.

WU: Patricia Wu, CNN, Hong Kong.


LAKE: Google has acquired artificial intelligence firm Deepmind Technologies. The London-based company is the latest in a string of startup purchases. Google has not confirmed the price, but reports say it was likely between $400 and 600 million. -- a drop in the bucket for Google. It seems the search giant may have all the parts it needs to create a human-like device -- almost like the computer program in the Oscar-nominated film "Her" which chronicles a man who begins to fall for his technology.


Female: Theodore, I saw in your e-mails that you've gone through a breakup recently.

Male: Because you're kind of nosy.

Female: Am I? You'll get used to it.

Male: The woman that I've been seeing, Samantha, she's an operating system.

Female 2: You're dating an OS? So what is that like?


Male: I feel really closer, like when I talk to her, I feel like she's with me.


LAKE: Well, Samuel Burke joins us now. Samuel, I don't know, it creeps me out a little bit when I see that, but is this technology that far-fetched? And what's Google doing with it?

SAMUEL BURKE, BUSINESS CORRESPONDENT: No, it's not that far-fetched at all. In fact, much of that technology that you see in the movie are products that Google already has in apps that I've reported on. -- your show here on "Quest Means Business." But let's get to the Google robot. Because it seems like they have all of the parts in place. So, let's dissect a bit. Let's start with what would be the brain of the robot, and that is Deepmind. We don't actually know that much about this company but we know that it was created by a child prodigy who liked chess has gone on to create games. And we know that they have some patents in looking at images, their technology, and deciphering what's inside the images without humans saying what's actually in those images. And then -

LAKE: So, critical thinking.

BURKE: Exactly.

LAKE: Yes.

BURKE: Critical thinking. But then let's look at the other things that Google already has. Google already has a set of ears -- we talk about Siri so often, but Google has a product called Google Voice Search which is -- allows -- its users to search with its voice. So it can hear what we're saying. In fact, let's take a listen.


Female: How many people live in Cape Cod?

(MOBILE DEVICE): The population of Cape Cod is 250,888.

Female: Awesome. What's the weather like in Yarmouth?

(MOBILE DEVICE): It's 72 degrees and overcast. Here's the forecast for the next few days.


LAKE: Because it's -- by the way, we're looking at an iPhone, aren't we, so it's Google's search engine operating on any phone?

BURKE: Very observant, Maggie, it's not just on Androids phones, but that Google voice search which is using its ears is on iPhone, it can be on a lot of other places including web browsers. So we know it has ears to listen, let's go to the body. Remember just a little bit ago we were talking about how Google acquired this company Boston Dynamics. Let me show you that video one more time -

LAKE: (Inaudible)


BURKE: -- yes, let me try it one more time.

LAKE: That's what happens with robots, they don't listen. All right we get the idea, yes.

BURKE: They come and they go, but this is actually one right here in those videos on YouTube. You saw them -- those robots looked like they're walking like humans, it looked -

LAKE: And I'm thinking Terminator -- right -

BURKE: -- very human-like. Exactly. Hundreds of millions of YouTube hits. The video's coming back. It seems like the computer has a life of its own.

LAKE: (LAUGHTER). We're already in a brave new world here.

BURKE: These are those robots. So they have a body in place so that a robot could go and it could pick up something for you, it could walk to you. That's already there. Then, we're going to move over to Google Now. You don't hear much about this product -

LAKE: Yes.

BURKE: -- also a competitor to Siri. Google Now is kind of a technology that can speak to you -- it's an assistant. It'll tell you there's traffic on the road, Maggie. And this is technology that's already in place on the Google robot, and so you see -- little pieces of this are already ready to go.

LAKE: I think the issue is that they haven't sort of -- you know, we keep saying, oh, we're more familiar with Apple's product on this, --


LAKE: But Google has the technology. They kind of haven't all put it together yet. Are they looking to diversify? Are we going to see some other type of -- instead of a driverless car, some kind of crazy robot in our home? Is this a diversification play for Google?

BURKE: In some ways it is because this product would be new if it were in your -- if it were in your home. But all of it rests on Google Search. Don't forget, this is a huge amount of data -

LAKE: Wow.

BURKE: -- that Google has. When you go and you type something in to Google, you know, sometimes it predicts what you're going to finish your sentence with.

LAKE: Which we don't even realize because we're so used to it.

BURKE: Exactly, so that's a predictive algorithm that a robot could use to say, 'Ooh, Maggie, I bet you want some tea right now. '

LAKE: Right.

BURKE: It could use that technology -- so all this would rest on the search engine that is Google. All of that data that we're putting in that it can then use as a type of artificial intelligence.

LAKE: Right, so this is augmenting their core business as opposed to some of the other sort of side projects that they get a lot of headlines for -- like the contacts and stuff. This is core Google, and I got to tell you, I'm not sure -- I mean, it's exciting but it also scares me a little, Samuel, that's for sure.

BURKE: Well, it's coming -- I think it's already here.

LAKE: That's right.. All right, Samuel Burke. Thank you so much for that -- something to watch, right?

Well, Apple results are the other thing we are watching. They're out, and as predicted, they posted a healthy net profit of $13 billion in the last quarter of 2013, beating expectations. The Christmas period is always the best for the tech giant, with people buying iPads and iPhones. We knew they were that must-have gift again this year. Last year's revenue was $57.6 billion -- more than $3 billion up on the same time a year before. We'll tell you, they're going to hold their calls soon, and it's all about expectations and the outlook, and early indications may be that may be a little disappointing. But we're going to have to dig deeper on that in a little bit. But you've got the headlines anyway.

Coming up after the break, we have part 2 of Richard's Quest's interview with Wolfgang Schaeuble. The German finance minister tells Richard how he feels about the emerging markets crisis and how Europe can weather economic storms in the future.


LAKE: Now it's time for part 2 of Richard Quest's interview with one of the most influential finance ministers in Europe, if not the world -- Wolfgang Schaeuble speaking in Davos last week. Richard spoke to him about Germany's place in the global economic recovery.


QUEST: I need to talk about Germany, particularly Germany with a new government. Do you see changes in economic policy as a result of Chancellor Merkel's reelection, a new coalition and if we accept that that does bring certain changes, what will they be?

SCHAEUBLE: I think it will of course it will bring some changes because we have a new coalition, but in substance, we will continue what we did successfully the last couple of years because we won last election. Have to -- if you remember -- it was a great victory of Chancellor Merkel - - her party, including her finance minister -


SCHAEUBLE: -- in substance we will we will continue with what was successful and what was decided by the sovereign in Germany last election.

QUEST: Were you disappointed that you didn't just get enough to go a bit further? That Chancellor Merkel missed out just on that last little bit?

SCHAEUBLE: I think the main problem in Germany is we have different majorities in the Parliament and in the second chamber. And in the second chamber, it doesn't change, therefore we always have -- we need good cooperation in this opposition we had -- we used to have -- all of the 16 years we have German -- Germany after World War II, and every work (ph) in the future as well.

QUEST: Minister, two -- just two other areas talk -- on banking unions. Now, it's complicated, it's difficult, it's coming whether we -- whether, you know -- it is going to happen. I don't think anybody doubts that now --

SCHAEUBLE: It is going to happen.

QUEST: -- yes it is. But I supposed the question now becomes how to make it happen and make it happen smoothly? And that first part of that, of course, will be the bank stress tests that take place -- the asset tests.

SCHAEUBLE: Yes, but you know the situation of European banks has improved tremendously in the last couple of years and now they will have -- even have what we need for a banking union. Sometimes I have to tell my colleagues from other continents of course Europe is complicated, complex, but, please, we have one currency for 18 nations, and therefore we have everything -- as a common monetary policy , we have one central bank but we have 18 national fiscal policies. So therefore it's a little bit complicated, but it works. And now we will build a banking union -- we have European supervision, we have European legislation on treasury use and directive, we have saving directives with a common (de) policy governing scheme and we have agreed on a single resolution, making (inaudible) including a resolution fund will be financed -- which will be financed by all European banks to avoid (set) in next time expose us again to take the risk.

QUEST: Emerging markets. Argentina's in trouble, but most people seem to think that Argentina's problems are of its own making. But in the wider emerging markets sphere, we are -- as tapering in the U.S., the U.K. -- as growth returns, are you worried emerging markets are going to get hit and hit hard?

SCHAEUBLE: I am optimistic that they will overcome the difficulties we have in the short-term. It's the beginning of tapering much which is needed by the way. We have too much (inaudible). The problem's not only of the American markets, are caused by too much (inaudible) and we cannot rely too much on monetary policy. We have to rely on sustainable fiscal and economic policy. It always needs changes, but I am quite optimistic looking at --Argentina's very specific -- but if you look at, for example, Turkey or Indonesia, I'm sure they will solve the problems.

QUEST: And do you think -- just to take your point, Minister -- we cannot rely on monetary policy -- the balance is now at that point. Monetary policy has done what it can, it may need to do a bit more, but it is very much time for governments, economics and fiscal policy to play that bigger role?

SCHAEUBLE: Exactly. That's what they did in Europe, and as I said, it's what's needed all over the world.


LAKE: Want to bring you some news just in to CNN -- the Obama administration will allow technology companies to release more information about government surveillance requests under an agreement announced Monday. Companies will be able to say how many accounts are affected by government requests for customers' data and they will be able to publish the broad information about them. So, an important development on that story -- we've been watching closely.

Time now for a check of the weather. Tom Sater is at the CNN International Weather Center. Tom, we're so sick of talking about the cold weather here. What are we looking at in Europe?

TOM SATER, METEOROLOGIST FOR CNN INTERNATIONAL: Well, the same thing with we're looking at the U.S. It's freezing right now in New York. It's considered balmy to what's coming. So temperature's going to drop again there. But let's start at Europe because we've got not just one big system here spinning right in the U.K., we've got a real powerful snowmaker that is sliding now northward and a third one's going to develop. What was a mild December for parts of Berlin over to Moscow, temperature pendulum swinging in the other direction. Take a look at what's happening. Here's our snow totals. It continues to snow in parts of Romania where a third of the country is under a blanket of heavy snow. Code orange is still in effect. Universities/schools are closed, major highways were shut down and now blamed for a few fatalities.

You can see in the next 48 hours there is still more coming. However, a new storm system sliding across the Adriatic now tosses Sarajevo in the action of snowfall. They could easily see 23 centimeters, maybe more in a few of the (inaudible) countries. They add even some freezing rain and snow in northern areas of Greece. But let's slide northward because you get into the snowfall across Germany -- hey, it's planes, trains and automobiles enjoying, well, what is the beautiful side of it. I'm sure this guy thinks differently cleaning up of course on the Tempelhof. We're looking at the snowfall that's starting to lighten up, but there's more to come because bands of rainfall sliding across the U.K., again, accompanied by in some cases some gale winds. And it's the last thing they need in southern areas of course of England. They've seen one community after another that's cut off.

In the U.S., it's another blast -- some of the coldest air this season for a few selected cities to the north. Let me show you what it looks like up north in Minnesota. This is southern Minnesota, now. In some areas of North and South Dakota, they have shut down highways -- from South Dakota to the Canadian border. If you are caught on a shut down highway and stranded, it will cost you nearly $10,000 U.S. dollars, not to mention the -- just the hassle and of course the fright of being there when no one's around. Wind chill values down to 40 below 0. Schools are still closed in parts of Minnesota towards Chicago. Not one, not two, three storm systems are just reinforcing this cold air. You're going to see it too. The big story though is in the southern part of the U.S. Significant snowfall. Maggie, we're not used to this down here. In fact, we just don't have the salt trucks or the snow plows, but we can see several centimeters in fact with warnings into the Carolinas -- heavy snow for the beaches there. Of course you'll hear more about that in the days ahead.

LAKE: We certainly will. It's been a crazy winter -


LAKE: -- and we're barely through it. All right, Tom, thank you so much. When we come back, still paying for the past -- Britain's RBS warns of steep losses.


LAKE: Royal Bank of Scotland says it has set aside over $5 billion to cover potential legal bills. The bank says the potential claims relate to products sold before the financial crisis. It's finance director says the charges will result in RBS making a substantial loss for 2013, reportedly around $13 billion. The CEO of RBS says the money will help put the bad days behind them.


ROSS MCEWAN, CEO OF RBS: The RBS is now a very strong organization that can take these provisions that we've announced today -- and they are very large. Five years ago we could never have taken these changes to the organization but we are much stronger now, and I would take the tough decisions of that making provisions which make this a much safer, more predictable bank for the future.


LAKE: And that is QUEST MEANS BUSINESS. I'm Maggie Lake in New York. Thanks for watching.