tv Bloomberg Business Week Bloomberg March 3, 2018 3:00am-4:00am EST
leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. carol: the bloomberg businessweek. julia: we are inside the magazine's headquarters in new york. carol: wells fargo ceo is done apologizing. julia: the fraud office in the u.k. is getting too serious for some. carol: and how guns became the one product in the united states that cannot be recalled. julia: all that to come on "bloomberg businessweek." julia: i'm here with bloomberg
businessweek's editor-in-chief, great to have you with us. the u.s. cover this story week is wells fargo. one of the biggest banks of the united states, the biggest home lender had a pretty challenging year, a scandal that dates back a decade. concerns over fake accounts being created, they have had a tough time. --this all came to a head months ago with a sham account story. up the numbering of products people had and in many cases, people didn't know they had these accounts. two years ago, if you would have asked anyone in banking who is would one they probably have been like, jpmorgan and well wells fargo is really ascendant. that story has changed in the past two years. it felt every rung wells fargo could hit on the way down was hit. everyone was outraged,
regulators, politicians -- congress with in the bandaged hand. julia: into the breach. had exclusivee interview with the ceo and asked what is the plan? , as a couple of weeks ago outgoing fed chair janet yellen's final act, somewhat unexpectedly put handcuffs on you can'tnd said grow your assets anymore. that is a major strategic challenge for an institution like wells fargo and mr. sloan's reality to wrestle with how do you make this business makes sense? julia: a lot of people are looking at this and saying this is going to be a huge challenge, they are going to lose market share, legacy. joel: competitor sharks in the water a little bit.
julia: legacy issues and one of the interesting things for me is that they are going to change the narrative. they are done apologizing. joel: one thing i thought was interesting when we dug into the story is this is an insanely profitable company. publicly traded companies since 2010 have made more than $10 billion in profit a year, wells fargo happens to be one of them. for all its flaws, they have deep strength to play from. they were really known as a consumer brand and they do have opportunity in places like banking to somewhat underserved markets like hispanic and black communities, and that is viewed as an advantage. another thing is moving into a card space and going to customers they have never gone to before. we talked to a lot of analysts, to a lot of investors about
this. you get both sides of the coin, everyone is waiting to see how this plays out, but the idea of where does this bank go from here is what we wanted to explore. julia: some suggest this could be a 4 million chop to profit this year, was tim sloan daunted? all he has done since coming is say "i'm sorry, i'm sorry." i don't know if he can say that enough to get over some of the cultural things they have had to wrestle with. but toto keep doing it, an extent, they are over apologizing now and have to move on. that is the course he has to find. julia: a body that tackles challenges just like this is the sfo, the serious fraud office in the u.k.. joel: this is a fascinating organization and the theme viewer's should know is that is a serious times moment at the
serious fraud office. atis responsible for looking u.k. businesses and making sure things aren't corrupt. in the moment of brexit, when the u.k. is trying to retain as much business as they can, funny enough this organization is somewhat in the crosshairs because they are doing their jobs almost too well. can you imagine, they are going after white-collar criminals and now they are -- the government is looking at them and there is a lot of speculation that maybe this organization as it exists won't exist going forward because they have done too good of a job of cracking down on business crimes. julia: this prime minister remains in her seat. let's get susie with that story. susie: serious fraud office is an agency in the u.k. that has been around for about 30 years and is our main criminal prosecutor, focused on fraud and bribery.
it will be the prosecutor behind most white-collar criminal cases, equivalent to the department of justice is fraud section. the agency was really at an all-time low, it had imagined she -- managed to avoid being wrapped into the national crime agency. theresa may was very keen for it to be joined with other prosecutors and regulators and to one agency that was focused on a wide variety of things. morale was at an all-time low, it had justft, and botched a prosecution into a very well-known real estate tycoon in london and then derided in court as having wrecked -- act recklessly. he joined with an agency at an all-time low and joined from there. he came in with a back ground as a barrister in london's to -- london.
he also has government experience, so new what path of a civil servant was like. he was starting from a low base but decided he really wanted to put the agency back on track doing what is supposed to do, which is prosecuting the tough tear -- top-tier cases of white-collar crime. julia: his successor is appointed by may's attorney general. fullas already tried to this agency into a separate one, so where does the future life for the sfo? suzi: this is a key moment. with greg's it, a year away from , ining the european union the conservative manifesto last year post-brexit vote, whenever think should be focused on brexit, theresa may once again put in the manifesto this proposition to close the serious fraud office, which is brought a
lot of questions as to why that was a lot of focus for her? it had nothing to do with greg's it and where her focus should be. raised questions around the third time we have seen a threat to the serious fraud office, even after a successful run after david green. -- under david green. i be trying to send the message that we are not going to be as hard on corruption? what is theresa may trying to achieve with this? will be aimately, it message sent to the u.k. and of the world, depending on what happens after his term ends? suzi: exactly, so we are waiting to see who his successor will be. we should find out around the end of march, and what happens from that point, david green has had a successful run by all accounts the last six years and has left the agency and a good state for someone to take it forward in that vein. it will be interesting to see
who the attorney general decides to appoint for that role and what briefing they are giving as to how the agency should be going forward. -- desperate to see that post-brexit, they increase investment. you can understand the concern in the thinking, but is the message here that the u.k. possibility to fight corporate crime will be seriously diminished if the sfo isn't a stand-alone agency as it is today? suzi: that is the view by most in the industry because the sfo has achieved so much in the last six years in terms of becoming a credible deterrent to corruption in london. the cfo -- if it is wrapped into put it agency, it would off focus for a while. what message is that going to send to people who want to invest in the u.k. not to transparent means and the correct processes? is not going to get rid of all the work green has done to send the message that london doesn't
♪ carol: welcome back to "bloomberg businessweek." julia: you can find us online at businessweek.com and on our mobile app. carol: handguns are being blamed for accidentally killing people, but will the government tell the nra do anything about it? carol: we talked to reporter mike smith. julia: start by describing but brown and the day his son was shot. eve, it was new year's
they live in a rural area of georgia south of atlanta, and his son jared was going out to do some shooting early in the morning, hunting with his best wanted to he really use his dad's relatively new pistol. it is a fire are made by a brazilian firearm maker called that exports handguns and theols, and it is one of most popular selling handgun makers in the united states. t145 pistol,aurus p which has a clip. gun or wasy popular for a long time. the gun that went off without anyone touching it while in the holster and after this tragedy, jerry brown's friend started googling --
jared brown's friend started googling because he couldn't believe his friend had pulled the trigger. he found a notice from the company saying they had reached a class-action settlement lawsuit and had agreed to fix, repair or replace this gun model and several other ones because of potential defects. key, fix oris replace. it wasn't a recall. obviously, there was something faulty with the safety mechanisms of this gun so they said they would fix it but not recall it. michael: that is correct. it is nine different models of taurus guns covered by this litigation and the company was very adamant about not being recall.o call this a
what they call it is an offer that if you send in your gun, if you want to, if it is one of these models, we will either fix it and make sure it is working properly, or get you money to buy a new one or replace it. what you mightly want to call a recall, but not no one isall because telling them they have to do it. they are only doing it because they got sued and lost. manus: who polices it? aen you have an issue where company has 16 ongoing cases against it, which commission in the united states forces them to recall faulty weapons? michael: the simple answer is no government entity has the power or the right bestowed upon them to force a gun maker to recall he firearm in america. carol: how can that be? cars, food, teddy bears as you story, aren your
overseen by a government agency for safety concerns, but nobody overseas guns? michael: that is correct, not even the atf. they don't have the power, and that is the result of an explicit effort by congress supported by the gun lobby and the nra to make it that way. ,ulia: in the politics section it has been five months since the record-breaking wildfires in california. carol: local and state officials set to repeat the mistakes that put homeowners at risk. chris: 2005, california had had one of its most expensive wildfire seasons, lawmakers were saying how are we going to pay for this? was a policy agent at the legislature and wrote a incredible.proved
she said we have a situation where local governments in these beautiful areas of california, pristine edge of the forest areas are building homes and doing it in part because they now the california will step in and pay the cost of fighting fighters -- fires that are almost inevitable. climate"mediterranean you have fire all the time, but whose pace -- who pays for it? this analyst in her 30's didn't have a lot of weight and said lawmakers, you had better change these policies or we are going to have much more expensive fires to come. fast forward 13 years, she was exactly right and as we wrote, california seems to be doubling down on those same policies that encourage building with not much attention to the future risk of more wildfires. julia: so what you have is local governments telling houses in highly fire prone areas, rebuilding where we have seen --es, and you are seeing
saying fast-forward years and everything she predicted has happened. talk about the costs we are seeing compared to what she was talking about back then. chris: the state of california just finished its most expensive fire season ever in terms of state spending on firefighting. they topped $700 million in the first seven months of this fiscal year. in thevious record was 600 range and this year isn't done yet. talkeryone knows when you about wildfires, there used to be seasons and now it is almost constant. challenge -- i don't want to give the impression that local officials are making decisions recklessly. aware, based on my conversations, of the risks that if you rebuild in a fire area, these homes could burn again. they are struggling with how to balance that future risk against the very real and current need you havehousing and
♪ julia: welcome back to bloomberg businessweek. i'm julia chatterley. carol: i'm carol massar. ,ou can join us on sirius radio in new york, in boston, in washington, d.c. and in the bay area. on dab andin london in asia on the bloomberg radio plus app. iss week's game changer the anti-regulation regulator at
the federal communications commission. would say he is against rules put in place during the democratic administration that he says will "diminish company's role." he says by undoing those particular rules, he assures consumers will have a better experience and competition among companies will enforce the precepts of net neutrality. his view is contested in washington. he has a case to battle on that front. as you alluded to, he systematically is reversing president obama decisions. what is the end game here? what is he trying to achieve? todd: from what i can see of his biography and have had the chance to watch him in action for a while and interview him, he sincerely believes that as far as we can tell, a problem
with the communications sector is government intrusion, old rules put in place for decades that need to be lifted and if they loosen those rules, the experience will be better for companies and consumers. others say has he loosens rules, companies will take advantage to consumers detriment. one arena that is contested is media ownership where he is lowering barriers to station ownership and sinclair broadcasting is looking to buy stations that reach two thirds of the american audience, although the just and sybil is just shy of 40%. whoe is a critic on the fcc says our rules are being written for companies and she objects. carol: he was appointed by president obama, yet is overturning the obama era net neutrality roles -- rules. what is his background since you
spent some time with him? todd: he is a small-town success story. he grew up in a little town in kansas, made his way to harvard, university of chicago law, advanced to a federal judge in new orleans and onto the antitrust department in the federal government. he did time on capitol hill dealing with competition and companies. then he also did some time ever rising communication as a lawyer for them before mr. obama suggest -- selected him as a minority member of the fcc. in washington, the fcc has three seats in the president's party, two seats in the minority party. it was a republican open seat, and mr. trump elevated him to chairman in january. carol: in the technology section, virtual private networks, a centerpiece of xi jinping's crackdown on internet freedom. carol: the shutdown for bp ends
in china is march 31. we talked to jeff about it. networks,ual private which you heard around snowden's orease, are ways to disguise add encryption to communications. although you can set up a vpn yourself, it is tough to do. the way most people do it is pay $12 a month to to have other companies route their communications or internet traffic through another virtualized software created private server created on some cloud network, whether in amazon server or something like that. carol: how is that different from other service providers? it is virtualized, to say the traffic is disguised as though it is coming from another source or routed around the world so that when you are visiting your
gmail client and the traffic is disguised to look as though you are not visiting gmail and you are operating from somewhere other than the u.s.. julia: so i could go in china, for example, be using my gmail or trying to access my gmail and someone outside looking at me, i may not be in china, i may not be looking a my gmail? jeff: exactly, this has been away for the past decade that millions of people in china have been able to circumvent to some degree what is known as "the great firewall." ofsorship underpinning most the market. china is in the middle of an enormous internet crackdown that partly is blocking or banning hundreds of vpns the past year. isia: explain what viper vpn
and how at a time when china is cracking down on a they have been able to survive. by trying to get one step ahead, either by renting additional servers from , when or other clients three years ago, engagements for the first effort to shut them down i finding the servers they were using unblocking them all, the solution is just to rent more servers. they havesolution tried to hit on so far is develop software in-house that can disguise traffic from their vpn servers as more legitimate chinese acception traffic or though -- as though it is coming from channels the government has approved. julia: next, what extending xi jinping's presidency means for
on the remarksin section and some significant moves from the chinese president in his ongoing consolidation of power. joel: this is a must read because what has happened is limit forremoved its president. we have a powerful president who has done amazing reforms internally and you are going to be seeing him as the base of this country for years. julia: president xi jinping could be president, if this goes through, -- >> it can become a lifetime position. julia: in terms of democracy and economic reforms, what does this ultimately mean? he has been trying to make all kinds of changes thomas some good and some concerning. doesn't feel like democracy, but it speaks to a lot of the reform he has been able to pull off and his consolidation of power will help him continue to do that. it also provides stability and there is a theme in global
politics right now, the strongman motif that has become as democracy is scaled back in areas of the world, we have seen it in ongoinger, theme through the world. julia: russia more than any country in the world. they areave seen is cracking down on the big chinese corporate's. to use your term, but stability, they want to introduce that in the financial sector. what can we learn from the crackdown we have seen on taking kroll of that company? joel: that is an interesting moment because the company got over it skis and the state has stepped in and taking control of it. there are other conglomerates in china who, all eyes are on them to see how this state reacts to them now. this is a moment of stability.
as reformist, this is an example of how that is playing out. think this do you means for the relationship with the president of the united states and the u.s. administration? does it change the relationship with the united states given the ongoing discussions, tensions? joel: i think the real takeaway is that china has a much longer trajectory. they think in centuries, decades, millennia to an extent and in the u.s., especially we think in four-year election cycles. their trajectory is a much longer trajectory, which to some extent provides an advantage. xiia: do you think it buys jinping some latitude to negotiate on the economic front if he wants to give something away as far as the trade restrictions that the president is always complaining about? joel: the trade thing is an interesting dynamic in this because this won't be something
trump administration, whether four years or eight years, is going to be wrestling with. this is a longer-term thing than that potentially. ability to chinese get what they want out of this equation is stacked a little more in their favor. julia: china is also way very important thing in our asia cover story this week. that is where we are looking at ethiopia. talk us through that. joel: ethiopia has become a new version of what southeast asia looks like not so long ago. the pearl industry opened up a bunch of factories and that was where the cheapest apparel came from. that was where the world outsourced apparel. now the new low rung in this has become ethiopia. anre the story centers is industrial park that did not exist two years ago. and chinesefarming,
money built a bunch of facilities and that is where a lot of the world's cotton goods are coming from. ands changing ethiopia, ethiopia might have a chance at a middle-class it wouldn't have otherwise had. there are a lot of bumps on the way. editorlet's get to miranda provost on that story. the government of ethiopia is making a concerted effort to industrialize the country. they have taken about 10 billion in loans from chinese central banks, that is a lot of money. have tille number we 2015 and that has only been -- numbers suggest that has been increasing in the past couple of years. built acompanies have
parks forindustrial apparel, which our story focuses on. julia: let's go there, this is fascinating. where exactly is the's industrial park and talk about the company you focus on in the story. miranda: the industrial park is in central ethiopia, on the outskirts of what is a resort city. and there was a little resort city nearby where ethiopians go to get away. not a fancy resort, not like palm beach. is subsistence farming, and this industrial park was built on what was a series of small plots of land
for farming. carol: that must have ticked off the farmers. miranda: yeah, a lot of the farmers spoke about feeling tricked because they were offered a certain amount of money and signed contract, but they didn't -- they don't speak the main ethiopian language. there are 70 ethnic groups in ethiopia. werearmers in this region roughly 500 signing these contracts, not really able to read the writing. many of them have second grade educations, they are farming. they are not highly educated in academic institutions. they couldn't read the contract. julia: next, looking to the stars on the hunt for the next
♪ julia: welcome back to "bloomberg businessweek." i'm julia chatterly. carol: i'm carol massar. in the economic section this week, as dubai comes of age, what are they -- one of the key challenges is how to keep growing. carol: could a mars mission be the answer? >> they are coming up with this crossroads and want to reclaim mess -- the status of being a city first. they are going to launch a probe to the red planet in three years with the help of unit -- u.s. universities. you have students
changing degree courses to focus on space. they are not saying the slightly it seems. from an orientation to finance and engineering to math and science. this is a part of the world which loves to draw these big ambitious blueprints. and big buildings. cristina: lavish spending of all sorts. dubai is basically looking at transforming itself into a digital hub. it wants to run the city on blockchain, the same technology that underpins bitcoin. it wants to launch a fleet of driverless air taxis. already when you go to dubai at the airport, your uber is more likely to be a tesla than any other vehicle. they also want their police force to ride these hover bikes that will also be in the air. carol: we are having fun and saying isn't this kind of cool, but this is the place that has
reinvented itself when many other people thought it couldn't before. take us back. cristina: 50 years ago, it was a sleepy little port, very poor. it started climbing to the skies. world's tallest building. oil production peaked at around 1991 and has been declining since, but they said to themselves, let's be a place that still attract all this oil money from the region. it is als are looser, place where literally the rest of the gulf goes to lead a tear down. hair down. restaurants, shopping. many people have had second homes there. something like 80% of the population is born. julia: how are they financing this effort and what risk mitigation assets are they taking to not have the debt fuel
that we saw? cristina: they have not released to many figures about how much this is going to cost. what we were able to find out is they are doing a lot around the world expo 2020. this is the first country in the middle east to hold this event. the budget for that alone is 6.5 billion. marsn't know how much the program is costing or some of the other initiatives, but we do know this is a place that had a near-death experience with debt and needed a bailout from other emirates. on section,e focus french president emmanuel macron wants to leave his mark on the paris metro. julia: his grand plan has faced plenty of criticism. carol: it is a massive plan to expand the paris metro system, which currently mainly serves the city of paris itself. pushing way out into the suburbs
and almost double the number of kilometers of track. in terms of vision, it sounds like a great thing to do. the execution has been a bit of a struggle. talk about the escalating cost of this project. carol: this project has been talked about for a number of years, and it has only been in the last few years when they actually started to do the engineering and let the initial construction contract that the price tag has started to balloon, and they are now talking about 35 billion euro construction costs, which is about twice what the estimates were just a few years ago. i think it is as recently as 2010. to put that in perspective, in today's dollars, that would be more than half what it cost to tunnel under the english channel to build the channel -- tunnel. julia: that is a great
comparison to make at this stage. we clearly have a problem with this project and now they are having to prioritize where they go first in terms of the transport links. talk about what they are prioritizing because the president is getting pushed back in that he is favoring tourists rather than french men and women and commuters, in particular. carol: the context of this is 2024paris is preparing in to host the olympic games, which is something the city has wanted to do for a long time. overruns, andt the difficulty of building some 200 kilometers of new track and dozens of new metro stations, has meant that the initial timetable, which called for finishing everything pretty much by the time of the 2024 olympics, cannot be met. what they have done is
prioritize and said they will build primarily by 2024, project that will go to the key olympic site. they are going to put off some other lines that would serve -- for example, a big research center that the government is trying to develop south of the city on the other side of paris -- of the city. on the other side of paris, a leisure plan for development that would cost over 30 billion euros, and that line has been delayed. the underlying controversy in all of this is that paris commuters have been waiting a very long time for this project. not so much the people living in paris, there are about 2.2 million people in the city. they have got pretty good service, if you have ever ridden
you can get to, a metro station in a couple of minutes no matter where you are quite city and it is efficient. as soon as you get outside the city limits -- and that is where most of the population now lives. the metro area of paris is over 10 million. the service is much worse. julia: next, a #kfc crisis -- >> and australians help tourists catch some waves. julia: this is "bloomberg businessweek." ♪
d.c., and in the bay area. --ol: and in london on db dab and in asia on the bloomberg radio plus app. kfc restaurants have major problem in the u k this year. julia: for some, a real crisis. they ran out of chicken. carol: we got to the bottom of the problem with reporter chris jasper. risk: kfc went through the week with a severe chicken shortage that cause them to close around 600 of their 900 u.k. outlets. few days into that crisis, we even had some people calling local police stations for advice on where to go for kfc. queues outside shops people thought might be the first to open, and generally, a growing crisis as brits wondered where
the next bucket was going to come from. julia: i believe it. carol: it became a hashtag, #kfccrisis. what happened? chris: i will hold back on the tons, because there are so many -- puns because there are so many. ultimately, they were probably guilty of putting all their eggs in one basket. they went from a more traditional distribution system for their system, which is a south african company, the world's largest food distributor outside of the u.s. it ran five depots across the u.k., then moved to just one mega-hub in central england operated by a more familiar parcel delivery firm, rather than a food supplier.
in the very first week of operation, the system went into meltdown. kfc hasn't said exactly what went wrong, but the understanding is there was a software glitch, as is often the case these days. company provided the suddenly,gement and they were getting chicken in, but not out again. ,here were problems of software and within a day, it became a parent they would not be about the supply all those 900 outlets and they pulled the plug. at one point, the whole two thirds of the system was closed down. julia: to what extent was this attempt to centralize their supply system about cutting costs and to what extent was that exacerbated by the fact we
are dealing with fresh chickens and not frozen chickens? the timing being far more critical. christopher: that is the crucial thing. a dhl package a day late, it may be a major problem for one company, but if an entire business is unable to get chicken when that is what it sells and the only thing it really cells, that obviously translates into something more serious for that customer. the chicken in the food service industry revolves around getting the product from the farm through the processing plant to the kfc shop in a matter of days. chicken kfc uses for a -- fresh chicken that is processed in a fairly rudimentary way and delivered fresh to the outlets. that is where it is dumped in the secret formula and fried. on premises. they had no frozen food to
resort to. because they only had one huge hub, there was no distribution option. eaten,e chicken was all there wasn't any left and that there was no way of getting it out to the outlets, some of -- one in northern scotland and one in the tip of southwest england, each of those are several hundred miles from this distribution center. they became completely cut off. carol: a story this week about love and australian style surfing. julia: cabo san lucas. chris: the story is surfing and we sent our writer to cabo san lucas to serve. there is a new company called tropics earth which is a 10 step course toward learning how to surf. surfing classes are all over the world, but there is not a lot of
curriculum and this is one of the first systems, in australia, nicaragua, and now, o. our writer tested it out. carol: first we have to talk about the code message between potential proposer and his friend to make sure he did the deed. chris: our writer told his friend he wanted to propose. he had his ring in his backpack, no one found it, but he told his texting me. make sure i do this, but you can't say did you ask her because she might see my phone. say catch any waves. he's getting these all week. julia: and he struggles to catch waves. chris: in terms of real waves, he was bad at it. the teaching was good, the girlfriend was good, the writer not so much. pick: is it a book you can up and learn how to surf, you
have to do it over and over again. caroline: you surf, he spend a lot of time paddling and before you get in the water come you have to do drills in the sand, learn how to get on the board in cabo,guy who works he will get you to the place where you can jump up in one day. this is a huge growing industry. the size of this is pretty incredible. in 2017 andlion more luxury resorts are adding classes like this because people want luxury experiences when they come to hotels. these classes are boosting the industry. carol: i will tell you, you can come in a lesson, get on the board and feel pretty cool. chris: the writer felt amazing. he had a quote from a famous surfer in the story, what is your favorite wave? the next one. i'm obsessed.
carol: we said this was about surfing and romance, did he popped the question? chris: he did, and he caught the wave. "arol: "bloomberg businessweek is available on newsstands now. julia: and on our mobile app. what is our most important question this week? critical on the matter where you stand on the issue of gun control. carol: it talks about gun maker tauris and a gun that has allegedly been killing people and wounding people. the gun just going off by mistake and what is fascinating for me, eye-opening for me is that we have government agencies that oversee food, pharmaceuticals, teddy bears, but no government agency overseeing flaws in guns. recall simple products, but you can't do it for guns in the united states. ,o many different issues particularly in a week where we have seen resident talk to
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♪ emily: i'm emily chang and this is "best of bloomberg technology " where we bring you the top interviews from this week in tech. spotify files to go public. the ipoam are skipping dance and blazing its own trail to the new york stock exchange. plus, a bloomberg scoop. alibaba adds to its arsenal and its crosshairs. we will examine the decision to go all in on china's top takeout app. and backlash