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H ELECTION 2016 H
Path to the White House
SPECIAL REPORT | A6-A9

* * THURSDAY, JANUARY 28, 2016 ~ VOL. XXXIII NO. 252 WSJ.com EUROPE EDITION
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The Gates of a Concentration Camp Seven Decades On Brokers

What’s Acquitted
News Of Libor
Business & Finance

S ix former brokers were

acquitted of trying to
Fraud
BY DAVID ENRICH
manipulate Libor, dealing a
major blow to a yearslong
LONDON—A jury acquitted
international probe. A1
six former brokers of fraudu-
 The Fed signaled re- lently trying to manipulate a
newed worry about market widely used benchmark inter-
turbulence and slow global est rate, dealing a major blow
growth but was noncom- to a yearslong international in-
mittal about rate plans. A1 vestigation.
The jury on Wednesday
 Boeing issued a 2016
reached unanimous verdicts to
outlook that was well below
acquit five of the brokers—for-
forecasts and said it plans
mer ICAP PLC brokers Colin
MARKUS SCHREIBER/ASSOCIATED PRESS

to deliver fewer jets. A1

Goodman and Danny Wilkinson,
 The EU will propose new former R.P. Martin brokers
corporate tax rules across Terry Farr and James Gilmour,
the bloc in a bid to thwart and former Tullett Prebon bro-
avoidance schemes. B1 ker Noel Cryan—on all counts.
The sixth broker, ICAP’s Darrell
 Facebook’s quarterly net
Read, was acquitted on one
topped $1 billion for the first
count of conspiring to defraud,
time as sales jumped 52%. B1
but the jury had yet to decide
 Fiat Chrysler pledged to on another count against him.
build more trucks and SUVs WALK INTO HISTORY: A man entered the Sachsenhausen camp in Oranienburg, just north of Berlin, on International Holocaust All six men were accused of
and raised its sales target Remembrance Day on Wednesday, the anniversary of the 1945 liberation of Auschwitz. The sign on the gate says ‘Work sets you free.’ conspiring with former UBS
even as quarterly net fell. B1 Group and Citigroup Inc. trader
Tom Hayes of trying to rig the
 Shell shareholders ap-
London interbank offered rate,
proved the deal for BG, as

Fed Keeps Rate Rise in Play

or Libor. Mr. Hayes was con-
the energy company stakes
victed and sentenced to 14
its future on natural gas. B1
years in prison last August, al-
 Some big investors are though the sentence was subse-
buying riskier European quently reduced to 11 years.
debt, betting there are bar- Officials flag concern committal on whether these two-day meeting raised new Treasury bond prices rose, The acquittals set off a
gains in this year’s selloff. B5 threats would throw its inter- doubts about whether it would sending their yields lower. The scene of jubilation and tears in
over global turbulence est-rate plans off course. follow through with a rate dollar was little changed. the courtroom, as the six for-
 Italy outlined a deal
with the EU to help banks but want options open The U.S. central bank raised move in March. Futures mar- “The [Fed] is closely moni- mer brokers exchanged hugs
short-term interest rates by a kets place just a 12% probabil- toring global economic and fi- and fist bumps and shouts of
manage their bad loans. B5
BY JON HILSENRATH quarter percentage point in ity on a rate increase by then. nancial developments and is excitement with themselves,
AND BEN LEUBSDORF December and has penciled in But the central bank sought to assessing their implications for family members and lawyers.
four more quarter-percentage- keep all of its options open the labor market and inflation, “That’s 4½ years,” Mr. Farr
World-Wide WASHINGTON—The Federal point rate increases this year, while it assesses a potentially and for the balance of risks to said, choking on tears.
Reserve signaled renewed the next one possibly as soon shifting economic landscape. the outlook,” it said in the The verdicts are a painful
 France’s justice minister worry about financial-market as March. U.S. stocks dropped follow- statement after the gathering. setback for the U.K.’s Serious
quit after a clash with Hol- turbulence and slow overseas A policy statement released ing the meeting after being lit- Usually the central bank Fraud Office, which brought
lande over the president’s economic growth but was non- Wednesday by the Fed after a tle changed for the day. U.S. Please see FED page A11 Please see LIBOR page A2
proposal to strip terrorists
of their nationality. A4
 Libya has emerged as a
new destination of choice
for extremists, with both Is-
MUTUAL-FUND FEES Boeing Dims Outlook;
lamic State and al Qaeda oc-
cupying territory there. A4
 Iran’s president said his
TUMBLE TOWARD ZERO Shares Take Nose Dive BY JON OSTROWER The world’s largest aero-
visit to Europe marks a space company has delivered
“new spring” in Tehran’s re- ‘Loss leaders’ boost returns but come with new risks; gasps at Goldman Boeing Co. on Wednesday strong earnings in recent
lationship with the EU. A4 provided financial guidance years, driven largely by
for 2016 that fell well short booming demand for com-
 The U.S. and China have BY JASON ZWEIG More than 100 mutual of market expectations and mercial jets. Underlining
not agreed on steps to take AND SARAH KROUSE Gravity funds and exchange-traded plans to deliver fewer com- strong past performance, it
to confront North Korea’s funds now cost $10 or less mercial jets than last year, posted fourth-quarter profit
nuclear program, Secretary Annual cost per $10,000 invested
In November, asset man- at actively and passively managed per $10,000 invested, up triggering a widespread sell- on Wednesday that easily
of State Kerry said. A3 ager BlackRock Inc. said it from 40 in 2010, according off in aerospace shares. topped analysts’ views, al-
U.S. stock funds
 China is ramping up ef- would slash by more than to Morningstar Inc. The company said it would though revenue in the period
$100
forts to stop money from 50% the annual expenses BlackRock’s move left its hand over 740 to 745 com- fell 3.7% to $23.6 billion, with
charged to investors in an Active: $81 ETF with annual expenses of mercial aircraft in 2016, down sales in its commercial air-
leaving the country as the
economy weakens. A3 exchange-traded fund that 80 0.03% and sharply reduced from the 762 last year. The planes division slipping 4% as
aims to mimic the perfor- fees at six other funds. guidance caught investors by deliveries fell 7%.
 Beijing is considering of- mance of the entire U.S. Schwab has responded with surprise, sending shares Its outlook for 2016,
fering citizenship to foreign stock market. 60 cuts nearly a dozen times in down almost 10% at one though, was well below ana-
soccer players in an effort to By the end of the day, ex- the past three years. point, though losses had lysts’ forecasts. Chicago-
forge a top national team. A3 ecutives at rival Charles “That’s pretty much the eased by midday. Please see BOEING page A2
40
 Activists occupying an Or- Schwab Corp. had matched first and only thing I look at:
egon wildlife refuge were ar- the price cut. In December, Passive: $14
the expenses,” says Brolin
rested after a clash with the Vanguard Group announced 20 Walters, a credit-risk analyst
FBI that left one dead. A11 fee cuts of as much as 25% at a financial-services firm
 Mexico is lagging in its
efforts to fight corruption,
according to critics and a
at dozens of its funds.
The cost of investing is
tumbling toward zero for
some basic portfolios of
0
2005 ’07 ’09 ’11
Source: Morningstar
in Virginia who manages his
own investments and re-
’13 ’15 cently put more money in
BlackRock’s iShares Core
Oracle #1
Cloud ERP
closely watched ranking. A3 stocks and bonds as firms THE WALL STREET JOURNAL. S&P Total U.S. Stock Market
duel for customers. The slide ETF.
has been under way for years but is acceler- He pays 0.03%. “If you can do it cheaper
ating as the industry’s biggest companies than the next guy, then yours is the one I
target increasingly cost-obsessed investors. Please see FEES page A10
The app that delivers
instant briefings on the
City’s most important
financial players, deals
Apps Help Tipsy Texters, Talkers, Keep a Cork in It
and markets data. i i i

Download on the App Store Modern-day ‘drunk dialing’ gets a tech check; Adele’s backup
CONTENTS Personal Journal A12 BY RYAN KNUTSON part-time gig. But alone in the tipsy-
Arts............................. A13 Technology............... B3
he admits he had texting phenome- 1,675 150
Business News... B1-3 Travel......................... A16
Heard on Street.... B8 U.S. Election....... A6-9 The smartphone has be- no recollection of non, he was in-
Markets Digest..... B6 U.S. News................ A11 come one of the world’s most sending the text. spired to build a Oracle Cloud Workday Cloud
Money & Inv...... B5-8 Weather ................. A16 powerful communications “The devices of free iPhone app, ERP Customers ERP Customers
Opinion.............. A14-15 World News........ A2-5
tools. That can be a bad thing power and produc- called the Drunk
€3.20; CHF5.50; £2.00; if you’re drunk. tivity become Text Savior. When “Oracle has their act together better than SAP”
U.S. Military (Eur.) $2.20
Ronnie Rocha learned that weapons of every- users draft a text Aneel Bhusri, Workday CEO
the hard way after texting a thing once you message or tweet
profanity-laced tirade, while have some alcohol via his app, the
drunk, to his boss. In the mis- in you,” Mr. Rocha software analyzes
sive, he demanded to be paid said. the contents of the
more and given more respon- Mr. Rocha, who iDrunk missive and advises
Midsize and large scale Enterprise Fusion ERP Cloud customers.
sibilities at his job as a com- lives in San Anto- breathalyzer the author not to
s Copyright 2016 Dow Jones & puter programmer. nio, actually gained press “send” if it oracle.com/modern-finance or call 1.800.ORACLE.1
Company. All Rights Reserved
Mr. Rocha, 23 years old at something from the incident. contains too many misspell- Copyright © 2015, Oracle and/or its affiliates. All rights reserved.
the time, managed to keep his Realizing that he was far from Please see DRUNK page A10
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A2 | Thursday, January 28, 2016
Why Beijing Should Welcome More Volatility
C
hina’s leadership prizes
stability. Its economic
growth always seems
to hit the government’s tar-
get and its currency, the
yuan, seldom fluctuated.
Until now. After years of
going only up, gradually, the
yuan has become unpredict-
able and volatile. In the short
run, this has
given global
markets indi-
gestion. In the
long run,
though, it’s a
CAPITAL good thing.
ACCOUNT When investors
GREG IP take economic
or currency
stability for
granted, they take on too
much risk in the belief noth-
ing will change. (See also:
The damage done when many
believed U.S. home prices
would never go down.)
That’s a lesson China has
yet to take on board for the
overall economy. Yet its long-
term health would benefit
from less state-directed sta-
bility and more market-
driven volatility.
Volatility raises awareness
of risk, something that can
actually enhance safety, and
not just in finance. Football,
for example, is a rough sport,
which is why players wear
helmets and padding. But
helmets can also make play-
ers feel so protected that
they hit harder, leading to
concussions and other head
injuries.
Erik Swartz of the Univer-
sity of New Hampshire and
BOEING
Continued from Page One
based Boeing said it expects
to post adjusted earnings of
between $8.15 and $8.35 a
share during the coming year.
Analysts polled by Thomson
Reuters on average had pre-
dicted $9.43 a share in earn-
ings. Boeing said 2016 reve-
nue should be between $93
billion and $95 billion, com-
pared with analysts’ expecta-
tions of $97.2 billion.
Boeing’s chief executive
said Wednesday the company
was raising and lowering pro-
duction rates of its most
profitable products. The com-
pany will cut production of
its long-range 777 jetliner to
seven jets a month starting in
2017, from 8.3 a month or
roughly 100 a year, as it tran-
sitions to the updated 777X
jetliner, which begins deliver-
ing in 2020. The lower 777
output means Boeing will be
80% sold out for the planes it
plans to build in 2017.
LIBOR
Continued from Page One
the case. The agency’s director
had said the Libor investiga-
tion was his priority, and he
had hoped that a victory in
this trial would pave the way
not only to further prosecu-
tions but also to improve the
SFO’s international credibility.
“These things happen,” said
Mukul Chawla, the main prose-
cutor on the case.
The investigations into Li-
bor, under way since spring
2008, have become one of the
marquee international efforts
to hold bankers and brokers
accountable for activity that
took place during the finan-
cial-crisis era. Roughly a
dozen financial institutions
have agreed to settle charges
that their employees sought to
manipulate the ubiquitous
benchmark to enhance their
profits, in many cases entering
criminal guilty pleas and col-
lectively paying billions of dol-
lars in penalties. The Libor
case spawned investigations
into other financial bench-
marks and became a symbol of
banker greed and misconduct.
But despite the wide roster
of institutions that have ad-
mitted wrongdoing, only a
small handful of individuals—
primarily midlevel traders and
brokers—have been criminally
charged. No senior managers
or executives have faced pros-
ecution.
After a more-than-three-
month trial, the 12-person jury
in the brokers’ case returned
its verdict after just a day of
deliberations, much faster than
the weeks that lawyers had ex-
pected jurors to spend sifting
six fellow researchers asked a
group of college players in
2014 to undertake regular
drills without helmets or
shoulder pads. When they
donned helmets for regular
practices and games, they ex-
perienced 28% fewer head
hits than a control group that
didn’t do helmetless drills,
according to the study pub-
lished last month in the Jour-
nal of Athletic Training.
Learning to tackle without a
helmet apparently encour-
aged them to protect their
heads better.
A similar dilemma arises
in aviation. Fly-by-wire, auto-
pilot and autothrottle have
lessened the burden on pilots
and made flight safer. But ex-
cessive reliance on automa-
tion dulls pilots’ ability to re-
spond to unusual
circumstances.
The crash of an Air France
flight to Paris from Rio de
Janeiro in 2009 and an Asi-
ana Airlines flight in San
Francisco in 2013 were both
due in part to the aircrew ap-
parently relying on auto-
mated controls that had dis-
engaged. Pilots are now
being pressed to spend more
time flying manually. By re-
acquainting them with how
the airplane behaves, it bet-
ter prepares them for prob-
lems.
In the world of finance,
more-volatile currencies, in-
terest rates or stock prices
boost the potential profit or
loss on a given investment.
When volatility declines, in-
vestors can take on larger
Boeing’s highest-volume
jet, the 737, will boost output
to 57 a month starting in
2019. Boeing now has three
coming increases in produc-
tion of its cash-cow single
aisle jet. In addition to the in-
crease announced Wednesday,
the company is increasing
monthly 737 output from 42
today to 47 in 2017, and 52 in
2018. Analysts have become
increasingly concerned about
the pace of airline buying to
expand and renew their fleets
in light of weakening eco-
nomic growth in some large
emerging markets like China.
Rival Airbus Group SE
plans a rate of 60 a month of
its competing A320 in
mid-2019.
“Our strategies are aligned
to the realities and opportu-
nities in our markets,” said
Dennis Muilenburg, Boeing’s
chief executive.
Boeing has focused on
steadily increasing annual
production across its biggest
airplane programs, which
drives rising cash flows. The
company gets the bulk of its
A combination photograph from left to right of Darrell Read, Colin Goodman and Daniel Wilkinson, former brokers at ICAP; James
Gilmour and Terry Farr, both former brokers at R.P. Martin; and Noel Cryan, a former broker at Tellett Prebon.
through thousands of pages of
transcripts and evidence.
Prosecutors painted the six
brokers as illegally working
with Mr. Hayes to manipulate
Libor, which underpins interest
rates on trillions of dollars of
financial contracts world-wide.
The prosecution said the bro-
kers were crucial pieces of Mr.
Hayes’s vast conspiracy and
that they were motivated pri-
marily by greed.
Lawyers for the brokers said
the men didn’t actually help
Mr. Hayes and instead were
simply telling the gullible
trader what he wanted to hear.
They cast doubt on the notion
that Mr. Hayes wielded nearly
as much influence as claimed
by prosecutors in the U.S. and
U.K., which have portrayed the
mildly autistic man as a crimi-
nal mastermind.
The monthslong trial was
dominated by mostly arcane
written and recorded evidence
that showed the brokers com-
municating with their col-
leagues and bank traders about
movements in interest rates
and other benchmarks. But it
was spiced up by the colorful
nicknames that the brokers,
who are all British, went by:
Mr. Goodman was known as
“Lord Libor,” Mr. Read was
WORLD NEWS
One-Way Bets
The steady, predictable rise in the yuan encouraged Chinese companies to borrow heavily in foreign
currencies that could be more cheaply repaid later. But that may change now that the yuan is becoming
more unpredictable and volatile, like other currencies.
How many yuan
one dollar buys
5.5 yuan
6.0 Scale inverted
to show the
rising yuan
6.5
7.0
7.5
8.0
8.5
2000 ’02 ’04 ’06 ’08 ’10 ’12 ’14
Notes: Implied volatility is the currency's predicted volatility based on options prices.
Sources: Federal Reserve via Federal Reserve Bank of St. Louis (yuan); Bank for
International Settlements (debt); Bank of America Merrill Lynch (volatility)
positions without increasing
their potential exposure.
When volatility rises, inves-
tors retreat and shrink their
positions, which sometimes
means disruptive selling.
Many Asian countries in
the 1990s pegged their cur-
rencies to the dollar to pro-
mote exports and hold down
inflation. But those pegs en-
couraged their companies to
borrow heavily in foreign
currency to exploit lower in-
terest rates. When countries
devalued, those foreign-cur-
rency debts became crippling.
China has avoided a simi-
lar fate by running big trade
surpluses and limiting specu-
payment for jetliners upon
delivery. Boeing expects new
orders roughly at the same
level as deliveries in 2016.
Analysts generally had
been expecting deliveries this
year to roughly match the
number for 2015.
Greg Smith, Boeing’s chief
financial officer, said the 787
program had turned cash
positive in the fourth quarter,
though was still costing more
to build each plane than to
sell it. The company’s 787 de-
ferred production balance,
costs that Boeing says it will
recoup later, topped $28.5
billion, up $200 million dur-
ing the quarter. He added
that Boeing expected the
costs to grow by the same
rate in the first quarter,
though unit cost reductions
would leave the overall $28.5
billion balance flat a year
from now.
Boeing on Jan. 21 said it
would cut production of its
747-8 jumbo jet to a rate of
six a year starting in Septem-
ber from approximately 12.
But the 747 is a tiny fraction
“Big Nose” and Mr. Wilkinson
was called “Danny the Animal,”
among others.
Mr. Hayes’s wife, Sarah
Tighe, was in the courtroom
for Wednesday’s verdict and
cheered at the outcome. A
person close to Mr. Hayes de-
scribed the former trader,
who is currently in prison, as
being “thrilled” when he was
informed of the brokers’ ac-
quittals.
The prosecution argued that
the brokers were rewarded
with everything from bribes to
bottles of champagne and
meals to try to move Libor in
directions favorable to Mr.
Hayes.
The brokers presented dis-
parate defenses. Most said they
had simply been lying to Mr.
Hayes about their supposed ef-
forts to influence Libor, desper-
ate to score Brownie points
with one of the most prolific
traders in Tokyo, where Mr.
Hayes was based from 2006
through 2010. Mr. Farr ac-
knowledged that he had tried
to help his prized client, but
said he lacked a sophisticated
understanding of finance and
didn’t realize that what he was
doing was wrong.
The trial was marked by
some dramatic moments. On
China’s dollar-denominated debt
$1.2 trillion
Debt securities, offshore
1.0
Debt securities
Loans
0.8
0.6
0.4
0.2
0 0
2000 ’02 ’04 ’06 ’08 ’10 ’12 ’14
lation with capital controls.
Companies, investors and in-
dividuals nonetheless found
other ways to implicitly bet
that the yuan’s steady climb
from mid-2005 through this
past August would continue.
In that period, Chinese for-
eign-currency loans climbed
eightfold to $1.2 trillion, ac-
cording to the Bank for Inter-
national Settlements.
“China has got to be one
of the biggest long positions
ever created in the currency
market,” says Claudio Piron,
a currency and bond strate-
gist for Bank of America
Merrill Lynch, referring to a
bet on a rising price.
of its overall production,
which includes hundreds of
737 and twin-aisle 777 and
787 aircraft annually.
Boeing’s earnings state-
ment offered no explanation
for the anticipated drop in
deliveries. After years of in-
creasing output across multi-
ple assembly lines, the com-
pany only has a single
increase planned for 2016, in-
tending to raise output of its
787 Dreamliner to 12 a month
from 10. However, Mr. Smith
said the company would de-
liver roughly the same num-
ber of 787s in 2016, 135,
which it attributed to cus-
tomer-driven timing.
Over the next 12 months,
however, new aircraft models
are expected to become a
greater share of its factory
output. Boeing’s production
rate for single-aisle jets, now
42 a month, increasingly will
be taken up by initial assem-
bly of its 737 Max, which it
plans to start delivering in
2017. Its new 787-10, the third
model in the Dreamliner fam-
ily, also is slated to start
the stand, Mr. Wilkinson, who
had managed a team of brokers
at ICAP in London, erupted at a
prosecutor, accusing the SFO of
conducting a politically moti-
vated witch-hunt and threaten-
ing to sue the agency. A lawyer
for Mr. Cryan later accused the
agency’s investigators of delib-
erately ignoring evidence and
said the SFO didn’t interview
some of Mr. Cryan’s former col-
leagues until after the criminal
trial was already under way.
Then, in its closing weeks in
early January, the trial seemed
to nearly get derailed when Mr.
Wilkinson suffered a minor
stroke one day after court. Af-
ter a brief hospital stay, he re-
covered at home and the trial
was conducted in his absence.
Mr. Wilkinson, in court for the
first time on Wednesday to
hear the verdicts, sobbed in the
hallway, surrounded by family,
after he was acquitted.
The verdicts are good news
for a constellation of other for-
mer brokers and traders, who
have been named as co-con-
spirators of Mr. Hayes and the
former brokers but haven’t
been charged. The SFO had ex-
pected to win convictions of
most of the former brokers and
then to use those verdicts to
help wring guilty pleas out of
One-year implied volatility,
against the dollar
18%
Euro
15 Yen
Yuan
12 (offshore)
9 bility still rules.
6 growth is 25% less volatile
3 than Japan’s, and a half to
2011 ’12 ’13 ’14 ’15
THE WALL STREET JOURNAL.
S
uch trends apparently
worry the technocrats
who run the People’s
Bank of China. “A fixed ex-
change rate looks stable, but
it hides accumulated prob-
lems,” People’s Bank of
China Vice Gov. Yi Gang said
in August in explaining why
the bank had let the yuan
drop and its value would
henceforth be “market-deter-
mined.”
In options markets, the
yuan’s “implied volatility,” a
measure of how much it costs
to protect against big moves,
has risen sharply in recent
months, nearing levels more
typical of the yen and euro.
A 737 Max. Boeing plans to start delivering the model in 2017.
moving through assembly
lines in 2016, though its de-
liveries don’t start until 2018.
Initial deliveries of its new
KC-46 aerial refueling tanker
to the U.S. Air Force aren’t
expected until the second half
of 2016, even as Boeing
builds aircraft throughout the
year.
For the quarter ended Dec.
31, Boeing reported a profit
of $1.03 billion, or $1.51 a
share, down from $1.47 bil-
lion, or $2.02 a share, a year
other alleged conspirators, ac-
cording to defense lawyers who
have spoken with the agency’s
investigators.
Wednesday’s courtroom loss
represents the latest black eye
for the SFO, which has faced
criticism from British lawmak-
ers and others for bungling
some high-profile cases. The
agency had hoped that its con-
viction of Mr. Hayes, and the
stiff prison sentence he re-
ceived, marked a turning point
in its history and would pave
the way for wins in other cases
involving the alleged manipula-
tion of important financial
benchmarks.
The SFO’s director, David
Green, said in a statement
Wednesday that “nobody
could sensibly suggest that
these charges should not have
been brought and considered
by a jury.”
At a pub near the court-
house Wednesday evening, the
brokers and their lawyers,
friends and family gathered to
celebrate. Mr. Wilkinson, wear-
ing jeans and an untucked,
short-sleeve plaid shirt, made a
grand entrance.
“Freedom!” he bellowed, his
arms lifted above his head in a
V. The brokers roared, and
someone handed him a beer.
THE WALL STREET JOURNAL.
’16
LUKE MACGREGOR/BLOOMBERG NEWS
There are signs a more
unpredictable yuan is having
the desired effect. Mr. Piron
says a main driver of capital
outflows from China has
been Chinese companies pay-
ing off their foreign-currency
debt.
China’s tolerance for cur-
rency volatility is limited:
Through intervention and
heavy-handed guidance it has
ruled out a free fall. And
throughout the rest of the
economy, the fixation on sta-
China’s reported economic
than that of the U.S., 56% less
third of Asian economies
such as South Korea and In-
donesia, according to Gold-
man Sachs’s investment man-
agement division, raising
doubts about its reliability.
The government’s reluctance
to let local governments or
state-owned companies de-
fault gives them an implicit
guarantee, enabling them to
borrow more at artificially
cheap rates while depriving
innovative private enter-
prises of credit.
Y
anking those implicit
guarantees and allow-
ing more business fail-
ures would threaten social
stability and potentially
worsen the selloff in the cur-
rency and the stock market.
But in the long run, China’s
intolerance of instability
hampers innovation, fuels
debt and threatens a more
disorderly day of reckoning.
MATT MILLS MCKNIGHT/REUTERS
earlier. Boeing booked a $569
million charge in the latest
quarter related to the 747-8
production cut.
Per-share core operating
earnings during the quarter, a
measure watched by analysts
that excludes such items as
pension components related
to market fluctuations, were
$1.60 a share.
Analysts had forecast $1.28
a share in adjusted earnings
on $23.53 billion in revenue.
Boeing said it anticipates
free cash flow of around $7.2
billion in 2016.
CORRECTIONS 
AMPLIFICATIONS
The 2016 Olympic Games
in Brazil would be the fifth
Olympics in which U.S. swim-
mer Michael Phelps competed.
A Year Ahead article Jan. 4
about the Games incorrectly
said it would be his fourth
Olympics.
Readers can alert The Wall Street
Journal to any errors in news articles
by emailing wsjcontact@wsj.com.
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THE WALL STREET JOURNAL.
China Moves to Brake Money Outflows
Officials try to keep
money from leaving
as economy weakens
BY LINGLING WEI
China is ramping up ef-
forts to halt a flood of money
leaving the country in re-
sponse to an economic slow-
down, moves that risk under-
mining Beijing’s ambition to
elevate the yuan’s profile on
the world stage.
Its latest steps involve
curbing the ability of foreign
companies in China to repa-
triate earnings, shrinking the
pool of Chinese yuan avail-
able for banks in Hong Kong
to make loans, and banning
yuan-based funds for over-
seas investments, people
with direct knowledge of the
matter said.
The measures, most of
which haven’t been publicly
disclosed, follow efforts by
China’s central bank to dis-
courage investors from bet-
ting against the yuan and to
crack down on overseas
money transfers.
“They’re sparing no effort
to prevent capital outflows,”
said a senior Chinese banking
executive close to the central
bank. “All the measures are
the most aggressive I’ve seen
in recent history.”
The people with direct
Hunt for Talent Stirs a Tempest
Faltering Chinese team considers untested, and controversial, approach
BY CHUN HAN WONG
BEIJING—After trying for
years to forge a world-class
national men’s soccer team,
China signaled it was consid-
ering a surprising new tack:
offering citizenship to for-
eign players.
The proposal has sparked
debate in an ethnocentric
country with strict immigra-
tion policies whose leaders
have moved to curb foreign
influence in its culture and
national discourse.
“I’d rather see yellow-
skinned players lose than see
people of other skin color
play for the national team,”
TIM WIMBORNE/REUTERS
one person wrote on the
Weibo microblogging ser-
vice.
The tempest followed
comments on Saturday by a
senior Chinese soccer official
that government agencies
have been studying the pos-
sibility of letting foreign soc-
cer players become natural-
ized citizens, paving the way
for them to don China’s
crimson colors on the field.
The official, Zhang Jian,
vice chairman of the Chinese
Football Association, didn’t
give details about the discus-
sions, but said that natural-
ization is a “sensitive topic”
with implications for Chi-
nese law and population pol-
icies, according to a China
Central Television video of
his comments.
China, where soccer is the
top spectator sport, already
allows foreign players into
its professional leagues. Pros
from Europe and South
America have restored some
Mexican President’s Anticorruption Fight Languishes
BY JUAN MONTES
MEXICO CITY—Mexico is
lagging in its efforts to fight
corruption, despite a stream
of high-profile scandals in the
country and historic busts in
several other Latin American
countries over the past year.
Halfway through his six-
year term, the administration
of President Enrique Peña Ni-
eto has yet to deliver on cam-
paign promises to fight cor-
ruption. Critics say the
country’s Congress is also
dragging its feet on key legis-
lation aimed at tackling the
problem.
World Bank data show per-
ceptions about corruption in
Mexico have worsened in the
past two decades. Within the
region, Mexico’s slide was out-
paced only by Venezuela, Ar-
gentina, Peru and Nicaragua.
On Wednesday, Mexico
showed no progress in Trans-
parency International’s cor-
ruption perceptions index for
knowledge said the People’s
Bank of China, the central
bank, also is considering
ways to lure money back to
the country, including letting
foreign residents and compa-
nies buy certificates of de-
posit for fixed periods. Cur-
rently they are restricted to
ordinary deposit accounts.
The central bank didn’t re-
spond to requests to com-
ment.
The unusual moves come as
China burns through foreign-
exchange reserves to prop up
its currency and stem an in-
creasingly vicious cycle of eas-
ing credit, a weakening cur-
rency and fleeing capital. Too
much outflow, Chinese offi-
cials say, could threaten the
stability of the country’s fi-
nancial system.
Just two months ago, the
International Monetary Fund
designated the yuan as one
of the world’s reserve cur-
rencies, a nod to China as a
global economic power. Still,
Beijing is now retreating
from its pledges to give mar-
kets more influence in set-
ting the yuan’s value. Many
investors say they are also
concerned over what they
consider to be inadequate
communication by the cen-
tral bank.
The last time central bank
Gov. Zhou Xiaochuan spoke
publicly was in early Septem-
China’s players posed for a photo before the start of their Asian Cup soccer match against North
Korea in Canberra on Jan. 18, 2015. The men’s team has qualified only once for the World Cup.
credibility to the Chinese
game, once marred by cor-
ruption and poor play. Al-
lowing such players to be-
come citizens would mark a
significant shift in Chinese
immigration policy.
Some fans favor the ap-
proach as a way to buoy a
national men’s team that has
qualified only once for the
World Cup, in 2002, and has
languished in the middle
tiers of international soccer,
now rated 82nd. The Chinese
women’s team has fared bet-
ter with six appearances in
the World Cup, including a
runner-up finish in the 1999
edition held in the U.S.
But others warn that nat-
2015, a closely watched global
corruption ranking. The coun-
try scored 35 points out of
100, where zero denotes the
highest levels of corruption.
Mexico remained the worst-
rated among the 34 member
states of the Organization for
Economic Cooperation and De-
velopment, and ranked 95—
tied with Mali, Armenia and
the Philippines—among all 168
countries analyzed.
“Unlike other countries in
the region, Mexico has done
little in recent years to
strengthen its capabilities and
institutions to fight corrup-
tion,” said José Roldán, an an-
ticorruption expert at Mexico’s
CIDE university.
In late 2014, real-estate
scandals involving the pur-
chase of houses from govern-
ment contractors embroiled
Mr. Peña Nieto, the first lady
and the finance minister. All
three denied wrongdoing.
The scandals hurt Mr. Peña
Nieto’s approval ratings. In
WORLD NEWS
ber, when he sought to reas-
sure central bankers and fi-
nance ministers from the
Group of 20 large economies
that the rout in China’s stock
markets was nearing an end.
Investors and analysts
have questioned the govern-
ment’s commitment to mar-
ket liberalization following
Beijing’s attempts to prop up
the stock market this past
summer and, more recently,
sending mixed signals over
yuan policy.
“China is aggressively re-
inserting capital controls,”
said Scott Kennedy, a deputy
director at Center for Strate-
gic & International Studies, a
bipartisan think tank in
Washington. “It appears
China has for the foreseeable
future given up on the goal
of substantial exchange-rate
liberalization.”
The most obvious sign of
China’s effort to stem capital
outflows is a precipitous
drop in its foreign-exchange
reserves, which by December
had fallen by about $700 bil-
lion from a record of nearly
$4 trillion in mid-2014.
China had steadily accu-
mulated reserves since the
mid-1990s as its exports
boomed. But the flow re-
versed after China devalued
the yuan in mid-August,
prompting the central bank
to use its reserves to defend
uralizing foreign players
would harm China’s fledging
efforts to develop the sport.
Backed by President Xi Jin-
ping, who is a self-professed
soccer fan, the government
launched a campaign last
year to revamp the game.
Experts say the debate un-
derscores Beijing’s divided
attitudes and contradictory
policies on immigration.
China’s 1980 nationality
law lets foreigners apply for
Chinese citizenship if they
have close relatives who are
Chinese nationals; are living
in China; or have “other le-
gitimate reasons” for apply-
ing. Authorities have long
said they want to attract
April, Mexico’s Congress
passed sweeping constitu-
tional changes to create a new
anticorruption task force, an
independent prosecutor and
specialized courts.
But nine months later, the
enabling legislation needed to
name the new prosecutor and
roll out the changes is still
stalled in the legislature,
which is controlled by Mr.
Peña Nieto’s ruling Institu-
tional Revolutionary Party, or
PRI, and its allies.
“The government hasn’t
shown in recent months much
interest in pushing the pend-
ing legislation. They are play-
ing around and wasting time,”
said Héctor Larios, a lawmaker
with the main opposition Na-
tional Action Party, or PAN,
who has been working on the
anticorruption legislation.
Mr. Peña Nieto’s spokesman
Eduardo Sánchez said the an-
ticorruption law remains a
priority for the government.
PRI Sen. Cristina Díaz, who
In and Out
Beijing is spending heavily from its foreign exchange reserves to
defend the yuan and stem outflows of funds.
How many yuan one
dollar buys
6.10
6.20
Scale inverted to
6.30 show weaker yuan
6.40
6.50
6.60
A S O N D J
2015 ’16
Sources: Macquarie Securities (yuan);
Thomson Reuters (reserves)
the currency. The risk was
that a sharp fall could spark
capital flight, as yuan-de-
nominated assets become
less attractive to hold.
In its latest efforts, the
central bank instructed banks
on the mainland to require
more detailed documentation
from corporate customers to
remit profits back to their
home countries. “The process
is way more stringent than
before,” said a U.S. property
developer who has invest-
ments in Shanghai.
Meanwhile, the central
high-caliber foreigners, al-
beit mainly through a per-
manent-residency program.
Yet Beijing hasn’t issued
detailed criteria for citizen-
ship applications. Gary
Chodorow, a China-based im-
migration lawyer, said he
wasn’t aware of any recent
examples of foreigners at-
taining Chinese citizenship,
while approvals for perma-
nent residency are highly se-
lective.
As of 2013, only about
7,300 foreigners have re-
ceived so-called green cards,
the state-run China Daily re-
ported.
“The system is too
opaque,” Mr. Chodorow said.
leads the upper house’s Inte-
rior Committee, said that the
legislation is too complex to
pass hastily, and that the plan
is to get it approved during
the congressional session that
starts next week. Negotiations
on details of the legislation,
however, haven’t yet started.
Transparency
International rates
Mexico worst among
OECD countries.
“There is no lack of politi-
cal will. But this is not an easy
process,” Ms. Díaz said, adding
the new rules will require cre-
ating or modifying more than
two dozen laws.
Elsewhere in Latin America,
corruption has risen to the top
of the agenda. In Brazil, inde-
pendent prosecutors investi-
gating a corruption scheme in-
side state oil giant Petróleo
* Thursday, January 28, 2016 | A3
China’s foreign exchange
reserves
$5 trillion
December: $3.33
4 squeezing liquidity in Hong
3 pensive to wager against the
2 In another effort aimed at
1
0 any loans taken out by banks
2014 ’15
THE WALL STREET JOURNAL.
bank on Monday started to
impose reserve requirements
on Hong Kong-based yuan
deposits parked by offshore
banks at a Bank of China Ltd.
unit, said the people familiar
with the matter.
Many foreign banks said
they were surprised by the
action since the reserve re-
quirements previously ap-
plied only to yuan deposits
held by offshore banks on the
mainland, according to the
people.
The new rule effectively
reduces the amount of yuan
Unity on North Korea
Eludes Two Powers
BY FELICIA SCHWARTZ
Secretary of State John
Kerry said the U.S. and China
haven’t agreed on substantive
steps to confront North Ko-
rea’s nuclear program, as hos-
tile moves from the reclusive
nation put it back into the dip-
lomatic spotlight.
After more than four hours
of meetings, Mr. Kerry and
Chinese Foreign Minister
Wang Yi said they were com-
mitted to denuclearizing North
Korea and would work to-
gether at the United Nations
on a resolution. But they
weren’t in agreement over
how to achieve that goal, and
over how much to press
Pyongyang. Mr. Kerry met
later with Chinese President
Xi Jinping and Chinese State
Councilor Yang Jiechi.
“The United States and
China are united in our oppo-
sition to North Korea’s nu-
clear-weapons program,” Mr.
Kerry said.
The diplomats spoke to re-
porters at China’s foreign min-
istry Wednesday, three weeks
after North Korea said it suc-
cessfully conducted a hydro-
gen-bomb test. The announce-
ment has rattled relations
between North Korea and its
neighbor. Beijing has voiced
its opposition to Pyongyang’s
nuclear program, but must
tread delicately in its dealings
with North Korean dictator
Kim Jong Un, for fear that in-
stability would spill over into
China’s northeast provinces.
Mr. Kerry said North Korea
“is a declared threat to the
world” that the U.S. takes “ex-
tremely seriously.”
Brasileiro SA have made doz-
ens of arrests, including the
speaker of the lower house
and the head of Brazil’s big-
gest construction firm.
An international anticor-
ruption agency in Guatemala
forced the sitting president to
resign last year over a cus-
toms tax-fraud scheme.
In Mexico, meanwhile, a
probe into the house deals was
led by a member of the cabi-
net and friend of the presi-
dent. The inquiry found no ev-
idence of wrongdoing.
A former head of the PRI,
Humberto Moreira, was de-
tained in Spain and jailed for a
week this month in connection
with a probe into money laun-
dering. A Spanish judge re-
leased him last week on
grounds that there was insuf-
ficient evidence to jail him,
but ordered him to remain in
Spain during the investigation.
Mr. Moreira has denied any
wrongdoing. Mexico’s attorney
general said he isn’t under in-
funds in Hong Kong’s bank-
ing system by about 150 bil-
lion yuan ($23 billion), esti-
mates China economist Larry
Hu at Macquarie Securities, a
Sydney-based investment
bank. Yuan deposits total
about 1 trillion yuan in Hong
Kong.
“The central bank is
Kong so it will be more ex-
yuan offshore,” Mr. Hu said.
limiting fund outflows, the
central bank recently urged
mainland banks to sharply
raise the interest rates on
operating in Hong Kong for
lending, the people said.
That has discouraged Hong
Kong banks from taking yuan-
based funds from the main-
land, effectively making it all-
but impossible to continue
their yuan-lending business
abroad.
“The offshore yuan-lending
business is dead,” an executive
at one of China’s top four state
banks said.
The central bank has also
forbidden foreign asset man-
agers, including hedge funds
and private-equity firms,
from raising yuan-based
funds aimed for overseas in-
vestment. That reversed pre-
vious efforts to promote
yuan internationalization.
JACQUELYN MARTIN/PRESS POOL
Secretary of State John Kerry
and Chinese President Xi Jinping
Messrs. Kerry and Wang
said they agreed to accelerate
efforts on drawing up a U.N.
resolution on North Korea’s
most recent test but haven’t
yet decided what should be in
it. Mr. Kerry said goods and
services flowing to North Ko-
rea could be one area for U.N.
sanctions, as well as shipping
and aviation. But Mr. Wang
signaled that China isn’t pre-
pared to pressure Pyongyang
economically in the manner
that the U.S. is seeking.
“Sanctions are not an end
in themselves,” he said, adding
the goal “should be to bring
the nuclear issue on the Ko-
rean Peninsula back to the
track of negotiation.” He said
any U.N. resolution shouldn’t
“provoke new tension” or de-
stabilize the peninsula.
While China remains North
Korea’s closest trading part-
ner, relations between the two
communist nations have
grown increasingly strained.
vestigation in Mexico.
Anticorruption advocates
say the government and the
ruling PRI, which has a major-
ity in the lower house of Con-
gress, sought last year to pass
a bill to regulate public con-
tracting that didn’t guarantee
transparent auction processes.
After a public outcry, the bill
was frozen.
“These changes require
leadership, not just speeches.
Peña Nieto is risking his leg-
acy on this issue: whether to
be remembered as a president
who fought corruption or not,”
said Marco Fernández, a re-
searcher at the Mexico City-
based think tank Mexico Eval-
uates and at the Monterrey
Institute of Technology and
Higher Education.
The Mexican Institute of
Competitiveness says corrup-
tion costs Mexico’s economy
some $48 billion annually, or
around eight times the annual
budget for social-development
programs.
 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A4 | Thursday, January 28, 2016
EUROPEAN PRESSPHOTO AGENCY
Iran’s President Hassan Rouhani, second left, visited the Colosseum in Rome on Wednesday, the third day of his European trip.
Chaos in Libya
Draws Militants,
Report Warns
BY ALAN CULLISON
WASHINGTON—Libya is
emerging as a new destination
of choice for extremists, as
both Islamic State and al Qaeda
have used the chaos since the
overthrow of Moammar Gad-
hafi to seize territory and parts
of the economy, a report by a
security consulting firm said.
Wednesday’s report warned
that Libya could become a dan-
gerous new base for terrorist
groups because of the coun-
try’s ungoverned hinterlands,
long, porous borders and huge
oil reserves.
Already, the absence of law
and proliferation of weapons
and violence in Libya “have al-
lowed violent extremist groups
such as the Islamic State and al
Qaeda to thrive,” said the re-
port by the Soufan Group,
founded by a former U.S. gov-
ernment official who investi-
gated the 2001 terror attacks.
The report noted that the
two groups “are both utilizing
Libya as a safe haven from
which to launch operations
against neighboring countries.”
“Given geography, expansive
territory, extensive oil reserves
and its history with violent ji-
hadist networks, a failed state
in Libya could be disastrous for
North Africa and Europe as
well as the broader interna-
tional community,” it said.
The warning echoes similar
concerns among U.S. officials
and comes as United Nations-
A Former Rebel Scrapes By in Disenchanted Exile
Syrian teacher who took up arms only to flee Islamist factions feels the burden of failed uprising
BY RAJA ABDULRAHIM
TRIPOLI, Lebanon—In Mu-
hammad Harba’s used-cloth-
ing shop here, the television
is tuned to Arabic soap op-
eras to fill the void between
customers. The former Syr-
ian rebel rarely watches the
news as he ekes out a living
and tries to drown out the
din of war.
For three years, he fought
in what became a multisided
conflict that would kill more
than 250,000 Syrians and
create a fragmented nation
that proved fertile terrain
for Islamic State.
Many grass-roots oppo-
nents, like Mr. Harba, are
now penniless and disillu-
sioned about a peaceful up-
rising gone awry. Squeezed
out by extremist groups and
foreign-power proxies, they
inhabit a limbo—no longer
part of the conflict but not
fully removed from it.
“We have a lot of guilt on
us,” said the 37-year-old, as
he took another drag on his
cigarette. “We who came out
in the beginning of the pro-
tests and led these people
who are now exiled and who
have lost husbands,” he said.
backed efforts to patch to-
gether a unity government and
restore order have fallen flat.
Since Gadhafi was killed in
2011, much of Libya’s territory
has fallen under the control of
a patchwork of militias, many
of them warring. Today, there
are two competing central
parliaments and governments,
one based in the capital of
Tripoli and the other in the
coastal city of Tobruk. Both
are backed by loose alliances
of armed groups and former
rebels who helped topple Gad-
hafi.
This week the parliament in
Tobruk, which has been inter-
nationally recognized, rejected
the unity government pro-
posed under the U.N.-backed
plan. The Soufan report said
the vote signaled that “despite
high international hopes, rival
parties in Libya simply do not
have the incentive to compro-
mise on power-sharing.”
The report said Islamic
State and al Qaeda are shifting
toward Libya partly because
they are being squeezed out of
places like Syria by interna-
tional military coalitions.
Some Islamic State recruit-
ment materials have even be-
gun instructing aspiring for-
eign fighters to travel to
Libya, rather than to Iraq and
Syria. “As the group faces in-
creasing military pressure on
its strongholds in Raqqa and
Mosul, this trend is likely to
increase,” the report said.
“Definitely those who said
they were our friends and
abandoned us bear responsi-
bility, but we also bear the
responsibility.”
In his rural hometown of
Qusayr, in the central prov-
ince of Homs, Mr. Harba
worked as an elementary-
school teacher and adminis-
trator and spent nights sell-
ing tomatoes from his
family’s farm.
When the town’s first an-
tigovernment protest oc-
curred in April 2011, he hesi-
tated, thinking back to 2005
when he was arrested by se-
cret police and tortured. The
police accused him of being
a member of al Qaeda, but
then discovered that he liked
to drink arrack, an anise-fla-
vored spirit. Alcohol is
shunned by most observant
Muslims.
He was released from
prison, and by the third
wave of protests calling for
the ouster of President
Bashar al-Assad, Mr. Harba,
a slight man with narrow
shoulders, mustered the
courage to join the demon-
stration.
As the regime’s security
forces and soldiers sup-
HK JP KO ML SI
WORLD NEWS
French Justice Minister
Resigns Over Terror Law
BY NOEMIE BISSERBE
AND STACY MEICHTRY
PARIS—France’s justice
minister resigned after a clash
with President François Hol-
lande over his proposal to
adopt a constitutional amend-
ment stripping some home-
grown terrorists of their na-
tionality.
Christiane Taubira “agreed
on the need to put an end to
her mandate as the debate on
the constitutional amendment
opens in Parliament today,”
the president’s office said
Wednesday. The president ap-
pointed Jean-Jacques Urvoas,
a senior lawmaker, to succeed
Ms. Taubira.
Her departure highlights
the fault lines within Mr. Hol-
lande’s Socialist Party over his
antiterrorism strategy. His
government has imposed a
raft of state-of-emergency
measures, including permit-
ting police to conduct war-
rantless raids and detain peo-
ple without court orders, that
critics say erode civil liberties.
However, it was Mr. Hol-
lande’s recent decision to strip
terrorists of their national-
ity—an idea long supported by
France’s right-wing parties—
that opened the divide with
Ms. Taubira.
“I’m leaving the govern-
ment over a major political
disagreement,” Ms. Taubira
said, after tweeting: “Some-
times you resist by staying,
sometimes you resist by leav-
ing.”
pressed protests in Qusayr
and across Syria, men like
Mr. Harba fought back. He
bought a rifle for $450 and
joined a local militia.
As the battles spread, Mr.
Harba began seeing that de-
cisions weren’t always being
made on the local level.
At first, he said, it was
Muhammad Harba, a former Syrian rebel, stands in his shop with his son in Tripoli, Lebanon.
IN UK FR MN PR
Christiane Taubira says that ‘sometimes you resist by leaving.’
In December, the French
government unveiled a pro-
posal for constitutional
amendments that would shield
the state-of-emergency mea-
sures from legal challenges
and strip dual citizens of their
French nationality if they were
convicted of terrorism.
French law already allows
the government to take away
citizenship from convicted ter-
rorists if they were born
abroad. But France’s right-
wing parties were pressing
Mr. Hollande to go further.
In November, less than a
week after 130 died in the
Paris attacks, Mr. Hollande
proposed that even people
born in France would lose
their French citizenship if
they were convicted of ter-
the Salafists from Gulf na-
tions—ultraconservative pro-
ponents of Islam—and the
Muslim Brotherhood in Tur-
key. Individuals would send
money to certain groups and
then orchestrate attacks
from afar, he said.
He remembers sitting
with other rebels in the or-
THE WALL STREET JOURNAL.
Iran President Heralds
‘New Spring’ in EU Ties
ROME—Iranian President A diplomatic spat between
Hassan Rouhani said his visit to Saudi Arabia and Iran was trig-
Europe marks a “new spring” in gered earlier in January by the
his country’s relationship with kingdom’s execution of a dissi-
the European Union that should dent Shiite cleric. Saudi Arabia
help thaw tensions after years later condemned Tehran for fail-
of Western sanctions over ing to protect Saudi diplomatic
Iran’s nuclear program. sites in the Persian country.
The four-day visit by Mr. Sunni Saudi Arabia and Shi-
Rouhani to Italy and France is ite Iran, two of the largest
aimed at cementing the coun- economies in the Middle East,
try’s ties with the West. The are vying for more influence
trip is the first by the Iranian across the region, mostly along
president since sanctions on sectarian lines.
Iran were loosened this month Mr. Rouhani stressed that
in the wake of an agreement to Iran wants to stop tensions
implement key restrictions on with Saudi Arabia, as “we have
its nuclear program. important issues in the region
In a news conference on and stability in Syria and Iraq is
Wednesday, his third and final important for both of us.” He
day in Rome, Mr. Rouhani said added that the real problems in
he also hoped that hostilities the region are Islamic State, vi-
between Iran and the U.S. could olence and terrorism.
disappear in the future. Italian and Iranian companies
“But the key is in Washing- signed deals valued at about
ton, not in Tehran,” he added. €17 billion ($18.36 billion) late
“They need to cease the hostili- Monday on the first day of his
ties and ease the pressure on visit to Rome. In France, car
Iranians.” makers, airport operators and
As for Iran’s relationship construction firms were primed
with Saudi Arabia, the Iranian for a raft of accords when Mr.
president said that “we have Rouhani visits French President
done everything we could from François Hollande on Thursday.
our side.” —Giada Zampano
French, no matter what hap-
pens and what you do, are
wrong,” said Stéphane Le Foll,
a government spokesman and
close ally of Mr. Hollande.
The appointment of Mr. Ur-
voas, a centrist close to the
president’s law-and-order
chief, Manuel Valls, tips the
balance of power in the gov-
ernment further from the So-
cialist Party’s left wing.
As chairman of a parlia-
CHRISTIAN HARTMANN/REUTERS
mentary committee that re-
views pending legislation, Mr.
Urvoas shepherded sweeping
surveillance laws through Par-
liament in the wake of the at-
tacks on satirical weekly Char-
lie Hebdo’s newsroom and a
kosher supermarket.
In recent weeks, Mr. Urvoas
has been working closely with
rorism. Mr. Valls on a draft of the con-
The proposal was criticized stitutional amendment, said
by some Socialist Party mem- Mr. Le Foll.
bers, including party heavy- Mr. Hollande’s decision to
weight Martine Aubry, who replace Ms. Taubira with a
warned that it would “divide, centrist could undermine his
stigmatize and undermine efforts to rally the Socialist
some of the founding princi- Party’s base ahead of presi-
ples of the French Republic.” dential elections in 2017. He
In an attempt to head off has already faced resistance
criticism that the law would from leftist lawmakers who
be discriminatory, the govern- abstained from voting on key
ment said Wednesday that cit- economic laws.
izens with only French nation- Some Socialist Party mem-
ality could also lose some of bers want the party to hold
their rights, such as the right primaries to nominate an al-
to vote or run for public of- ternative to Mr. Hollande,
fice, if found guilty of terror whose approval ratings have
offenses. International law plumbed historic lows.
forbids countries from render- Ms. Taubira is a stalwart of
ing people stateless by strip- civil liberties who championed
ping them of all nationality. the government’s push to le-
“Those who think you are galize gay marriage in 2013.
chards rimming Qusayr in tants. Mr. Harba fled to a
the summer of 2011 when an border town where he joined
Egyptian man came to local rebels. But he quickly
preach about jihad and al clashed with al Qaeda’s Syr-
Qaeda. It was a sign of ian affiliate Nusra Front,
things to come. which, like Islamic State, was
In May 2013, the poorly growing in strength and in-
armed rebels were ousted by fluence, luring down-and-out
Syrian regime forces backed rebels with the promise of
by Shiite Hezbollah mili- weapons and salaries.
A year later, after a
heated confrontation with
another militant, he decided
to leave and slipped over the
mountains into Lebanon,
leaving the war behind.
Last summer Mr. Harba
bought the clothing shop
from his cousin for $2,500—
using all his $600 in savings
and borrowing the rest.
He now spends most of
his time either in his shop or
LORENZO TUGNOLI FOR THE WALL STREET JOURNAL
at home where he, his wife
and three children live with
11 other family members in a
four-bedroom apartment.
Mr. Harba doesn’t know if
he will return to Syria.
“In the end I don’t know
even if we returned if it
would have any meaning,” he
said, his voice catching.
“We’ll just remember ev-
erything and see the graves
of a thousand young men.
Graves everywhere.”
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
two separate confidence votes in
World the Italian Parliament over accu-
sations of a conflict of interest
Watch in the rescue of four small banks
that caused heavy losses for
more than 100,000 investors.
The Senate rejected the first
no-confidence motion, presented
by two opposition parties. The
ITALY second motion, presented by the
antiestablishment 5 Star Move-
Government Beats ment, was also rejected.
No-Confidence Votes The two motions didn’t have
The government of Prime much of a chance to pass, since
Minister Matteo Renzi survived the government holds a thin ma-
VOLEZ
VOGUEZ
VOYAGEZ
FROM
04.12.2015
WORLD NEWS
jority in the Senate, but it was
supported by other small groups
of senators. Still, the vote added
pressure on the Renzi govern-
ment for its €3.6 billion ($3.9 bil-
lion) privately funded rescue plan
for four small local lenders.
—Giada Zampano
MALAYSIA
Clearing of Premier
Faces Review
Malaysia’s anticorruption
agency said Wednesday it wants
EXHIBITION
GRAND PALAIS
PARIS
FREE ADMISSION
to review the decision of the
country’s top prosecutor to drop
investigations into how nearly
$700 million was transferred to
Prime Minister Najib Razak’s pri-
vate bank account.
Mr. Najib and other govern-
ment officials said the day be-
fore that a time had come to
draw a line under the contro-
versy after Attorney General
Mohamed Apandi Ali ruled the
2013 transfer was a legal “per-
sonal donation” from Saudi Ara-
bia’s royal family and cleared
Thursday, January 28, 2016 | A5
the prime minister of wrongdo-
ing.
The Malaysian Anti-Corrup-
tion Commission, an independent
agency, said it would ask two
panels to review the decision to
clear Mr. Najib.
A Saudi government official
said on Tuesday that the Saudi
ministries of foreign affairs and
finance had no information
about a donation to Mr. Najib.
Representatives of the royal
family couldn’t be reached to
comment. —Yantoultra Ngui
LV Grand Palais App
TO
21.02.2016
DENMARK
Man Tests Positive
For Zika Virus
A Danish man in his mid-20s
has been diagnosed with the
Zika virus after returning from
Latin America, Danish hospital
officials said. It is Denmark’s
first recorded case.
Zika, a tropical disease that
has been linked to thousands of
cases of infant brain damage, is
spread through mosquito bites.
—Christina Zander
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com

A6 | Thursday, January 28, 2016 THE WALL STREET JOURNAL. © 2016 Dow Jones & Company. All Rights Reserved.

ECONOMIC
ANXIETIES
CONFRONT
CANDIDATES
Competitors in both parties advance

ANDREW BURTON/GETTY IMAGES

divergent ideas for boosting growth
BY NICK TIMIRAOS
AND RICHARD RUBIN
Recent market jitters and fears of
slumping global growth show how
quickly economic worries could bump
aside national-security concerns as a
dominant theme of the 2016 election.
Fewer than a third of registered vot-
ers surveyed this month by The Wall
Street Journal and NBC News said they
believed the coming year would offer
economic expansion or opportunity for
their household, compared with more
than half who said they were bracing
for harder times.
The anxiety underscores what sev-
eral top campaign advisers say poses
the biggest challenge for the next pres-
ident: creating growth that reaches
families of all income levels, a point of
consensus forged by 15 years of stag-
nant wages for the middle class.
“We need higher growth, but how
do we have higher growth that’s more
inclusive?” said Glenn Hubbard, dean
of Columbia Business School and an
adviser to former Florida Gov. Jeb
Bush, at a panel discussion last month.
Added Neera Tanden, an adviser to
former Secretary of State Hillary Clin-
ton: “I would say to the next president,
‘You are going to have to solve this
problem because the politics of the
country will get more and more de-
structive until you do.’ ”
Doing anything on a grand scale
won’t be easy, especially if Congress
and the White House are controlled by
different parties, which are moving
further apart on the key question of
how to boost growth.
So far, many candidates have
spelled out their tax plans, providing a
key measure of their potential eco-
nomic stewardship. The plans show
that the parties are diverging even
more than they did in 2012.
Republican candidates see the tax
code as the best way to encourage in-
vestment and pull Americans back into
the workforce. They are no longer
promising to avoid higher budget defi-
cits or to prevent the tax burden from
shifting from high-income households
to the middle class. And they reject ef-
forts to lift pay by raising minimum
wages and say fewer regulations will
help boost growth.
Mrs. Clinton and Vermont Sen. Ber-
nie Sanders want to raise taxes on high-
income households to increase spend- Volatility in financial markets around the world has intensified economic worries as the U.S. election season heats up.
ing on education, infrastructure and
health care. They are quarreling over
how much to boost minimum wages
Overhaul Plans
and expand Social Security benefits. Presidential candidates in both parties are seeking ways to boost middle-class incomes, and they're all
The Republican plans all shift the turning to the tax code as a main tool.
U.S. away from taxing investments and
toward taxing consumption. Sen. Ted Republicans want to revamp the tax system to improve incentives for work and investment
Cruz (R., Texas) and Sen. Rand Paul In many of the plans, the gains are concentrated among high-income households. Most also would collect less money than
(R., Ky.) want to eliminate the corpo- the current tax system does, likely increasing budget deficits or requiring spending cuts.
rate income tax and payroll tax and re- Top individual Business tax plan Revenue
place them with value-added taxes. income tax rate Current corporate estimate
Candidate Current is 39.6% rate is 35% over 10 years Other key features
Sen. Marco Rubio (R., Fla.) and retired
neurosurgeon Ben Carson would both
eliminate taxes on capital gains, divi-
Donald
Trump
25% 15% -$12 Removes individuals with income under
$25,000 and married couples under
for all businesses trillion
$50,000 from income tax.
dends and interest.
The plans would lower marginal tax
rates on income and limit tax breaks.
Ted
Cruz 10% 16% -$3.7 Keeps mortgage and charity deductions and adds
tax-deferred savings accounts.
value-added tax trillion Businesses would be able to deduct investments.
But that wouldn’t make up for the rev-
enue loss from the rate cuts.
Mrs. Clinton proposes raising capi-
Marco
Rubio
35% 25% -$6.1 No taxes on capital gains and dividends from new
investments.
for all businesses trillion Adds a $2,500 child tax credit.
tal gains tax rates on assets held be-
tween one and six years and a 4% sur- Would abolish all tax credits and deductions.
charge on incomes over $5 million. She
Ben
Carson
14.9% 14.9% -$5.6 Eliminates taxes on estates, capital gains, dividends
for all businesses trillion and interest.
wants tougher curbs on companies
Tax rates apply above 150% of federal poverty level.
that engage in inversions—transac-
tions that let them move their tax ad- State and local deduction would end.
dresses outside the U.S.
Jeb
Bush 28% 25% -$3.7 New break for lower-earning spouses.
for corporations trillion Full and immediate writeoff of capital investments
Mr. Sanders, running to Mrs. Clin- with no interest deduction.
ton’s left, has proposed a tax on finan-
cial transactions and an expansion of Chris
Christie
28% 25% N/A
Caps most deductions.
Says his plan would be revenue neutral.
the estate tax. He also wants to create for corporations
a paid-family-leave program, funded
with an additional payroll tax, and a John
Kasich 28% 25% N/A
Full writeoff of capital investments.
Expand earned-income tax credit.
single-payer health-care plan for all. for corporations
The next president will have less
room to maneuver because the share Democratic candidates seek money to expand programs
of debt held by the public has doubled They view tax policy as an instrument for their broader aims. They have proposed higher taxes on high-income households to
as a portion of GDP to 75% since 2007. pay for programs that aid middle-income and lower-income families.
Low interest rates, a consequence of
slow growth and the Federal Reserve’s Candidate Tax increases Expanded programs
efforts to stimulate the economy, have Hillary Higher capital gains rates on assets held for one to six years. Debt-free tuition at public colleges
kept the government’s interest pay- Clinton Cap on some tax breaks for high-income households Infrastructure plan to rebuild roads and bridges.
ments on the debt from ballooning. But Buffett Rule of minimum 30% tax rate on top-earning taxpayers Expanded childcare assistance
those payments are projected to rise Tax on high-frequency trading
4% “Fair Share Surcharge” on taxpayers making more than $5 million a year.
every year over the next decade. The
retiring of the baby boom generation Bernie 0.2% payroll tax increase to pay for family leave program Expanded Social Security benefits
also means a slower-growing work- Sanders Estate tax starting at $3.5 million instead of $5.45 million. Free tuition at public colleges
force will bear higher benefit burdens. Financial transactions tax. Universal health care and child care
Impose Social Security payroll tax on wages above $250,000
So is there a reason to think Wash- Health plan would require new 6.2% business payroll tax, 2.2% income tax for
ington will strike a deal? Yes. Presidents all and top rates up to 52%
don’t get re-elected, after all, if they Note: Details as of Jan. 26; Democratic candidates’ lists are not exhaustive. Revenue estimates don’t include effects of economic growth.
don’t have a record of accomplishments. Sources: Candidates' websites; Tax Policy Center (tax rates); Tax Foundation (revenue) THE WALL STREET JOURNAL.

More-Diverse Voting States Are the Next in Line

BY BETH REINHARD
Hispanics and African-Americans
will have their first chance to nota-
bly shape the presidential race when
voters in South Carolina and Nevada
cast ballots in late February.
The predominantly white elector-
ates of Iowa and New Hampshire
have played key roles for decades.
But since 2008, South Carolina and
Nevada have injected racial, ethnic
and geographic diversity into the
early rounds of the process.
The top finishers in those con-
tests will be well positioned for the
flurry of a dozen states, many in the
South, that will vote on March 1.
In South Carolina, the GOP primary
will be Feb. 20, while the Democratic
contest will be Feb. 27. Nevada will
host a Democratic caucus on Feb.
20 and a GOP caucus on Feb. 23.
For Democratic front-runner Hil-
lary Clinton, South Carolina’s large
black population could serve as a
crucial firewall if Vermont Sen. Ber-
nie Sanders wins in Iowa or New
Hampshire. In 2008, African-Ameri-
cans made up 55% of the Demo-
cratic voters there and overwhelm-
ingly backed Barack Obama over
Mrs. Clinton to help elect the first
black president.
In the 2016 campaign, Mrs. Clin-
ton has earned strong support from
African-Americans and posted com-
manding leads over Mr. Sanders in
South Carolina.
Republican Tim Scott, the first
African-American senator from
South Carolina, said he is skeptical
the Democratic nominee will be able
to match the record-setting black
turnout for Mr. Obama. “In a post-
Obama political world, the field is
more open for Republicans to attract
African-American voters,” said Mr.
Scott, who has hosted forums with
at least a dozen Republican presi-
dential candidates. “I believe in 2016
we have legitimate chance to double
or quadruple the numbers from
2012.”
A Democratic nominee hasn’t won
South Carolina since Southerner
Jimmy Carter in 1976, while Nevada
has swung back and forth, making its
booming Hispanic population a cov-
eted voting bloc. The Hispanic share
of the general-election vote grew to
18% in 2012 from 10% in 2004, accord-
ing to the Pew Hispanic Center. Mr.
Obama overwhelmingly won the His-
panic vote in Nevada and nationwide,
prompting the Republican National
Committee to step up its minority
outreach after the 2012 election.
But some Hispanic Republicans
say Donald Trump’s disparaging re-
marks about immigrants could
thwart their efforts. Mr. Trump
called Mexican immigrants rapists
and drug dealers when he an-
nounced his GOP campaign in June
and has called for massive deporta-
tions of undocumented workers.
“His message has been basically
that you’re not accepted in his coun-
try, and we are going to get rid of
you,” said Fernando Romero, presi-
dent of a nonpartisan, Nevada-based
group called Hispanics in Politics,
which aims to involve the commu-
nity in the political process. He was
registered as a Democrat for many
years but joined the Republican
Party earlier this year and has en-
dorsed Cuban-American Florida Sen.
Marco Rubio.

Dates to Watch March 6 Maine Democratic

Feb. 1 Iowa caucuses
Feb. 9 New Hampshire primary
Feb. 20 Nevada Democratic
caucuses; South Carolina
Republican primary
Feb. 23 Nevada Republican caucus
Feb. 27 South Carolina Democratic
primary
March 1 Alabama primary; Alaska
Republican caucuses;
Arkansas primary; Colorado
caucuses; Georgia primary;
Massachusetts primary;
Minnesota caucuses;
caucuses
April 26 Connecticut primary;
Delaware primary;
March 8 Hawaii Republican Maryland primary;
caucuses; Idaho Republican Pennsylvania primary;
primary; Michigan primary; Rhode Island primary
Mississippi primary May 3 Indiana primary
March 12 District of Columbia May 10 Nebraska Republican
Republican convention primary; West Virginia
March 15 Florida primary; Illinois primary
primary; Missouri primary; May 17 Kentucky Democratic
North Carolina primary; primary; Oregon primary
Ohio primary May 24 Washington state
March 22 Arizona primary; Idaho Republican primary
Democratic caucuses; June 7 California primary; Montana
Utah caucuses primary; New Jersey
March 26 Alaska Democratic primary; New Mexico
ANDREW HARRER/BLOOMBERG NEWS

Oklahoma primary; caucuses; Hawaii primary; North Dakota

Tennessee primary; Texas
primary; Vermont primary;
Virginia primary; Wyoming
Republican caucuses
March 5 Kansas caucuses; Kentucky
Republican caucuses;
Louisiana primary; Maine
Republican caucuses;
Nebraska Democratic
caucuses
Democratic caucuses; Democratic caucuses;
Washington state South Dakota primary
Democratic caucuses June 14 District of Columbia
April 1 North Dakota Republican Democratic primary
convention July 18-21 Republican National
April 5 Wisconsin primary Convention, Cleveland
April 9 Wyoming caucuses July 25-28 Democratic National
April 19 New York primary Convention, Philadelphia
Source: the parties, Associated Press; Note: Dates subject to change; Colorado, North Dakota and Wyoming The Iowa caucuses held on Monday will start the process of selection of
Republicans won’t hold presidential preference votes in 2016.
candidates for the two major U.S. political parties.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
Primary Fights Leave Hole in Center
CAPITAL JOURNAL
GERALD F. SEIB
I
t is an accepted truth in
politics—one well sup-
ported by polling data—
that the largest share of
Americans fall neither on
the ideological left nor the
right, but rather somewhere
in the center.
Yet you wouldn’t know
that from the debate in this
year’s primary campaign,
which so far
feels espe-
cially polar-
izing. Which
leads to two
questions:
Why does it
feel that way, and will that
dynamic change once voting
actually gets rolling?
By most readings, a big
chunk of voters aren’t com-
fortable with either the lib-
eral or conservative wings of
the two major parties. The
latest Wall Street Journal/
NBC News poll found that
37% of voters classified
themselves as “moderate,” a
higher share than called
themselves either liberal or
conservative. Only 11% called
themselves “very liberal,”
and 16% “very conservative.”
Yet the primary season
seems to be drawing the two
main parties away from the
center and toward those
outer wings. In the Demo-
cratic race, Sen. Bernie
Sanders—a self-identified
democratic socialist who
scored a 95% in the most re-
cent ratings from the liberal
organization Americans for
Democratic Action—has
pulled longtime favorite Hil-
lary Clinton to the left on is-
sues such as trade and taxes.
Early States Are Often Out of Step
BY REID J. EPSTEIN
AND PETER NICHOLAS
DES MOINES, Iowa—The
two states that have started
the presidential-election pro-
cess for decades differ from
the rest of the nation. They
also differ from each other in
their ability to predict the
eventual nominees.
Iowa’s electorate is older,
whiter and far more rural than
the rest of the country, and its
social-conservative Republican
bloc is more religious than Re-
publicans elsewhere.
New Hampshire also is
whiter than the rest of Amer-
ica, but it is wealthier, better
educated and less religious.
With only 1.3 million people,
the state is among the smallest
in the nation—about one-tenth
the population of Los Angeles
County.
Those characteristics help
explain why the states often
produce different winners in
their first-in-the-nation
votes—and why they don’t al-
ways predict what happens the
rest of the way.
Iowa Republicans, in partic-
ular, have a propensity for
picking losing candidates—so
much so, in fact, that party of-
ficials in the state are worried
about whether it can hold its
place as the nation’s first pres-
idential nominating contest.
In 2008, Arkansas Gov. Mike
Huckabee won the Iowa GOP
caucuses and picked up seven
more states before conceding
to eventual nominee Sen. John
McCain. In 2012, former Sen.
Rick Santorum won Iowa’s cau-
cuses and challenged the even-
tual nominee, former Massa-
chusetts Gov. Mitt Romney, for
just weeks before bowing out.
Iowa Republicans haven’t
picked the party’s nominee
since George W. Bush won in
2000. Bob Dole in 1996 was
the only other Iowa winner to
claim the nomination since
1976.
“Every four years there is
hand-wringing among Iowans
as to whether or not our place
in the natural political order
will continue, but that angst
has been exacerbated by what
has been a more national ap-
proach to the presidential pri-
The audience listened at the first Democratic presidential debate in October in Las Vegas, when five candidates were on the stage.
In the Republican pri-
mary, the race is being dom-
inated by Sen. Ted Cruz, a
full-throated movement con-
servative, and billionaire
Donald Trump, who holds a
checkered ideological history
but has moved steadily
rightward on issues such as
abortion, taxes and health
care. Candidates generally
considered more mainstream
and moderate—former Flor-
ida Gov. Jeb Bush, New Jer-
sey Gov. Chris Christie and
Ohio Gov. John Kasich—lag
well behind.
The hole in the moderate
middle is wide enough that
former New York City Mayor
Michael Bloomberg has be-
gun pondering whether the
conditions are right for a
presidential run as an inde-
pendent, centrist candidate,
though history suggests such
How the Caucuses Work
February's caucuses will see voters from all of Iowa's nearly 1,700 precincts gather to kick off the first-in-the-nation presidential contest and the first step toward awarding
delegates. But the parties differ in how the Feb. 1 results ultimately determine how much support each candidate would have at the national conventions.
On the Democratic side, caucusgoers must
physically form groups in support of their
preferred candidate.
If a candidate doesn’t reach a certain
threshold, his or her supporters
must join a different
candidate's group. The
process is repeated
at each step.*
A and the convention of the congressional
TE
D IDA
N AT
CA
E A
AT
N DID
CA
DISTRICT CONVENTION
NATIONAL CONVENTION
*In most caucuses, Democratic candidates must meet a minimum 15% viability threshold to advance to the next convention or else realign with a different presidential preference group.
Sources: the parties; The GreenPapers.com
mary season in 2016 than ever
before,” said Matt Strawn, who
was the chairman of Iowa’s Re-
publican Party during the 2012
presidential cycle.
The record is different for
Iowa Democrats, who have
chosen the eventual party
nominee in three of the past
five contested caucuses.
New Hampshire has a better
record of picking winners: Its
voters have gone with the ulti-
mate winner in three of the
past five contested primaries
in each party.
But it is perhaps best
known for its ability to punish
efforts are difficult at best. between the 2008 and 2014
To some extent, it’s nor- election cycles, the share of
mal for primary elections to Americans registered as in-
draw candidates toward the dependents grew by 17.4%.
ideologically charged activ- Meanwhile, Democratic reg-
ists in their parties’ bases, istration decreased by 4.8%
who are the most energized while Republican registra-
players early in any cam- tion grew by just 3.3%. Simi-
paign season. But the trend larly, a new Gallup study re-
seems especially acute in the leased this month finds that
2016 cycle. 42% of Americans now iden-
Here’s one big reason for tify themselves as political
that: More Americans actu- independents, dwarfing the
ally are severing their ties to shares who call themselves
the two main parties, which Democrats (29%) or Republi-
they see as ineffective. In cans (26%).
doing so, they are leaving “We have two phenom-
the presidential primary ena: a growth of indepen-
process to be dominated by dents and a growth of parti-
the more ideological activ-
ists of the left and right.
A study of voter registra-
sanship,” says Lee Miringoff,
who directs the Marist Poll.
“The Democrats and Repub-
tion in the most politically licans who remain identified
competitive states by Third with the parties are really
Way, a think tank of moder- baked into their positions.”
ate Democrats, found that Meanwhile, he says, “we’re
PRECINCT CAUCUSES (Feb. 1) Only
registered Republicans and Democrats
are eligible to participate, though both
parties offer same-day registration.
Democratic delegates to the county
convention are allocated in proportion
C
TE to the percentage of support each
D IDA viable candidate receives.
C AN
E B COUNTY CONVENTIONS (March 12)
AT
N DID In each of Iowa's 99 counties,
CA Republicans and Democrats select
delegates to both the state convention
district the county is part of.
EB
I DAT
N D DISTRICT CONVENTIONS
CA April 9 (R), April 30 (D)
Delegates meet in each of Iowa's four
congressional districts and elect
delegates directly to the national party
conventions.
STATE CONVENTION
STATE CONVENTION
May 21 (R) June 18 (D)
Both parties choose more delegates to
the national convention. Democratic
delegates aren't required to align with the
same presidential preference as they did
at any previous stage. Republican National
Convention delegates are bound by the
presidential preference results from the
precinct caucuses.
early front-runners and smile Clinton’s surprise win over Ba-
on insurgents. Since 1952, rack Obama in the Granite
when New Hampshire primary State kept her in the race for
voters first began recording another five months.
their presidential preferences, Asked about New Hamp-
the state has wrecked more shire’s place in American elec-
than a few candidacies and sal- tions, Mr. Clinton said at a re-
vaged others. cent campaign stop in
New Hampshire was where Manchester: “You have to do
Bill Clinton declared himself retail politics. You have to look
the “Comeback Kid” in 1992 af- them in the eye and listen to
ter finishing a surprising sec- their stories and understand
ond in the state, putting him what they’re dealing with. And
on a winning path. Sixteen it makes you a better candi-
years later, his wife’s campaign date!” So long as you survive.
was in mortal danger after a Reince Priebus, the Republi-
third-place finish in the 2008 can National Committee chair-
Iowa caucuses. But Hillary man, said in a September in-
Thursday, January 28, 2016 | A7
dates have tried to avoiding
tacking so far to the left or
right in the primary season
that they compromise their
ability to move back toward
the center once the race to
November is under way.
It isn’t clear such a
course correction will be
possible this time, given the
stronger pull of the two par-
ties’ ideological wings. Mr.
Bush referred to the diffi-
culty in this task when,
more than a year ago, he
told a Wall Street Journal
conference of chief execu-
tives that a Republican can-
didate had to be willing to
“lose the primary to win the
general” election.
“That middle ground is
being left wide open for
somebody to capture,” says
Jon Huntsman, the former
Utah governor and Republi-
LUCY NICHOLSON/REUTERS
can presidential candidate.
He now is co-chairman of a
group called No Labels,
which urges politicians to
move beyond partisanship to
solve national problems.
It’s certainly possible to
see either Mrs. Clinton or
Mr. Trump, who seem more
seeing a growth of indepen- pragmatists than ideologues
dents who say this partisan by inclination, tacking to the
show isn’t for me.” center if they get the nomi-
nation.
T
he picture could Mr. Huntsman thinks that
change, and moderates Mr. Trump, who took his
find a greater voice, group’s “Problem Solver
once the calendar moves be- Promise” to work with both
yond the early states of parties, is such an uncon-
Iowa and New Hampshire, ventional figure that he, in
which tend to be dominated particular, has a chance to
by core activists. The voting “cobble together a pretty
population is more diverse broad coalition” of Demo-
in bigger states such as Flor- crats, Republicans and inde-
ida, Minnesota, Michigan pendents.
and Ohio, and chances seem
good the races in both par- ONLINE
ties will continue long
enough that primary voters Sign up to get
in such states will have a
say in the outcome this
time.
WSJ
.COM
the latest scoops,
analysis and
insights driving
But then the question Washington
will rise anew in the general delivered to your inbox every
election. Traditionally, suc- morning. on.wsj.com/
cessful presidential candi- CapitalJournalSignup
At the Republican event, candidates’ representatives or
surrogates give speeches and then attendees vote in
presidential preference poll, usually on slips of paper.
E B
N DID
CA
A
E
AT
N DID
CA
DISTRICT CONVENTION STATE CONVENTION
NATIONAL CONVENTION
THE WALL STREET JOURNAL.
terview with National Journal campaigning that Iowa offi-
that Iowa and New Hampshire cials claim vets candidates for
shouldn’t assume they will al- the rest of the country.
ways lead the party’s calendar. Meanwhile, New Hampshire
“I don’t think there should has its usual chance to punc-
ever be any sacred cows as to ture front-runners. If Sen. Ber-
the primary process or the or- nie Sanders, who represents
der,” he said. neighboring Vermont, mobi-
This year, the leading GOP lizes the liberal voters who
candidates both pose risks to make up a large slice of state
Iowa’s chances of picking the Democrats to beat Mrs. Clin-
nominee. Texas Sen. Ted Cruz ton, it would undercut percep-
leads many recent Iowa polls, tions of her inevitability.
but he opposes ethanol man- Should Mr. Trump stumble, it
dates, threatening an industry would be an embarrassing set-
dear to Iowa’s GOP Gov. Terry back for a candidate who has
Branstad. Donald Trump has long heralded his lead in polls
mostly eschewed the retail there.
P2GW028000-0-A00800-1--------AL

A8 | Thursday, January 28, 2016 THE WALL STREET JOURNAL. THE WALL STREET JOURNAL. Thursday, January 28, 2016 | A9

Republicans Feb. 9
With fewer social conservatives, New Hampshire
doesn’t follow Iowa’s lead: No Republican in
N
E PHASE I Democrats
I modern times has won both contests. Its voters W Head Start Feb. 1
O Feb. 1 sometimes reject the direction of party leaders, as
H Democratic candidates can win convention I
with their choice in 2000 of then-dark horse O
W Iowa this year tests Donald A votes before any primaries or caucuses are College students, who tend to

The Path to a Presidential Nomination

Sen. John McCain.
A Trump’s ability to drive M held by wooing superdelegates — public W favor Bernie Sanders, could have a
newcomers to the P officials and party insiders who are free to A big impact at the Iowa caucuses.
caucuses. In polls, Mr. PHASE I back any candidate and aren't selected in The past two caucuses were heldd
S Votes matter. But to win a party’s presidential nod, the real currency is delegates. Here’s how Republicans and Democrats primaries or caucuses. in early January, when most
Trump leads among
first-time caucus-goers.
FEBRUARY H allocate their delegates to the national conventions—and the steps candidates must take to win them. students were home for the

Is corn still king in Iowa? Ted Cruz is

Credentialing
Some 2,472 delegates will attend the
R
I
Republicans shortened their primary process to give their nominee more time to raise money and campaign for the November election. Democrats followed suit.
712
SUPERDELEGATES
holidays. This time, they’ll be on
campus and easier to organize.
popular with the state's large bloc of
Republican National Convention to select the
E
Convention Convention
social conservatives, but Primary Primary Nomination
presidential nominee. The winner must carry
he faces a test as the first 2012 2012
1,237—half of the total, plus one. But the first 4,764 total delegates
candidate to oppose tax 2016 2016 Feb. 9
breaks for ethanol, made
contests are more about building credibility and
Jan. Feb. March April May June July Aug. Jan. Feb. March April May June July Aug. Sept.
N
momentum than winning delegates. Voters here kept the race E
primarily from corn.
W
133 S F Clinton Lead PHASE II
competitive in 2008 by
boosting Mrs. Clinton. But
independents, who can H
Feb. 23
DELEGATES AT STAKE O
U O
L Hillary Clinton already has The Early States vote in the Democratic A
N March 15
won commitments from
Iowa and New Hampshire give Mr. Sanders a primary, lean toward Mr. M
Fewer than 35,000 E 5.4% OF TOTAL AWARDED T PHASE III R more than 350, or half, the chance at promotion from underdog to proven Sanders. P
Republicans turned out in SO FAR H Feb. 20
Feb March 15 LATE MARCH The political home to Jeb Bush I superdelegates, including contender. Like Mr. Sanders himself, the voter S
V D Maggie Hassan, the governor pool in both states is more liberal than the
2012. A well-run campaign If John Kasich survives and Marco Rubio could deal a
can win by motivating even a
D
A C
A
All GO
GOP nominees (and
presi
pre
presidents) dating to Ronald
earlier contests, the Ohio Big Dominoes Fall surprise, given Donald Trump’s A of New Hampshire. party overall.
Democrats, based on 2008 exit polls
H
I
small number of supporters. governor is well-positioned In late March, the rules change. States strength in Florida polls.
A R Reag in 1980, except for
Reagan to claim the state’s 66 can award all their delegates to a single R
Nevada hasn’t had
O inn 22012, have won the “First winner-take-all delegates. O winner of the statewide vote. If the top NATIONAL 47% liberal E
competitive caucuses in L in tthe South” primary. Will He defeated a sitting H two candidates haven’t yet emerged,
years: Mitt Romney won I th state go maverick
the governor in 2010 and won I they probably will now. Republican Convention IOWA 54%
N again a this time? re-election with nearly 64% O
the last two largely on Nikki Haley endorsed Mitt Cleveland July 18-21
the strength of ties to
the state’s Mormons.
Romney in 2012, but hee lost
the state. The governorr may
A of the vote.
474
DELEGATES AT STAKE
A different kind of year is
raising the prospects of a
N.H. 56%

This year is a scramble. uld

endorse again. But would contested Republican
voters follow her? convention, something
63.5% OF TOTAL AWARDED that hasn’t happened in Centrist Voices
Candidates often stop at the Democratic Convention
SO FAR decades. Liberals dominate many early states,
Versailles Restaurant in Miami Philadelphia July 25-28
Conservative vs. Centrist as a sign of interest in Cuban a benefit to Mr. Sanders. But bigger
Democrats, with only two states that vote later include more
Early-March states are among the most voters, who made up 8% of major candidates,
PHASE II Florida’s 2012 primary electorate. moderates and conservatives, who
conservative—a potential boost to Ted Cruz and other anticipate a more
EARLY MARCH tend to favor Mrs. Clinton. In 2008,
social conservatives. Some 83% of Mississippi GOP March 1 traditional nominating 62% of primary voters in Texas rated
primary voters in 2012 were evangelical Christians.
Building Momentum Texas is the big prize: Its 155 T
Florida Is Expensive
Spring Break If there’s no clear winner, process. themselves moderate or conservative;
More delegates will be awarded in the March 1 delegates are the largest E With few contests in then any candidate with in Ohio, it was 59%.
cache except for those of X Estimates run to $40 million to late March and early even several dozen
VS. SEC primary, named for the Southeastern
Conference of collegiate sports, than on any
other day: 24%. Delegates in this phase are
California, which votes late.
Many GOP candidates have
A
S
compete across the state’s 10 major
media markets. Campaigns that don’t
April, campaigns focuss
on fund-raising.
delegates could become
a kingmaker. PHASE III
want to gamble on a delegate-free,
The hunt for delegates will draw centrist candidates to
awarded proportionate to the statewide vote;
even a third-place finisher may benefit.
roots in Texas, including Jeb
Bush, who grew up there, second-place finish may turn instead
S
The Scramble
the few Northeast and Midwestern states that vote at and Ted Cruz, who claimed to other March 15 states. June 7 N Mrs. Clinton has a large lead among
this point. If Chris Christie remains, watch for him to visit
Massachusetts or Michigan
963
DELEGATES AT STAKE
his Senate seat in 2012. PHASE IV
APRIL TO JUNE
Should Chris Christie remain
in the hunt to the end, his
ain
W
E O
U
African-American and Hispanic voters, who play a
big role in states that vote after Iowa and New
st
state’s es
winner-take-all rules T Hampshire. But that advantage could slip if she
J
44% OF TOTAL AWARDED Return to the Center Last Miles C
A
s
suggest he would have a E H loses the first two contests.

How Republican Delegates Are Allocated

SO FAR
Fewer GOP debates
While the party is heavy
on Southerners and
Voters in California, New York and several other
big states have long complained that they’re cut
L
I
c
claim on 51 delegates.
R
S A
C
2,383
DELEGATES NEEDED TO
2012 increasingly conservative, out of the nominating process—by the time it’s F E R WIN NOMINATION
18 contests 13 10 10 5 Money Matters it could be centrist their turn to vote, the choice of nominee is O Y O
Proportional Modified proportional Hybrid Winner- Convention settled. This year, they could have the last word. R
Delegates are allocated Proportional unless Some form National
Large donors could have an impact, as 20 Northeastern states that Feb. 27 L
take-all many candidates will have spent their determine the nominee. N I
proportional to the
statewide vote, with
some variances among
one candidate wins
a majority, either
statewide or by
of winner-take-
most (e.g., by
congressional
All delegates
are awarded
convention
delegates
to the plurality chosen at
war chests by this point. Sheldon
Adelson and his wife, who gave more
2016 New York votes on April
19, and Connecticut,
902
DELEGATES AT STAKE
I
A
African-Americans accounted
for 55% of the voting pool in N
A
4,764 total delegates

states. congressional district; district) or directly winner state/territory than $100 million to Repubican election Pennsylvania and the Democrats’ 2008 primary
then winner-take-all elected delegates convention 12 T winner of each of California's
The fornia's here, which should help Mrs.
campaigns in 2012, haven’t said who mid-Atlantic states vote
100% OF TOTAL AWARDED 5
53 congressional districts gets a Clinton. By contrast, Iowa’s
25.8% of delegates 28.7% 24.8% 16.2% 4.5% they’ll back now. a week later.
pportion of the state's 172 2008 caucus-goers were 4%
ddelegates. The challenge? African-American.
D
Deciding where to campaign.
Sources: staff reports; the parties; Des Moines Register (Visits to Iowa); TheGreenPapers.com; FrontloadingHQ (GOP delegates allocated); Associated Press (superdelegate commitments); CNN (State exit polls); WSJ/NBC News polls (National exit polls) Photos: Associated Press (McCain, Reagan, Christie, Rubio, Trump, Versailles, Hassan, Clinton); Getty Images (Haley, Cruz, South Carolina); Agence France-Presse/Getty Images (Romney, Bush); Reuters (Kasich); European Pressphoto Agency (Sanders, Iowa) Aaron Zitner, Carlos A. Tovar/THE WALL STREET JOURNAL.

Trump Puts Unique Stamp on GOP Race

BY BETH REINHARD
A New Iowa Problem for the Clintons?
BY PETER NICHOLAS

Whether he wins the presidential DES MOINES, Iowa—When Hillary

nomination or not, Donald Trump Clinton was making up her mind about
has emerged as the single most in- running for the 2016 Democratic pres-
fluential force in the Republican con- idential nomination, one of her advis-
test. ers offered a reason why the calcula-
He drove rivals to the right on tions involved were so tough: What do
immigration, trade and national se- you do about Iowa?
curity, set the bar for crowd rowdi- No state has given both Hillary
ness and size, and generated a na- Clinton and former President Bill Clin-
tionwide debate over appropriate ton more headaches than the Hawkeye
political speech by disrespecting State. Mr. Clinton opted not to cam-
women, immigrants, Muslims and paign in Iowa in the 1992 Democratic
prisoners of war, among others. contest, recognizing that he couldn’t
And like no one else in the race, compete with a native son, former
Mr. Trump tapped into a boiling- Sen. Tom Harkin. And in January
over frustration among some Amer- 2008, Mrs. Clinton saw her front-run-
icans, especially Republicans, who ner status crumble in the Iowa cold,
feel left behind amid an improving finishing a disappointing third.
economy and changing social mo- Iowa’s quirks have confounded Mrs.
res. Clinton. The state didn’t elect its first
The billionaire developer’s sup- female member of Congress until
porters tend to have less education 2014, and the woman who broke the
JAMES GLOVER/REUTERS

and be lower-income voters. Polling gender barrier was a Republican, Sen.

also shows Mr. Trump’s supporters Joni Ernst. The state’s caucus system
are more attracted to a strong requires intense organizational muscle
leader than to someone who agrees and is dominated by Democratic activ-
with them on the issues or seeks ists who aren’t necessarily drawn to
common ground with Democrats. the centrist, mainstream politics that
“Everything he says is what the Polling shows that supporters of GOP presidential candidate Donald Trump are looking for a strong leader, not someone who will compromise with Democrats. Mrs. Clinton symbolizes.
MARK KAUZLARICH/REUTERS

working class of this country is In 2007, one of her campaign aides

feeling and saying,” said 54-year- warning of a declining America, and ner who is polling in single digits beyond its older, white and male learn whether the New York busi- recommended that Mrs. Clinton bypass
old Roger Aziz Jr., who attended a aired an ad appealing to “all of nationally as he tries to recover base to build a winning national co- nessman defied decades of conven- Iowa and focus her energies elsewhere,
recent Trump rally in New Hamp- those who feel out of place in this from Mr. Trump’s attacks about his alition. tional wisdom about their presi- calling it “our consistently weakest
shire. “Political correctness hasn’t country.” supposed “low energy.” “He’s shutting out a lot of the dential primaries and got away state,” according to an internal memo
worked. Multiculturalism hasn’t Almost all other GOP candidate For the GOP establishment, a population,” said 18-year-old college with it. that surfaced. She wound up cam-
worked. People are fed up.” toughened their language, if not Trump nomination would signal a student Emma Sheehan, who also Conversely, his failure to clinch paigning hard in Iowa, with little to
Every Republican presidential their policy, on illegal immigration failure to learn from the mistakes of attended the New Hampshire rally. the nomination would signal that show for it. An email she sent to Sid- Democratic candidate Hillary Clinton, who drew complaints in 2008 for holding Iowans at arm’s length, has sought to be more accessible this time around.
candidate has modified their cam- as Mr. Trump has called for a wall 2012, when women, minorities and Mr. Trump says he can win by the old rules—paid advertising and ney Blumenthal, a confidant, when she
paign to varying degrees in re- along the Southern border, mass young people widely rejected nomi- firing up voters who haven’t partic- experience matter, gaffes can kill a was secretary of state in 2012 suggests the state until 2014. “I’m baaaack,” swings through Iowa and appeared at Clinton at an event in Cedar Rapids. Mrs. Clinton has hired some of the ad-
sponse to Mr. Trump’s ascent. Flor- deportations, and a ban on Muslims nee Mitt Romney, in part for com- ipated in recent elections. campaign, the GOP would never she doesn’t think much of the caucus she told Iowans at the steak fry hosted more than 100 separate campaign Sitting in the front row, he held a copy visers who guided then-Sen. Barack
ida Sen. Marco Rubio, whose sunny entering the country. ing across as too extreme. Mr. The first round of nominating pick a thrice-married, tax-hike- system. She described caucuses as by Mr. Harkin. Indeed she is, seeking events. She also is deploying her hus- of Mr. Clinton’s autobiography, “My Obama’s 2008 victory in Iowa. She has
optimism had drawn comparisons Perhaps no candidate was im- Trump rose in the polls despite contests in February will put that backing ex-Democrat—still apply. “creatures of the parties’ extremes.” to break the Clinton curse. Her cam- band on the trail and he is proving a Life,” which he hoped to have auto- opened 26 offices around the state
to former President Ronald Reagan, pacted more than former Florida calls from GOP insiders about the claim to the test. And it won’t be —Patrick O’Connor After losing the 2008 caucuses, paign said that as of mid-January she popular draw. graphed. “It’s been a lifelong dream to and her campaign said it was pleased
has adopted a more ominous tone, Gov. Jeb Bush, the early front-run- need to expand the party’s reach until then that Republicans will contributed to this article. Mrs. Clinton didn’t make a return to had made more than two dozen Adam Wright, 37, came to see Mr. get to meet him,” Mr. Wright said. to see 500 volunteers show up in sub-
In 2008, Iowa Democrats com- freezing weather on a recent weekend
plained that Mrs. Clinton seemed too to canvass in various neighborhoods.
Donald Trump Ted Cruz Marco Rubio Ben Carson Other Latest
Hillary Clinton Bernie Sanders Martin O’Malley removed, perpetually surrounded by Could history repeat itself? Could
Businessman Texas senator Florida senator Neurosurgeon WSJ/NBC
candidates U.S. poll
Former senator, Vermont senator Former Maryland Secret Service agents and protective Iowa Democrats once again trip up the
secretary of governor aides who kept at a distance from po- “inevitable” front-runner? It could hap-
Latest Latest Latest Latest tential caucusgoers. Her security pen. Recent polls show Vermont Sen.
Jeb Bush state Latest
WSJ/NBC
national
WSJ/NBC
national
WSJ/NBC
national
WSJ/NBC Former Florida governor 5% WSJ/NBC Latest needs will never allow her to plunge Bernie Sanders has erased the huge
national Latest national WSJ/NBC into crowds, but she has sought to be lead Mrs. Clinton once enjoyed in Iowa.
poll: poll: poll: Chris Christie WSJ/NBC
33% 20% 13%
poll:
5% poll: national more accessible this time around. Large crowds are showing up at Sand-
12% New Jersey governor national
poll: 34% poll: Her first swing through Iowa last ers rallies, relishing his bash-the-bil-

Events held in
Carly Fiorina
Former H-P CEO 3% 59% 2% spring was a low-key affair. She did
away with the stage and the rope lines
lionaires message. At a candidate forum
in Des Moines this month, Mr. Sanders
Iowa and New 85 John Kasich
and sat at tables with small groups of said: “It could be that the inevitable
Hampshire Events held in Iowa
and New Hampshire 202 Events held in Iowa
and New Hampshire 150 Events held in Iowa
and New Hampshire 131 Ohio governor 3% Events held in Iowa
174
Events held in Iowa
and New Hampshire 214 Events held in Iowa
271
voters, talking about their concerns.
Hoping to learn from past mistakes,
candidate for the Democratic nomina-
tion may not be so inevitable today.”
and New Hampshire and New Hampshire
NOTE: DES MOINES REGISTER’S IOWA APPEARANCE COUNT FROM 1/2014; NBC NEWS’S 2016 SOUTH CAROLINA STOPS
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A10 | Thursday, January 28, 2016
FEES
Continued from Page One
want,” says Mr. Walters.
Overall, the average fund
tracked by Morningstar
charges 1.07%, down from
1.22% in 2005. The steepest
slide has been at passively
managed mutual funds and
ETFs that try to track broad
indexes at a fraction of the
cost of human money manag-
ers who handpick investments.
The consequences are more
complicated than they might
seem at first. While lower ex-
penses leave people with more
money to amass for retire-
ment and other uses, nearly
free funds are equivalent to
the loss leaders sold by super-
markets as come-ons, some
money managers and analysts
say.
They say bargain-basement
funds help get investors in the
door, where they can be
pitched pricier portfolios that
often are riskier, too.
The strategy is “taste the
honey and come in so we can
show you all our other prod-
ucts,” says Rick Ferri, founder
of Portfolio Solutions LLC, an
independent financial-advi-
sory firm in Troy, Mich.
Fund companies say the
slide toward zero is a huge
benefit for investors, many of
whom can benefit from a com-
bination of low-cost, plain-va-
nilla funds and more-compli-
cated ones that offer exposure
to niche markets.
But declining costs are
pressuring the industry’s
profit margin, which slipped
to 22% in last year’s third
quarter from 25% a year ear-
lier, according to consulting
firm DST Kasina, part of DST
Systems Inc.
Fund expenses cover the
sponsoring company’s costs of
investment research, sales and
marketing, and other services.
Eke out a profit
Only the largest asset man-
agers have the operating effi-
ciencies needed to eke out a
profit on funds that charge
0.03% or less, so the pressure
to get even bigger has become
more intense than ever. Firms
that use portfolio managers to
choose stocks and bonds face
an especially brutal squeeze.
Even though actively man-
aged mutual funds did better
overall last year than market-
cloning competitors for the
first time since 2012, clients
pulled about $200 billion from
actively managed stock and
bond funds in 2015, according
to Morningstar data. Passively
run funds attracted roughly
$400 billion.
Actively managed U.S. stock
funds suffered their worst an-
nual outflow ever. As costs
keep declining, traditional
money managers “aren’t going
to be able to compete” unless
they are able to outperform
passive funds, says Mark
Wiedman, global head of
BlackRock’s iShares business.
The race to zero has been
accelerated by several forces.
The Federal Reserve’s low-in-
terest-rate policy slashed the
income on bonds and cash,
making high fees stick out like
sore thumbs, analysts say.
Young investors are acutely
focused on costs and skeptical
of advice. And even older in-
vestors who were accustomed
to putting money into tradi-
tional funds felt burned by
DRUNK
Continued from Page One
ings or explicit language.
Humans have almost cer-
tainly been making drunken
phone calls since not long af-
ter Alexander Graham Bell
placed the first call in 1876.
Mobile phones made such
mishaps easier. Smartphones,
with their ability to send
emails and post messages for
all to see on Facebook and
Twitter, have further esca-
lated the potential for danger.
About two-thirds of Ameri-
cans have them.
In 2007, Amber Ferris and
Erin Hollenbaugh decided to
research the drunk dialing
trend. They surveyed nearly
500 college students at a Mid-
western university. Out of 486
undergraduates, 79% said
they had either placed or re-
ceived a drunk dial. The re-
sults were published in 2011
in the Ohio Communication
Journal.
“Besides expressing posi-
tive and negative feelings, one
type of drunk dial was quite
Brolin Walters recently put more money in an exchange-traded fund that charges him just $3 a year for every $10,000 invested.
Market Clones Gain Clout
Passively managed mutual funds and
exchange-traded funds are growing faster than
those where humans choose the investments...
Total assets
$10 trillion
8 product and we are agnostic
6 clients,” a Goldman spokes-
4 Goldman’s launch “got a lot
2 headed,” says Ben Johnson,
0 –200
2000 ’05
Source: Morningstar
devastating losses in 2008 and
2009.
Steve Deschenes, head of
client analytics and research
at the Capital Group Cos., says
human stock and bond pickers
suffered from an “asymmetry
of blame” during the financial
crisis. Capital Group is the
parent of American Funds,
where investors withdrew
about $250 billion from 2008
to 2013. Its mutual funds have
about $1.1 trillion in assets.
“If you held index funds,
you said: ‘I held the market, so
I expected to lose money in a
decline,’ ” he says. “But if you
held money in an active fund,
you said: ‘My manager didn’t
sidestep the decline.’ ”
Some money managers that
get much of their revenue
from actively managed funds
are fighting back, partly by
getting more vocal about the
potential risks of index invest-
ing. They say the strategy
forces investors into risky
bonds or pricey stocks just be-
cause they are part of a
benchmark.
AllianceBernstein LP has in-
creased its marketing of ac-
tively managed strategies for
assets such as high-yield
bonds. The firm hasn’t cut its
fees. “We’re not surprised at
all to see passive managers
compete on fees because
that’s their only differentia-
tor,” said Chris Thompson, Al-
lianceBernstein’s head of dis-
tribution for the Americas.
For investors, small savings
on fees can make a big differ-
Joshua Anton, second from left, and his team run an app called
Drunk Mode that helps prevent people from calling or texting
while intoxicated. Other apps are similarly stepping up to help
would-be drunk dialers save face.
prevalent in our data—the
flippant expression of love,”
the authors wrote in another
version of the study.
Google’s popular Gmail ser-
vice used to have a feature
called “Mail Goggles” that re-
quired users to solve a math
problem when attempting to
send emails late at night on
weekends. The function disap-
FROM PAGE ONE
...and investors are pouring more money into
passive funds, lured by their declining fees, low
interest rates and other factors.
Actively managed Passively managed
Net flow
$400 billion
200
0 of their competitors fretting
’10 ’15 2000
ence in the long run.
Securities and Exchange
Commission economist Timo-
thy Riley calculated in a study
released in September that in-
vestors could save $25 billion
a year—or more than $200
per household in the U.S.—by
switching from actively man-
aged mutual funds to passive
ones seeking to replicate an
index like the Dow Jones In-
dustrial Average, S&P 500 or
Barclays Aggregate Bond In-
dex.
A decade ago, a $10,000 in-
vestment in the average ac-
tively managed U.S. stock fund
cost $97 a year. The stake
would grow to $43,591 after
30 years, assuming an average
annual return of 6% in the
stock market. In the past de-
cade, the stock market had a
7.3% average annual return.
The same $10,000 invest-
ment in a fund with annual
costs of 0.03% would swell to
$59,949 in 30 years.
Samuel Lee, founder of
Severian Asset Management
LLC, a financial-advisory firm
in Chicago, says the biggest
asset managers are trying to
promote a few dirt-cheap
ETFs that establish “a reputa-
tional halo of low cost.” Costs
on other ETFs and mutual
funds are being held steady or
even climbing, say some in-
dustry analysts and execu-
tives.
Last year, fund firms
launched 117 ETFs that cost
more than 0.5% but only 21
with expenses of 0.1% or less,
JOSHUA ANTON
peared in 2012.
A Google spokesman said
that Mail Goggles was only an
experimental feature. “Mail
Goggles had a few too many
late nights and didn’t make it
to graduation,” he said.
Even celebrities like singer
Adele have acknowledged
sending regrettable tweets
while drunk. The solution:
’05 ’10 ’15
THE WALL STREET JOURNAL.
according to Morningstar.
ETF providers say higher-
cost funds typically offer ex-
posure to markets or strate-
gies that are specialized,
complex and otherwise would
be even more expensive for in-
dividual investors.
Still, there is no doubt that
dirt-cheap funds are sending
shock waves through the fi-
nancial industry. Some execu-
tives at Goldman Sachs Group
Inc. gasped at a meeting last
fall when the company’s asset-
management unit introduced a
new ETF with annual fees of
just 0.09%, according to a per-
son familiar with the matter.
The Goldman Sachs Active-
Beta U.S. Large Cap Equity
ETF relies on computer mod-
els to form a relatively static
portfolio of stocks and is de-
signed to beat the market by
using such factors as “value,”
or stocks trading at cheap
prices, and high profitability.
The new fund aims for re-
turns that beat the S&P 500.
Its rock-bottom fees undercut
one of the world’s largest
ETFs, SPDR S&P 500 ETF
Trust, which charges 0.0945%
a year. That fund is managed
by a unit of State Street Corp.
State Street says it hasn’t
changed the fund’s fees.
Goldman’s U.S. large-cap
stock ETF also costs about
one-fourth as much as some
rival “smart beta” funds that
hold broad baskets of assets
selected by criteria other than
market value alone, according
to the firm. The ETF has at-
The star, who has said she no
longer drinks, has her own
backstop. “My management
decided that you have to go
through two people and then
it has to be signed off by
someone,” she told a BBC stu-
dio audience last year. A
spokesman for Adele declined
to comment.
And so it follows that, over
the past few years, a cottage
industry has sprung up—the
goal being to help keep peo-
ple’s phones sober when their
brains are not.
Joshua Anton, a recent
graduate of the University of
Virginia, said he was moved
to build an app after receiving
a late-night drunken request
for ice from a swooning fe-
male friend. She had no recol-
lection of the call the follow-
ing day.
His app, called Drunk
Mode, temporarily discour-
ages imbibers from texting
and calling. Users must solve
a math problem involving tri-
ple digit figures to turn it off,
such as 824 + 651 + 61.
“Some people think it’s too
hard, like ‘I can’t even do this
sober,’ ” said Mr. Anton, who
THE WALL STREET JOURNAL.
Core S&P Total U.S. Stock
Market fund would bring in
annual revenue of roughly
$800,000, based on expenses
of 0.03% and recent assets of
LEXEY SWALL FOR THE WALL STREET JOURNAL; KRIS TRIPPLAAR/SIPA USA/ASSOCIATED PRESS (BELOW)
$2.7 billion. The equivalent
fund at Vanguard has about
$400 billion in assets.
BlackRock’s fund got $302
million in new investor money
from Nov. 10 to Jan. 26. The
average net monthly inflow
since the fee-cut announce-
ment jumped nearly 50% com-
pared with the first 10 months
of 2015. Some of the increase
reflects seasonal factors such
as portfolio rebalancing and
trading for tax reasons, a
spokesman says.
Meanwhile, higher expenses
on other BlackRock funds are
helping to subsidize funds
that have cut investor fees.
The iShares MSCI Japan ETF,
which aims to track an index
of Japanese stocks, has nearly
$20 billion in assets and
charges investors 0.48%,
meaning it pulls in close to
$100 million a year.
Relentless pressure
tracted more than $250 mil- Fee-cutting pressure is
lion in assets so far. likely to remain relentless.
Like many other investment Vanguard automatically low-
firms, Goldman also is com- ers fees as its funds grow. The
peting against itself. Its asset- firm manages about $3 trillion
management unit is best in assets.
known for hands-on attention Chairman and Chief Execu-
to pension funds, wealthy in- tive F. William McNabb III
dividuals and advisory firms says Vanguard’s unusual own-
that cater to rich investors. ership structure limits its abil-
“Clients have asked for this ity to offer loss leaders with
fees that are lower than their
about whether its growth operating costs.
comes from new or existing Instead, the firm has spent
much of the last year looking
man says. for savings in technology,
back-office infrastructure and
other areas. It recently en-
over the direction things are couraged holders of brokerage
and mutual-fund accounts to
director of global ETF re- consolidate them.
search at Morningstar. The only escape from the
Marie Chandoha, chief ex- how-low-can-you-go strategy
ecutive of Schwab’s invest- is by tempting investors with
ment-management unit, says higher-fee funds that offer at
the company was late to the least the potential to be worth
game when it launched its it.
first ETF in 2009. It decided Since the start of 2014,
to compete on price. nearly 200 “liquid alternative”
She says ultralow fees make mutual funds have been
ETFs more attractive as “port- launched to package commodi-
folio building blocks” for the ties, currencies and hedge-
financial advisers who keep fund-like strategies into in-
more than $1 trillion in client vestments for the masses.
assets at Schwab. Morningstar says the aver-
The seven funds that Black- age annual fee on such funds
Rock cut fees on in November is 1.67%, compared with 1.22%
provide basic exposure to for the average active fund
broad swaths of the stock and and 0.68% for index funds.
The First Trust Dorsey
Wright Focus 5 ETF holds five
other specialized funds at a
time and can juggle those
holdings as short-term indica-
tors recommend changes. The
fund, run by First Trust Advi-
sors LP, is less than two years
old and charges 0.94% a year.
Vanguard’s unusual The ETF outperformed the
structure limits its S&P 500 by more than five
percentage points in 2015 and
ability to lower fees, had nearly $5 billion in assets
says Mr. McNabb. at its peak late last year. Since
Jan. 1, it has declined along
with the overall stock market
bond markets. Such funds hold and now has $3.8 billion in as-
22% of the firm’s ETF assets. sets.
Overall, BlackRock has $4.65 Ryan Issakainen, ETF strat-
trillion in assets, ranking it egist at First Trust, says the
the largest asset manager in fund offers a sophisticated
the world. strategy at lower cost than
Mr. Wiedman of BlackRock most mutual funds provide.
says ETFs can be profitable While investors often are
even when their fees are low paying less than ever for some
because of immense asset mutual funds and ETFs, they
size. “We are in the business need to be careful, says Matt
of increasing earnings,” he Hougan, chief executive of re-
says. “Over time, the revenue search firm ETF.com. “It’s go-
growth from volume will out- ing to be like trying to eat
strip the price cuts in these healthy in a junk-food restau-
products.” rant,” he says. “There’s going
For example, the iShares to be a lot of temptation.”
majored in commerce. “And
some people say it’s not hard
enough.”
Subsequent experiences in-
while inebriated and it can’t
block access to sites like Face-
book and Twitter.
The real solution to tipsy
formed new features. Once, transmissions may require
while camping, Mr. Anton and more than just slick software,
two friends walked several said Michael Burke, a 47-year-
miles to the nearest bar—a old in Oceanside, Calif. He and
path that might have been a friend have created a
hard to retrace. After the ex- breathalyzer that connects to
cursion, they created a fea- a smartphone via Bluetooth
ture called “Breadcrumbs,” and blocks social media posts
which allows users to trace if the user’s blood alcohol
their precise whereabouts the content exceeds a preset
previous night. The logic: it limit.
could come in handy when The duo received a U.S.
searching for items lost dur- patent for the device, which
ing a raucous outing. Unless, they call the iDrunk. But after
of course, you lost your investing as much as $80,000
phone. of their own money, the proj-
Another feature, called ect is stalled. Mr. Burke said
“Find My Drunk,” allows they have a working proto-
groups of partygoers to share type but need several hundred
their locations with each thousand dollars to begin
other in real time. manufacturing.
“I look at it as a drunken The remedy, however,
man’s tool kit,” said Mr. An- doesn’t necessarily go down
ton, who added that he as easy as the booze—some-
doesn’t drink himself. thing Mr. Burke discovered
Drunk Mode is free and has while testing his own cre-
more than 1 million down- ation. “I hated it,” he said.
loads, about 25% of which use “Especially on the nights
the app monthly, according to where I was really drunk and
Mr. Anton. Still, it can’t stop a wanted to be able to post
user from sending emails stuff.”
 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
DAVE KILLEN/ASSOCIATED PRESS
A law-enforcement officer on Tuesday at a roadblock in Oregon, where authorities arrested members of a group occupying a federal facility.
Oregon Activists Arrested
One man is killed as leader of group occupying refuge and seven others are taken into custody
BY JIM CARLTON
AND DEVLIN BARRETT
Law-enforcement officials
stepped up pressure on an
armed group occupying an Ore-
gon wildlife refuge to stand
down peacefully on Wednesday,
a day after the arrest of protest
leader Ammon Bundy sparked a
confrontation with authorities
that left one supporter dead.
The occupation of the Mal-
heur National Wildlife Refuge,
which started on Jan. 2, be-
came a standoff following the
arrest of Mr. Bundy and seven
others Tuesday evening. An un-
known number of protesters re-
main inside and are now facing
added pressure from authori-
ties, including roadblocks that
tightened the security perime-
ter around the remote facility.
In a news conference in
nearby Burns, Ore., on Wednes-
day, federal officials declined
to release details of the con-
frontation but suggested the
violence resulted from the ac-
tions of the criminal suspects.
Greg Bretzing, special agent
in charge of the FBI office in
Oregon, said his agency had
worked over the past month to
bring the conflict to a peaceful
end through negotiations.
“Let me be clear—it is the
actions and choices of the
FED
Continued from Page One
says in these policy state-
ments definitively whether it
sees risks to the economy as
balanced or tilted toward
strength or underperformance.
The fact that officials
weren’t willing to state how
they saw risks to the outlook
underscored doubts they now
have about the impact of
tumbling stock and oil prices
and the consequences of a
slowdown in China, the
world’s second-largest econ-
omy.
The Chinese slowdown and
market tumult could be tem-
porary stumbles or signs of
deep and enduring problems.
The Fed has been wrestling
with these doubts since Au-
gust, when stock declines in
China and a currency devalu-
ation set off a global market
rout. Officials hesitated then
about raising rates.
When markets settled, they
raised rates in December, and
now new turbulence has
placed central-bank officials
back in the tough spot of
measuring new threats to the
economy.
The Fed “kept its options
open for March,” Barclays
economist Michael Gapen said
in a note to clients: “A further
deterioration in the data or
financial markets could
prompt a delay in rate hikes
while an improvement in the
data and a stabilization of fi-
nancial markets would open
the door for a second rate
hike in March.”
For now the Fed is keeping
its benchmark short-term in-
terest rate steady between
0.25% and 0.5%. Moreover, of-
ficials are sticking to a fore-
cast that the U.S. economy
will continue to grow mod-
estly, produce jobs and gradu-
ally lift inflation to their 2%
U.S. NEWS
armed occupiers of the refuge dividual who was brandishing
that has led us to where we the weapon suffered fatal inju-
are today,” Mr. Bretzing said ries, officials said.
in the news briefing, where no The man killed was identified
questions were allowed. by supporters of Mr. Bundy on a
For weeks, Mr. Bundy—the Facebook page as LaVoy Fini-
son of Nevada rancher Cliven cum, a rancher who had acted
Bundy, who engaged in a simi- as a spokesman for the group. A
lar standoff with authorities in law-enforcement official also
2014 over grazing fees—had identified the man killed as Mr.
occupied the refuge and moved Finicum. Mr. Bretzing said the
in and out as he wished, with deceased man’s identity
law-enforcement officials mak- wouldn’t be officially released
ing few overt moves to force pending further investigation.
an end to the situation. Another suspect suffered
That changed Tuesday when non-life-threatening injuries,
agents with the Federal Bureau these people said. No FBI
of Investigation arrested Mr. agents were injured, according
Bundy, 40 years old; his to these people. The suspects
brother, Ryan Bundy, 43; and were arrested on suspicion of
three other supporters as they conspiracy to impede officers
were driving to a nearby county of the U.S. from discharging
for a community meeting. their official duties through
A sixth suspect was arrested the use of force, intimidation
by Oregon State Police about an or threats—a felony.
hour later in Burns, Ore. Later At the news briefing, Har-
Tuesday, the FBI announced it ney County Sheriff Dave Ward
had arrested a seventh member said authorities had to make
of the group. An eighth alleged the arrests to help put an end
conspirator turned himself in to what he called the disrup-
to police in Arizona Tuesday tion of life in the rural area.
night, officials said. Mr. Bundy and his supporters
The arrest of members Mr. had made numerous trips into
Bundy’s group turned violent Burns, openly carrying guns,
when one of his supporters including at a community
pulled out a weapon, law-en- meeting in a high school.
forcement officials familiar “This has been tearing our
with the incident said. At that community apart,” said Mr.
point, FBI agents fired. The in- Ward. “It’s time for everyone
target. They will update their
forecasts for the economy at
what is shaping up to be a
outlook. Officials said they
expected it to remain low in
the near term, thanks to de-
crucial March policy meeting.
While the Fed in December
clines in energy and import
prices, but to gradually rise.
said it expected four quarter- They have been watching core
percentage-point interest-rate inflation closely, which tracks
increases this year, investors consumer prices excluding
and traders believe it will be volatile food and energy
far less. If the Fed follows prices, and these measures
through on its plan, rates have been firm and possibly
would rise to 1.375% by year- rising.
end; futures markets put the However, some officials
expected rate at 0.605% in worry that market expecta-
December, meaning just one tions for future inflation are
more rate increase this year, shifting down, a sign inves-
and even that isn’t a sure tors don’t believe they will
thing. reach their 2% target soon.
One challenge for officials
at their two-day policy meet-
ing was deciding how to sig-
nal their degree of concern.
In September, after concerns
about China roiled markets in
late summer and early fall,
Fed officials said these devel-
opments could restrain eco-
BAO DANDAN/XINHUA/ZUMA PRESS
nomic activity and push down
inflation.
On Wednesday they
stopped short of repeating
that declaration, which would
have suggested their eco-
nomic forecasts were already
souring in light of the market
developments. Instead they
Fed Chairwoman Janet Yellen said they were watching
events closely, an echo of lan-
Fed Chairwoman Janet Yel- guage they used in October.
len faces a busy calendar. She By being noncommittal, the
is slated to testify before Fed is effectively keeping its
Congress in February, and options open for the March
there is a policy meeting meeting. Officials likely want
scheduled for March 15-16. to assess the tone of eco-
The Fed’s policy statement nomic data and market devel-
pointed to a mixed economic opments between now and
backdrop. then before deciding what
“Labor market conditions signal to send about the path
improved further even as eco- of rates.
nomic growth slowed late last “Overall, a March rate hike
year,” the Fed said. While job is still possible, but it will re-
gains were strong, it said, quire signs of improvement in
consumer spending and busi- the incoming economic data
ness investment were just and financial markets that
moderate, inventory draw- may not show up quickly
downs a drag and net exports enough,” said Paul Ashworth,
soft. chief U.S. economist at Capi-
The Fed is also trying to tal Economics, in a note to
assess a shifting inflation clients.
in this illegal occupation to
move on.”
The arrests of most of the
group’s leaders posed a new
challenge for the occupation
and left unclear how protest-
ers would continue.
Mr. Bretzing said any re-
maining occupiers were free to
go home past law enforcement
checkpoints that were put
around the perimeter of the
refuge overnight.
Under the new rules, any-
one leaving the refuge will
have their identities checked
and vehicles searched, while
anyone attempting to enter
the refuge will be asked to
leave, with the exception of lo-
cal ranchers with property in
the area. If they fail to comply,
they will be subject to arrest.
The move is likely to stop
the freedom of movement mi-
litia members have enjoyed
since the occupation began.
Harney County officials had
complained of Mr. Bundy and
his supporters frequenting
nearby Burns with firearms in
open view.
Federal authorities gener-
ally have been reluctant to en-
gage with armed protesters
like the Oregon group, mindful
of past violent outcomes like
those at Ruby Ridge, Idaho, in
1992 and Waco, Texas, in 1993.
U.S.
Watch
MICHIGAN
More Help Planned
For Flint Water Crisis
Michigan Gov. Rick Snyder
pledged more state assistance
to address the lead-contamina-
tion crisis in Flint and is seeking
federal loans and an expansion
of Medicaid coverage for resi-
dents under the age of 21.
“Now is the time to do things
to help the people of Flint ad-
dress the damage that’s been
done,” Mr. Snyder said. “This is
the start of a longer-term pro-
cess to make sure that we are
committed to Flint.”
The governor, speaking at a
news conference Wednesday at
Flint’s City Hall flanked by Mayor
Karen Weaver and state officials,
said more state officials would
work out of a new office in Flint
to remain in close contact with
events on the ground.
In addition to seeking to ex-
pand Medicaid coverage for resi-
dents, the governor said the
state will ask the federal Small
Business Administration to make
low-interest loans available to lo-
cal business owners.
The governor also said the
state Senate will take up his re-
quest for $28 million in funding
to address the city’s water crisis.
A bill was passed by the state
House last week with unani-
mous support. But he said this
money, which includes $8 million
for bottled water, was only a
start. “The $28 million is not the
only request we’re going to
have,” he said.
Flint’s water system became
contaminated with lead after the
city, under an emergency man-
ager appointed by the governor,
decided to begin using water
Thursday, January 28, 2016 | A11
More Vaccination
For HPV Is Urged
BY RON WINSLOW
The top cancer centers in the
U.S. jointly called for an in-
crease in vaccinations against
the human papilloma virus,
or HPV, saying low uptake of
the three-shot regimen amounts
to a “public health threat” and a
major missed opportunity to
prevent a variety of potentially
lethal malignancies.
In a statement Wednesday,
all 69 of the nation’s National
Cancer Institute-designated
centers urged parents and
health-care providers to “pro-
tect the health of our children”
by taking steps to have all boys
and girls complete the three-
dose vaccination by their
13th birthdays, as recommended
by federal guidelines, or as soon
as possible in children between
13 and 17 years old.
Currently, just 40% of girls
and 21% of boys in the U.S.
have received the vaccine, ac-
cording to a report last year
by the U.S. Centers for Disease
Control and Prevention. The
U.S. Department of Health and
Human Services Healthy Peo-
ple 2020 initiative has set the
goal for HPV vaccination for
both boys and girls at 80%.
The first HPV vaccine,
Merck & Co.’s Gardasil, was ap-
proved by the U.S. Food and
Drug Administration in 2006. A
second version of Gardasil and
GlaxoSmithKline PLC’s Cervarix
are now on the market. Neither
company was involved in de-
velopment of the cancer cen-
ters’ statement, those involved
in the effort said.
The CDC estimates that 79
million Americans are infected
with HPV, a sexually transmitted
virus that causes 14 million new
infections each year. While the
body’s immune system fights off
the virus in most cases, certain
high-risk strains are responsible
for cancers of the cervix, anus,
and various genital sites as well
as a growing rate of oropharyn-
geal or throat cancers, all told
affecting about 27,000 patients
a year in the U.S.
“We have everything we
need to eliminate at least cer-
vix cancer and many
other HPV-related cancers, and
we haven’t taken advantage in
this country,” said Lois Ra-
mondetta, professor of gyne-
cologic oncology at University
of Texas MD Anderson Cancer
Center, Houston.
The U.S. rates stand in con-
Michigan Gov. Rick Snyder in Flint on Wednesday.
from the Flint River in April 2014
as part of a cost-saving plan. The
corrosive water, however, began
eating away at pipes and leach-
ing lead and other contaminants
into the water in people’s homes.
Flint residents were first told
by county officials on Oct. 1 not
to drink their water. Mr. Snyder
declared an emergency earlier
this month and activated the
National Guard to help distribute
filters and bottled water at sites
around the city.
President Barack Obama also
declared an emergency to free
up federal funds to address the
water crisis.
—Kris Maher
ECONOMY
New-Home Sales Cap
Best Year Since 2007
Sales of newly built U.S.
homes rose last month, capping
the best year for new-home
sales since 2007.
Purchases of new single-fam-
ily homes increased 10.8% to a
seasonally adjusted annual rate
of 544,000 in December, the
Commerce Department said.
New-home sales in 2015
reached an estimated 501,000,
not seasonally adjusted. That
marks their highest annual level
trast to those in some other
countries, including Australia,
where 75% of boys and girls are
fully vaccinated; the U.K., with
a rate between 84% and 92%;,
and Rwanda, where 93% of
children are in compliance with
World Health Organization rec-
ommendations for HPV shots.
When the first vaccine hit
the market a decade ago, it was
targeted at girls in hopes of
preventing cervix cancer. But
the rising incidence of HPV-re-
lated head and neck cancers,
especially among men, in re-
cent years led to including boys
in the prevention effort as well.
Factors responsible for the
low U.S. rates include resistance
among antivaccination groups,
a “misunderstanding” that vac-
cination might promote sexual
activity and a reluctance of pe-
diatricians to discuss preven-
tion of a sexually transmitted
virus for children, said Sarah
The CDC estimates
that 79 million
Americans are
infected with HPV.
Kobrin, acting chief of health
systems and interventions re-
search at the NCI. Research
shows no link between the vac-
cine and sexual activity, she
said. Early administration is re-
quired because “for the vaccine
to work, the child shouldn’t
have yet had sex,” she said.
The three-dose vaccine can
cost about $500, including
doctor fees, according to the
American Cancer Society,
though it is often covered by
insurance.
The statement emerged
from a meeting of HPV experts
from many of the cancer cen-
ters in November, which in
turn resulted from a special
NCI initiative among 18 desig-
nated centers to study factors
affecting HPV vaccination
rates in their local markets.
NCI designation recognizes
centers for excellence in can-
cer research and care. The
NCI wasn’t involved in draft-
ing the document.
“We feel this is an effec-
tive, safe and long-lasting vac-
cine that we’re not taking ad-
vantage of,” said Dr.
Ramondetta, who is also co-di-
rector of MD Anderson’s HPV-
related Moon Shot initiative.
BRETT CARLSEN/GETTY IMAGES
since 776,000 new homes sold
in 2007, underscoring the long
slog back from the housing bust.
Nationwide, the pace of new-
home sales growth in December
was up 9.9% from a year earlier,
the Commerce Department said.
Purchases of new homes are
only about a tenth of all home
sales, and the data are choppy.
However, the construction sector
added jobs in December as ris-
ing consumer confidence, low
mortgage rates and low inven-
tory helped spur new-home
sales over recent months.
There were 5.2 months’ sup-
ply of newly built homes in De-
cember, down from 5.7 months
in November.
The median sales price of new
homes was $288,900, down from
$305,000 in November, which
some economists attributed to
supply matching demand for
more reasonably priced units.
Data on new-home sales are
volatile and subject to frequent
revisions.
In Wednesday’s report, the
margin of error on December’s
10.8% monthly sales gain was
plus or minus 17.1 percentage
points. There was a margin of
error of 25 percentage points for
the annual gain of 9.9%.
—Harriet Torry
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
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A12 | Thursday, January 28, 2016 THE WALL STREET JOURNAL.

PERSONAL JOURNAL.

It’s the Best Time to Get a New TV: A Buyer’s Guide

BY GEOFFREY A. FOWLER Maximum seating distance
Can You See 4K? to perceive 4K vs. screen size:
For a great Super Bowl party,
Where should you sit for your
the American thing to do is to an-
nex an even larger portion of your
eyes to appreciate the
”
0
resolution on a 4K Ultra HD
living room for more pixels of Pey-
4
TV? The smaller the TV, the
ton Manning. Super Bowl 50 hap-
more dense the pixels—and
pens to coincide with the best 5 ft
ft. 3 in.
”
the closer you need to be.
time in years to score a new TV.

50
March is when the year’s new
models are re-
vealed for much
of the industry, so 6 ft. 5 in.
now is the kickoff
”
of clearance sale
0
PERSONAL
season. In the
next few weeks, 6
TECHNOLOGY you can get deals
on 2015 TVs. 7 ft. 8 in.
”
CamelCamel-

70
Camel.com, which tracks prices on
Amazon, analyzed last year’s TV
sales and found most reach their
deepest discounts six to seven

months after release—and the fan-
cier, larger models hold off on
their discounts even longer. “It
pays to be patient,” says Daniel
Green, the site’s founder.
Buying one of last year’s mod-
els isn’t a big deal because TV tech
has hit a plateau. The new sets
coming later this year promise im-
provements at the very high-end,
but key tech like streaming and 4K
were largely sorted out in the 2015
models.
A Super Bowl party is actually
a great test of a TV’s capabilities:
Can it keep the action from look-
ing blurry? Can a packed room see
it from many angles?
Which one to choose? I checked
in with two of the most opinion-
ated TV watchers I know, HDG-
uru.com editor in chief Gary Mer-
son and TV calibration pro Robert
Heron. We compared notes on doz-
ens of sales at big retailers to
identify our favorite deals.
Here’s my playbook on how to
pick the best TV.
How much do you need to
spend? Not as much as you might
think. Today, even inexpensive TVs
can impress, both in their slim
form and functionality. One of my
and Mr. Heron’s favorites, with
software and a remote designed
for cable cutters, is TCL Roku TV,
now on sale for $350 in 48 inches
at Amazon.
A general rule of thumb: For
under $700, you can get a really
SAMSUNG
9 ft. 2 in.
If he were buying a TV right now, columnist Geoffrey A. Fowler would pick
Samsung’s SUHD J8500 in 55 inches.
You can get HDR on a few of TV has access to the streaming
the higher-end Samsung, Sony and apps you subscribe to, it can save
LG 4K 2015 TVs on sale now. If I you buying external boxes like the
were going to buy myself a new Apple TV and juggling remotes.
TV right now, I’d get Samsung’s My favorite Smart TV systems
Note: Not schematic SUHD J8500 on sale for $1,700 in are Roku TV and LG’s Web OS, but
Source: HDGuru.com 55 inches. The best HDR picture I you won’t go wrong with Sam-
THE WALL STREET JOURNAL.
saw in 2015 was on LG’s 4K OLED sung’s Tizen.
sets, which show dark scenes more If you buy online, home deliv-
accurately than traditional LCD ery and environmentally sound
screens. disposal of your old TV should
good, 55-inch HDTV. For under TVs, which have four times the Don’t forget “motion resolu- come included.
$1,700, you can buy an incredible resolution of ordinary HD.Whether tion.” Make sure your set has a What if you wait a year? On the
Ultra-HD TV and some future- you should even bother with 4K picture refresh rate of at least high-end, there will be more HDR.
proofing for the next generation of depends on one factor: How close 120hz to avoid blur. LG unveiled a new version of its
movies and TV shows. And for will you sit to the TV? The human “Companies have been inflating OLED 4K TV, called the G6, that
$3,000, you can buy a high-perfor- eye can only take in so much de- refresh rates with names like Mo- can make its pixels significantly
mance OLED-screen TV that will tail: with a 55-inch set you can’t tionFlow and TruMotion,” says Mr. brighter than last year’s model. On
spoil your eyeballs forever. be further than 7 feet away, by Mr. Merson. But for most brands, Am- the other end of the price spec-
What size should it be? Bigger Merson’s analysis. azon’s product pages publish the trum, up-and-coming Chinese
really is better. No other fancy You won’t be able to watch the real refresh rate data, so be sure maker Hisense wowed at CES with
tech will contribute as much to Super Bowl or other live TV in 4K. to check. the H8, a 55-inch 4K TV with some
your overall enjoyment, so spend There’s a chance that will happen Do you need a curved model? limited HDR content support that
your money on screen inches. before Super Bowl LV (55) , so Does the Super Bowl need more will sell for $700.
If space (or your spouse’s pa- worth it if you want to future- beer commercials? Absolutely not. Finally, Samsung says it has re-
tience) for a larger screen is run- proof. Like 3-D before it, curved is a silly invented its TV remote so that it
ning out, know that today’s models How important is picture upsell. But note Samsung only can automatically sense and con-
have much thinner frames. In my quality? The most visible improve- makes their top-of-the-line TVs in trol all the things you plug into it,
house, I can fit a 55-inch TV in the ment in TV tech is the ability of curved flavors. which if it works will be one of the
same space that held a 47-inch screens to display the brightest What’s the best “smart” TV? modern wonders of the world.
model from a few years ago. and darkest colors much closer to Choosing a TV is becoming a lot There’s always something new.
Do you need 4K? Most brands real life. It’s called high dynamic more like buying a phone—the But there’s little to make me think
are now pushing 4K or Ultra-HD range, or HDR. software and apps matter. If your twice about buying now.

Eugène Delacroix, Lion Hunt (detail), 1861 © The Art Institute of Chicago, Illinois

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Exhibition at the National Gallery

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Manet, Cézanne, Van Gogh, Matisse, Kandinsky and more. Members will enjoy breakfast before the tour,
receive an exhibition catalog for their personal collection and have full access to the gallery for the day.

WHERE: LONDON | WHEN: FEBRUARY 19, 2016

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THE WALL STREET JOURNAL. Thursday, January 28, 2016 | A13

ARTS & ENTERTAINMENT

A Room to Be Viewed
REVIEW
BARRYMORE LAURENCE SCHERER

Artistic Furniture
of the Gilded Age
The Metropolitan Museum of Art
Through May 1

New York
The singular character of late-19th cen-
tury American furniture design is at the
heart of the opulent show “Artistic Furni-
ture of the Gilded Age,” at the Metropolitan
Museum of Art. Arranged over three contig-
uous galleries, it has been organized by the

JOSEPH COSCIA/THE METROPOLITAN MUSEUM OF ART; COLLECTION OF PAUL MANGANARO

museum’s American decorative arts curator
Alice Cooney Frelinghuysen and Nicholas C.
Vincent, collections planning manager, to
celebrate the installation and attribution of
the recently conserved Worsham-Rockefeller
Dressing Room, an ebullient treasure of
1880s interior design. It also celebrates the
room’s firm identification as the work of
New York cabinetmaker and decorator
George A. Schastey (1839-1894). Because
much of Schastey’s work was either lost or
unattributed, his name has long been unfa-
miliar. But in the era when Astors and Van-
derbilts led New York society, Schastey’s
work rivaled that of Herter Brothers, whose
decorative legacy is more widely known.
The Worsham-Rockefeller Dressing Room
takes its place among the American Wing’s The Worsham-
chronological period rooms. It was designed Rockefeller Dressing
in 1881 for the brownstone mansion of Ara- Room; below: an
bella Worsham at 4 West 54th St., land now 1882 Steinway &
occupied by Museum of Modern Art. Sons grand piano.
Worsham’s background was the stuff of
novelists. After her youth and an amatory li-
aison in the antebellum South (details of 1870s and 1880s. This marquetry inlay and the dressing room. In addition are pieces ten crowded application of
which she kept secret), Worsham effectively carving are of contrasting purpleheart (or by the era’s celebrated cabinetmaking these venerable motifs to
became the mistress of railroad baron Collis amaranth) wood. That this is a woman’s pri- firms, including Pottier and Stymus bold, often novel cabine-
Huntington, 30 years her senior, masquerad- vate domain is signaled by the delightful and Charles Tisch, along with a se- try forms that departs
ing as his niece while his ailing wife still marquetry inlay around the doors and win- lection of Herter Brothers pieces from the comparative
lived. She married Huntington in 1884, nine dows of intertwining hand mirrors, jewelry, created for their most impor- restraint of Medieval-
months after he was widowed, and in that and other emblems of female adornment, tant commission, the now ist, Georgian-revival
year sold the house and its Schastey fur- heightened with mother-of-pearl veneers— vanished William H. and Aesthetic produc-
nishings to John D. Rockefeller, who all of it calculated to shimmer in the flicker- Vanderbilt house. tions by contemporane-
changed little but the worn carpets. When ing glow of elaborate gaslight fixtures. Inspired by ous English and Conti-
John D. Rockefeller Jr. prepared to demolish Placing this permanent room installation prevailing 19th- nental furniture
the house in 1938, he donated the dressing in the context of other Schastey work are century taste for designers, and which
room to the Museum of the City of New two adjoining galleries displaying an array historicism, lead- distinguishes the deco-
York, which gave it to the Met in 2008. of furnishings—some lent by private collec- ing American de- rative vocabulary of
Schastey’s dressing room in solid satin- tors, several newly attributed to Schastey signers adapted their high-style American
wood combines luxurious materials with en- and on public view for the first time. An ornamental motifs from Aestheticism. Ultimately
gaging wit. Surfaces of the regal built-in 1882 Steinway & Sons grand piano, whose a wide range of this exhibition conveys a
cabinetry, dressing mirror, doors and win- riotous carved and inlaid ornamentation in sources—Egyptian stream of imaginative vitality
dow surrounds are applied with carved rosewood, satinwood, purpleheart, brass sphinxes, Arabesques, Gre- and consummate artistry that
cherub heads, festoons, vases and other and silver is documented as Schastey’s cian masks and columns, Viking transcend conventional expectations
vaguely neoclassical motifs or inlaid with work, is contemporaneous with the Wor- shields, Renaissance putti and griffins, of American Victoriana.
complex geometric patterns characteristic of sham commission. This documentation Jacobean panels and turnings, Japanesque —Mr. Scherer writes about music and
the popular Aesthetic Movement style of the helped lead to the Schastey attribution of relief carvings. Yet, it is their vigorous, of- the fine arts for the Journal.

PLAYLIST: JEFFREY BILHUBER

PROPS From left, Joel
Coen and Ethan Coen
talk to members of the
cast of ‘Hail Caesar!’
Career Advice From Queen
New York decora- and committed to their studies. Their
tor Jeffrey Bilhu- dedication rubbed off, and my sum-
ber, 58, is the mer grades improved. I was driven.
author of four At the end of the Bucknell pro-
books, including gram, I was sitting in the student
“American lounge with friends listening to the
Master: Notes local radio station on the sound
on Style and system. The DJ took a request
Substance” (Riz- from a girl who asked for a new
zoli). He spoke with Marc Myers. song, “We Are the Champions” by
Queen. She dedicated it to her
I didn’t have much direction in col- classmates in the fine arts pro-
lege in the 1970s. I knew I wanted gram.
to excel at something, but I wasn’t I was transfixed. Freddie Mercury’s
sure what exactly, and figuring out vocal was self-analytical, operatic and
where I fit in was a struggle. triumphant. Then the band launched
UNIVERSAL PICTURES

Queen’s “WE ARE THE CHAMPI-
ONS” became an accelerant.
At the University of Southern Cali-
fornia in 1976, I majored in telecom-
munications, a gateway to the movie
industry then. But after a year, I real-
MOVIES ized I was never going to break into
the business. I wasn’t connected.
into the theme, and the song built to
a crescendo: “And bad mistakes / I’ve
made a few / I’ve had my share of
sand kicked in my face / But I’ve
come through.” Lightning struck.
Back at Cornell, I applied myself
and did well. After graduation, I
took at job at New York’s Carlyle

Coens and the Classics So I transferred to Cornell to

BY CARYN JAMES
FOR MORE THAN 30 YEARS, Joel and
Ethan Coen have created droll spins
on classic genres, from the fresh
noir of their first film, “Blood Sim-
ple,” to the intense newfangled
western of “No Country for Old
Men” and the goofy, musical De-
pression-era “O Brother, Where Art
Thou?” The Coen brothers’ love of
movies finally takes center stage in
“Hail, Caesar!”
Set in early-1950s Hollywood, the
comedy follows a fixer at the fic-
tional Capitol Studios (Josh Brolin)
who tries to retrieve a kidnapped
star (George Clooney). But the film,
which opens in the U.S. Feb. 5 and
more widely starting Feb. 17, is re-
ally driven by five wildly varied
movies-within-the-movie that the
fictional characters are making. To
phy. Playing a matinee idol, Chan-
ning Tatum leaps on tabletops as a
sailor dancing his way through a
Gene Kelly-style musical. The Coens
stayed faithful to the period styles,
while approaching them with affec-
tionate tweaks. They also faced
plenty of logistical challenges.
“We didn’t want [the sequences]
to be spoofs,” Joel Coen says of the
films the fictional characters are
making. The brothers had to recap-
ture some old moviemaking strate-
gies. “It sounds stupid to say, ‘No-
body does that anymore,’ but
nobody does that anymore,” Joel
Coen says. The tank the brothers
used for the swimming scenes was
the one Williams used on an MGM
soundstage (now owned by Sony).
“Synchronized swimmers nowa-
days do something completely dif-
ferent,” Joel Coen says. “We were
saying: We don’t want you to do
study hotel administration. The ap-
peal was the same. I wanted to at-
tract audience attention by trans-
Hotel, and four years later I
started my own design firm. My
first client was fashion legend Hu-
bert de Givenchy, who had
Tony-winning choreographer of the forming space and transporting watched me work my way up at
Broadway musical “Newsies.” To- people to another place. But I was the hotel.
gether they made the dances work consumed by my social life, and I never bought “We Are the
on camera for the routine called “No my grades suffered. Champions” or attended a Queen
Dames,” which has an increasingly To remain at Cornell, I had to concert. It’s not even on my iPod. It
comic and sexual subtext that would prove myself. I took summer classes represented a turning point in my life
never have surfaced 60 years ago. in the fine arts program at Bucknell and still reminds me of those days.
Mr. Gattelli discovered the depth University and befriended students But it was me only for about three
of the Coens’ research. He says, who were passionate about the arts minutes. And then it wasn’t.
“They showed me some Donald
O’Connor movies they fell for.” Al-
though O’Connor is famous for the
DRAMA QUEEN
classic “Singin’ in the Rain,” the Co-
Freddie Mercury
ens showed Mr. Gattelli a number
at Madison
called “Applied Mathematics” from
Square Garden.
the obscure 1948 movie “Are You
With It?” The scene became one in-
spiration for the tap routine.
Mr. Brolin’s character is named
Eddie Mannix, who was a real-life
MGM production executive and
fixer, known for his thuggish way of
making problems disappear. “We
took the rough idea and made
RICHARD E. AARON/REDFERNS/GETTY IMAGES

create these elaborate set pieces,
the Coen brothers drew on their
lifelong knowledge of old movies
and meticulously researched more.
As a dunderheaded actor named
Baird Whitlock, Mr. Clooney is a
Roman soldier in a Bible epic,
“Hail, Caesar! A Tale of the Christ.”
Scarlett Johansson wears a mer-
maid’s tail as an Esther Williams
type in a swimming movie with
Busby Berkeley-inspired choreogra-
any of the stuff that’s acrobatic,”
asking instead for routines that em-
phasized a graphic look to be shot
from above.
In a major number evoking the
1949 musical “On the Town,” Mr.
Tatum leads singing-dancing sailors
on their last night of leave in a bar.
But no one choreographs tap dances
for movies today, except for the rare
Broadway transplant. The Coens
brought in Christopher Gattelli, the
somebody completely different out
of it,” Joel Coen says. “Our Eddie
Mannix is pure as the driven snow
in a certain way.”
As children, he says, Joel and his
brother “would watch these movies
on television and go out and re-
make them on Super 8.” He laughs
at the connection to “Hail, Caesar!”
“In a sense we’re still doing the
same damn thing we were doing
when we were little kids.”
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A14 | Thursday, January 28, 2016 THE WALL STREET JOURNAL.

OPINION
REVIEW & OUTLOOK
Why Vote for Trump?
Can Republicans and and is staffed by hundreds of thousands
A Libor Liberation conservatives bring
themselves to maybe
who keep coming to work when a new
administration takes office. Presidents

A
jury in London put the brakes Wednes- every banker engaged in Libor-related trades support Donald Trump are surrounded by advisers who help
day on an attempt to pin the world’s ills is a criminal. To the extent that the normal after all? them decide what realistically can be
The question has enacted. On a regular basis, the country
on “criminal bankers,” and not a mo- criminal-justice system is finally being allowed come up as people like survives a year or two or eight with a
ment too soon. That should to apportion individual re- BUSINESS
Bob Dole and Rudy president who has no idea what the hell
cause a broader rethink Not every banker is sponsibility for any crimes WORLD
Giuliani have begun to he’s doing.
among prosecutors, regula- that may have been commit- By Holman W.
tors and politicians on both
a saint, but neither ted, this is progress. Jenkins, Jr.
express themselves on Mr. Trump, in his business life, has
the preferability of Mr. been a can-do guy, though so have lots
sides of the Atlantic about are they all criminals. Evidence of discernible Trump to Ted Cruz, of others. Still, you might like having
their efforts to target bankers harm from whatever crimes though it’s far from obvious that the Mr. Trump as your president if you like
and fine banks for allegedly Libor defendants may have choice comes down to those two. At the his particular can-do agenda. He talks
manipulating a benchmark interest rate. committed has always been thin. Attempted other end are the conservative writers about deals. Deals is what you want if
Six bankers had been on trial for three class-action litigation in the U.S. by investors at National Review, who’ve tried to ex- you’re a pro-business, free-market con-
communicate Mr. Trump from them- servative who wants tax reform, who
months over charges that they fiddled with the who claimed they’d been hurt by rigged Libor
selves, or vice versa. wants Keystone XL approved, etc.
London Interbank Offered Rate, or Libor, for readings flopped, and in many instances Mr. Trump calls himself a conserva- The problem is, you don’t have the
fun and profit. Libor, which is calculated by the there’s evidence that banks misreported their tive because it is convenient to do so foggiest idea what Mr. Trump might re-
British Bankers Association daily from a poll interest rates in Libor-setting for their own when stumping for GOP primary votes. ally do as president. Where would he
of the interest rates banks charge each other, and the financial system’s stability during the He has adopted positions on abortion put his deal-making chips? To those
is used as the basis for pricing a range of deriv- 2008 panic. and guns that nobody believes. conservatives who fret at length in the
atives and loans, such as mortgages. Regulators Banks may have reported lower rates to give He’s an avatar of New York values, National Review that Trump isn’t all the
claim that banks and individual traders con- the appearance that they were in better health goes the slur, but that’s a way of saying things a conservative should be, the an-
spired to rig their reported interest rates to than they were. Regulators in London and New he fits the mold that umpty-million up- swer might be, So what? If he could de-
give themselves an advantage. York appear to have been aware at the time that scale voters say they want; a socially liver one or two things (hint: tax re-
These cases have been running since 2012 this was happening and at a minimum didn’t liberal, fiscally conservative candidate. form), that would be 10 times more than
Indeed, if Mr. Trump bothered to they get from most Republicans.
in the U.K. and U.S. On the strength chiefly of intervene. Perhaps they recognized the finan-
know what he really thinks, as a life-
florid press releases, authorities have extracted cial system faced far greater problems—the re- long New Yorker, business person and
billions of dollars in fines from banks eager to sult of monetary, housing, regulatory and other multiple divorcee, he probably slots Part of the electorate
make the issue go away. Prosecutors have se- policies they had foisted on the banks. right in with GOPers who aren’t social
cured convictions against some bankers, in- Such subtleties long ago got lost in the polit- conservatives or evangelicals. And yet
thinks it has nothing
cluding London trader Tom Hayes in August, ical and media frenzy over Libor allegations, so his success so far has been almost en- to lose. Most of it does.
and Anthony Allen and Anthony Conti of Ra- it’s a relief that ordinary citizens in a jury room tirely with the social conservatives and
bobank, who were convicted of Libor-related are still willing and able to exercise indepen- evangelicals.
charges in New York in November. dent judgment. Even better if six acquittals em- If angry white populists can make the We come to the “f” word—fascist.
Far be it from us to say that every banker barrass politicians who have spent the years unlikely Mr. Trump a vessel for their Mr. Trump has no policy anchor; his po-
is a saint. But Wednesday’s acquittals of six since 2008 blaming “criminally greedy bank- hopes, why not economic conservatives litical strategy is to rile up the ignorami.
with New York values? Coalition building! Well, yes. Just as possibly, though, be-
traders who had been accused of conspiring ers” for a crisis born of their own regulatory Immigration has been central to his hind closed doors he would be a cau-
with Mr. Hayes are a salutary reminder that not malfeasance. campaign but try to figure out what tious administrator who cares about
he’s saying. A respected social scientist keeping the economy ticking over and

Europe’s Closing Borders like Christopher Jencks can admit that

low-skill migrants may undermine the
placating major interest groups.
Again, the problem is, nobody

E
earnings of low-skill workers. The knows. Nowhere have Americans seen
urope’s system of passport-free travel Europe’s real problem is Chancellor Angela phrase downward assimilation has been even a thoughtful commentary commit-
is on the way to history’s dustbin. The Merkel’s refusal to set a ceiling on the number adopted for the fact that not all sec- ting itself to a theory of what a Trump
latest sign came Wednesday after the of refugees Germany is willing to accept, com- ond- and third-generation immigrant administration would be like. Can he
European Union issued a re- bined with Europe’s failure to kids climb the educational and income temper his ridiculous tongue? And just
Schengen’s collapse ladder; some expand the ranks of the because certain conservatives suddenly
port faulting Greece for its create safe zones in Syria,
underclass. find it useful to ride the Donald wave
handling of the refugee crisis. is inevitable amid Libya and other failed states to The Donald, though, doesn’t seem to doesn’t mean they actually believe he
Greece now has three months stop the refugee flow. Mi- take a position on immigration policy. should be president.
to rectify its migrant-process- the refugee flood. grants will continue to take His complaint is with the system itself. Obviously part of the electorate
ing shortcomings or face sus- desperate risks to get to Eu- It doesn’t work. Too many people get thinks it has nothing to lose, but most
pension from Schengen, the rope as long as they are fleeing around it. of them have something to lose. And
treaty that facilitates visa-free travel across Eu- chaos—and Germany continues to promise shel- Is it a kind of anti-dog whistle for the Donald has a long, long way to go to
ropean frontiers. ter, welfare and eventual citizenship. liberal media when he also says he demonstrate that he’s prepared to be or
The report followed Monday’s warning from Mrs. Merkel has sought to get other European hopes that hardworking illegals, after even interested in being a responsible
EU interior ministers that they could move the countries to take in migrants on a quota system, being deported, will return legally? Who chief executive.
EU’s external border up to Central Europe, ef- but Poland, the Czech Republic, Hungary and knows? Every campaign is partly about A place to start would be lodging a
signaling, letting voters know you’re on security with the public in the form of
fectively fencing Greece outside Schengen. Bor- Slovakia have vowed to veto the plan. An effort
their side without committing defini- reputable advisers and credible endors-
der controls have already been erected by Aus- last fall by Mrs. Merkel to persuade Ankara to tively to their views. And Mr. Trump’s ers prepared to risk their own standing
tria, Denmark, France, Germany, Norway and do a better job of policing its own borders in ex- campaign has only been about signaling. by backing him. We don’t see any—
Sweden, while Britain and Ireland were never change for European money and visa-free travel Since they don’t really know what which tells us his campaign is still a
in the Schengen area. Expect other borders to for Turks has yielded no results. he’s for, how can Republicans and con- lark, not a serious endeavor. One day
close as the next wave of migrants moves in Meantime, the risk that the refugee crisis will servatives know whether they are this GOP primary season will stop being
with warmer weather. become a security one continues to grow, with against him? about the freak show and become about
We don’t usually sympathize with Greece’s French Interior Minister Bernard Cazeneuve Next question: Can he do the job? beating Hillary Clinton: then our money
left-wing government, but it’s hard to see what warning Monday that Islamic State has “set up The federal government already exists is on Marco Rubio.
Brussels expected in the face of the human tide. a true industry of fake passports.” A Paris-style
Most of the million refugees who arrived in Eu- attack perpetrated by terrorists masquerading
rope last year came by way of Greece’s Aegean as refugees would be a tragedy and cause a polit-
islands. The EU has provided Greece a paltry €28 ical backlash that could favor Europe’s far-right
Security Before Politics
million ($30.4 million) in emergency funding to typified by France’s Marine Le Pen.
field five “hotspot” processing centers on the A borderless Europe is still an ideal worth
Greek isles, of which only one is in operation. fighting for—assuming Europe can police its ex-
In Eastern Ukraine
That’s in addition to the €474 million in routine ternal borders and intervene abroad to prevent By Linas Linkevičius The first step must be to ensure secu-

I
migration-management assistance the EU the tragedies of the Middle East from becoming
pledged to Greece from 2014 to 2020. By com- its own. If Europe’s centrist leaders can’t do it, magine elections with a single party,
parison, the EU donates some €100 million a they will pave the way for the rise of their own one media outlet and no credible in-
year to Myanmar. Donald Trumps. ternational monitors. Imagine that
half of the electorate has fled and been
rendered ineligible to vote. It’s an un-
rity through a true cease-fire. Today, the
fighting continues at an estimated rate of
about 60 shellings a day. There are cur-
rently more tanks in the region than
OSCE monitors, and these tanks get to
move about freely, something that is de-

Washington’s Corporate Purge democratic, unfair and illegitimate sce-

nario, but that’s what elections in Don-
nied to the members of the OSCE. It is
unrealistic to demand elections when the

H
bass will look like if Ukraine is pushed to only ones enjoying freedom of movement
ere we go again. A major U.S. company now competing as presidential candidates to deliver on political reforms before Mos- and access aren’t Ukrainian political par-
merges with a foreign firm in part to see who can demagogue more ferociously cow lives up to its obligations. ties, Ukrainian media or the Ukrainian
avoid America’s punishing corporate against American employers. Mrs. Clinton The Minsk agreements, negotiated people, but Russia-supplied tanks. Re-
tax code, and the politicians called the merger “outra- over two rounds in September 2014 and storing these freedoms, together with the
who refuse to reform the code Bernie and Hillary geous” and Mr. Sanders is February 2015, were supposed to signal presence of members from OSCE and its
denounce the company for the way out of the “Ukrainian crisis,” in Office for Democratic Institutions and
trying to stay competitive.
compete to drive more calling the executives “corpo-
rate deserters.” which Russia-backed separatists sought Human Rights, should be a clear precon-
to overrun eastern Ukraine and bring it dition for elections in Donbass.
The gullible in the media then U.S. companies overseas. Neither one wants to re-
under Russian sovereignty. The problem
dutifully play along. Sigh. form the tax code to make U.S. is that what’s happening isn’t a crisis of
Let’s try to explain one tax rates more competitive Ukraine’s making but the result of mili- There can be no free elections
more time why it makes perfect business—and with the rest of the world. Instead they want tary, economic and political aggression
moral—sense for Johnson Controls to merge to raise the costs of doing business even far- against it from Moscow. True and last-
in the region so long as
with Tyco, as it announced Monday it would do. ther. Mrs. Clinton’s solution is to raise taxes on ing stability can’t be achieved through Russia’s tanks still roam free.
Tyco has a U.S. headquarters in New Jersey but investors with higher capital-gains taxes, block simply freezing the conflict.
is legally domiciled in Cork, Ireland. Johnson inversion deals and apply an “exit tax” to busi- Under the circumstances of the time,
Controls will own roughly 56% of the combined nesses that manage to escape. however, a cease-fire was the only pos- Military equipment must be with-
company and its legal headquarters will move Mr. Sanders would go further and perform sible deal that could be achieved. That drawn from the region, and control of
to Cork from Milwaukee, Wis., where it has an immediate $620 billion cashectomy on U.S. remains the case to this day. And so Ukraine’s border with Russia must be re-
both parties to the conflict, as well as turned to Kiev. The continued supply of
been based for more than a century. companies. The Vermonter would tax the the world community, committed to equipment and support to the separat-
To simplify for Democratic presidential can- money U.S. firms have earned overseas, even implementing this 13-point plan. But ists from Russia must be stopped. Mos-
didates: The U.S. federal corporate-income tax though that income has already been taxed in there must be a logical sequence to the cow’s formula of “borders mean nothing,
rate is 35%. The Irish rate is 12.5%. Johnson foreign jurisdictions and even if the companies steps taken. Not only the letter of the people do” may initially sound very Eu-
Controls says the tax savings from its move to aren’t bringing it into the U.S. agreement, but also common sense, ropean, but in reality it undermines in-
Cork will be roughly $150 million a year. Mr. Sanders’s campaign website says that af- must be the guide. ternational law. The occupation of Cri-
A CEO obliged to act in the best interests of ter the big revenue grab in year one, his change The Minsk agreements contain re- mea is a proof of that.
shareholders cannot ignore this competitive re- would increase federal revenue by perhaps $90 quirements for both the Ukrainian side Only after security conditions are in
ality. The merger means that Johnson Controls billion a year thereafter. And he would limit fu- and the separatists and Russia. These place can we focus on constitutional re-
will have more money to invest back in the U.S. ture corporate inversions by taxing many in- encompass matters of security such as forms and decentralization. Russia’s
the truce, the withdrawal of heavy ar- President Vladimir Putin insists on
because the income it earns overseas wouldn’t verting companies as if they never left. His rev-
mor, and open access to members of “first decentralization, then de-escala-
be subject to the U.S. tax rate. Only if Johnson enue goal is a fantasy, because the practical the Organization for Security and Co- tion.” In reality that would only fuel the
kept its headquarters in the U.S. would its for- effect would be to encourage many more com- operation in Europe (OSCE). There is extreme sentiments in the country,
eign earnings be double-taxed upon repatria- panies to flee American shores. also a political dimension, which calls forces that already want to take up
tion. If Johnson Controls refuses to do such a Never mind the lost tax revenue, this kind for decentralization and the holding of arms to take back the occupied territo-
deal now, a foreign competitor might end up of punishing tax policy is immoral. Multina- local elections. ries. The Ukrainian government has
buying Johnson Controls anyway to achieve the tional corporations with global customers can But how can we push for political been balancing these forces effectively
same savings. always relocate to wherever it makes the most reforms and decentralization when so far, to prevent further conflict and
As with other such tax “inversions,” there are business sense. Their American employees Russian military equipment is still in fragmentation. The world should sup-
also nontax strategic reasons for the merger. aren’t so lucky because their livelihoods de- the streets of Donetsk and Lugansk, port them in their efforts.
The new company will have under one roof much pend on thriving and competitive U.S. compa- and when international monitors have The Minsk agreements has been our
no access to these territories? How can least-worst option for peace in Ukraine.
of the equipment and services desired by the nies. If the employees can’t move, or their
we ensure that commitments will be To make the best of it, we must make sure
owners of large commercial buildings, from air companies can’t compete, they’re the ones kept when the aggressor isn’t even ac- that its conditions are implemented in the
conditioning to fire suppression. who lose their jobs or don’t get raises. Has the knowledged as a party to the conflict? right order, and with common sense.
But none of this business logic impresses Democratic Party moved so far left that it In a word, how can we guarantee the
Hillary Clinton or Bernie Sanders, who helped doesn’t understand even this most basic of conditions to implement the Minsk Mr. Linkevičius is the foreign-affairs
to write the U.S. tax code as Senators but are business realities? agreements? minister for Lithuania.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
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THE WALL STREET JOURNAL.
Where Have All the Oil ‘Speculators’ Gone?
By Brad Schaeffer
W
ith crude-oil prices
scraping along at
about $30 a barrel—
down from about
$100 in January
2014—the impact of this free fall on
the global economy is still to be de-
termined, but there is no doubt
about the short-term winners: con-
sumers. The U.S. average for a gal-
lon of regular gasoline has fallen to
$1.85 from $3.94 in April 2012. For
the typical American who drives an
average 15,000 miles a year, that
means an annual windfall of
roughly $1,200.
Funny how the market
worked fine without
government intervention
to stop price ‘gouging.’
One interesting aspect of this
major correction is that the politi-
cians and media commentators who
a few years ago were outraged over
rising gas prices, denouncing
“gouging” and “speculators,” are
now curiously quiet. Don’t expect a
follow-up for the May 2011 Senate
Finance Committee hearing when
oil-company executives were called
in and excoriated for the sin of re-
turning a profit to shareholders.
Democratic members of the com-
mittee, including Chuck Schumer of
New York and Bob Menendez of
New Jersey, set the tone by issuing
a letter to the five CEOs who were
going to testify: “We urge you to
By Mark P. Lagon
And Arch Puddington
G
lobal democracy has endured
a battering over the past de-
cade, and those who hoped
for a brighter century may be won-
dering when to expect relief. Every
year since 2006 more democracies
have experienced erosion in political
rights and civil liberties than have
registered gains, as we find in our
annual Freedom in the World re-
port. In all, 110 countries, more than
half the world’s total, have suffered
some loss in freedom during the
past 10 years.
Authoritarian states have ratch-
eted up internal repression, and the
most powerful dictatorships—
China, Russia, Iran, Saudi Arabia—
have extended their antidemocratic
influence abroad. Especially dis-
turbing is the way indirect effects of
oppression and misrule have seeped
into established democracies in
North America, Europe and else-
where. A surge in terrorism has not
only brought death and mayhem to
millions in the Middle East. It also
has empowered nativist and ex-
treme nationalist politicians in ma-
Fired by antipathy to
Sen. Ted Cruz, which
is easy to under-
stand, the Washing-
ton Republican es-
tablishment is stam-
POLITICS peding into the arms
of Donald Trump.
& IDEAS
Prominent former
By William
members of Con-
A. Galston
gress who have pub-
licly signaled their
preference for Mr. Trump include Bob
Dole, Trent Lott and Newt Gingrich.
A greater act of self-defeating myopia
is hard to imagine.
It’s not exactly a secret that I’m a
Democrat. But I’m also an American
citizen, and as a citizen, I’m risk-
averse. I don’t want to take a chance
on the future of my country. That’s
why I want both parties to nominate
candidates who are clearly qualified
by virtue of knowledge, temperament
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take this opportunity to publicly
admit that, given your companies’
prodigious profits, you no longer
need taxpayer subsidies” (“subsi-
dies,” meaning incentives).
A few months later, Sen. Bernie
Sanders took to the Washington
Post, saying: “When working fami-
lies need an end to excessive oil
speculation and real relief at the
gas pump, the government has
failed to act.”
But the usual free-market bashers
aren’t the only ones with egg on
their faces. Fox News host Bill
O’Reilly pounces on “speculators”
whenever the price of gas strikes
him as unreasonable—as in 2008,
when he said: “Speculators gamble
on credit, driving the paper price of
oil up and down. And we get hosed.”
He promoted a bill from Rep. John
Larson (D., Conn.) that would have
required market participants classi-
fied as speculators to take full physi-
cal delivery of the oil on whose price
they were betting.
Mr. Sanders was back at it in
June 2014, proposing a bill that
would give federal regulators emer-
gency powers to stop “Wall Street
speculators.” With almost comedic
timing, oil prices began their long
decline the same month. The price
drop occurred without any new reg-
ulations because market forces were
left to work unfettered, and supply
overwhelmed demand.
Why were the alarmists so wrong
about the need for government inter-
vention to provide consumer relief?
Partly because they don’t seem to un-
derstand futures trading. Taking
their cue from the equities markets,
those in Congress and media saw
higher commodities futures prices as
Democracy Takes a Global Hit
jor democracies such as France, and
reignited demands for more surveil-
lance and less tolerant policies to-
ward immigrants.
However, some events from 2015
offer cause for optimism. First, Latin
American antidemocratic populists
retreated. Elections in Argentina and
Venezuela appeared to interrupt a
regional pattern in which bombastic,
polarizing rulers cowed independent
judges and legislatures, attacked the
media and created economic chaos
for the underprivileged citizens they
ostensibly championed.
In Argentina, Mauricio Macri’s
presidential victory over the nomi-
nee of incumbent Cristina Fernán-
dez de Kirchner, who with her hus-
band dominated the country’s
politics for 12 years, could prove a
major step forward for honest and
open government. In Venezuela, the
triumph in December parliamentary
elections of the anti-Chavista oppo-
sition may save the country from
economic collapse.
Elections also delivered much-
needed course corrections in some
parts of Africa and Asia. Voters in
Nigeria, Africa’s most populous
country and largest economy, re-
America’s Myopic Shift Toward Trump
and experience to serve as president.
Can anyone say with a straight face
that Mr. Trump is such a candidate?
A much-debated issue of the Na-
tional Review makes the fullest case
yet that he is not, and the bill of par-
ticulars is impressive. The editors
and 31 contributors demonstrate be-
yond a reasonable doubt that Mr.
Trump is no conservative and that
his recent claims to the contrary are
the political equivalent of a death-
bed conversion. He backed the
Obama administration’s economic
stimulus and the bailouts for the
banks and the automobile industry.
He supports higher taxes on the
wealthy and the aggressive use of
eminent domain. He has spoken ap-
provingly of single-payer health in-
surance, tougher gun-control legisla-
tion and Planned Parenthood.
As Russell Moore, the president of
the Ethics and Liberty Commission of
Robert Thomson
Chief Executive Officer, News Corp
William Lewis
Chief Executive Officer and Publisher
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Christopher Lloyd, Head;
Ingrid Verschuren, Deputy Head
OPINION
tantamount to profits for traders. But
unlike stocks, which are investments,
futures are mere contracts to buy or
sell at a set price in the future re-
gardless of the going rate at the time
they come due.
This hedging activity takes place
every day across many commodi-
ties, with participants ranging from
banks, grain elevators, airlines, auto
manufacturers and utilities to pipe-
line companies and miners, etc. In
commodities there is no bull side or
bear side, just the right side. Specu-
lators who land on the wrong side
get burned, but you don’t hear
about that.
Speculative activity can exagger-
ate price fluctuations. But these in-
vestors don’t create the big moves.
Market conditions do that. In oil’s
case, fear of a weakening dollar from
placed incumbent president Good-
luck Jonathan with Muhammadu Bu-
hari, who has since begun to fulfill
campaign pledges to defeat the Isla-
mist militants of Boko Haram and ad-
dress Nigeria’s corruption problem.
The world-wide slide
of political rights and civil
liberties continued in 2015,
with a few promising signs.
In Myanmar, a huge turnout pro-
duced a landslide victory for longtime
opposition leader Aung San Suu Kyi
and her National League for
Democracy, a remarkable turnaround
in a country that until recently ranked
among the world’s most repressive. In
Sri Lanka, authoritarian president
Mahinda Rajapaksa was ousted at the
ballot box, then rejected again
months later as a candidate in
parliamentary elections.
In each of these cases, voters
overcame tilted electoral playing
fields, histories of political violence
against the opposition, or fears
the Southern Baptist Convention
points out, Mr. Trump has backed
partial-birth abortion; he has aban-
doned one wife after another for a
younger women while denying that he
has any need to seek forgiveness; and
his comments about Muslims show
that his commitment to religious lib-
erty is at best skin-deep.
If I were a conservative, this litany
would be enough to make me run
screaming in the opposite direction.
But as the late-night ads proclaim:
Wait, there’s more!
A president’s first duty is to serve
as commander in chief. During the
Republican presidential debates,
Mark Helprin observes, Mr. Trump
revealed that he was clueless about
the cornerstone of America’s deter-
rence policy, the nuclear triad. In an
interview with Hugh Hewitt months
into the primary campaign, he
showed his unfamiliarity with the
heads of Hezbollah, al Qaeda and Is-
lamic State, and he didn’t know the
difference between the Kurds and
Iran’s Quds Force. As former U.S. At-
torney General Michael Mukasey
points out, Mr. Trump’s anti-Muslim
statements would ensure the enmity
Notable & Quotable
From Donald Trump’s Jan. 26 Fox
Business appearance on “Mornings
with Maria,” discussing with host
Maria Bartiromo the 2006 poisoning
murder of Russian dissident Alexander
Litvinenko, which a British inquiry on
Jan. 21 said was “probably” ordered
by Russian President Vladimir Putin:
Has Putin said it? Have they
found him guilty? I don’t think
they’ve found him guilty. They say a
lot of things about me that are un-
true too . . . If he did it, fine. But I
Thursday, January 28, 2016 | A15
GETTY IMAGES
factors such as federal stimulus
spending and the perceived rising en-
ergy demands from emerging econo-
mies in Asia fueled the bull market.
With or without speculators, oil
prices were heading higher.
As for the claims that oil markets
are “rigged” or otherwise in need of
regulation because oil traders don’t
have to take physical delivery of
barrels, that’s misinformation at best.
Even cursory research shows that a
mere 2% of all commodities futures
go to delivery. That’s because the fu-
tures market isn’t a procurement ve-
hicle but more a surrogate price until
actual delivery is made. Unlike a
stock, the entire investment isn’t at
risk but rather the difference be-
tween the price now and at futures
expiration. Futures margins and posi-
tion limits are diligently adjusted by
about what lies ahead when dictator-
ships give way to normal politics.
Some voters were also rebuffing po-
litical figures who had publicly dis-
dained the world’s leading democra-
cies and drawn closer to
authoritarian powers like Russia,
China and Iran.
Also, China’s political and eco-
nomic model began to break down.
The country’s slowing growth was
punctuated by a stock-market plunge
and abrupt devaluations of the cur-
rency, threatening the unelected re-
gime’s legitimacy. The government of
President Xi Jinping responded with
aggressive interventions in the stock
market, enhanced censorship and
propaganda efforts, and an intensified
crackdown on civil society.
Targets included financial journal-
ists, public-health advocates, labor-
rights activists and defenders of
women’s rights. This panicky reac-
tion betrays the anxiety behind the
leadership’s self-assured exterior,
and further tarnishes Beijing’s repu-
tation for blending political control
and economic prosperity.
Finally, the slowdown in China
combined with other factors to push
down the global prices of oil and
of the Muslims whose support we
need to prevail, and his declared in-
tention of ordering the military to kill
the families of terrorists would sub-
ject those who followed his orders to
prosecution for war crimes. His ad-
miration for Vladimir Putin is reveal-
ing and disqualifying.
Loathing for Ted Cruz
fuels a cynical GOP
embrace of an utterly
unsuitable candidate.
Mr. Trump’s character also comes
in for a beating at the hands of the
National Review contributors. He is,
they say, an opportunist, a huckster
and a demagogue; heedless and
crude; brawling, blustery and mean-
spirited; emotionally insecure, and
needless to say, narcissistic. The re-
doubtable Mona Charen challenges
his attitude toward women in terms
that make Megyn Kelly’s questions as
a debate moderator seem mild by
comparison.
don’t know that he did it. You know,
people are saying they think it was
him, it might have been him, it could
have been him. But Maria, in all fair-
ness to Putin—I don’t know. You
know, and I’m not saying this be-
cause he says, “Trump is brilliant
and leading everybody”—the fact is
that, you know, he hasn’t been con-
victed of anything. You know, some
people say he absolutely didn’t do it.
First of all, he says he didn’t do it.
But many people say it wasn’t him.
So who knows who did it.
exchanges more expert than critics
sniping from the sidelines. To ban or
otherwise interfere with these time-
tested hedging tools would drasti-
cally limit liquidity and price discov-
ery, increasing the cost of doing
business. That hurts all participants,
including consumers.
Today’s low oil prices are the
result of the dollar strengthening as
the end of cheap Fed money was
nigh, China’s economy slowing and
Saudi Arabia’s decision to keep
vigorously pumping oil instead of
cutting back. For the moment, sup-
ply is swamping demand. So much
for all the clamor to get oil prices
down by piling another stack of
regulations on the marketplace—as
if that would somehow change the
dynamics of global trade.
The best cure for high prices is
high prices. As Mark P. Mills pointed
out on these pages recently, the
price of oil will eventually rebound.
Commodities prices are cyclical
(only regulations last forever). Re-
flexive demands from both the left
and the right for government activ-
ism to address temporary price
shocks simply reflect the statist urge
so prevalent among public servants
and those who offer themselves up
as consumer advocates.
If private-sector speculators
were to blame for bidding crude-oil
prices up, then those same angels
are responsible for the massive sell-
off and should be lauded for provid-
ing relief at the pump. The applause
is hard to detect.
Mr. Schaeffer, former principal of
Occam Commodity Brokers LLC, is
an energy broker at Black Barrel En-
ergy LP.
other commodities, which slashed
the export revenues and undermined
the political stability of repressive
petro-states from Angola to Azerbai-
jan. A number of these regimes
cracked down hard on critics and the
opposition during 2015, but how long
can brittle regimes that fear their
own people survive?
The phenomena listed here re-
flect two drivers of change: citizen
activism and global economic pres-
sures on dictatorships. Notably ab-
sent was solidarity or action from
the U.S. or Europe. Whether the
subject is refugees, the Syrian con-
flict or international leadership
broadly, the prevailing responses on
both sides of the Atlantic were an
evasion of responsibility and an ugly
streak of xenophobia.
Current trends suggest that au-
thoritarianism is not the future. The
question is whether the world’s
democracies are prepared to encour-
age and build on the opportunities
for freedom that are now emerging.
Mr. Lagon is the president of
Freedom House, where Mr. Pudding-
ton is the senior vice president for
research.
As for Mr. Trump’s overall political
orientation, the writers charge, he is
not interested in limited government
or in constitutional restraints. He is
obsessed with winning, regardless of
the means. He believes in one-man
rule. For every problem, he insists,
there is a single, simple solution: He’s
so smart that he can fix it—details to
come, and conservatism be damned.
In a hopelessly old-fashioned ges-
ture, the National Review editors
have the temerity to remind us that
Mr. Trump has never held public of-
fice. This is, they state, “not a recom-
mendation.” The burdens and intrica-
cies of political leadership are
special, and experience in other fields
is “not transferable.”
The response of the Washington
political establishment is a cynical
shrug: Because Mr. Trump is a man
without principles, we can do busi-
ness with him. And besides, he’s so
clueless that he’ll need us.
Most Washington Republicans
loathe Ted Cruz and believe that his
candidacy would be a disaster for
their party. They are probably right.
But the first votes in this already
endless primary campaign have yet
to be cast. A number of Republican
presidential hopefuls have reasonable
qualifications for the office. In the
aggregate, they may well command a
plurality of the party. Yet the estab-
lishment is running up the white flag
without even trying to unify around
someone who could provide a credi-
ble alternative to both Mr. Trump
and Mr. Cruz.
These are the people Mr. Trump
has castigated as “stupid.” He may
have a point. They are certainly
shortsighted. And unless they can
look the American people in the eye
and make an honest case that it is
safe to entrust the Oval Office to
this man, they are acting dishonor-
ably as well.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A16 | Thursday, January 28, 2016 THE WALL STREET JOURNAL.

TRAVEL

How Booking Sites Influence Which Hotels You Pick

Expedia and others punish
hotels with poor consumer
ratings and reward others
BY SCOTT MCCARTNEY

FROM LEFT: ALLISON SCOTT/THE WALL STREET JOURNAL; GETTY IMAGES

Online travel agencies are exert-
ing a greater influence over which
hotels pop up first on your search
screen. Hotels don’t like the prac-
tice, which can be so subtle that
consumers rarely notice.
Expedia now uses customer rat-
ings and complaints to punish ho-
tels with problems or disputes
with Expedia customers. It places
them on lower
THE MIDDLE pages in search re-
SEAT sults—no man’s
land for bookings.
If a hotel over-
books and “walks” a customer to a
substitute hotel, Expedia and its
other brands, Travelocity, Orbitz
and Hotels.com can now hold that One Hotel, Two Prices Repeat Recommendations
against the hotel. In simultaneous searches, the New York Marriott Marquis was at $410 a night in If you’ve used an online travel agent to stay at the Waldorf Astoria in New York
Other factors impact sort order, seventh place on Priceline. It was $618 on Expedia and listed No. 162. before, that site will likely put it high in your next search for a New York hotel.
too. If hotels are willing to pay
larger commissions, they may Travel sites have built up data- Bias in search results has been ways pick their own parameters, looking for a Tuesday night room
show up higher in search results. bases on customer reviews and a flashpoint in the travel industry such as price, star-rating, customer for one person, hotels geared to-
Even photo quality matters. And if booking preferences. As a result, for decades. In the 1980s, the rating or distance from landmarks, ward business trips will be fea-
a hotel is quicker to turn shoppers they have gotten more sophisti- Transportation Department or- and search again. Paid placements tured. If you book the Waldorf As-
into buyers, called “conversion” in cated about how they tailor search dered central reservation systems are labeled as sponsored. toria in New York one time, you’re
industry parlance, it gets higher results, Mr. Huston says. to list flights based on departure Though Expedia tests lots of likely to see that at the top of your
display. Another factor: more people time and price instead of listing all different parameters, Mr. Khosrow- next New York search.
“To the extent we see the expe- book on mobile devices with small flights of one favored carrier over shahi says it uses three main sig- The price of a hotel room has a
rience being poor or a significant screens, which make sort order competitors. nals in personalizing search re- lot to do with search results. If the
amount of walks, we will penalize even more critical. The DOT plans to publish new sults. They are consumer behavior, price is a good value for a particu-
the hotel in short order,” says Ex- Hotels hate the changes going rules covering ticket agents this such as what consumers are click- lar hotel, it will have a higher con-
pedia Chief Executive Dara Khos- on with booking sites and have summer to enhance protections for ing on and what they are buying, version rate and thus get a higher
rowshahi. been waging campaigns to get con- air travelers. Hotel bookings don’t intent signals, such as searching display.
Online sellers, which handle as sumers to book directly with them fall under DOT jurisdiction. for rooms that accommodate chil- Last week in simultaneous
much as 40% of all hotel bookings, instead. Several major chains, in- Screen order matters because dren, and customer ratings from searches, Priceline offered the New
say they order results to give con- cluding Hilton, InterContinental most shoppers make a selection surveys sent after checkout. York Marriott Marquis at $410 per
sumers the hotels they are most Hotels Group and Marriott, de- from the first or second screen of Expedia has a system where ho- night, listed seventh on its first
likely to book. They make money clined to comment. But the Ameri- search results. A New York Univer- tel owners and managers can log in page of results, for a Feb. 13-17
from booking commissions paid by can Hotel & Lodging Association sity study of one million Traveloc- and look at results for their hotels stay for two adults. Expedia had
hotels. Priceline Group, which in- responded to questions with a ity online sessions over a three- and see why they’re pushed higher the same hotel on its fourth page
cludes six booking sites, says the statement warning consumers to month period, for example, found or lower in rankings and what they at No. 162: The rate was $618 per
biggest factor in its search results be skeptical of sites that don’t dis- that more expensive hotels tend to can do to get listed higher. One ex- night (both were nonrefundable
ordering is a hotel’s conversion close the criteria for rankings or be more adversely affected by an ample, Mr. Khosrowshahi says, is rates). Priceline’s price was actu-
rate. aren’t objective. inferior screen position. pushing hotels to improve the pixel ally less than the $472 prepay non-
Priceline Group CEO Darren “Biased or misleading search Priceline says it changes the la- counts and quality of pictures of refundable price Marriott offered
Huston says hotels that have results from these sites or via Web beling of the default search on its their properties. Expedia’s research for the same dates on its own web-
strong reviews and good content searches can be highly problem- sites. Booking.com currently uses shows that better resolution in pic- site.
loaded on Priceline booking sites, atic, particularly on those booking “preferred,” for example, and tures leads to more conversion. The booking sites think getting
such as pictures that include shots websites that purport to be helping Priceline.com uses “most popular,” If online travel agencies think more tactical and picky about what
of bathrooms and televisions, both consumers comparison shop based Mr. Huston says. When shoppers customers are searching for a fam- to show first in search results will
of which are checked frequently by off of less than objective informa- pick their own search criteria, the ily trip by indicating more than make it easier for consumer. “Buy-
shoppers, end up with higher con- tion,” says Maryam Cope, AH&LA’s most popular is to search by re- one or two people in a room, ing travel, planning travel, is still
version rates, and thus higher vice president of government af- view score. they’ll show family-friendly, subur- way too hard,” says Aman Bhutani,
ranking in searches. fairs. Expedia says consumers can al- ban hotels higher. If a shopper is president of Brand Expedia Group.

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Frankfurt 9 2 sh 9 4 c Orlando 21 9 t 18 6 s Zurich 10 4 sh 10 1 pc AMN E S T Y P E R A P T

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BUSINESS & TECH.
Ericsson’s Profit Jumps
Company benefits from higher licensing revenue EARNINGS | B2
REUTERS
© 2016 Dow Jones & Company. All Rights Reserved.
EUPlans
NewTax
Rulesfor
Companies
BY VIKTORIA DENDRINOU
BRUSSELS—The European
Union will propose on Thurs-
day a new set of rules and
common standards aimed at
amending corporate tax legis-
lation across the bloc’s 28
countries in an effort to
thwart avoidance schemes and
ensure wealthy multinationals
pay their fair share.
The commission’s push
marks a new attempt by the EU
to stop large-scale corporate
tax avoidance in Europe, where
governments are struggling to
close budget gaps in the wake
of the financial crisis. The bloc
also is reeling from disclosures
that multinational companies
struck alleged sweetheart deals
in countries such as Luxem-
bourg that allowed them to pay
very little tax in the EU.
In response to a public out-
cry, the EU has launched a se-
ries of investigations into spe-
cial tax deals with
multinationals, based on its
powers to bar governments
from providing aid that favors
some companies over others.
The proposals due Thurs-
day from the European Com-
mission, the EU’s executive
arm, aim to close loopholes
that allow large companies to
shift profit and avoid footing
large tax bills.
The commission
wants to thwart
large-scale corporate
tax avoidance.
The rules also would re-
quire multinationals to report
their financial results in all the
countries in which they oper-
ate, building on proposals
from the Organization for Eco-
nomic Cooperation and Devel-
opment, a group of rich-coun-
try governments.
“We are taking another ma-
jor step to creating a level
playing field for all business,”
said Pierre Moscovici, the EU’s
tax chief. “Our anti-tax-avoid-
ance package will help EU
countries to protect their tax
bases, to create a stable envi-
ronment for business and to
preserve EU competitiveness.”
The European Parliamen-
tary Research Service esti-
mates that corporate tax
avoidance results in a loss of
tax revenue to the EU of about
€50 billion ($54.5 billion) to
€70 billion each year.
The move is likely to raise
concerns among U.S. compa-
nies. A statement from Ameri-
can Innovation Matters—a
group that includes U.S. com-
panies—described the EU pro-
posal as “the latest example of
the aggressive moves being
made abroad in an effort to
tax even more American earn-
ings, and use them to pad the
coffers of foreign govern-
ments.”
Novartis Seeks to Revive Alcon Unit
ARND WIEGMANN/REUTERS
CEO Joe Jimenez Wednesday
at a news conference.
* *
BG Makes Shell aMajor Gas Player
BY SARAH KENT
AND JUSTIN SCHECK
A decade ago, natural gas
played second fiddle to oil at
Royal Dutch Shell PLC. Now,
the company is staking its fu-
ture on gas—and pitting it
against oil—with the acquisi-
tion of BG Group PLC, which
Shell shareholders approved
Wednesday.
If BG investors support the
deal on Thursday as analysts
and investors expect, the com-
bination would nearly double
Shell’s production of liquefied
natural gas within two years,
and turn it into the world’s
largest marketer of the fuel by
the end of the decade.
Shell’s move isn’t just a $50
billion bet on gas but also a
Fiat Chrysler Affirms 2018 Growth Targets
Auto maker to boost
truck output as fourth
quarter profit falls
40% and sales flatten
BY ERIC SYLVERS
AND JEFF BENNETT
Fiat Chrysler Automobiles
NV pledged to expand produc-
tion of strong-selling trucks
and sport-utility vehicles and
lifted its outlook for 2018 reve-
nue even as fourth-quarter
profit fell.
Chief Executive Sergio Mar-
chionne, who failed in his bid
last year to find a merger part-
ner for the seventh-largest
global car maker, said he ex-
pects to meet financial targets
laid out in 2014. Earlier this
month, investor doubts about
its growth prospects pushed
the shares to a 52-week low.
“I feel comfortable that we
created a much more defensi-
ble company with a stronger
capital structure,” Mr. Mar-
chionne said on a conference
call to discuss fourth-quarter
earnings that fell 40% on
charges. “We’ve taken some
relatively decisive steps in en-
suring that we have the right
manufacturing framework to
deal with expected permanent
changes in demand.”
Fiat Chrysler boosted its
sales target for 2018 by 3% to
€136 billion ($147.84 billion).
The improved outlook comes
despite the recent spinoff of
its Ferrari NV sports-car busi-
ness to investors, erasing the
profitable supercar maker’s
contribution to future results.
The auto maker affirmed a
forecast for adjusted operating
profit, which excludes one-
time items, of between €8.7
billion and €9.8 billion in 2018.
Adjusted net profit is still seen
at between €4.7 billion and
€5.5 billion compared with €1.1
billion last year.
A number of factors appear
to underpin the company’s
confidence, including a long-
term expectation for lower gas
prices in North America over
the next three years. Cheap
fuel boosts demand for its
higher-margin Jeep and Ram
BY JOHN LETZING
AND DENISE ROLAND
Novartis AG outlined plans
to revive its ailing eye-care
business as the unit contrib-
uted to the Swiss drug giant’s
57% decline in fourth-quarter
net profit. Earnings were also
hit by the strength of the U.S.
dollar and a charge related to
losses at the company’s Vene-
zuela business.
At the same time, the com-
pany said that U.S. payers had
been slower than some of their
European counterparts to
adopt the company’s new
heart-failure drug Entresto,
which notched $5 million in
sales in the quarter, below an-
THE WALL STREET JOURNAL.
wager against crude oil as the
energy industry’s future,
Maarten Wetselaar, the chief
of Shell’s newly created gas di-
vision, said in an interview.
“We’ve been looking for-
ward to being able to say we
destroy our business with a
new business,” Mr. Wetselaar
said. It amounts to “cannibal-
ism.”
At its heart, Shell will be-
come primarily a business that
extracts, liquefies and trans-
ports natural gas used mainly
for heat and electricity, rather
than for the transportation in-
dustry Shell pumps oil for.
That new focus will come at
the expense of other big ticket
items Shell has poured money
into in the past. The company
has already written off billions
Fiat Chrysler expects to hit financial targets through better conditions in Europe and expanded truck and sport-utility vehicle output.
Reaching for the Stars
Fiat Chrysler has set ambitious 2018 financial targets many analysts say
will be tough to meet given the limited progress made in recent years.
Sales volume Revenue
8 million units €140 billion
120
6 2018 targets 100
Estimate not available 80
4 3
60
40
2 2
20
0 0
2013 ’14 ’15 ’16 2013 ’14 ’15 ’16
*Strips out one-time items €1 = $1.09
Source: Fiat Chrysler Automobiles
pickup brands, which are ca-
pacity-constrained in the U.S.
Stronger-than-expected de-
mand in Europe, aided by a
weaker euro that is expected
to benefit posted results, and
offset weakness in emerging
markets, including South
America.
Mr. Marchionne’s original
five-year plan put its Alfa Ro-
meo at the center of his
growth strategy, which fore-
cast a 50% jump in world-wide
alysts’ expectations.
Novartis said it would nar-
row Alcon’s focus to surgical
equipment and vision-care
products, such as contact
lenses, by hiving off ophthal-
mic drugs into the company’s
giant pharmaceuticals division.
The Swiss company ap-
pointed former Hospira boss
Mike Ball to lead the slimmed-
down Alcon division, succeed-
ing Jeff George, who is leaving
the company effective Feb. 1.
Of Mr. George’s departure,
Chief Executive Joe Jimenez
said: “He’s had a tough year at
Alcon and with all the changes
Jeff felt now was a good time
to step down.” Mr. Ball left
Hospira last year, after it was
abandoning major projects in
the Alaskan Arctic and Can-
ada’s oil sands over the past
year ahead of the BG deal
completing. Longer term, gas
could compete directly with
oil as Shell is looking for ways
to use gas to power ships and
trucks.
The change comes during a
tumultuous period for crude
oil, with prices falling by two
thirds over the past year and a
half in a rout that has shaken
the energy industry. Shell and
the other largest oil compa-
nies—Exxon Mobil Corp., BP
PLC and Chevron Corp.—have
all experienced sharp blows to
profitability.
Those companies and oth-
ers have also turned to natural
Please see SHELL page B2
Operating profit*
€10 billion
8 5
Midpoint of
target range
6 target range
4
2 1
0 0
2013 ’14 ’15 ’16
revenue from 2013’s figure and
a more than doubling of oper-
ating profit on a €5 billion in-
vestment in eight new models
by the end of 2018. That target
is now pushed back to 2020,
with a focus on Europe and
North America taking prece-
dence over expansion in China.
Mr. Marchionne said on
Wednesday the company will
invest to meet global emis-
sions standards despite skep-
tics who say the car maker
acquired by Pfizer Inc.
On Wednesday, shares of
Novartis ended down 3.7% at
80.55 Swiss francs ($79.22).
Alcon has struggled re-
cently amid increased compe-
tition in the lens-implant mar-
ket and the entry of cheaper
copycats of some ophthalmic
drugs. Stripping out the effect
of the strong dollar, fourth-
quarter sales at the unit fell
6% to $2.3 billion, while oper-
ating income declined 36% to
$132 million.
Mr. Jimenez said Novartis
would invest about $200 mil-
lion in a plan that should
boost Alcon’s performance,
and that he expects the unit
Please see DRUGS page B2
INSIDE:
MONEY &
INVESTING
U.S. States Sing
Pension Blues
FINANCE | B5
Thursday, January 28, 2016 | B1
Gassing Up
Royal Dutch Shell's production has focused more on natural gas in
recent years.
Overall production
4 million barrels per day, average
Gas percentage
60% of overall production
50
3
40
2 30
Oil and NGLs*
20
1
10
Gas
0 0
2000 ’02 ’04 ’06 ’08 ’10 ’12 ’14 ’00 ’02 ’04 ’06 ’08 ’10 ’12 ’14
*Natural gas liquids like propane
Source: the company THE WALL STREET JOURNAL.
ROPI/ZUMA PRESS
Dodge Dart compact car will
either be dropped, or built
through a partnership with an-
other auto maker, the company
Operating said.
Net profit* profit margin* The company booked
€6 billion 8% fourth-quarter pretax charges
of €1.1 billion, including €834
6 million in write-downs and
4 Midpoint of Midpoint of
target range costs related to the North
4 American production realign-
2 ment. Fiat Chrysler reported a
40% drop in net profit in the
three months to Dec. 31 to
0
€251 million ($272.8 million),
2013 ’14 ’15 ’16 2013 ’14 ’15 ’16 with the decline attributed to
one-time items.
THE WALL STREET JOURNAL. Volume was almost un-
changed in the quarter and full
won’t be able to meet targets year compared with prior peri-
being put in place in several ods at 1.21 million and 4.6 mil-
markets. The Ram pickup and lion vehicles, respectively.
Jeep Wrangler SUV, two of the Revenue climbed 11% to
company’s most popular mod- €29.41 billion in the fourth
els, will have upgraded hybrid- quarter, the last results that
electric technology to lift fuel will include Ferrari.
economy, the company said. Fiat Chrysler said it fore-
Over the next 18 months, sees 2016 sales at €110 billion.
the auto maker will stop pro- Last year, excluding Ferrari,
duction of two passengers cars sales were €111 billion.
in the U.S., allowing it to build
more Jeep SUVs and Ram  EU proposes tougher rules
trucks. Its Chrysler 200 and for approving new cars........ B2
Facebook Net Topped
$1 Billion in Quarter
BY DEEPA SEETHARAMAN which hired thousands and
poured money into projects in-
Facebook Inc. Wednesday cluding its virtual-reality arm
posted more than $1 billion in Oculus VR, artificial intelli-
quarterly net income for the gence and extending Internet
first time, reflecting the social access to remote areas.
network’s ability to quickly For the fourth quarter,
capitalize on its popularity. Facebook reported net income
Fourth-quarter revenue rose of $1.56 billion, or 54 cents a
52% to $5.84 billion, up from share, up from $701 million, or
$3.85 billion in the same pe- 25 cents a share, a year ago.
riod a year earlier, as the so- Excluding some expenses,
cial network drew more inter- Facebook reported earnings of
est from advertisers. Costs, 79 cents a share, higher than
meanwhile, rose 21%. the 68 cents a share projected
Its shares jumped 7.2% to by Wall Street analysts.
$101.25 in after-hours trading. About 1.59 billion people ac-
Last year marked a big in- cessed Facebook at least once
vestment period for Facebook, a month in the fourth quarter.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
B2 | Thursday, January 28, 2016
INDEX TO BUSINESSES
These indexes cite notable references to most parent companies and businesspeople
in today’s edition. Articles on regional page inserts aren’t cited in these indexes.
A
Airbus Group...............A2
AllianceBernstein.....A10
Alphabet......................B3
Anheuser-Busch..........B1
Apple...........................B3
B Pharmaceuticals.......B8
Banco Santander ........ B8
Bank of America.........B8
BlackRock .............. A1,B5
Boeing.........................A1
C visions that would allow it to
Capital Group............A10
Caterpillar ................... B5
Charles Schwab..........A1
China Galaxy
Securities..................B8
D M
Deutsche Bank............B8
DST Systems............A10
INDEX TO PEOPLE
B G
Bailey, Jason...............B7
Ball, Mike....................B1
Bevin, Matt.................B7
C H
Chandoha, Marie ...... A10
Chawla, Mukul............A2
Chouard, Tanguy.........B3
Colvin, Simon..............B5
Cook, Tim....................B3
Coulom, Rémi..............B3
D Johnson, Ben............A10
Deschenes, Steve.....A10
Duggan, Robert...........B5
F L
Fan Hui........................B3
Farr, Terry ................... A1
Ferri, Rick..................A10
DRUGS
Continued from the prior page
would begin to “return to
growth by the end of this
year.”
The Novartis chief said that
“for now” the company
planned to keep all of the busi-
ness. He had previously said
he was open to selling off un-
derperforming parts of Alcon.
Mr. Jimenez said separating
the eye drugs from the surgi-
cal equipment and contact
lenses would mean the re-
mainder of Alcon could focus
on a “surgical innovation
model” that is centered on
making incremental improve-
ments based on feedback from
surgeons, in contrast to the
much longer time scale in-
volved in pharmaceutical inno-
vation. He said Novartis would
license in new technologies to
bolster the innovation pipeline
for surgical devices.
The Alcon overhaul comes
at a tough juncture for Novar-
tis, which is bracing for its
best-selling cancer drug
Gleevec losing U.S. exclusivity
in February. The company said
it expected revenue and profit
for 2016 to be “broadly in line”
with last year’s results.
The company is leaning
heavily on two new launches—
Entresto for heart failure and
Cosentyx for psoriasis and cer-
tain rheumatic ailments—to
help offset the expected sharp
drop-off in Gleevec sales this
year.
ADVERTISEMENT
The Mart
BUSINESS OPPORTUNITY
BUSINESS OPPORTUNITY
E
Enlitic..........................B3
F
First Trust Advisors.A10
G
N
Novartis.................B1,B8
P
Portfolio Solutions...A10
R
GlaxoSmithKline
R.P. Martin..................A1
Goldman Sachs S
Group.................A10,B8 SABMiller....................B1
H Samsung Electronics..B3
Sanofi..........................B8
Haitong Securities......B8
Huawei Technologies..B3 Severian Asset
I Management .......... A10
State Street..............A10
ICAP ............................ A1
Intesa Sanpaolo..........B7 U in approval tests as much as
J Uber Technologies ...... B3
J.P. Morgan............B5,B8 V Volkswagen AG’s admission
J Sainsbury.................B5
Vanguard Group..........A1
Morgan Stanley..........B8 X
Morningstar................A1 Xiaomi.........................B3
McNabb, F. William..A10
George, Jeff................B1 Muilenburg, Dennis....A2
Gilmour, James...........A1 P how little power the commis-
Goodman, Colin .......... A1 Peden, David...............B7
Peng, Nicole................B3
Hassabis, Demis.........B3 R start product recalls and order
Hougan, Matt ........... A10 Read, Darrell...............A1
I Riley, Timothy .......... A10
Issakainen, Ryan ...... A10 S
J Silver, David................B3
Smith, Greg ................ A2
Jimenez, Joe...............B1
Stealey, Iain................B7
K T
Tanden, Neera.............A6
Kasparov, Garry..........B3
Thompson, Chris.......A10
W BY JENS HANSEGARD
Lee, Samuel..............A10
Walters, Brolin...........A1
M Wiedman, Mark........A10
McAfee, Andrew.........B3 Wilkinson, Danny.......A1
Entresto, which analysts ex-
pect to generate $5 billion in
annual sales at its peak, has
gotten off to a slow start as
two-thirds of U.S. heart-failure
patients are covered by Medi-
care, which can delay reim-
bursement decisions for six
months post-launch. The U.S.
Food and Drug Administration
approved the drug in July.
David Epstein, head of No-
vartis’s pharmaceuticals unit,
said the heart-failure drug had
enjoyed much stronger uptake
in Switzerland by market
share, where it launched in
November, than it had in the
U.S.
Cosentyx, by contrast, has
progressed “strongly,” said
Novartis, bringing in $121 mil-
lion in fourth-quarter revenue.
Overall, Novartis reported
net income of $1.05 billion for
the quarter, compared with
$2.45 billion a year earlier.
Revenue dipped 4% to $12.52
billion. The company said core
net income, which strips out
one-time events such as im-
pairments or gains, fell 5% to
$2.7 billion.
Novartis’s latest profit also
took a hit from a $346 million
write-down on its Venezuela
business, related in large part
to the currency impact of high
inflation in the country.
Novartis’s pharmaceuticals
unit provided a bright spot.
Excluding the impact of the
strong dollar, the unit posted a
9% increase in both revenue
and operating income to $7.9
billion and $1.5 billion respec-
tively.
TRAVEL
  
EU May Tighten Auto Rules
BY GABRIELE STEINHAUSER
BRUSSELS—The European
Commission has proposed an
overhaul of the way new cars
are authorized for sale in the
European Union, including pro-
fine auto makers found cheating
€30,000 ($32,700) per vehicle.
last year that it installed soft-
ware on diesel-powered cars to
cheat on emissions tests re-
vealed flaws in the EU’s so-
called type-approval system and
raised questions over why au-
thorities in the 28-member bloc
failed to spot VW’s actions.
VW’s cheating, exposed in
the U.S., also drew attention to
sion, the EU’s executive arm,
has to go after auto makers,
compensation for customers.
“The Volkswagen revela-
Ericsson Gains Lift From Licensing
ST O C K H O L M — Sw e d i s h
telecommunications-equip-
ment supplier Ericsson AB
posted a jump in fourth-quar-
ter net profit thanks to higher
licensing revenue, saying its
alliance with Cisco Systems
Inc. is likely to start yielding
positive results this year.
Net profit rose 67% to 7.06
billion Swedish kronor ($827
million) for the three months
ended Dec. 31, helped by a new
global licensing deal with Ap-
ple Inc., Ericsson said
Wednesday. The company re-
ported net profit of 4.22 bil-
lion kronor a year earlier.
Revenue rose 8.2% to 73.6
billion kronor. Yet revenue fell
1% if disposals, acquisitions
and currency fluctuations are
stripped out.
Ericsson Chief Executive
Hans Vestberg said more work
is needed on the Cisco part-
nership to align product
ranges and marketing strate-
gies. Mr. Vestberg had struck
an enthusiastic note upon an-
nouncing the alliance in No-
vember, suggesting the two
companies could start cooper-
ating immediately.
“We’ve had no hiccups so
far, but of course there is a lot
of integration work to be done
AB InBev Aims to Keep CR Snow Brand
BY TRIPP MICKLE
Anheuser-Busch InBev NV
will try to defy conventional
wisdom and hold on to SAB-
Miller PLC’s China beer busi-
ness China Resources Snow
Breweries Ltd., according to
two people familiar with the
company’s plan.
The idea flies against ana-
lysts’ expectations that AB In-
Bev would be forced to divest
CR Snow, the world’s No. 1 sell-
ing beer by volume, to secure
regulatory approval in China
for its roughly $108 billion
takeover of SABMiller.
Snow, a mild domestic lager,
is mostly sold in China, so few
people know of it outside the
country. Yet it could be the
most strategic asset SABMiller
holds. Snow has grown rapidly
as Chinese consumers have in-
creased their beer consumption
to an average of 45 liters from
SHELL
Continued from the prior page
gas in recent years. BP expects
gas to make up 60% of its pro-
duction by 2020 and forecasts
demand for natural gas to
grow by almost 2% a year
through to 2035—the fastest-
growing of all the fossil fuels
BUSINESS NEWS
tions have highlighted that the
system which allows cars to be
placed on the market needs
further improvement,” said
Jyrki Katainen, the EU’s vice
president responsible for jobs
and growth. “To regain cus-
tomers’ trust in this important
industry, we need to tighten
the rules but also ensure they
are effectively observed,” Mr.
Katainen said on Wednesday.
At the moment, the power
to approve new cars or car
models for sale in the EU lies
with national authorities. They
often outsource tests for emis-
sions and other safety stan-
dards to private laboratories
paid by the auto makers.
Once a national authority,
for instance in Germany, has
approved a car model, it can
be sold in all EU countries. The
commission and other member
states have no power to ban
cars that have been authorized
in another state.
Tech Tag Team
Ericsson and Cisco's strategic pact could help them compete with
Nokia and Huawei Technologies.
Service employees*
Ericsson
65,000
Cisco
Patents
Ericsson
Cisco
Research and development spending
Ericsson
Cisco
*Can include customer support for equipment, ranging from field services to software integration.
Also includes consultancy work and outsorced services, such as operating customers' networks.
Sources: the companies
as we assemble our joint port-
folios and offerings to custom-
ers,” Mr. Vestberg said in an
interview Wednesday.
Ericsson, a leader in wire-
less equipment, has agreed
under the pact to put its
global sales force at the dis-
7 liters over the past 25 years,
according to Deutsche Bank.
The future of Snow will be
determined in talks that are
taking place between AB InBev
and China Resources Enter-
prise Ltd., which owns 51% of
the joint venture CR Snow, peo-
ple familiar with the process
said. In those discussions, AB
InBev will seek to hold on to its
stake in the joint venture and
secure operational control, ac-
cording to the two people fa-
miliar with the plan.
Keeping the business won’t
be easy. China Resources has
the first option to buy out CR
Snow and has hired Nomura
Holdings Inc. as an adviser, ac-
cording to a person familiar
with the hiring as well as one
of the people familiar with AB
InBev’s plan. Nomura valued
SABMiller’s 49% interest in CR
Snow at $3.6 billion in an ana-
lyst report. AB InBev declined
new markets, investing in
LNG-refueling stations for nat-
ural-gas-powered trucks
across Canada, the U.S. and
Netherlands.
By 2020 Shell’s LNG pro-
duction will more than double,
putting it on track to rival Qa-
tar, the world’s largest LNG
shipper, according to Bern-
stein Research estimates.
In BG, Shell found an acqui-
* *
Under the proposal pub-
lished Wednesday, the com-
mission and national authori-
ties would be able to test cars
that have already been ap-
proved to double-check that
they don’t break EU standards.
VW’s cheating
revealed a lack of
regulatory power
over auto makers.
Cars that are found to be in
breach of environmental or
safety rules could then be
banned from sale or recalled if
necessary—even without the
agreement of the authority
that initially approved them.
The European Automobile
Manufacturers’ Association
said it welcomes new ideas to
improve the current type-ap-
proval system, but said it was
=1,000
11,000
37,000
19,000
$4.6 billion
$6.3
THE WALL STREET JOURNAL.
posal of Cisco, which domi-
nates the market for Internet
gear such as routers and
switches but has a much
smaller retail footprint.
Ericsson said the alliance
would help improve operating
income this year and would
CR Snow could be SABMiller’s
most strategic asset.
to comment. China Resources
didn’t respond to requests for
comment.
AB InBev thinks it can make
a case that both sides would
benefit by consolidating—
which would increase prices—
gic logic of the combination.”
There are plenty of risks,
and nearly 17% of Shell share-
holders voted against the BG
deal on Wednesday. One large
shareholder, Standard Life
PLC, called it “value destruc-
tive.”
Natural-gas prices remain
heavily linked to falling crude-
oil prices.
A flood of new production
THE WALL STREET JOURNAL.
still checking the proposals in
detail—especially in compari-
son to U.S. authorities.
The proposals are a direct re-
action to the Volkswagen scan-
dal, where commission officials
have complained about their
lack of enforcement powers.
The EU’s internal market
and industry commissioner,
Elzbieta Bienkowska, has
locked horns with Volkswagen
executives who have so far re-
fused to give European cus-
tomers the same level of com-
pensation it is offering in the
U.S. Officials in Brussels have
also criticized the slow reac-
tion of German authorities to
punish VW and publish fresh
data on actual emissions.
On Wednesday, Volkswagen
received approval in Germany
for a fix of the emissions-rig-
ging software in one of its die-
sel-powered models.
—Nikki Houston in Frankfurt
contributed to this article.
generate $1 billion or more in
additional sales by 2018.
Cisco and Ericsson, how-
ever, have yet to announce
their first joint contract.
Ericsson has a lot riding on
the alliance because the Swed-
ish company was struggling to
cope with the fast pace of
changes in the networks oper-
ated by mobile and wireline
carriers, and fend off rivals
such as Huawei Technologies
Inc. and Nokia Corp.
Huawei is ramping up its
activities in Europe, most re-
cently through an accord with
TDC Group, Denmark’s largest
telecom operator. Nokia has
gained heft through the acqui-
sition of Alcatel-Lucent.
Apple and Ericsson reached
a global licensing agreement
in December, ending an al-
most-yearlong patent dispute
between the companies.
Ericsson hasn’t disclosed
details of its contract with Ap-
ple, but some analysts have
estimated the deal added close
to three billion kronor to the
Swedish company’s operating
profit in the fourth quarter.
The company said that it
would propose paying a full-
year dividend of 3.70 kronor a
share against its 2015 earn-
ings, up from 3.40 kronor a
year earlier.
in China, one of the world’s
largest and most competitive
beer markets. AB InBev has an
estimated 18% market share in
China with its Budweiser and
XU RUIPING/IMAGINECHINA/ASSOCIATED PRESS
Harbin brands and CR Snow
has a 30% market share, ac-
cording to Seema International
Ltd., a Hong Kong-based con-
sulting firm. The companies
compete against Tsingtao
Brewery, Beijing Yanjing Brew-
ery Co. and Carlsberg A/S.
Beer prices are so depressed
that brewers struggle with
profitability. Earnings before
interest and taxes per hectoliter
of beer in China total $2, a frac-
tion of the global average of
$19 per hectoliter, said Glen
Steinman, president of Seema
International.
SABMiller gets 2% of its op-
erating profit from CR Snow,
and China Resources reported
$97.6 million in profit from the
business in 2014.
The company spent about
$19 billion on a plant to turn
natural gas into diesel in Qa-
tar. It also launched a costly
project to build the world’s
biggest boat—still under de-
velopment—which would ex-
tract and liquefy natural gas
off Australia. By 2014, natural
gas accounted for 54% of
Shell’s production.
Mr. van Beurden, who built
 over that time frame. sition in the process of in- due to start up over the com- a reputation as a penny
à As with all investments,    
 Shell is basing its big gas creasing its LNG production ing two years is expected to pincher while increasing the
appropriate advice should 


 bet on a similar assumption, capacity with a formidable keep the downward pressure profits at Shell’s troubled re-
be obtained prior to   

  underpinned by anticipated network to ship LNG around on the LNG market to the end fining businesses, took over in
    
 environmental regulations like the world. By 2020, Bernstein of the decade. Longer term, in- 2013 with a mandate to cut
entering into any 

binding contract. à  !"#$$% carbon taxes, which would cre- expects Shell to control 18% of creasing demand is expected spending. Shell backed out of
ate financial incentives for big the global LNG market. to mop up this new supply. expensive projects in places
power generators to switch The tie-up with BG is also Shell began building its nat- like Canada’s oil sands. It
CAPITAL WANTED Businesses from carbon-spewing coal to about oil—particularly BG’s ural-gas reserves almost by withdrew from its $7 billion
cleaner-burning gas. Though assets offshore Brazil. Even accident a decade ago. oil exploration in the Alaskan
Real estate expert with proven track record
For Sale. oil will remain an important with its new focus on natural A group of senior Shell ex- arctic.
is seeking strategic partner, loan, or equity part of Shell’s business, it gas, Shell will stay committed ecutives including Jeroen van But it doubled down on gas,
capital to purchase and develop luxury, Advertise in The Mart. could get replaced by gas as to deep-water oil projects and der Veer—who would later be- launching its first division de-
ocean view properties in California’s most
Call +44 (0) 203 207 2123 the world’s main source of en- remains one of the largest oil come CEO—decided that huge voted to that fuel—led by Mr.
desirable coastal neighborhoods. Ideal for
individuals seeking stable, attractive returns. ergy as soon as the middle of producers in the world. natural-gas reserves Shell had Wetselaar. Mr. Wetselaar calls
For more information: the century, Mr. Wetselaar Shell Chief Executive Ben discovered while searching for the acquisition of BG “the
JRM2397@GMAIL.COM said. van Beurden said Wednesday’s oil could be a growth opportu- crowning achievement of that
Shell is spending to develop vote demonstrated “the strate- nity. strategy.”
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL. Thursday, January 28, 2016 | B3

TECHNOLOGY ADVERTISEMENT

Legal Notices
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China ‘Softness’ Concerns Apple

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to see “signs of economic soft- Still, Apple forecast Tues-
ness” in the Greater China re- 60 day that its overall revenue PUBLIC NOTICES
gion, which includes China, Greater will fall for the first time in 13
   
 

Taiwan and Hong Kong. 40 China* years in the current quarter. 
 

 
  
Apple’s sales in the region 1Q: 14% Shares in the company were  
 
    
 
rose 14% to $18.4 billion for 20 down 4.6% at $95.38 on the 
  
the company’s fiscal first Nasdaq Stock Market at mid-     !""

LEGAL
Global 
quarter ended Dec. 26, better 0 1Q: 2% day Wednesday. #$%&'%(( 
 
than any other regions during FY 2014 ’15 ’16 The company said it sold  & )*&)  +&,
the period but far from the 74.77 million iPhones in its fiscal -   . / .  #  

NOTICES
Note: Fiscal years end in September. 
#  / .  #  
# 
70% growth Apple recorded a *Includes Taiwan and Hong Kong first quarter, surpassing sales of 
    010 . 
year earlier. In the fiscal year Source: the company 74.5 million units a year earlier.  #  
#  010 . 
 #  
# . / &) 
that ended Sept. 26, Greater THE WALL STREET JOURNAL. The less-than-1% gain fell short .  #  
#    
(&)&' 
China sales surged 84%, with of analysts’ estimates of 76.54
profits growing even faster. chases are likely to be hit by million units in the quarter.   
 
  
  

 

 
 

       !" #!$
Keeping up this momentum this market saturation early in For the current quarter end- #   -  

2
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@wsj.com
Artificial Intelligence Beats Go Master
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smaller, unofficial boards.
A computer beat the
world’s top chess player in
1997. But Go, in which players
place “stones” on a square 19-
deep neural networks, com-
puter programs with millions
of connections that loosely
mimic the structure of the hu-
man brain. This approach has
learned to discover new strat- $$ ;4( ( $%* 4 %&'4' *6' 3 :$)   ' 3 4% ) +" + ,!-+! .! / ! 3< & ( '+ ($$=%&,
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years developing one of the $ .< (@ ' L 7MM "FMMM!/ 4
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by-19-line grid, is a bigger produced several artificial-in- ers, said he had thought it
    
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challenge because there are telligence breakthroughs in re- could take another decade for ## . .
  
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far more possible moves—361 cent years, including comput- computers to beat top Go 
    

   


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possible openings alone. The ers that can identify objects in players. “For many years 

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game, which originated in an- images more consistently than they’ve been saying that the 


cient China, has been a target humans can. game of Go is special,” Mr. . 


 


of artificial-intelligence re-
search because mastering it
requires more humanlike skills
of pattern recognition and in-
tuitive judgment.
The advance, published in
the journal Nature, impressed
artificial-intelligence experts
and revived a debate about
whether limits should be
placed on computer programs
that gain humanlike abilities
to learn by themselves.
“One couldn’t help feel for
the poor human getting
beaten,” said Tanguy Chouard,
AlphaGo’s first network was
shown about 30 million Go
moves by humans, to teach it
what move to play next. Peo-
ple directed the training dur-
ing this so-called supervised
learning.
The second network played
thousands of Go games against
itself to learn, without human
help, to evaluate board posi-
tions and estimate the likeli-
hood of each move ultimately
winning the game.
The latter, unsupervised,
approach is more cutting edge.

Coulom said. “But that’s not 0)*&)  +&,
the case anymore.” &43$ )*&)  +&,
&%') '' %'4%' C6),
AlphaGo’s creators say the   *34 ! !5
software can be set to work on
other problems beyond Go.
That is a contrast to the Inter- Businesses
national Business Machines
Corp.’s Deep Blue, which was
For Sale
designed only to play chess
and beat chess master Garry Advertise in The Mart
Kasparov in 1997.
Still, experts cautioned that Call +44 (0) 207 572 2123
AlphaGo is far from a high-
© 2016 Dow Jones & Company, Inc.
level, “general” artificial-intel- All Rights Reserved.
ligence program that can solve
virtually any sort of problem.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
B4 | Thursday, January 28, 2016 THE WALL STREET JOURNAL.

BUSINESS NEWS

Toyota
Weighs
Daihatsu
Purchase
BY YOKO KUBOTA
TOKYO—Toyota Motor
Corp. is considering acquiring
the shares outstanding in
small-car maker Daihatsu Mo-
tor Co., which could cost it
around $3 billion, in a move to
bolster its position as the
world’s biggest auto maker.
Toyota also said on
Wednesday it sold 10.15 million
vehicles world-wide in 2015,
outselling rivals General Mo-
Business
Watch
MITSUBISHI ELECTRIC, HITACHI
Auto Parts Makers to
Pay $150 Million Fine
The European Union said
Wednesday that it would fine
Japanese auto-parts makers
Mitsubishi Electric Corp. and Hi-
tachi Ltd. €138 million ($150
million) for fixing the prices of
car-engine components.
The European Commission,
the EU’s executive body, said the
fines were part of a settlement
for participating in a cartel with
parts maker Denso Corp.
Denso avoided a fine because

tors Co. and Volkswagen AG.
Toyota’s sales last year de-
clined less than 1% from 2014
as U.S. gains couldn’t offset
slowdowns in Japan, Southeast
Asia and Russia.
Toyota, which already owns
51.2% of Daihatsu, is weighing
a plan to make the small-car
maker into a wholly owned
subsidiary, the two companies
said on Wednesday. Following
a report by the Nihon Keizai
Shimbun newspaper, the com-
panies said this was one of
several business options under
consideration, but nothing has
been decided.
In another possible move to
bolster its position in small
cars and emerging markets,
Toyota also has been consider-
ing cooperating with Suzuki
Motor Co., a small-car maker
with the leading market share
in India, a person knowledge-
able about the matter said.
The Nihon Keizai newspa-
per reported earlier that the
two companies were in talks
over a partnership that could
include cross-shareholdings.
Both car makers denied that
they have entered partnership
negotiations.
Shares in Daihatsu soared
16.4% in Tokyo trading on
Wednesday. Suzuki jumped
11.4% and Toyota rose 3.8%.
The remaining 48.8% stake in
Daihatsu was valued at around
¥360 billion ($3.04 billion).
it revealed the cartel, the Com-
mission said. All companies ad-
mitted involvement and agreed
to settle, it added. Denso, Hi-
tachi and Mitsubishi weren’t
available for comment.
Mitsubishi Electric is to pay
about €111 million, while Hitachi
will pay around €27 million, the
Commission said.
—Natalia Drozdiak
BOSCH
Connectivity Growth
Boosts Earnings
Robert Bosch GmbH im-
proved sales and earnings last
year, helped by growth in the
field of connectivity, the German
technology and automotive sup-
plier said Wednesday.
Earnings before interest and
taxes, or Ebit, came to €5 billion
($5.4 billion) last year, up about
35% from €3.7 billion in 2014.
Revenue rose 10% to €70.6 bil-
lion, compared with €64.2 billion
the previous year. Bosch, which
isn’t listed, didn’t provide a fig-
ure for net profit.
“We were able to successfully
continue our growth trend in a
challenging business environ-
ment and a number of stagnat-
ing markets in 2015,” said Chair-
man Volkmar Denner. “A major
driver of this positive business
development was an increasing
number of solutions for the con-
nected world.”
—Monica Houston-Waesch
A BASF plant in Ludwigshafen, Germany. The chemicals giant has torn up its forecasts on the prospect of durably lower energy prices.
BASF
Profit Skids on Low
Oil and Gas Prices
Chemicals giant BASF SE has
torn up its market forecasts on
the prospect of durably lower oil
and gas prices, taking a €600
million ($654 million) fourth-
quarter impairment charge on
its energy assets which led to a
sharp fall in profit last year.
The world’s largest chemicals
company said earnings before
interest and taxes fell 18% to
€6.2 billion ($6.74 billion) in the
year to end-December, down
from €7.6 billion in 2014.
The company said signifi-
cantly lower oil and gas prices in
recent months, along with re-
duced assumptions for subse-
quent years, had caused the im-
pairment at its oil and gas unit.
Wintershall AG, the business in
question, contributes around
30% of BASF’s cash flow, the
company has said.
The division offers BASF a
strategic hedge when oil prices
are high. Sales of Wintershall’s
oil and gas roughly equal its par-
ent company’s need for energy
and raw material to produce
chemicals, according to calcula-
tions last year by DZ Bank ana-
lyst Peter Spengler.
BASF said revenue fell more
than 5% to €70.4 billion last
year from €74.3 billion a year
earlier. The company cited its di-
vestiture of its natural gas trad-
ing and storage activities in an
asset swap with Russia’s PAO
Gazprom last year as the main
driver of its sales decline.
BASF is slated to release de-
tailed fourth-quarter and full-
year results on Feb. 26.
—Monica Houston-Waesch
SINOPEC
Production Slips for
State Energy Giant
Chinese state-controlled en-
ergy giant China Petroleum &
Chemical Corp. said Wednesday
that oil and gas production
slipped nearly 2% in 2015 amid
sharply falling domestic produc-
tion from aging fields.
In a filing to the Hong Kong
stock exchange, the company
also said diesel output dropped
5.67% to about 70 million metric
tons last year as weak industrial
activity weighed on demand in
the world’s second-largest econ-
omy. Gasoline output rose 5.4%
to about 54 million tons, Sinopec
said, as more first-time drivers
took to the nation’s roads.
The company, China’s second-
biggest oil and gas producer by
volume, also said natural-gas
production rose 2.6% last year to
735 billion cubic feet.
—Brian Spegele
CANON
Fujio Mitarai Steps
Aside as President
Canon Inc. Chairman Fujio Mi-
tarai said Wednesday that he
was stepping back from day-to-
day leadership of the maker of
cameras and printers for a sec-
ond time.
Mr. Mitarai, 80 years old, said
he would yield the post of presi-
dent to make way for Masaya
Maeda, senior managing director,
on March 30. Mr. Maeda, who is
63, spent a large part of his ca-
reer in Canon’s imaging opera-
tions.
Mr. Mitarai, who has served
RALPH ORLOWSKI/REUTERS
as president since 2012 after an
11-year stint in that post from
1995 through 2006, is staying
on as chairman and CEO and
dismissed questions about his
age by saying that he would
quit on “the day I want to quit.”
—Megumi Fujikawa
and Eric Pfanner
BOOZ ALLEN
Results Slightly
Beat Expectations
Booz Allen Hamilton Holding
Corp. said profit rose and reve-
nue edged higher in its third
quarter, as the government con-
sulting firm was aided by an in-
come tax benefit. Its results
slightly beat expectations.
Booz Allen raised its regular
quarterly dividend to 15 cents a
share from 13 cents.
For the quarter ended Dec.
31, Booz Allen reported net in-
come of $108.1 million, or 71
cents a share, up from $52.8
million, or 35 cents a share, a
year earlier. Revenue was $1.31
billion, up from $1.3 billion a year
earlier.
—Joshua Jamerson

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For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
Behind a Stumble
At Deutsche Bank
BANKING | B8
© 2016 Dow Jones & Company. All Rights Reserved.
As of 4 p.m. ET EUR/GBP 0.7629 À 0.70%
Riskier Europe Debt Lures Buyers
Some big investors
think this year’s selloff
has been overdone,
look for bargains
BY CHRISTOPHER WHITTALL
Some of the world’s larg-
est money managers are buy-
ing in riskier parts of Europe’s
bond markets as they sift
through the wreckage of this
year’s market selloff.
Their bet is that higher-risk
Italy Gives
A Hand
To Banks
BY GIOVANNI LEGORANO
AND MANUELA MESCO
MILAN—The Italian govern-
ment outlined a deal it struck
with the European Commis-
sion to help Italian banks man-
age their portfolios of bad
loans, but doubts about its ef-
fectiveness pushed shares in
some lenders sharply lower.
Under the agreement, the
government will help banks to
bundle bad loans into bonds
by selling guarantees to lend-
ers that will make some por-
tions of the bad debt less
risky. The bonds could be sold
or used as collateral for loans
from the European Central
Bank.
The guarantee would enable
the banks to sell the debt at
higher prices than they other-
wise could get, reducing the
losses they would record on
the sales. Much of the debt is
valued at higher prices on the
banks’ books than the market
has been willing to pay.
But analysts warned that
the plan—which is less aggres-
sive than setting up a so-
called bad bank to deal with
the loans, as countries such as
Spain did during the financial
crisis—will only partially ad-
dress the problem.
“There are definitely advan-
tages for banks,” said Fabrizio
Spagna, managing director at
Axia Financial Research. “But
it is far from being the pana-
cea for the bad loans.”
The details of the plan
come after the European Com-
mission and the Italian gov-
ernment reached an agree-
ment late Tuesday after
months of negotiations on a
plan for Rome to help Italian
banks lighten their load of
Please see ITALY page B7
Bearish U.K. Bets Climb Caterpillar Still Stuck in Mud
BY LAURENCE FLETCHER
Hedge funds’ bets against
U.K. blue-chip stocks have
risen to their highest level in
more than five years, another
sign of the bearish sentiment
gripping investors this month.
Short interest, a measure of
wagers that prices will fall, in
FTSE 100 stocks has risen to
more than 1.8% of total shares
in the market, its highest level
since June 2010, according to
figures from data provider
Markit.
A pickup in short interest in
recent months comes as mar-
kets have sold off sharply on
fears that a slowdown in
China’s economy will weigh on
global growth.
The FTSE 100 has fallen 4%
this month.
“Definitely, the bears are
out,” said Simon Colvin, re-
search analyst at Markit.
“We’ve only seen short sellers
add to positions.”
Short interest was a little
more than 1% at the start of
last year, according to the
data.
Years of rising markets in
MARKETS DIGEST B6 | WEDNESDAY’S MARKETS B7 | FINANCE WATCH B8
YEN/DLR ¥118.96 À 0.46% GOLD 1116.10 g 0.50%
assets were dumped indis-
criminately in the rush for the
exits and there are bargains to
be had.
Firms including BlackRock
Inc., J.P. Morgan Asset Man-
agement and Allianz Global
Investors have been loading
up on investments ranging
from European junk bonds to
southern eurozone govern-
ment debt.
These investors are asking
the question currently preoc-
cupying markets around the
world: Does the slowdown in
125%
Part of the Ohio River in Kentucky
2001 ’02 ’03
Note: Data are for fiscal years ended June 30; funded levels are for nonhazardous workers’ plan
Sources: National Association of State Retirement Administrators Public Fund Survey; Kentucky Retirement Systems
Despite Cuts, More Pension Woes
BY TIMOTHY W. MARTIN
Kentucky’s new governor is
preparing a fresh overhaul of
the state’s pension plans, a
sign of greater pain coming in
states that already imple-
mented rounds of cutbacks af-
ter the financial crisis.
Three years after trimming
benefits to head off a looming
funding gap, the Bluegrass
State has less than half of the
the U.S. and Europe, fueled by
central banks’ money printing
and ultralow interest rates,
made many funds wary of run-
ning big negative bets.
But some feel conditions
have changed.
“The shorting environment
is much improved,” said Rob-
ert Duggan, partner at Sky-
Bridge Capital, which invests
Hedge funds have
stepped up wagers
against stocks in the
FTSE 100.
in hedge funds and manages
$13.1 billion in assets. “With
the end of quantitative easing
in the U.S., we’ve seen the re-
moval of a major headwind to
shorting stocks.”
He has put money into eq-
uity hedge funds that run
more short bets.
Supermarket chain J Sains-
bury PLC had the most short
bets against it, as measured by
percentage of shares on loan,
with funds including Lansd-
THE WALL STREET JOURNAL.
global economic growth justify
the steep market falls? Their
answer is no, at least in Eu-
rope, where an economic re-
covery is under way and the
central bank is printing
money.
“I’d definitely say the mar-
ket has overreacted in gen-
eral,” said Michael Krautz-
berger, head of European fixed
income at BlackRock.
Europe’s corporate-bond
market took a dive at the start
of the year, mirroring steep
drops in global stock and com-
Pension Blues
Kentucky’s public-employees’ plan has less money
available to fund future retirements following years
of low state contributions to that plan.
100%
75%
50%
’04 ’05 ’06 ’07
money it needs to fund future
obligations for about 345,000
public employees and retirees.
One of its plans has just 17.7%,
making it the worst-funded
U.S. pension of the past 15
years. Standard & Poor’s Rat-
ings Services cut the state’s
bond rating to the nation’s
third-lowest in September, cit-
ing mounting retirement liabil-
ities.
Kentucky represents a pain-
owne Partners, Marshall Wace
and Discovery Capital Manage-
ment running negative bets,
according to regulatory filings.
Miner Anglo American
PLC, against which Odey Asset
Management and Key Group
are running short positions, as
well as fashion house Bur-
berry Group PLC and engine
maker Rolls-Royce Holdings
PLC, which in November cut
profit expectations, are also
among the most-shorted
stocks.
A handful of hedge funds
have found reasons to be bear-
ish for some time.
In October, Odey founder
Crispin Odey told The Wall
Street Journal that he ex-
pected major stock markets to
lose around 40%.
And London-based Lansd-
owne Partners, one of the
world’s biggest equity hedge
funds, said in a note to inves-
tors the same month
that during 2015, the firm
hadn’t put on any new bets on
rising stocks of any scale,
while they had spotted at least
10 new attractive bets on fall-
ing stocks.
Chinese Brokerages
Are No Bargain
HEARD ON THE STREET | B8
OIL 32.30 À 2.70%
modity markets as concerns
mounted over the impact of
slowing Chinese growth and
falling oil prices.
Investors moved into ha-
vens such as German govern-
ment debt, pushing the gap
between the yields on those
bonds and government debt of
more fragile European econo-
mies, such as Italy, to their
widest levels since August.
Meanwhile, the spread be-
tween haven government
bonds and eurozone invest-
ment-grade corporate debt
’08 ’09 ’10
*Funded level dropped from 19% after decision to lower investment target in December
Photo: Luke Sharrett/Bloomberg
ful reality across the U.S. as
public retirement plans try to
close a $1 trillion funding gap
made worse by the recent
downswing in the markets.
States that pushed through
benefit cuts after the 2008 fi-
nancial crisis are planning a
second wave of reductions for
public employees after the ini-
tial moves failed to alleviate
funding woes.
In Pennsylvania, state offi-
BY STEVEN RUSSOLILLO
If there is one company
that epitomizes the indus-
trial slowdown gripping the
world, it is Caterpillar Inc.
The maker of heavy equip-
ment and machinery years
ago bet big on booming re-
sources, agri-
AHEAD culture and
OF THE construction
TAPE markets. It has
since borne the
brunt of a
global commodities slump
and a mining sector mired in
a prolonged slowdown.
Caterpillar shares, which
dived 26% last year, already
have fallen an additional 14%
in 2016 to date. And even
with the stock trading at a
5½-year low, there is little
reason for investors to try to
catch this falling knife when
it reports fourth-quarter re-
sults on Thursday.
Analysts polled by FactSet
expect earnings of 69 cents a
share for the period ending
in December, down by half
from a year before. Revenue
is estimated to have fallen
Thursday, January 28, 2016 | B5
3-MONTH LIBOR 0.61810%
ballooned to its widest level in
nearly three years, according
to Barclays bond indexes.
Bond markets around the
world remain nervous. U.S.
corporate-debt markets rallied
Tuesday. But ratings firms
have reminded investors that
more bonds are trading at low
dollar prices and more compa-
nies have ultralow credit rat-
ings than they have had in six
years, and more firms are ex-
pected to default this year
than last. In Asia, investors
Please see BONDS page B7
Percentage of required
contributions paid
25%
Percentage on hand
of assets needed
to fund future benefits
’11 ’12 ’13 ’14
THE WALL STREET JOURNAL.
cials are considering an in-
crease in worker contributions
and placing some employees
into a 401(k)-style plan, just
several years after cuts to
cost-of-living-adjustment in-
creases to retirees and higher
retirement ages didn’t soothe
matters. In Oregon, a key com-
ponent of a 2013 pension over-
haul was struck down by state
courts, meaning lawmakers
Please see PENSION page B7
Steamrolled
Caterpillar's rolling three-month
retail sales to resources industries
0%
–10
–20 Change from
a year before,
monthly data
–30
–40
2015
Source: the company
THE WALL STREET JOURNAL.
20%. If it falls for a fourth
consecutive year in 2016,
which analysts expect, that
would be the longest streak
in the firm’s 90-year history.
Furthermore, Caterpillar
warned on Wednesday that
the severe downturn in
equipment sales actually got
worse late in 2015. Its world-
wide retail sales to resources
industries tumbled 38% dur-
ing the three-month stretch
ending in December.
Goldman Sachs added to
JOHANNES EISELE/AGENCE FRANCE-PRESSE/GETTY IMAGES
10-YR TREAS g 2/32 yield 2.003%
JUAN CARLOS HIDALGO/EUROPEAN PRESSPHOTO AGENCY
CEO José Antonio Álvarez
Santander
Net Sinks
On Large
Charges
BY JEANNETTE NEUMANN
MADRID—Banco Santan-
der SA said fourth-quarter net
profit tumbled from a year
earlier as the bank set aside
hundreds of millions of euros
to cover claims related to pay-
ment-protection insurance
sold by the lender’s U.K. unit.
Santander reported net
profit of €25 million ($27.2
million) in the fourth quarter,
a steep fall from the €1.46 bil-
lion the bank reported a year
earlier.
Santander said it booked
€1.7 billion in charges in the
fourth quarter, including €683
million to cover a decline in
the value of its software and
€600 million to address poten-
tial claims by clients for the
wrongful sale in the U.K. of
payment-protection insurance,
which was meant to cover
mortgage, auto and other loan
payments if the borrower lost
a job or fell ill.
Santander Executive Chair-
man Ana Botín said at a news
conference that the majority
0 of the wrongful sales had been
’15*
made by U.K. lender Abbey
National, which Santander
bought in 2004.
Royal Bank of Scotland
Group PLC also announced a
provision on Wednesday to
cover claims against its sale of
payment protection insurance.
U.K. authorities have set a
proposed deadline in 2018 for
compensation claims.
Santander faced lower
global economic growth rates
in 2015 compared with 2014 as
well as falling commodity
prices, market volatility and
low interest rates, Chief Exec-
utive José Antonio Álvarez
told investors on Wednesday,
“In this environment, it
was not easy,” Mr. Álvarez
Please see PROFIT page B7
the gloom earlier this week:
In downgrading the stock, its
analysts projected large-scale
energy projects would face
significant budget cuts be-
yond 2017 and said mining is
in “the middle stages of a
multiyear deflation cycle.”
Caterpillar announced
plans last year to shave
about 8% of its workforce
over a three-year period. Yet
investors might find more
pain in store. At about 17
times forward earnings, Cat-
erpillar’s multiple is about
17% above its 10-year aver-
age. Furthermore, its pro-
spective multiple of enter-
prise value to earnings
before interest, taxes, depre-
ciation and amortization is
6.8 times.
While that is lower than
its double-digit multiple in
2009 and 2010, it also sits
around levels witnessed in
2006 through 2008, before
the stock bottomed in March
2009. Caterpillar won’t dig
itself out of this mess any-
time soon.
Email: tape@wsj.com
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B6 | Thursday, January 28, 2016 THE WALL STREET JOURNAL.

MARKETS DIGEST
Nikkei 225 Index STOXX 600 Index S&P 500 Index Data as of 4 p.m. New York time
Last Year ago
17163.92 s 455.02, or 2.72% Year-to-date t 9.82% 340.24 s 1.04, or 0.31% Year-to-date t 6.99% 1882.95 t 20.68, or 1.09% Trailing P/E ratio * 20.69 19.71
High, low, open and close for each 52-wk high/low 20868.03 16017.26 High, low, open and close for each 52-wk high/low 414.06 322.29 High, low, open and close for each P/E estimate * 15.38 17.01
trading day of the past three months. All-time high 38915.87 12/29/89 trading day of the past three months. All-time high 414.06 4/15/15 trading day of the past three months. Dividend yield 2.36 1.97
All-time high: 2130.82, 05/21/15

20300 380 2100

65-day moving average

19500 370 2050

18700 360 2000

65-day moving average

Session high 17900 350 1950

DOWN UP
65-day moving average
t

Session open Close

17100 340 1900
Close Open
t

Session low 16300 330 1850

Bars measure the point change from session's open

15500 320 1800
Oct. Nov. Dec. Jan. Oct. Nov. Dec. Jan. Oct. Nov. Dec. Jan.

International Stock Indexes Data as of 4 p.m. New York time Global government bonds
Latest 52-Week Range YTD Latest, month-ago and year-ago yields and spreads over or under U.S. Treasurys on benchmark two-year
Region/Country Index Close NetChg % chg Low Close High % chg and 10-year government bonds around the world. Data as of 3 p.m. ET
World The Global Dow 2137.21 0.64 0.03 2077.03 • 2643.78 –8.5 Country/ Spread Over Treasurys, in basis points Yield
MSCI EAFE 1586.58 16.44 1.05 1516.51 • 1956.39 –7.6 Coupon Maturity, in years Yield Latest Previous Month Ago Year ago Previous Month ago Year ago
MSCI EM USD 714.49 6.16 0.87 691.21 • 1067.74 –10.0 5.500 Australia 2 1.949 110.5 111.2 103.8 159.1 1.960 2.037 2.106
3.250 10 2.628 62.5 69.5 53.2 74.8 2.690 2.773 2.573
Americas DJ Americas 446.93 –4.48 –0.99 439.73 • 525.25 –8.3
3.500 Belgium 2 -121.8 -130.3 -58.2 -0.398 -0.305 -0.067
-0.374 -124.6
Brazil Sao Paulo Bovespa 38376.37 878.89 2.34 37046.07 • 58574.79 –11.5
0.800 10 0.715 -128.8 -128.3 -128.0 -128.1 0.713 0.962 0.544
Canada S&P/TSX Comp 12368.59 37.27 0.30 11531.22 • 15524.75 –4.9
4.250 France 2 -0.365 -120.9 -122.7 -128.2 -59.0 -0.378 -0.283 -0.075
Mexico IPC All-Share 42100.84 168.45 0.40 39256.58 • 46078.07 –2.0
1.000 10 0.755 -124.8 -124.9 -125.2 -124.6 0.747 0.990 0.579
Chile Santiago IPSA 2828.77 4.33 0.15 2730.24 • 3361.36 –3.9
0.500 Germany 2 -0.438 -128.3 -130.0 -132.7 -66.5 -0.452 -0.328 -0.151
U.S. DJIA 15944.46 –222.77 –1.38 15370.33 • 18351.36 –8.5
0.500 10 0.448 -155.5 -162.0 -161.1 -147.9 0.376 0.631 0.346
Nasdaq Composite 4468.17 –99.51 –2.18 4292.14 • 5231.94 –10.8
4.500 Italy 2 0.009 -83.5 -84.5 -88.9 -15.4 0.003 0.109 0.360
S&P 500 1882.95 –20.68 –1.09 1812.29 • 2134.72 –7.9
2.000 10 1.502 -50.1 -48.5 -57.4 -30.8 1.511 1.668 1.518
CBOE Volatility 23.42 0.92 4.09 10.88 • 53.29 28.6
0.100 Japan 2 -0.027 -87.1 -87.4 -100.9 -52.0 -0.026 -0.010 -0.006
EMEA Stoxx Europe 600 340.24 1.04 0.31 322.29 • 414.06 –7.0 0.300 10 0.214 -178.8 -177.7 -196.3 -156.4 0.219 0.279 0.262
Stoxx Europe 50 2888.02 10.73 0.37 2721.63 • 3602.76 –6.8 0.500 Netherlands 2 -0.423 -126.7 -128.1 -135.6 -62.2 -0.433 -0.358 -0.107
Austria ATX 2137.96 –20.40 –0.95 2029.54 • 2695.57 –10.8 0.250 10 0.557 -144.6 -144.6 -144.5 -138.6 0.550 0.797 0.439
Belgium Bel-20 3461.09 –13.96 –0.40 3175.25 • 3910.33 –6.5 4.350 Portugal 2 0.121 -72.3 -70.9 -86.5 -29.3 0.139 0.133 0.221
France CAC 40 4380.36 23.55 0.54 4084.68 • 5283.71 –5.5 2.875 10 2.739 73.6 77.7 29.3 35.7 2.773 2.535 2.182
Germany DAX 9880.82 58.07 0.59 9314.57 • 12390.75 –8.0 0.500 Spain 2 0.021 -82.4 -83.4 -87.6 -14.2 0.015 0.123 0.372
Greece ATG 545.27 –0.95 –0.17 519.19 • 945.81 –13.6 2.150 10 1.621 -38.2 -34.5 -39.3 -43.7 1.651 1.849 1.389
Hungary BUX 23769.46 247.38 1.05 16477.68 • 24532.71 –0.6 3.750 Sweden 2 -0.515 -135.9 -137.0 -144.5 -46.3 -0.522 -0.447 0.052
Israel Tel Aviv 1447.85 –7.95 –0.55 1427.45 • 1728.89 –5.3 2.500 10 0.700 -130.3 -130.9 -120.6 -111.0 0.687 1.036 0.715
Italy FTSE MIB 18848.03 –75.80 –0.40 17836.03 • 24157.39 –12.0 1.000 U.K. 2 0.427 -41.8 -43.1 -38.0 -15.3 0.417 0.618 0.361
Netherlands AEX 424.41 2.44 0.58 392.44 • 510.55 –3.9 2.000 10 1.713 -29.0 -30.3 -32.0 -33.9 1.693 1.922 1.487
Poland WIG 43236.46 311.86 0.73 41747.01 • 57460.44 –7.0 0.750 U.S. 2 0.844 ... ... ... ... 0.848 0.998 0.515
Russia RTS Index 704.87 21.82 3.19 607.14 • 1092.52 –6.9 2.250 10 2.003 ... ... ... ... 1.996 2.242 1.825
Spain IBEX 35 8741.00 48.50 0.56 8206.00 • 11884.60 –8.4
Sweden SX All Share 471.05 –2.82 –0.59 444.97 • 564.90 –6.7 Commodities Prices of futures contracts with the most open interest 3:30 p.m. New York time
Switzerland Swiss Market 8322.68 8.21 0.10 7935.47 • 9537.90 –5.6 EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.; MDEX: Bursa Malaysia
South Africa Johannesburg All Share 47923.92 391.52 0.82 45975.78 • 55355.12 –5.5 Derivatives Berhad; TCE: Tokyo Commodity Exchange; COMEX: Commodity Exchange; LME: London Metal Exchange;
NYMEX: New York Mercantile Exchange; ICE-EU: ICE Futures Europe. *Data as of 1/26/2016
Turkey BIST 100 72052.86 243.95 0.34 68230.47 • 91805.74 0.5
One-Day Change Year Year
U.K. FTSE 100 5990.37 78.91 1.33 5639.88 • 7122.74 –4.0 Commodity Exchange Last price Net Percentage high low
369.00 -0.25 -0.07% 372.50 348.50
Asia-Pacific DJ Asia-Pacific TSM 1260.13 15.59 1.25 1213.08 • 1621.10 –9.3 Corn (cents/bu.) CBOT
Soybeans (cents/bu.) 884.00 7.50 0.86% 888.00 852.00
Australia S&P/ASX 200 4946.40 –60.20 –1.20 4841.50 • 5982.70 –6.6
Wheat (cents/bu.)
CBOT
CBOT 476.75 -8.00 -1.65 488.50 456.00
China Shanghai Composite 2735.56 –14.23 –0.52 2735.56 • 5166.35 –22.7
Live cattle (cents/lb.) CME 134.500 1.100 0.82 138.550 127.150
Hong Kong Hang Seng 19052.45 191.65 1.02 18542.15 • 28442.75 –13.1
Cocoa ($/ton) ICE-US 2,763 -66 -2.33 3,219 2,743
India S&P BSE Sensex 24492.39 6.44 0.03 23962.21 • 29681.77 –6.2
Coffee (cents/lb.) ICE-US 118.25 1.55 1.33 126.30 111.05
Japan Nikkei Stock Avg 17163.92 455.02 2.72 16017.26 • 20868.03 –9.8
Sugar (cents/lb.) ICE-US 13.58 -0.44 -3.14 15.24 13.55
Singapore Straits Times 2546.18 0.57 0.02 2532.70 • 3539.95 –11.7
Cotton (cents/lb.) ICE-US 60.86 -0.55 -0.90 63.55 60.70
South Korea Kospi 1897.87 26.18 1.40 1829.81 • 2173.41 –3.2 Robusta coffee ($/ton) ICE-EU 1411.00 21.00 1.51 1,544.00 1,339.00
Taiwan Weighted 7849.83 21.16 0.27 7410.34 • 9973.12 –5.9
Copper ($/lb.) COMEX 2.0515 0.0140 0.69 2.1395 1.9355
Source: SIX Financial Information;WSJ Market Data Group Gold ($/troy oz.) COMEX 1128.30 7.70 0.69 1,128.60 1,061.90
Silver ($/troy oz.) COMEX 14.525 -0.039 -0.27 14.585 13.730
Currencies London close on Jan. 27 Aluminum ($/mt)* LME 1,481.00 unch. unch. 1,497.00 1,451.50
Tin ($/mt)* LME 13,900.00 300.00 2.21 14,455.00 13,225.00
Yen, euro vs. dollar; dollar vs. major U.S. trading partners US$vs,
Wed YTDchg Copper ($/mt)* LME 4,501.00 46.00 1.03 4,647.50 4,320.50
20% Country/currency in US$ per US$ (%) Lead ($/mt)* LME 1,641.00 8.00 0.49 1,760.00 1,598.00
15
Europe Zinc ($/mt)* LME 1,551.00 33.50 2.21 1,574.00 1,467.00
10 WSJ Dollar index
s Bulgaria lev 0.5560 1.7984 –0.1 Nickel ($/mt)* LME 8,595.00 -15.00 -0.17 8,765.00 8,195.00
5
Croatia kuna 0.1418 7.053 0.6 Rubber (Y.01/ton) TCE 157.00 -0.80 -0.51 163.30 146.00
0
Euro zone euro 1.0869 0.9201 –0.1
–5 s Palm oil (MYR/mt) MDEX 2499.00 22.00 0.89 2,547.00 2,425.00
Czech Rep. koruna-b 0.0402 24.864 –0.1
–10 s Euro Yen
Denmark krone 0.1456 6.8664 –0.1 Crude oil ($/bbl.) NYMEX 31.88 0.43 1.37 39.53 27.56
–15 0.003459 289.10 –0.5
Hungary forint NY Harbor ULSD ($/gal.) NYMEX 1.0263 0.0450 4.59 1.2036 0.8605
–20 Iceland krona 0.007689 130.05 –0.1
–25 RBOB gasoline ($/gal.) NYMEX 1.0574 -0.0111 -1.04 1.3617 1.0159
Norway krone 0.1154 8.6672 –2.0
0.2428 4.1195 5.0
Natural gas ($/mmBtu) NYMEX 2.147 -0.011 -0.51 2.4930 2.0800
2015 2016 Poland zloty
Russia ruble-d 0.01296 77.155 7.3 Brent crude ($/bbl.) ICE-EU 33.55 0.98 3.01 40.11 27.83
US$vs, US$vs,
YTDchg YTDchg Sweden krona 0.1174 8.5157 0.8 Gas oil ($/ton) ICE-EU 303.00 12.75 4.39 362.25 253.00
Wed Wed
Country/currency in US$ per US$ (%) Country/currency in US$ per US$ (%) Switzerland franc 0.9824 1.0179 1.6
Turkey lira 0.3342 2.9926 2.6 Sources: SIX Financial Information; WSJ Market Data Group
Americas Hong Kong dollar 0.1283 7.7966 0.6
Ukraine hryvnia 0.0401 24.9505 4.0
Argentina peso-a 0.0721 13.8780 7.2
India rupee
Indonesia rupiah
0.0147
0.0000722
67.9977 2.7
13857 0.2
U.K. pound 1.4249 0.7018 3.4 Cross rates London close on Jan 27
Brazil real 0.2462 4.0614 2.5 Middle East/Africa
Japan yen 0.008406 118.96 –1.1
Canada dollar 0.7117 1.4051 1.5 USD GBP CHF JPY HKD EUR CDN AUD
Kazakhstan tenge 0.002642 378.47 11.7 Bahrain dinar 2.6558 0.3765 –0.1
Chile peso 0.001400 714.10 0.8 Australia 1.4146 2.0155 1.3895 0.0119 0.1814 1.5372 1.0066 ...
Macau pataca 0.1246 8.0261 0.3 Egypt pound-a 0.1277 7.8292 –0.01
Colombia peso 0.0002987 3348.03 5.5 Canada 1.4051 2.0020 1.3803 0.0118 0.1802 1.5270 ... 0.9934
Malaysia ringgit-c 0.2362 4.2329 –1.6 Israel shekel 0.2519 3.9699 2.0
Ecuador US dollar-f 1 1 unch
New Zealand dollar 0.6525 1.5326 4.7 Kuwait dinar 3.2945 0.3035 0.02 Euro 0.9201 1.3112 0.9038 0.0077 0.1180 ... 0.6549 0.6505
Mexico peso-a 0.0544 18.3844 6.9
Pakistan rupee 0.0095 104.850 –0.05 Oman sul rial 2.5970 0.3851 0.03 Hong Kong 7.7966 11.1092 7.6593 0.0655 ... 8.4740 5.5489 5.5121
Peru sol 0.2887 3.4635 1.4
Philippines peso 0.0209 47.953 2.3 Qatar rial 0.2746 3.642 –0.02 Japan 118.9640 169.5200 116.8700 ... 15.2590 129.3000 84.6700 84.1200
Uruguay peso-e 0.0322 31.060 3.8
Singapore dollar 0.6998 1.4290 0.8 Saudi Arabia riyal 0.2666 3.7506 –0.1 1.0179 1.4504 ... 0.0086 0.1306 1.1065 0.7245 0.7197
Venezuela bolivar 0.158603 6.31 unch Switzerland
South Korea won 0.0008328 1200.82 2.1 South Africa rand 0.0611 16.3553 5.7
U.K. 0.7018 ... 0.6895 0.0059 0.0900 0.7629 0.4995 0.4962
Asia-Pacific Sri Lanka rupee 0.0069488 143.91 –0.2 Close Net Chg % Chg YTD % Chg
0.7069 1.4146 0.02979 33.567 2.0 U.S. ... 1.4249 0.9824 0.0084 0.1283 1.0869 0.7117 0.7069
Australia dollar 3.1 Taiwan dollar WSJ Dollar Index 91.30 –0.04 –0.04 1.25
China yuan 0.1520 6.5769 1.3 Thailand baht 0.02793 35.810 –0.6 Sources: Tullett Prebon, WSJ Market Data Group Source: Tullett Prebon

Key Rates Top Stock Listings 4 p.m. New York time

Latest 52 wks ago % YTD% % YTD% % YTD%
Libor Cur Stock Sym Close Chg Chg Cur Stock Sym Close Chg Chg Cur Stock Sym Close Chg Chg Asia Titans 50
One month 0.42800% 0.17050% ¥ TakedaPharm 4502 5695.00 1.70 -6.10 £ RioTinto RIO 1717.00 1.69 -13.26 Last: 122.43 s 1.96, or 1.62% YTD t 10.2%
Three month 0.61810 0.25460 Asia Titans HK$ TencentHoldings 0700 140.50 -0.92 -7.99 CHF RocheHldgctf ROG 268.40 1.02 -2.89
150
Six month 0.86500 0.35740 HK$ AIAGroup 1299 42.95 2.75 -7.83 ¥ TokioMarineHldg 8766 4154.00 3.33 -11.84 £ RoyDtchShell A RDSA 1463.00 2.85 -4.13
One year 1.15045 0.61790 ¥ AstellasPharma 4503 1630.50 2.19 -5.83 ¥ ToyotaMtr 7203 6881.00 3.80 -8.11 € SAP SAP 73.38 1.23 ... 140
Euro Libor AU$ AustNZBk ANZ 23.68 -1.95 -15.22 AU$ Wesfarmers WES 41.88 -0.55 0.65 € Sanofi SAN 77.16 0.36 -1.83
t 130
One month -0.22857% -0.00357% AU$ BHP BHP 15.01 -1.77 -15.96 AU$ WestpacBanking WBC 30.33 -1.88 -9.62 € SchneiderElectric SU 48.94 0.86 -6.89
Three month -0.17071 0.03357 HK$ BankofChina 3988 2.95 -0.34 -14.74 AU$ Woolworths WOW 24.11 -0.74 -1.59 € Siemens SIE 88.47 -2.35 -1.57 High 50–day 120
Six month -0.09643 0.09429 HK$ CKHutchison 0001 93.15 0.11 -10.78 € Telefonica TEF 9.59 1.00 -6.32 Close moving average 110
One year 0.01429 0.23500 HK$ CNOOC 0883 7.01 3.85 -13.14 Stoxx 50 € Total FP 40.15 1.26 -2.70 Low
100
Euribor ¥ Canon 7751 3287.00 0.80 -10.56 CHF ABB ABBN 17.32 2.18 -3.56 CHF UBSGroup UBSG 16.67 0.60 -14.60
One month -0.23100% 0.00100% ¥ CentralJapanRwy 9022 21285 1.87 -1.46 € AXA CS 22.53 0.38 -10.70 € Unilever UNA 39.98 0.54 -0.32 30 6 13 20 27 4 11 18 25 31 8 15 22
Three month -0.15900 0.05300 HK$ ChinaConstructnBk 0939 4.55 1.79 -14.31 € Allianz ALV 147.50 0.27 -9.81 £ Unilever ULVR 3005.00 1.67 2.68 Nov. Dec. Jan.
Six month -0.08200 0.13500 HK$ ChinaLifeInsurance 2628 18.36 1.32 -26.85 € Anheuser Busch ABI 114.00 0.93 -0.35 £ VodafoneGroup VOD 223.20 2.08 1.00
One year 0.02200 0.27300 HK$ ChinaMobile 0941 83.70 1.70 -4.34 £ AstraZeneca AZN 4473.00 1.30 -3.11 CHF ZurichInsurance ZURN 225.10 1.49 -12.89
Yen Libor AU$ CmwlthBkAust CBA 77.60 -1.77 -9.27 € BASF BAS 60.95 -1.82 -13.82
DJIA Stoxx 50
One month 0.38500% 0.23857% ¥ EastJapanRailway 9020 10330 2.63 -9.78 £ BGGroup BG. 1029.50 3.48 4.52
18435 2.05 -12.55 54.52 -1.03 -21.61 Last: 2888.02 s 10.73, or 0.37% YTD t 6.8%
Three month 0.69143 0.38429 ¥ Fanuc 6954 € BNP Paribas BNP 44.16 0.26 -15.45 $ AmericanExpress AXP
Six month 0.97759 0.53857 ¥ Hitachi 6501 586.10 1.17 -15.24 £ BT Group BT.A 478.30 2.14 1.40 $ Apple AAPL 93.44 -6.55 -11.23 3350
One year 1.34429 0.83857 TW$ Hon Hai Precisn 2317 75.30 -0.26 -6.81 € BancoBilVizAr BBVA 5.91 0.03 -12.26 $ Boeing BA 116.57 -8.94 -19.38
¥ HondaMotor 7267 3316.00 2.31 -15.19 € BancoSantander SAN 3.98 -0.20 -12.64 $ Caterpillar CAT 58.33 -1.40 -14.17 3200
Offer
KRW HyundaiMtr 005380 137000 0.74 -8.05 £ Barclays BARC 181.80 -0.66 -16.95 $ Chevron CVX 83.29 -0.99 -7.41 3050
Eurodollars
HK$ Ind&Comml 1398 3.87 0.52 -17.31 € Bayer BAYN 105.05 -0.28 -9.28 $ CiscoSystems CSCO 23.43 -1.22 -13.72
One month 0.5000% 0.4000%
42.09
2900
Three month 0.7000 0.6000
¥ JapanTobacco 2914 4293.00 0.99 -3.98 £ BP BP. 362.90 1.80 2.51 $ CocaCola KO 0.02 -2.03
¥ KDDI 9433 2896.50 4.72 -8.16 £ BritishAmTob BATS 3764.00 2.20 -0.19 $ Disney DIS 94.32 -2.03 -10.24 2750
Six month 0.9000 0.8000
¥ Mitsubishi 8058 1851.50 3.06 -8.70 CHF FinRichemont CFR 65.65 2.26 -8.95 $ DuPont DD 51.46 -3.74 -22.73 2600
One year 1.2000 1.1000
¥ MitsuUFJFin 8306 634.00 4.97 -16.26 CHF CreditSuisse CSGN 17.90 1.19 -17.47 $ ExxonMobil XOM 75.29 -1.84 -3.41
Latest 52 wks ago
1316.00 28.00 -1.10 -10.11 30 6 13 20 27 4 11 18 24 31 8 15 22
¥ Mitsui 8031 4.20 -8.96 € Daimler DAI 65.93 1.29 -15.02 $ GenElec GE
Prime rates 210.80 153.89 -0.36 -14.61 Nov. Dec. Jan.
¥ Mizuho Fin 8411 3.33 -13.43 € Deutsche Bank DBK 17.11 -0.09 -24.06 $ GoldmanSachs GS
U.S. 3.50% 3.25% ¥ NTTDoCoMo 9437 2411.00 4.30 -2.94 € DeutscheTelekom DTE 16.10 1.64 -3.54 $ HomeDepot HD 121.57 -0.52 -8.08
Canada 2.70 2.85 AU$ NatAustBnk NAB 26.90 -3.10 -10.93 £ Diageo DGE 1867.00 -0.27 0.57 $ Intel INTC 29.81 -0.43 -13.47
Japan
Hong Kong
1.475
5.00
1.475
5.00
¥ NipponStl&SmtmoMtl 5401 2124.00 1.31 -12.09 € ENI ENI 13.14 0.46 -4.78 $ IBM IBM 120.97
57.08
-1.32
-0.01
-12.10
-13.56
Dow Jones Industrial Average P/E: 15
¥ NipponTeleg 9432 4813.00 3.97 -0.48 £ GlaxoSmithKline GSK 1436.00 1.45 4.59 $ JPMorganChase JPM
Policy rates ¥ NissanMotor 7201 1103.00 3.04 -13.79 £ HSBC Hldgs HSBA 480.10 1.18 -10.46 $ JohnsJohns JNJ 102.16 0.97 -0.55 Last: 15944.46 t 222.77, or 1.38% YTD t 8.5%
ECB 0.05% 0.05% ¥ NomuraHldgs 8604 616.80 3.40 -9.17 € INGGroep INGA 10.65 -0.23 -14.50 $ McDonalds MCD 120.87 0.37 2.31
$ Merck MRK 50.37 -2.10 -4.64 17750
Britain 0.50 0.50 ¥ Panasonic 6752 1111.00 2.54 -10.44 £ ImpTobaccoGrp IMT 3667.00 2.16 2.24
Switzerland 0.50 0.50 HK$ PetroChina 0857 4.51 3.20 -11.39 € IntesaSanpaolo ISP 2.65 -0.97 -14.25
$ Microsoft MSFT 51.24 -1.78 -7.64 17250
Australia 2.00 2.50 HK$ PingAnInsofChina 2318 33.80 -0.44 -21.21 € L'AirLiquide AI 95.08 -0.67 -8.27
$ NikeClB NKE 59.60 -2.46 -4.63
16750
U.S. discount 1.00 0.75 $ RelianceIndsGDR RIGD 29.55 -0.84 -3.43 € LVMHMoetHennessy MC 146.10 0.83 0.83
$ Pfizer PFE 30.52 -0.49 -5.45
Fed-funds target 0.25 0.00 38.11 -2.68 -14.76 $ Procter&Gamble PG 78.79 -0.03 -0.78 16250
AU$ RioTinto RIO £ LloydsBankingGroup LLOY 64.92 0.29 -11.15
Call money 2.25 2.00 KRW SamsungElectronics 005930 1175000 3.34 -6.75 £ NationalGrid NG. 965.70 1.87 3.01
$ 3M MMM 145.51 0.51 -3.40 15750
5066.00 1.52 -8.72 $ TravelersCos TRV 103.31 0.06 -8.46
Overnight repurchase rates ¥ Seven&I Hldgs 3382 CHF Nestle NESN 73.90 0.89 -0.87 15250
5187.00 6.97 -15.51 $ UnitedTech UTX 85.82 0.20 -10.67
U.S. 0.45% 0.07% ¥ SoftBankGroup 9984 CHF Novartis NOVN 80.55 -3.71 -7.20
4106.00 5.09 -10.86 $ UnitedHealthGroup UNH 112.36 -1.40 -4.49 30 6 13 20 27 4 11 18 24 31 8 15 22
Euro zone n.a. n.a. ¥ Sumitomo Mitsui 8316 DKK NovoNordiskB NOVO-B 384.70 1.72 -3.80
80.35 -0.43 -14.29 $ VISAClA V 70.91 -1.35 -8.56 Nov. Dec. Jan.
HK$ SunHngKaiPrp 0016 £ Prudential PRU 1334.50 1.18 -12.83
Sources: WSJ Market Data Group, SIX 139.50 1.45 -2.45
$ Verizon VZ 49.06 1.68 6.14 Note: Price-to-earnings ratios are for trailing 12 months
TW$ TaiwanSemiMfg 2330 £ ReckittBenckiser RB. 6169.00 0.93 -1.78
Financial Information, Tullett $ WalMart WMT 63.95 -0.08 4.32 Sources: WSJ Market Data Group; Birinyi Associates
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THE WALL STREET JOURNAL. Thursday, January 28, 2016 | B7

MONEY & INVESTING

Fed Hammers U.S. Stocks PENSION public employees’ plan. Law-

makers never once made a full
payment. In 2008, they paid
Continued from page B5 just 22 cents for every dollar
must again find another path the public-employees’ plan
BY SAUMYA VAISHAMPAYAN to saving billions. should have received. Teachers
AND RIVA GOLD Kentucky Republican Matt and county-worker pension
Bevin won the race for gover- plans, the other two large
U.S. stocks dropped nor in November after signal- funds, also received less.
Wednesday after the Federal ing he wanted to reshape the The state’s investment
Reserve kept a March increase state pension systems again. choices widened the funding
in interest rates on the table, During a Tuesday budget gap as officials moved aggres-
doing little to soothe investor speech in Frankfort, Ky., he sively into nontraditional as-
jitters about the sharp swings proposed a special fund to pay sets such as private equity and
in global markets since the down pension debt. hedge funds around the
start of the year. The governor in a separate mid-2000s and de-emphasized
The Fed said it is “closely interview said he wants to stocks and bonds. They missed
monitoring” developments in complete an audit of the out on big years in the public
global economies and markets, state’s pension plans by sum- markets following the 2008
EDDIE SEAL/BLOOMBERG NEWS

but stopped short of saying mer and then propose deeper crisis and returns have trailed
such developments could re- pension cuts by early 2017. He pension-industry benchmarks.
strain economic activity and said he believes new hires The Kentucky Retirement
push down should be placed onto 401(k)- System’s five pension plans
WEDNESDAY’S i n f l a t i o n , style accounts instead of de- have a 10-year annualized re-
MARKETS giving offi- fined-benefit pension plans turn of 6.05% through June 30,
cials the op- that offer guaranteed payouts. 2015. The median return for
tion to raise “We have to deal with real- public pensions was 6.6%, ac-
rates at their next meeting in A pump jack operates in a Texas oil field this month. U.S. crude oil rose 2.7% to $32.30 a barrel. ity,” Mr. Bevin said. “Every- cording to Callan Associates.
March. thing is on the table, abso- The 2013 changes champi-
“The Fed basically said that he said. company’s stronger-than-ex- after oil prices jumped on the lutely.” oned by then-Gov. Steve
we are paying attention to The Dow Jones Industrial pected earnings. Shares fell back of supply data and hopes Pensions across the U.S. ran Beshear, a Democrat, included
markets and global develop- Average fell 222.77 points, or 8.9%. oil producers will cooperate to into problems because benefits permanently halting pension
ments but we stick to our 1.4%, to 15944.46. The S&P 500 Late Tuesday, Apple fore- cut output. were sweetened in fat times, in- rises for retirees and cycling
game plan’’ of interest-rate in- slid 1.1%, as the technology cast a decline in revenue in The Stoxx Europe 600 rose vestments soured or lawmakers some public workers onto a
creases, said Gene Tannuzzo, sector fell 2.5%. The Nasdaq the current quarter and said 0.3% to close at 340.24. skirted requisite payments. “cash-balance” plan that pro-
senior fixed income portfolio Composite Index tumbled iPhone sales grew at the slow- U.S. crude for March deliv- Kentucky suffered from all vides a retirement benefit
manager at Columbia Thread- 2.2%. est pace since their introduc- ery gained 85 cents a barrel, three. more tied to financial markets.
needle Investments, which had Boeing and Apple both fell tion. or 2.7%, to $32.30 on the New Some of the state’s current But the gap between the
$471 billion assets under man- sharply. Boeing on Wednesday Apple shares fell 6.55%. York Mercantile Exchange. woes can be traced to 1996, state’s pension assets and lia-
agement at the end of Septem- gave 2016 guidance that fell European stock markets Brent crude for March delivery when lawmakers, buoyed by bilities only became larger. It
ber. “The equity market well short of Wall Street ex- climbed out of negative terri- gained $1.30 a barrel, or 4.1%, years of double-digit returns, rose to $30 billion in 2015, up
wanted more from the Fed,” pectations, overshadowing the tory right ahead of the close to $33.10. agreed to give retirees an an- $4 billion from 2012.
nual cost-of-living increase. “The goal is just to not run
Two years later, some state out of money,” said David

PROFIT regulators’ concerns about

how Santander manages its
capital and corporate gover-
nance.
Continued from page B5 The bank reported a capital
said. Net interest income was ratio of 10.05% as of December
roughly in line with what the compared with 9.85% as of
bank reported a year earlier at September under international
€7.89 billion. regulations known as “fully
Santander shares slipped loaded” Basel III criteria. In-
0.2% Wednesday in Madrid. vestors and analysts welcomed
Without the charges, the that slight climb, as they
bank said it would have re- closely watch the pace at
ported a fourth-quarter profit which Santander is able to
roughly in line with the previ- generate capital given con-
ous year. cerns that the bank is one of
“There was underlying the most weakly capitalized
weakness across all divisions European lenders.
quarter-on-quarter,” Barclays If Santander continues the
PLC analyst Rohith Chandra- current pace of building capi-
Rajan wrote in a research re- tal, the bank should have a
port, “with Europe and the fully loaded ratio of 11.1% by
U.S. seeing the most signifi- the end of 2017, Exane BNP an-
cant declines.” alyst Santiago López Díaz
Profit at Santander’s units wrote in a research report.
in continental Europe slipped “Although we would not
in the fourth quarter com- consider such a level to be
pared with the third quarter, outstanding, we think it would
weighed down by weak results be comfortable enough for the
in Spain. Profit in the U.S. regulator to remain calm and
plummeted during the same not force the company to raise
period as the bank continues equity,” Mr. López Díaz wrote.
to step up spending to address The bank’s ratio of bad
loans to total loans fell to
4.36% in 2015 from 5.19% in
2014. The bank said the level
of nonperforming loans fells in
all its markets except for re-
cession-hit Brazil.
Spain was a weak spot. Net
interest income in Santander’s
Spanish banking unit fell 16%
in the fourth quarter of 2015
from a year earlier.
Net interest income, a key
driver of profit for retail banks
such as Santander, is the dif-
ference between what lenders
charge for loans and what
they pay clients for deposits.
In Spain, total loans
dropped in the fourth quarter
from a year earlier and from
the previous quarter. While
Spain’s economy is recovering
after a deep recession, many
individuals, businesses and
public institutions in the coun-
try aren’t taking out new
loans, instead focusing on pay-
ing down their existing debts.
Rock-bottom interest rates
have also hurt the net interest
income of Spanish banks. Most
mortgage loans in Spain are
variable rather than fixed.
Santander’s launch of a
higher-interest checking ac-
count for clients has taken a
further toll, analysts say, be-
workers were offered a 10%
boost to benefits if they re-
tired early, lowering the an-
nual payroll but inflating long-
Peden, a 39-year-old lifelong
Kentuckian who manages in-
vestments for five of the
state’s eight pension plans.
cause existing clients who term costs. “Since I’ve gotten here, it basi-
have switched to the new ac- But lawmakers didn’t pro- cally went from being a bad
count become more expensive vide an additional way to fund situation to a dire one.”
for the bank than they were that benefit boost, such as in- Mr. Peden oversees $11.5
before. Santander executives creasing annual worker or em- billion in assets and the retire-
say that over time the 1|2|3 ac- ployer contributions or levy- ments of about 230,000 public
count, as it is called, will be ing new taxes. Instead they workers and retirees. His big-
profitable. banked on robust investment gest headache is managing the
Profit in the Spanish unit profits. public-employees plan, which
took a nose dive to €94 mil- Then, Kentucky lawmakers covers corrections officers,
lion in the fourth quarter from tightened the flow of money bridge engineers and other
€289 million a year earlier. into the state’s pension plans state workers. In 2001, its as-
The bank also made a required starting in 2004. The most se- sets covered more than 120%
contribution to Spain’s deposit vere underfunding occurred of what it owed to retirees.
guarantee fund. with the public-employees Now, they cover just 17.7%.
In Brazil, lending income plan, where lawmakers with- The state doesn’t have a lot
and net profit in euros fell in held more than $2.5 billion in of time. Based on a report
the fourth quarter compared contributions over the past de- from its investments consul-
with a year earlier. While the cade. tant, the public-employees’
Latin American country posted A decline in the state’s coal plan has a 50/50 shot over the
an increase in net interest in- industry plus a slowdown in next two decades of hitting
come and net profit in the lo- certain manufacturing jobs such financial distress that it
cal currency, the Brazilian motivated lawmakers to redi- would be forced to shift much
real’s 26% fall in value against rect funds elsewhere, said Ja- of its portfolio to cash.
the euro last year chipped son Bailey, executive director “I just know every time the
away at Santander’s revenue of the nonprofit Kentucky Cen- market is doing what it’s do-
there when it is converted into ter for Economic Policy. ing now, that’s probably taking
euros on the lender’s financial Over the next nine years, a year off of the cushion,” Mr.
statements. the situation worsened for the Peden said.

ITALY
Flashing Yellow ment is also set to approve dell’Emilia Romagna SC lost
new measures aimed at speed- 4.1%—the worst performers of
Two measures of corporate-bond market stress have risen in recent months, ing up the collection of collat- the day. Italy’s FTSE MIB
though bond and credit-default-swap spreads recently have retreated a bit. eral on bad loans. That would closed down 0.4%, paring
Yield spread, eurozone corporate Credit-default-swap spread* Continued from page B5 also help banks tackle nonper- some of the losses seen during
bonds minus government bonds nonperforming loans. forming loans. the session.
The economy ministry said Italian banks’ gross bad By making the securitized
6 percentage points $400,000 that by helping banks to shed loans, measured at their face bad loans less risky, the guar-
some of their bad loans, the value, stood at €201 billion antee will reduce the differ-
5 guarantees will make it easier ($217 billion) in November, 11% ence between what investors
High yield
300,000 for banks to finance deals. higher than in the year-earlier are willing to pay for the debt
4 That would aid the economy. period, according to the Italian and the amounts banks need
Italy will guarantee only banking association, ABI. This to receive in order to avoid
3 200,000 the safest loans. amount includes only the large losses. The success of
The price of the guarantees worst bad loans, where the the plan depends on how
2 will be calculated by consider- debtor is considered insolvent. much of the gap the guarantee
Investment grade
100,000 ing the cost of insurance Gross bad loans were 10.4% will eliminate, but Italy’s trea-
1 against default for debt issued of total loans in November, ac- sury ministry didn’t provide
by the banks that is considered cording to ABI, the highest details on the issue.
0 0 as risky as the loans guaran- percentage figure since 1996. The guarantees back only
2015 ’16 2015 ’16 teed. The price rises with the Concerns about the bad the better-quality portion—the
*Annual cost to insure $10 million of European corporate debt for five years duration of the notes. loans have soared recently, so-called senior tranche—of
Source: Barclays (spreads over government bonds); Markit (credit-default-swap spreads) THE WALL STREET JOURNAL. The government will pro- helping to send Italian stocks the bad-loan portfolios. Ana-
vide a guarantee only if the tumbling. An index of Italian lysts expect that the worse-

BONDS euro area, compared with 1.6%

last year.
“We don’t expect a signifi-
cant slowdown in growth in
Continued from page B5 the euro area,” said Franck
have been selling bonds to Dixmier, chief investment offi-
cover losses suffered in equity cer for European fixed in-
markets, and the average re- come at Allianz Global Inves-
turn generated by funds that tors. Mr. Dixmier has been
buy bonds issued by companies investing in the European
across Asia was negative-0.4% high-yield-debt market, where
last week, according to fund he says company leverage lev-
tracker Morningstar Inc. els remain low. He believes
This week, European credit that the selloff had more to do
markets have stabilized, with broader risk aversion
and yield spreads have nar- than specific concerns over
rowed a little, helped by a this particular sector.
near-term bounce in oil prices “It is totally disconnected
and hints of further stimulus from reality, so it is really a
from the European Central buying opportunity,” he said.
Bank. Fitch Ratings forecasts that
The cost of insuring against less than 1% of the European
a default on $10 million of Eu- junk-bond market will default
ropean high-yield bonds using in 2016, compared with a high
five-year credit-default swaps of 10.5% following the finan-
rose to $395,000 a year last cial crisis.
week, its highest level since BlackRock’s Mr. Krautz-
October 2013, according to
Markit. It has since fallen to
berger has been buying invest-
ment-grade bonds, including
$366,000. debt issued by Northern Euro-
The market has also pean banks. Elsewhere, Mr.
strengthened as big funds Krauztberger has been buying
edged back into riskier debt, Portuguese government debt,
confident that Europe’s econ- in a bet that political risks in
omy remains on track despite the country are receding after
the turmoil rocking markets. the formation of a coalition
The European Commission’s government last year.
latest forecast predicted Investors are also taking
gross-domestic-product comfort after the European
growth of 1.8% in 2016 for the Central Bank reiterated last
Thursday its readiness to bol-
ster stimulus measures as
soon as this March.
The ECB has cut the rate it
pays on excess commercial-
bank deposits into negative
territory and spent billions of
euros buying government
bonds, both measures that
tend to push investors into
riskier debt.
“The fact that central banks
won’t be supportive is an ove-
rhyped fear,” said Mr. Krautz-
berger. “We think the ECB will
do more, the Bank of Japan
will do more.”
Negative interest rates in
Europe will also encourage in-
vestors to put money back
into financial markets, he said.
Still, global markets remain
fragile, and these investors are
proceeding with caution.
“Volatility is elevated at the
moment, and it’s not going to
die down overnight,” said Iain
Stealey, a portfolio manager at
J.P. Morgan Asset Manage-
ment, who has been buying up
European junk bonds and
southern eurozone govern-
ment debt following the sell-
off. That means that nobody is
likely to rush in with big bets
until the markets settle down.
“You need to take risk, but
you have to think about the
underlying risk of the market,”
Mr. Stealey said.
notes have a rating of invest-
ment grade or higher.
The price of the guarantees
was the most contentious part
banks has slumped nearly 25%
since the start of the year, al-
though it partly rebounded
this week in anticipation of a
quality tranches will remain
largely unsold.
Using the mechanism could
force the banks to record siz-
of the negotiations because deal with the commission. able write-downs on their bad-
the European Commis- After some initial gains loan portfolios. Analysts at
sion wanted to ensure they Wednesday, most Italian bank- Barclays estimate that even
were priced at market terms, ing stocks slid into negative with the guarantees provided
so that they didn’t violate the territory, and some accumu- by the state, the six largest
bloc’s state-aid rules. If the lated large losses. Traders said Italian banks would realize ag-
price of the guarantee was the remaining uncertainty gregate losses of €6 billion to
lower than the market charges about the implementation of €28 billion if they accessed
to insure comparable risk, it the plan—in particular, the mechanism. Banco Popo-
would have constituted state whether banks would suffer lare and Banca Monte dei Pas-
aid, violating a ban on such losses when they unloaded chi di Siena are seen as the
assistance. their bad loans—was still two most vulnerable banks un-
The Italian economy has weighing on the sector. Banca der this scenario, while Intesa
shrunk 10% since 2009, a con- Monte dei Paschi di Siena Sanpaolo SpA and Banca
traction that has hit local SpA, considered the most in Popolare di Milano Scarl are
lenders hard. Years of poor need of assistance with its bad viewed as the best placed. The
management at the banks have loans, was the only gainer write-downs could force some
combined with economic Wednesday, with shares end- banks to raise fresh cash via
weakness to push the level of ing up 1.1%. Shares at Banco capital increases or asset
bad loans higher. Popolare SC shed 7.8%, while sales, according to Me-
On Thursday, the govern- those of Banca Popolare diobanca analysts.
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B8 | Thursday, January 28, 2016
Email: heard@wsj.com
Novartis Is
Out of Sync,
Out of Sorts
If timing is everything,
Novartis has totally lost its
rhythm. The Swiss pharma-
ceutical company’s shares
fell Wednesday in response
to uninspiring results and a
disheartening outlook. No-
vartis expects flat sales and
operating profit this year,
before any currency hit.
Novartis is suffering from
two main problems: First,
the difficulties in its eye-care
business, Alcon, continue.
Competition is hurting sales.
Second, Novartis’s great
hope—new heart-failure
drug Entresto—is struggling,
with sales of just $5 million
in 2015’s final quarter. Navi-
gating public-health reim-
bursement in the U.S. is
proving very slow.
For now, this doesn’t dent
Entresto’s potential, pegged
at peak annual sales of $5
billion. But more than 50% of
Novartis’s revenue-growth
outlook rests on Entresto
and another potential block-
buster for psoriasis, notes
Barclays. Until Novartis can
show that prescriptions are
accelerating as Medicare
blocks are removed, a ques-
tion mark will linger.
The result is a fraught
year, with the pickup from
new drugs barely softening
the blow from Gleevec’s pat-
ent loss from February, a
drug with 2015 sales of $4.6
billion.
Suggestions that Novartis
is valued at a big discount to
the sector should be treated
with caution: Earnings esti-
mates probably need to
come down, for this year at
least. It joins a list of self-
help, recovery cases in the
European sector (think
Sanofi and GlaxoSmith-
Kline) with everything to
prove. Timing can help but
execution is the key.
—Helen Thomas
Deutsche Bank Stumbles
BY JENNY STRASBURG
We a k e r - t h a n - e x p e c te d
fourth-quarter results
Deutsche Bank AG’s equity-de-
rivatives and structured-fi-
nance businesses weighed on
performance at its investment
bank, reflecting the challenges
the lender faces to generate
profits in core units while slic-
ing costs, according to people
familiar with the matter.
Germany’s largest bank
hasn’t disclosed results of
those two securities busi-
nesses ahead of its earnings
report scheduled Thursday.
But it warned last week of a
year-on-year decline in fourth-
quarter revenue in its invest-
ment bank, citing “challenging
market conditions.” The dis-
closure helped send the bank’s
shares to their lowest level
since 2009. The shares are
down 25% this year, compared
with about 15% for the Stoxx
Europe 600 index of banks.
Deutsche Bank, which is
shrinking as part of a compa-
nywide overhaul under new co-
Chief Executive Officer John
Cryan, warned last week that it
would post a €2.1 billion ($2.28
Finance
Watch
ROYAL BANK OF SCOTLAND
Another Annual Loss
Is in the Cards
Royal Bank of Scotland
Group PLC warned it would
slump to yet another full-year
loss after it put aside £2.5 billion
($3.59 billion) to cover a number
of regulatory issues, including a
looming settlement with U.S. au-
thorities over the sale of mort-
gage-backed securities.
The 73% U.K. government-
owned bank is continuing to
trudge through a range of legal
problems built up over the years.
The provisions detailed Wednes-
day will show up in its full-year
2015 earnings, expected to be
HEARD ON THE STREET
Santander: No Margin for Error
Two of Banco Santan-
der’s biggest markets are
giving it a headache, but for
precisely opposing reasons.
At home in Spain, bad-
loan losses are falling rap-
idly, but ultralow interest
rates are crushing lending
margins and have left the
bank with very limited pric-
ing power. In Brazil, it is the
other way round.
Santander must tackle its
problems because its still-
thin capital cushion leaves
no room for error.
The bank did manage to
finish 2015 with a small rise
in net profit over 2014, it
reported Wednesday. How-
ever, its equity raise at the
start of last year means
earnings per share fell 7%,
disappointing investors.
In Brazil, recession, unem-
ployment and high inflation
are taking a toll. Santander’s
bad-loan provisions there
rose in the final quarter,
pushing charges for the year
to €3.3 billion ($3.58 billion).
That was 5% worse than
2014 in local-currency terms,
but the collapse in the real
Bottom-Fishing for Chinese Brokers Is Risky
China’s brokerage stocks
look cheap, but investors
should beware. This is a
value trap, with Chinese
characteristics.
The country’s brokers
have been on a roller
coaster. Their shares soared
along with the Shanghai
market in the first half of
2015, only to come crashing
down when the bubble burst.
Now some are thinking
about taking another ride.
Twelve out of 13 analysts
surveyed by FactSet have a
“buy” rating on Haitong Se-
curities, one of the biggest
in China. Nomura, for one,
recommends the brokerage
sector to clients, chiefly due
to cheap valuations.
MONEY & INVESTING
in
ARNE DEDERT/EUROPEAN PRESSPHOTO AGENCY
Deutsche Bank is scheduled to report results on Thursday.
billion) fourth-quarter loss and
its first full-year loss since
2008. Litigation and restruc-
turing charges continued to
add to the lender’s woes.
Trading and lending head-
winds in some areas of global
credit markets and stock-mar-
ket volatility have created
challenges for many invest-
ment banks. At Deutsche Bank,
relatively strong performance
in interest-rate and foreign-ex-
change trading last quarter
helped offset the weaker re-
sults elsewhere in the securi-
ties division, the people famil-
reported late next month.
In an unscheduled update to
investors, RBS said it would set
aside an extra £1.5 billion to
cover litigation surrounding the
sale of toxic mortgage-backed
securities in the U.S. RBS also
took a charge of £1.6 billion to
reduce the bank’s pension deficit,
a hit that won’t affect its full-
year result.
RBS said it would take a fur-
ther £500 million provision to
cover the wrongful sale of pay-
ment-protection insurance, which
was widely sold to people who
didn’t need it.
U.K. authorities have set a
proposed deadline in 2018 for
compensation claims. RBS ex-
pects higher claims from cus-
tomers as the cutoff nears.
—Max Colchester
ANZ
Lender’s New Chief
Shakes Up Team
The new head of Australia &
FINANCIAL ANALYSIS & COMMENTARY
Risky Business
Santander's bad loan charges as
a share of total loans*
6%
Brazil
4 But the early signs aren’t
2 worse than the fall in net in-
Group Total
0 Spain
2014 ’15
*Also known as cost of credit
Sources: the company; Reuters (photo)
THE WALL STREET JOURNAL.
meant the charges were
about 10% lower in euros.
When looking at these
charges relative to total
loans—known as the cost of
credit—Santander finished
2015 still in a better position
than a year earlier and be-
low the 5% level it said it
wouldn’t breach at last
year’s investor day.
Santander has managed
to hold down this cost of
credit in Brazil by making
The five biggest brokers
traded in Hong Kong—Gal-
axy Securities, Haitong,
Citic Securities, GF Securi-
ties and Huatai Securities—
are valued at an average of
7.8 times estimated 2016
earnings, according to Fact-
Set. That compares with an
average forward multiple of
13.4 times over the past five
years.
But the consensus esti-
mates for 2016 are probably
too high. Analysts are cur-
rently penciling in an earn-
ings decline of just 10% for
the big five brokers. That
would be a gentle comedown
from 2015, when earnings
were expected to have more
than doubled, despite the
iar with the matter said.
Other big investment banks
like Goldman Sachs Group
Inc. and J.P. Morgan Chase &
Co. were hit last quarter by
choppy markets and other fac-
tors that hurt revenue in bond
trading and other markets ar-
eas. Still J.P. Morgan beat ana-
lysts’ profit expectations, and
Goldman posted solid funda-
mental results, hurt mainly by
a legal settlement. Bank of
America Corp. and Morgan
Stanley beat analysts’ profit
and revenue forecasts last
quarter, as well.
New Zealand Banking Group
Ltd. has shaken up his team to
simplify how the bank operates.
The changes introduced by
Chief Executive Shayne Elliott
include shuffling executives and
rebranding the titles of divisional
chief executives as group execu-
tives, as well as adding the role
of executive for digital banking.
Key among the moves is
Mark Whelan’s appointment as
group executive of institutional
banking. Mr. Whelan, currently
CEO of ANZ Australia, is one of
the bank’s most experienced
leaders. Reporting to Mr. Whelan
will be Farhan Faruqui, who has
been named group executive of
ANZ’s international division.
Among other moves, the cur-
rent boss of ANZ’s New Zealand
retail-banking business will shift
into the role of group executive
for Australia, while ANZ New
Zealand CEO David Hisco will add
to his role the responsibility for
operations in the Pacific region.
—Robb M. Stewart
Ana Botín, Banco Santander's
executive chairman
fewer riskier loans and more
higher-quality ones in the
past couple of years. High in-
terest rates also allow it to
bake in more profit on good
loans. However, as more peo-
ple lose jobs, problem loans
will inevitably grow and the
bank now thinks its cost of
credit will go back above 5%
over the next couple of
years, hurting profits.
In Spain, meanwhile, the
problem is ever-shrinking
market rout in the second
half of the year.
Much depends on how the
Shanghai market performs
over 2016. That is, of course,
difficult to predict. But early
signs aren’t encouraging.
The Shanghai Composite In-
dex is down 22% this year,
including a 6.4% plunge on
Tuesday. Declining trading
volume doesn’t augur well
for broker commissions.
To get an idea how far
earnings could fall, it is in-
structive to look at 2014.
That was actually a pretty
good year for Chinese mar-
kets: The Shanghai Compos-
ite rose 55%. But if the five
brokers reverted to 2014
earnings levels, their valua-
AN EVENT OF
THE WALL STREET JOURNAL.
WSJ.com/Heard
OVERHEARD
lending margins. To tackle Another round of billion-
this, the bank aims to earn
more money in fees from
selling its clients more prod-
pound charges and another
chunk investors knock
off Royal Bank of Scotland’s
ucts and services. It has share price—but that is the
plans in place to do this in wrong reaction.
Spain as well as in markets The U.K. lender, which still
like the U.K. is in cleanup mode and still
mostly owned by the U.K.
great. Net fee income in government, did something
Spain fell almost 6% in 2015, positive on Wednesday: It
used a chunk of the excess
terest income. Across the capital built up as it restruc-
group, Santander says it can tures to fill a hole in its pen-
add 0.1 percentage point to sion plan.
its common equity Tier 1 Doing so means it won’t
capital ratio each quarter. It have to make any more top-
finished 2015 at 10.05% and up payments until after 2019,
expects to need more than protecting profits for the next
10.5% by the start of 2019. three years.
If all goes to plan, it It also will reduce the dis-
should have more than 11%, cretionary capital charge that
but that entails no nasty sur- U.K. regulators have applied
prises from Brazil. Amaz- to cover uncertainty about its
ingly, it is also still enter- pension-plan deficit. And
taining the possibility of that, as noted by Jefferies
acquisitions if something like analysts, will reduce the
the small bank being spun bank’s overall capital require-
off from of Royal Bank of ments.
Scotland in the U.K. can be RBS isn’t allowed to
had cheaply enough. say how big that capital
Santander needs to be charge was or how much it
careful. It is walking a very might be cut, leaving inves-
fine line. —Paul J. Davies tors in the dark about this
benefit.
However, even after £4.2
billion ($6 billion) to plug the
deficit (which because of the
accounting treatment will
tions would suddenly look cost the bank only £1.6 billion
much less cheap—15.2 times of capital) and adding £2 bil-
earnings, a premium to the lion to provisions for future
historical average. settlements related to U.S.
Additionally, China’s dra- mortgages and U.K. insurance
conian market interventions mis-selling, RBS still finished
have shown huge risks for 2015 with a common equity
the brokers. The firms could capital ratio of 15%.
again be compelled to partic- That remains a good cush-
ipate in bailout efforts by ion to have.
buying up shares, or they Additionally, with the sale
could face more politically of a small unit, Williams &
motivated investigations. Glyn, and further cuts across
If 2015 has demonstrated its investment bank still to
anything, it is that China’s come, more capital should be
domestic equity market can added before the bank starts
be unpredictable and irratio- paying dividends again, which
nal. The Chinese brokerages most likely will be in early
are leveraged bets on this 2017.
market. Investors seeking The payout still is promis-
bargains should look else- ing.
where. —Aaron Back
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