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Interpreting Fedspeak
OFF THE WALL 31
EUROPE EDITION
VOL. XXXI NO. 111 MONDAY, JULY 8, 2013
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WSJ.com
New Finance Questions For Euro Zone

BY MATTHEW DALTON AND MATINA STEVIS BRUSSELSEuro-zone officials are preparing to confront one of the next big tests in the regions debt crisis: finding yet more financing for Portugal, Greece and Cyprus on top of more than 200 billion ($256 billion) the bloc already has devoted to bail out its weakest members. Euro-zone tensions have flared up in recent weeks after several months of relative calm, with a political crisis exploding last week in Portugal, tricky negotiations coming to a head over releasing more aid money for Greece and mounting evidence that the Cypriot economic program is veering off track. Those events add new urgency to a meeting Monday of finance ministers from the 17 euro-zone nations in Brussels. But some of those concerns eased over the weekend. Portuguese Prime Minister Pedro Passos Coelho appeared to have settled the weeklong crisis after making a cabinet reshuffle and securing a joint political commitment by the two governing parties to stay united. And officials reported progress in the Greek talks, including advances in discussions over public-sector payroll cuts Athens had promised as part of its bailout. That opens up the likelihood the ministers will unlock at least part of the next aid slice of at least 4.8 billion for the country. Resolving these questions now will be punted into what could be a tempestuous autumn. Talks will heat up after German elections in Septem-
Wimbledon: Andy Murray Ends a 77-Year Wait
ber, when analysts expect Chancellor Angela Merkel, a decisive figure in the eurozone debate who is expected to win re-election, will have more latitude to take tough decisions. Election campaigns could also get under way in Portugal. And Greece will come under question since the country wont, as things stand, have 12 months of forward financing needed to get the necessary support of the International Monetary Fund for further releases of rescue funds. And Cyprus is widely expected to need more money. These issues could be in play as the U.S. Federal RePlease turn to page 3
Portugals remixed government starts over........ 3 Simon Nixon: How Berlin is steering the EU.......................... 4
Inside
BY MATT JARZEMSKY
U.S. Earnings Season Will Test Confidence

After Fridays strongerthan-expected U.S. jobs report, investors are more convinced than ever that the Federal Reserves bond-buying program will be scaled back as soon as September. If that happens, the stock market will lose fuel that helped power the Dow Jones Industrial Average to a new high in May. Investors hoping that U.S. companies will come to the rescue are likely to be disappointed. Earnings season kicks off Monday afternoon in New York with aluminum giant Alcoa Inc., while banks J.P. Morgan Chase & Co. and Wells Fargo & Co. report second-quarter results Friday morning. By the end of the
High-end smartphone makers face flood of cheaper devices Business ................ 15 U.S. authorities probe cause of deadly Asiana Airlines crash U.S. News ............... 6 Egypts post-Morsi reality check Opinion................... 14
month, dozens of corporate Americas bellwethers will have signaled whether the U.S. economy is growing fast enough to justify stock prices that are within striking distance of their all-time highs. Companies in the Standard & Poors 500-stock index are expected to report a meager 0.6% rise in quarterly earnings from a year earlier, according to analyst forecasts complied by FactSet. That would be the smallest growth since the third quarter of 2012, when profits fell. In this years first quarter, earnings at S&P 500 companies grew 3.5%, and Please turn to page 22
Associated Press
Alcoa no longer sets the tone for earnings................... 15 Heard: U.S. jobs data work over bond buyers.................... 32
Andy Murray became the first British man to win Wimbledon since 1936 with a 6-4, 7-5, 6-4 victory over Novak Djokovic in Sundays Wimbledon final. The applause was possibly the loudest and longest in Wimbledon history. The last four or five years, its been very, very tough, very stressful, a lot of pressure, Murray said after the match. Articles on page 30
2 | Monday, July 8, 2013
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THE WALL STREET JOURNAL.
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Whats News
Associated Press
PUUUUUUUL!: A judge watches the leather ring held by two competitors with their middle fingers at the Alps Finger Wrestling championships in the southern German town of Mittenwald on Sunday.
Business & Finance

n Retailers are becoming more stringent about monitoring safety at the factories they source from in Bangladesh, pre-empting a pact that hasnt come into full effect. Separately, Cambodia was supposed to be an industry model, but problems remain at least decade after a U.N.-backed program was launched to manage it. 3, 9 n The vagaries of the aluminum market mean Alcoa, always the first to report earnings, isnt the industrial bellwether of yore. 15 n One aspect of the Volcker rule a curb on participation in bankrun investments by directors and employeeshas left confusion among lenders, staff and clients. 15 n Mexicos antitrust regulator could soon issue a last call for
beer makers sales exclusivity agreements with corner stores and restaurants, clearing a path for craft brewers and other players to crash a lucrative party. 18 n Three years ago, a Greek lawyer-turned-tycoon, was riding high, as his investment fund had just snapped up Olympic Air. Today, however, he has become a symbol of Greeces travails. 19 n China is launching an investigation of Swiss packaging company Tetra Pak International, the latest in a growing roster of foreign firms under scrutiny for antimonopoly practices in China. 20 n The Chinese government is adopting a tough line with Europe in talks to resolve a multibilliondollar trade dispute over solarpanel equipment, leaving the two sides with significant differences after weeks of negotiations. 20
n A mortgage-focused hedgefund investor closed his fund and handed money back to investors last month after he concluded that mortgage bonds and other investments were on thin ice. 20 n The Dutch central bank has told lenders to build up a bigger capital cushion for potential losses on real-estate loans, its latest move to protect banks from the countrys property slump. 22 n Banks discretion in judging the riskiness of their assets can lead to overstatements of their capital ratios of as much as 20%, a report by global regulators says. 22 n The U.K. government could be left with a big hole in its public finances and Swiss banks could lose millions of pounds paid in advance after a tax agreement apparently failed to raise anywhere near the money expected. 23
n The price of oil from some OPEC members has fallen, highlighting the prospect of a deepening rift between countries that are most affected and those that are largely unscathed. 24 n HSBC is leaving retail banking and wealth management in South Korea, its latest move to rid itself of inefficient businesses. 24
n Canadian authorities confirmed five deaths and said about 40 people remained missing after a runaway train carrying crude oil derailed, causing an explosion that destroyed dozens of buildings in a Quebec town. 7 n Activists on both sides of Egypts widening political divide protested in the capital, a day after opponents of ousted President Mohammed Morsi failed to settle on a new prime minister. 8 n A female former Afghan lawmakers path from traveling the world to hiding in a shelter shows just how far the country has to go in improving the treatment of women. 8 n North and South Korea agreed to take initial steps toward reopening their joint industrial zone, a rare consensus after months of fractious relations. 9
World-Wide
n The leader of the junior partner in Portugals ruling coalition has been named deputy prime minister and point man in the countrys dealings with the countrys international bailout creditors. 3 n The U.K. deported radical cleric Abu Qatada to Jordan to face terrorism charges, concluding a frustrating saga for British authorities who have battled to eject him. 4
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WORLD NEWS
Retailers WorkTogetheronSafetyMatters
BY CHRISTINA PASSARIELLO PARISRetailers are becoming more stringent about monitoring safety at the factories they use in Bangladesh, pre-empting a safety pact that wont come into full effect until the fall. A sense of urgency has permeated retailers in the wake of a factory building collapse that killed more than 1,100 workers in April, illuminating the lack of oversight in one of the worlds largest garment manufacturers. Retailers such as Hennes & Mauritz AB, Zara parent Inditex SA and British retailer Primark, part of Associated British Foods PLC, scrambled to come up with an industrywide safety pact, which begins to take effect on Monday. Yet many are also taking matters into their own hands and working with their competitors, duplicating some of the functions of the safety pact. The newfound cooperation underscores the pressure on retailers to adapt how they do business in Bangladesh. Retailers are rushing to conduct their own building-safety checks, even before the same buildings are checked by the pacts chief inspector. Last month, British retailers Tesco PLC and Primark said they discovered structural problems at the Liberty Fashion Wears Ltd. factory in Savar, near the crumbled Rana Plaza. The four-story building doesnt have enough steel support for its weight, the retailers said, and tory must be inspected by next April, one year after the Rana Plaza collapse. The five-year accord is designed to raise fire- and building-safety standards in Bangladesh. Seventy retailersnearly all Europeanhave signed the legally binding pact since mid-May, pledging to help finance repairs at sites that dont meet their standards and to not contract work at factories that the group deems unsafe. Inditex, PVH Corp., the owner of Calvin Klein and Tommy Hilfiger, and British mail-order retailer N Brown Group PLC are heading the initiative on behalf of the retailers. Trade union groups and the International Labour Organization are also participating. Major U.S. retailers including Wal-Mart Stores Inc. and Gap Inc. are pursuing a competing program that would establish a $50 million safety fund, according to a person familiar with the proposal. It could be announced as soon as mid-July, according to the person. The European group, which will operate as a foundation based in Amsterdam, has just begun to recruit its two key positionschief safety inspector and executive director. The safety inspector will coordinate building-safety assessments of all of the factories in which the retailer signatories manufacture. Suzanne Kapner contributed to this article.
Bloomberg News
Workers embroider T-shirts with logos on the production line of a garment factory in Gazipur, Bangladesh, in May. it is at risk of collapsing like its neighbor. Tesco and Primark then teamed up with other retailers producing at the factory, including Carrefour SA and Debenhams PLC. And two weeks ago, retailers including Tesco and Carrefour wrote a letter to the factory owner, cosigned by the trade unions, demanding that he close the site until more inspections and repairs are done, according to the retailers. They insisted that the factory keep paying wages during the shutdown, and they committed to completing their orders there once the factory is safe again. Attempts to contact the factory owner were unsuccessful. Retailers are also sharing supplier listsinformation that they used to guard for competitive reasons. Many retailers use the same factories, so they believe they can exact change by coordinating efforts. Over the summer, a group of 70 retailers participating in the safety pact will establish a master list of the factories covered by it. Members estimate it could cover 1,500 to 2,000 of Bangladeshs 5,000 factories. According to the pact, each fac-
Garment trade in Cambodia is under pressure ......................................... 9
Continued from first page serve, which has helped buoy the regions debt markets with its own stimulus efforts that have sent dollars speeding around the world, might be slowing or stopping its asset purchases come autumn. Both factors could produce turmoil in the sovereign debt markets, creating problems for Portugal in particular. The spike in borrowing costs in recent weeks has cast doubt over whether Western Europes poorest nation will be able to exit its bailout program without fresh aid in mid-2014. Lisbon successfully tapped the market for long-term borrowing earlier in May, bolstering hopes it would be able to continue funding itself from the private sector next year. Portugal paid 5.8% for its May bond issue, a price it can pay as a one-off, but not sustain over a longer period of time. Portuguese and euro-zone officials are wary of discussing the prospect that Portugal will need a second bailout. Two European Union officials stressed that any additional aid needed by Portugal would become clear early next year, and would be modest compared to the original 78-billion bailout. It could be a precautionary credit line that would disburse aid to a member state to be used as needed rather than disbursed regularly based on a fully-fledged bailout plan. Portugal will need 14 billion in 2013 and 15 billion in 2014 just to repay maturing debt, according to a document from the so-called troika of official creditorsthe European Central Bank, European Commission and IMF. The bailout plan foresees the government raising 16.3 billion in market financing for 2014, a diffi-
New Finance Questions Confront Euro Zone

Euro-zone ofcials will need to decide how they will nd more nancing for Greece, Portugal and Cyprus. All three bailout countries face challenges that could increase their need for funding.
Treating the Wounded
ShuffleAids VicePremier InPortugal

BY PATRICIA KOWSMANN LISBONPaulo Portas, leader of the junior partner in Portugals ruling coalition, has emerged from a weeklong political crisis that ended in a cabinet shuffle by being named deputy prime minister and point man in the countrys dealings with international bailout lenders. But analysts say Mr. Portas still might not have greater maneuvering room than previous Portuguese officials to wrest more growth-oriented terms from the creditorsthe European Union, the International Monetary Fund and the European Central Bank. Thus resolution of Portugals latest political crisis is more likely to be a patch-over of problems accumulating in one of the euro zones most-fragile economies, rather than a long-term solution, analysts say. Mr. Portas heads the Democratic and Social Center Party, and last week he resigned as foreign minister to protest the appointment of a finance minister he felt would stick closely to the austerity favored by international creditors. On Saturday, Mr. Passos Coelho, of the Social Democratic Party, announced a cabinet shuffle that gives greater visibility to Mr. Portas, who in effect will coordinate economic policies. Tactically, Mr. Portass gambit has paid off. Indeed, this might be no bad thing if it helps shore up the government and improve the politics of economic reform in Portugal, said Nicholas Spiro, managing director at Spiro Sovereign Strategy, in London.
GREECE
PORTUGAL
CYPRUS
247.5 billion
78
10
Bailout ends: December 2014 Possible Pitfalls: Privatization revenues and tax receipts fall short; another debt structuring is needed this fall
Source: European Commission (bailout size and date)
June 2014 Borrowing in the bond market becomes too expensive, requiring more bailout cash
March 2015 Restructuring of the biggest Cypriot bank stalls or fails; recession is deeper than expected
The Wall Street Journal
cult task if investors remain concerned a political revolt in Lisbon against the bailout could jeopardize the countrys bailout financing. In Greece, the government, the euro zone and the International Monetary Fund have yet to finalize a deal on payroll cuts, which will affect 12,500 government workers, ahead of Mondays meeting in Brussels, officials in Athens said Sunday. I hope we will conclude tomorrow morning before the Eurogroup meeting, Poul Thomsen, IMF mission chief in Athens, told reporters. Stopping funding would only worsen the situation in Greece, where recovery is necessary to avoid
[debt relief] even sooner than core Europe would like, economists at the Royal Bank of Scotland wrote last week. October looms as the date when Greeces international creditors will start to tackle the question of debt relief, part of a pledge made earlier this year to bring Greeces debt well under 110% of GDP by 2022. The IMF has been pushing for this for some time, but has maintained it wont forgive any of its own loans to Greece, citing its status as a preferred creditor. But several eurozone countries, including Germany, Finland and Austria, are arguing that the fund should take losses as
well, officials say. Doubts are rising across Europe about Cypruss 10-billion bailout plan, which was negotiated just months ago. The Cypriot economy is in free fall, while the Bank of Cyprus, the countrys largest bank, is still stuck in a restructuring process Not even the most basic preconditions for getting the bank out of resolution has been achieved, said a senior euro-zone official. That includes appointing an auditor to evaluate the banks books and determine how much losses its large depositors will have to suffer, the official said. Stelios Bouras contributed to this article
EUROPE NEWS
A Reluctant Hegemon Steps to Forefront

[ Agenda ]
BY SIMON NIXON It was a busy few days in Berlin last week. On Wednesday, Chancellor Angela Merkel hosted 20 European heads of government at a jobs summit, convened to discuss solutions to the euro zones youth unemployment crisis. On Thursday, her finance minister, Wolfgang Schuble, hosted his Spanish counterpart as he handed over an 800 million ($1.03 billion) loan from stateowned lender KfW, to ICO, the Spanish development bank. And throughout the week, telephone lines between the German capital and Lisbon ran red hot as Berlin successfully persuaded the junior party in Portugals ruling coalition not to bring down the government. So much for Germany being Europes reluctant hegemon. Critics say Germany has failed to exercise the leadership in Europe that it has a responsibility to provide by virtue of its economic superiority, held back largely for reasons of history, culture and political parochialism. Instead, they argue, Germany has forced countries on the euro zones periphery to bear the full cost of the regions debt crisis, causing social misery and a deep recession that threaten to destroy the currency bloc, rather than offer the solidarity and burdensharing needed to allow Europe to exit the crisis. It is arguable whether Germany has ever been as reluctant as claimed; Germany has been the dominant force in shaping the Continents affairs for over 30 years, even if it has exerted its influence less noisily than, say, the French or British. And even during the current crisis, German leadership has been more effective than its critics recognize. But the events of the past week highlight an increasing German assertiveness, combined with a change in the way it is choosing to exercise its power.
Chancellor Angela Merkel addressed a news conference after a summit on youth unemployment on Wednesday in Berlin. Sure, one shouldnt read too much into what were essentially publicity stunts to bolster Ms. Merkels image ahead of Septembers national elections. The jobs summit provided photo opportunities but delivered no new policies, while the loan to Spain was too small to ease the funding challenges faced by its small and midsize businesses. But the fact that Ms. Merkel felt the need to hold a jobs summit or extend bilateral loans to Spain is revealing. It shows the extent to which Berlin has been stung by accusations that its single-minded pursuit of austerity is responsible for the economic and social crises in the periphery. Ms. Merkel felt compelled to do something because her opponents were threatening to turn eurozone unemployment and SME funding into an election issue. Domestic and international political pressure is forcing Berlin to accept greater responsibility. Crucially, Germanys willingness to publicly accept this responsibility also marks a shift in Berlins European strategy away from the supranational community method centered on the European Commission toward bilateral and intergovernmental initiatives that allow Berlin a far greater degree of control. Indeed, one of the most striking changes in Berlins handling of the crisis over the past two years is the extent to which suspicion of the commission has hardened into deep mistrust. For example, Berlin was furious at the commissions decision in June to offer France an extra two years to meet its deficit target before a delay had been even formally requested and without upfront conditionsa decision that some German officials fear undermined reformers in the French government. Suspicion of the Brussels bureaucracy and its tendency to yield to national interests is the main reason why Berlin opposes handing the commission responsibility for the euro zones planned Single Supervisory Authority, which will decide the fate of failed banks in the new banking union. To some in Berlin, the commission, particularly under its current leadership, is weak, power hungry and ineffective. Bilateral deals and intergovernmental arrangements offer greater scope to act decisively, while also presenting fewer legal and political obstacles, either in the shape of Germanys own Constitutional Court or in the need to seek Europe-wide ratification of treaty changes. German ministers and officials still believe in pooling sovereignty, but many are wary of yielding sovereignty to institutions that they cant control and that may be used as a vehicle for the mutualization of European debts. Of course, some argue this German reluctance to allow the mutualization of euro-zone debts is proof that Berlin wont face up to its responsibilities as Europes hegemon. But that ignores an important truth: most crisis countries have already received substantial debt relief as a result of the generous loan extensions and interest-free periods provided under bailout programs.
Germanys critics focus only on the nominal value of outstanding debt, which may be very high relative to gross domestic product. But they ignore the substantial reductions in the so-called net present value of debts, the actual amount countries must repay over the coming decades measured in todays money. This is a much more relevant figure when assessing long-term solvency. Berlin has played its part in easing debt burdens, but has done so in a way that has allowed it to keep control of the process to protect its own taxpayers and ensure that crisis countries pursue reforms. That may have frustrated those who wanted something for nothing, but it was politically and economically the only sensible way to proceed. Berlins critics are on stronger ground when they argue that Germany could do more to boost the European economy with its domestic policies. With government debt standing at 90% of GDPa level that would in normal times be considered eyewateringly higheven the leftwing Green party says the priority must be to pay down debt. But Germany could still be doing more to frame regulatory and tax policies to unlock its vast domestic savings surplus to fund private-sector-led investment. That would be in Germanys interest too. The country owes much of its success over the past decade to an export boom driven by soaring demand in emerging markets and a decade of wage restraint at home. But the economy is expected to grow by just 0.3% in 2013 and its competitiveness risks being eroded as a result of a decade of underinvestment in infrastructure, housing, education and new sources of energy. To maintain the long-term health of its economy, Germany needs to spend an additional 80 billion a year on infrastructure, according to a recent report by the Berlin-based think tank DIW Berlin. After all, the only thing worse for Europe than a reluctant hegemon is an economically weakened one.
BY CASSELL BRYAN-LOW AND PETER EVANS
U.K. Deports Radical Cleric for Trial in Jordan

man, had spent several years in jail in Britain, but wasnt charged with a crime in a U.K. court. British authorities first tried to deport Mr. Qatada in 2001 and then detained him in 2002 under antiterrorism laws that at the time allowed suspected terrorists to be jailed without charge. Since then, he has been in and out of jail and has repeatedly been under stiff bail conditions. He had won repeated appeals in British and European courts to block his extradition by arguing he would face unfair trial if returned to Jordan because he would be at risk of torture and evidence obtained by torture could be used against him. The path was cleared for his departure after Britain and Jordan in June ratified a treaty on torture intended to address his human-rights concerns. The preacher, who is in his 50s, then indicated he would voluntarily return to Jordan.
Agence France-Presse/Getty Images
LONDONThe U.K. deported radical cleric Abu Qatada to Jordan to face terrorism charges, concluding a frustrating saga for British authorities who have battled to eject him for more than 10 years. On Sunday, Mr. Qatada pleaded not guilty to terrorism charges in a Jordanian court, his lawyer told the Associated Press. The lawyer, Tayseer Thiab, said Mr. Qatada told military prosecutors that he is not guilty of terrorism and rejected the charges against him. The U.K.s struggles underscore the challenge for Western governments in balancing human rights in the fight against terrorism. Since 2001, successive British governments have sought to extradite Mr. Qatada, who U.S. and European antiterrorism officials have called a key al Qaeda operative who
Muslim cleric Abu Qatada boards a Jordan-bound plane near London on Sunday. posed a serious risk to national security. A Palestinian from Jordan, Mr. Qatada has been sentenced in absentia by Jordan in 1999 to life imprisonment for involvement in terrorist acts and faces trial. Mr. Qatada, whose real name is Omar Mahmoud Mohammed Oth-
Mr. Qatada left the U.K. early Sunday and arrived in Jordan, where he was taken to court. In nearly two hours of questioning, prosecutors charged Mr. Qatada with conspiring to carry out terror attacks in Jordan twicein 1999 for a foiled plot against the American school in Amman and in 2000 for allegedly targeting Israeli and American tourists and Western diplomats during New Year celebrations, AP reported. Mr. Qatada was ordered detained for 15 days pending further questioning, AP reported one of the prosecutors as saying. Mr. Thiab said he would try to free his client on bail Monday. In the U.K., Prime Minister David Cameron said he was delighted Mr. Qatada had been deported. This dangerous man has now been removed from our shores to face the courts in his own country, said British Home Secretary Theresa May.
Reuters
U.S. NEWS
Investigators Search for Clues to Crash

BY ANDY PASZTOR The Asiana Airlines pilots whose Boeing 777 crashed Saturday while landing at San Francisco International Airport were following a routine visual approach and didnt radio any onboard problems or declare an emergency before impact, according to preliminary reports of the disaster that killed two people and sent more than 100 to the hospital. Investigators will focus on why the twin-engine jetlinerarriving on an overnight flight from Seoul with 307 people aboard and descending in good weatherslammed down hard on a portion of the airport hundreds of feet before the runways normal touchdown point, according to industry and U.S. government safety experts. Early on, the probe is likely to delve into everything from possible engine problems to pilot mistakes to mechanical issues. Deborah Hersman, chairman of the U.S.s National Transportation Safety Board, told reporters before departing Washington for San Francisco with a team of investigators that they will look at everything but that it was too early to speculate about the cause. We have not determined what the focus of this investigation is yet, she said. One issue likely to come under early review is the overall experience and hand-flying skills of the pilots, who couldnt use an instrumentlanding system as a backstop. Those navigation devices for the runway werent operating Saturday because of work under way to improve the strip. Since late June, all pilots landing at the San Francisco airport have been warned that the approach aids are temporarily turned off. While visual approaches typically dont require any assistance from instrument-landing systems, safety experts said some airlines prefer to have pilots rely on them as an additional safeguard under nearly all circumstances. As part of their effort to dissect the sequence of events, U.S. and South Korean investigators also are expected to examine if pilot fatigue or flight-control problems contributed to the accident, and whether air-traffic-control instructions may have been a factor. The aircraft should have been flying roughly 100 or 150 feet above the airports surface, experts said, when its tires or tail apparently smacked into a stretch of the sea wall and the jet began breaking apart. Large
The Asiana Airlines Boeing 777 plane as seen after it crashed while landing at San Francisco International Airport on Saturday. Two people were killed. pieces of the tail section and scrape marks were visible near the sea wall, and both left and right portions of the landing gear were found hundreds of yards away from the main wreckage. Passenger Eugene Anthony Rah, a hip-hop concert producer who was on his 173rd flight from Seoul to San Francisco on Asiana Airlines, said he knew as he looked out the window on the approach to the runway that something was wrong. The altitude was too low over San Francisco Bay, he said, and then he heard an unusual engine noise, like revving. I thought [the pilot] was trying to get more power, to gain elevation. Despite the Asiana jets losing both left and right landing gears, its rear bulkhead, portions of the wings, and at least one engine, early reports indicated that the crew and airport emergency officials acted quickly to evacuate most passengers. They slid down emergency slides or otherwise managed to leave the plane, before an intense fire melted its aluminum skin and left a giant gash replacing what had been the top half of the middle of the fuselage. Witnesses said they saw puffs of smoke, apparently from the main wheels or tail hitting the ground, bethough they stressed other issues also are being assessed and it is too early to prioritize investigative directions. The fuel question is relevant because the safety board and Boeing Co. in previous years spent a lot of major accident involving a Boeing 777 in passenger service. Ice accumulation starved both engines of a British Airways 777 from fuel on final approach to Londons Heathrow International Airport, forcing the crew to crash-land just short of the runway. Nobody was injured in that accident, but it prompted major changes in operating procedures and a redesign of fuel systems aboard the 777. Fallout from the accident also prompted regulators to take a fresh look at eliminating such hazards on future models built by Boeing and other manufacturers. That British Airways jet was powered by Rolls-Royce PLC engines, while the Asiana jet was powered by engines manufactured by the Pratt &Whitney unit of United Technologies Corp. According to safety experts, one of the first items on the safety boards to-do list is likely to be determining whether the engines were putting out thrust immediately before impact.
One issue likely to come under early review is the overall experience and hand-flying skills of the pilots, as an instrument-landing system was unavailable.
fore the plane was engulfed in flames; some parts of the jet were later found in the San Francisco Bay, which circles the beginning of the runway. Passengers were seen jumping down emergency inflatable slides to the tarmac. Fuel flow to the engines is one area that already has attracted the attention of investigators and outside safety experts, according to people familiar with the matter, time and money looking into the previously unknown phenomenon of ice accumulating inside fuel lines when jets make long-distance flights between continents. In rare instances, chunks of ice can break loose and block the fuel supply to enginesan especially dangerous result when pilots expect to spool up the engines just before touchdown. That is what happened in January 2008, which was the only other
Two Chinese Students Perish in Asiana Disaster

BY JAMES T. AREDDY SHANGHAIThe two 16-year-old Chinese girls killed in Saturdays airplane crash in San Francisco planned to spend their summer break practicing English in California under an exchange program. Students, bankers, technology workers and others from China represented almost half of the 291 passengers aboard Asiana Airlines Flight 214 from Seoul when it landed hard in San Francisco, skidded off the runway and eventually caught fire. Chinas Ministry of Education said in a statement that 70 of those aboard were Chinese high-school and middle-school students and their teachers, joining of a wave of precollege exchange programs in the U.S. that analysts say are fast becoming a rite of passage for the countrys education-minded and increasingly wealthy middle class. Among them, according to a statement from Asiana that was also carried on leading Chinese state media, were Wang Linjia and Ye Mengyuan. Last month, the two friends had finished their first year of high school at Jiangshan Middle School in Zhejiang province, according to their postings on the Internet. They were on their way to a 15day summer camp in the San Francisco area organized by Jiangshan, according to a government spokesman in the town where the school is located. Ms. Wang and Ms. Ye were traveling with 28 other students and four teachers, according to personnel at the school and local government. The exchange program is dubbed a cultural immersion course but mainly is meant to expose young Chinese to English, according to people familiar with the program. Jiangshans seven-year-old study-abroad program switched to the U.S. last year from London, when the Summer Olympic Games there made it difficult to organize, according to a student at the school. Parents gathered Sunday at Jiangshan, a prestigious institution in Chinas industrial heartland that has produced leading Chinese scientists. The plane carried at least 60 students plus teachers from Jiangshan as well as similar groups from two Chinese schools in northern Shanxi Province who were also headed to U.S. study programs. Family members and administrators at the school Sunday said by phone they had little information but the mood was grim. Shortly before Ms. Wang and Ms. Ye were publicly identified Sunday evening, the local government where the school is located distributed a photo showing two parents collapsed over a desk distraught after speaking with officials in San Francisco. In the U.S.-China relationship, student-exchange programs represent a source of bilateral harmony. China already is the largest source of foreign university students in the U.S., and is increasingly dispatching younger groups to study English and play basketball. Almost 200,000 Chinese students studied in the U.S. on visas in the 2011-2012 academic year, the fifth straight year of 20%-plus growth, according to the Institute of International Education. Only about one-tenth that number of Americans
study in China, though a program unveiled in 2009 by U.S. President Barack Obama, and supported with China-funded scholarships, aims to boost the numbers. While Chinese long have sought spots in U.S. colleges, educators say Chinese increasingly are enrolling high school and even primary school students in English, culture and sports programs. They are starting at a younger age, said Alice Sun, founder of a Beijing consultancy called Ivy Labs. This year, she placed a 10-year-old Chinese student in a U.S. boarding school, for instance. The crash was a top story of Sundays Chinese news broadcasts, which included a scrolling list of survivor names as Chinese parents clamored for word about their children.
WORLD NEWS
Trade Talks Could Raise Heat on China

[ The Outlook ]
BY WILLIAM MAULDIN The U.S. is launching broad trade talks with Europe this week and preparing for the next stage of negotiations with select AsiaPacific nations, part of the Obama administrations effort to find new fuel for economic growth. U.S. trade experts and business leaders say they expect the deals will also put pressure on the only major economy absent from the negotiating tables: China. China has to decide whether to conform and adapt to the norms of international trade or continue to be an outlier, said Michael Wessel, member of the U.S.-China Economic and Security Review Commission, a U.S. government agency created to monitor the trade and economic relationship between the two countries. It puts pressure on them to do bilateral deals that might provide them with important access to key markets. European Union officials arrived in Washington to start talks Monday aimed at eliminating remaining tariffs on exports and imports, recognizing each others industry standards and granting easier market access for businesses across the Atlantic. The two sides are looking to clinch deals that would open up their government contracting to foreign companies and allow for freer trade in goods and services. Such methods of lowering trade barriers are a tougher sell in many emerging-market economies such as China. Europe and the United States are not just going to wait for Chinatheyre going to move forward, said Myron Brilliant, executive vice president for international affairs at the U.S. Chamber of Commerce. Proponents of a U.S.-EU trade pact concede, however, that it would take years to negotiate and implement, suggesting that any impact on China would also be far off. This is going to be a difficult negotiation, said Mickey Kantor, the former U.S. trade representative who led talks to form the World Trade Organization. It may take longer than anyone expects. And China could benefit from a trade deal that boosted growth and likely importsin its two largest export markets. The U.S. and EU imported goods worth $808 billion from China last year. But watching the U.S. and Europe hammer out a deal also could lead China to work harder on its bilateral trade and investment talks with Washington, U.S. officials hope. The Obama administration is also preparing this week for the next round of talks for the TransPacific Partnership, or TPP, which includes Japan and many marketoriented economies in Asia and Latin America, but not China. A free-trade pact among these countries could have a more direct effect on China than the U.S.-EU trade pact. Yukon Huang, former World Bank chief for China and a senior associate at the Carnegie Endowment for International Peace, said it is very likely the TPP would actually discourage or make it difficult for parts to be shipped to and from Asian
Talking Points
Bilateral trade in goods between the U.S. and European Union was larger than their bilateral trade with China in 2012 TOTAL TRADE IN GOODS, IN BILLIONS
$700 billion 600 500 400 300 200 100 0 2008 09 10 11 12 2008 09 10 11 12 2008 09 10 11 12
but trade in goods with China is growing faster. Change since 2008 in total trade
U.S.China EUChina
U.S.EU
U.S.China:
EUChina
30% 20 10 0 10 20 30 2008 09 10 11 12
U.SEU
Note: EUChina trade gures were converted from euros to dollars using the rate on Dec. 31 of each year. Sources: U.S. Commerce Dept., European Commission
countries outside the group, jeopardizing Chinas role as the final assembly point for phones and gadgets whose parts come from other countries. Another sensitive point for China: the Trans-Pacific Partnership talks are looking at limiting the role of state-owned enterprises. Still, depending on how the Trans-Pacific Partnership rules are structured, the countries in the group could end up boosting trade in products that are partly produced in China, said Mr. Wessel of the U.S.-China Economic and Security Review Commission. Western leaders say the goal of the two sets of trade negotiations isnt to isolate or contain China. Our efforts in these negotiations are not aimed at any one country, but at developing high standards and new
disciplines that strengthen the international trading system and create a level playing field on which our workers and firms can compete, said U.S. Trade Representative Michael Froman. In recent weeks Beijing officials have softened their once-critical tone on the trans-Pacific trade talks, saying they would weigh the advantages and disadvantages of joining. China Daily, the Chinese governments flagship Englishlanguage newspaper, last week cited officials growing increasingly positive about the possibility of entering the talks. The Chinese embassy in Washington didnt immediately reply to a request for comment on the issue. Chinas new leadership appears to be looking at domestic economic reforms, and some trade
experts say the chances are good that they will look favorably on expanding international economic ties and allowing more foreign investment. American businesses want to see fewer barriers to investment in China and greater market access, including in services and new areas such as cloud computing, said John Frisbie, president of the U.S.-China Business Council. Mr. Froman said in an interview that his office is engaging very actively with China, adding that his office is excellent at multitasking among various trade initiatives. Meantime, Chinas breakneck pace of economic expansion is slowing, making it possible that Beijing could look to trade deals with the U.S. as a way to way to re-energize growth.
Five Confirmed Dead in Quebec Railway Disaster

LAC MEGANTIC, QuebecCanadian authorities on Sunday confirmed five deaths and said about 40 people remained missing after a runaway train carrying crude oil derailed and caught fire early Saturday, causing an explosion that destroyed dozens of buildings in this small town. By Caroline Van Hasselt, Carolyn King and Tom Fowler A police spokesman on Sunday said several investigations were under way. Because deaths were involved, Quebec police will conduct a criminal investigation into the incident, and the spokesman told the media at a noon briefing that they cannot rule out foul play. Teams from the train operator and the Transportation Safety Board of Canada have been on the scene since early Saturday, but the fire has limited access to the site. Earlier, local media had reported as many as 60 residents missing and up to 30 buildings destroyed. The scale of the explosion and evacuation rank the accident as one of the most dramatic rail incidents in North America in recent years. The train, operated by Montreal Maine & Atlantic Railway Inc., a unit of privately held Rail World Inc., of Rosemont, Ill., derailed early Saturday morning in Lac Megantic, Quebec. Oil has leaked into the towns namesake lake and a nearby river. A company spokesman said the train had been stopped and secured outside town just before midnight. Its crew was off the train when it started moving again, for unknown reasons, eventually traveling almost 11 kilometers before derailing in Lac Megantic, the company said. Numerous cars have derailed, said Canadas Transportation Safety Board, which has deployed a team of investigators. TSB officials said they were focusing their initial probe on the train, its brakes and the track. The derailment is the latest in a string of railroad mishaps involving crude oil shipments in Canada and the U.S., amid a boom in North American crude production and crude shipments by rail. So far, though, recent derailments have resulted in only minor spills, typically far from urban centers. Recent derailments have raised scrutiny of the North American railroad industrys safety record in carrying crude. A spokeswoman for the provincial police force, the Surete du Quebec, Aurelie Guindon, said about 1,000 residents have been evacuated. Another 1,000 have been evacuated from a nearby town because of worry over air quality, authorities said at a news conference in the late afternoon. The Canadian Broadcasting Corp. aired video of flames and black smoke billowing above the town as emergency-services vehicles jammed a road leading into the municipality. CBC also posted raw video footage, taken by residents in the early hours of the morning, of buildings ablaze and residents running for cover through the towns streets. A large blast woke Bernard Deners at around 1:30 a.m. Mr. Deners, who lives about a half mile from the blast scene, said the air was scorching hot outside his home when he went outside to investigate. Flames leapt high in the air. More explosions rattled the town hours later. It was terrible, just terrible, he said. The entire town, a close-knit lakeside community, came out onto the streets. We think there are many people dead, many, but we just dont know, the 58-year-old said. Mr. Deners said everybody in town knows someone who is missing. Local hotels were fully booked with residents seeking temporary shelter and emergency officials. Jean St.-Pierre was working at the Hotel Oriental when he heard the first blast and rushed to the window. He raced to his car and drove to the scene, but was turned back by more explosions. It was like hell, there was fire everywhere and explosions, he said. Mr. St.-Pierre fears the worst.
A firefighter works at the scene of the Quebec train derailment on Sunday.
Guests who witnessed the explosion up close said a bar at the center of town was full of people outside enjoying a drink when the first explosion struck nearby. Its like a nightmare, he said. The police have blocked off a large no-go zone around the site of the derailment. Lac Megantic, a town of about 6,000, is located about 250 kilometers east of Montreal in Quebecs Eastern Townships. Joe McGonigle, Maine-based vice president at Montreal Maine & Atlantic, said the train had been stopped outside of town for a crew change, and that there was no crew on the train at the time that it somehow started to roll again. The trains engineer had inspected the train at just before midnight and all was secure. However, sometime after that, the train started to move, eventually traveling nearly 11 kilometers, and part of it derailed and several cars exploded, he said. The train was released, we dont know how, he said. All safety measures were in place, and the train was secure, he said. Rail World said late Saturday that the derailment happened at about 1:15 a.m. Saturday. The train involved had 72 carloads of crude and five locomotive units. The company said railway personnel were able to pull 13 carloads intact from the site at the rear of the train. David George-Cosh and Alistair MacDonald contributed to this article.
Reuters
WORLD NEWS: ASIA
Afghan Women Fear Erosion of Rights

BY MARGHERITA STANCATI KABULA plaque from President Hamid Karzai sits on Noor Zia Atmars desk, congratulating her for her achievements as a lawmaker. The desk is in a shelter for abused women. Ms. Atmarwho served in Afghanistans first Parliament after the Talibans downfallhas nowhere else to live these days after escaping an abusive husband and a family that disowned her after she divorced him. The tale of Ms. Atmarwho helped pass Afghanistans landmark legislation protecting womens rightsshows just how far the country has to go in improving the treatment of women. The laws themselves, including one aimed at ending violence against women, are increasingly coming under threat as U.S.-led international forces pull out and conservative politicians reassert themselves. The achievements of the past 12 years are really in danger, cautions prominent lawmaker and womens rights campaigner Shukria Barakzai. They want to push women in the corner. Ms. Atmar returned to Afghanistan from exile in Pakistan within weeks after the U.S.-led invasion ousted the Taliban regime. She was determined to make the most of new opportunities in her home country. She started working at a local radio station as an on-air presenter in the eastern city of Jalalabad, but then quit to run in the 2005 parliamentary elections. She ran her campaign on a shoestring budget, selling a gold necklace to pay for her election posters. She won, helped by a constitutional provision that reserves a third of elected seats in the lower house of Parliament for women. In 2010, as her term was ending, Ms. Atmar married Toryalai Malakzai, who ran a small construc-
Noor Zia Atmar, who helped pass legislation protecting womens rights, at her shelter in Kabul on a recent afternoon. tion company and was helping her with her re-election campaign. He told me he liked women politicians, Ms. Atmar recalled on a recent afternoon. But then he started behaving like a villain from Bollywood movies. Ms. Atmar, who once toured world capitals as a symbol of female empowerment in the new Afghanistan, became confined to her home after losing her re-election bid in the fall that year. The rare times she went out, she had to wear a fullbody burqa, something she had never done before. Once a passionate public speaker, she was barred from using her phone. She was asked to remove her husbands shoes, and if I refused, he would beat me up, recalls Ms. Atmar, a youthful 40-year-old whose lightly made-up face was framed by a loose head scarf. After a few months, her husband attacked her with a kitchen knife, says Ms. Atmar, revealing a small white scar on her neck. That is when she says she escaped his home. Mr. Malakzai couldnt be reached to comment. Ms. Atmars older brother Zmaray confirmed that she has been disowned by her relatives. People in Jalalabad are very traditional, he explained. These days, Ms. Atmars movements are limited to daily commutes between her shelter and her office a hidden corner of a government ministrywhere she works as an adviser. It is unclear how long she can stay in the shelter, as the very existence of these shelters has become controversial. Conservative lawmakers say the law on the elimination of violence against womenlegislation that Ms. Atmar lobbied for in Parliament and that was passed by presidential decree in 2009runs against Islam. They point to the laws provisions authorizing shelters for abused women and girls. Mawlavi Abdul Rahman Rah-
mani, a bearded mullah who sits in the lower house of Parliament, says these shelters are little more than brothels.What kind of woman escapes her husbands home and goes to a shelter? he said in an interview. It is against the rules of Islam, he said. This echoes the position of the Taliban. Islam has clear instructions: A woman cant go outside her house without the permission of her husband or of her guardian, said Zabihullah Mujahid, a spokesman for the Taliban. He described shelters as a conspiracy to Westernize society. In May, male lawmakers removed quotas for women in provincial and district councils. That decision by the lower house of Parliament was reversed by the upper house in June. Now lawmakers will try to reconcile their differences. The women of Afghanistan are still suffering from the same kind of mentality we have seen in the past, says Fawzia Koofi, who chairs the Parliaments women commission. Efforts to revive peace talks with the Taliban, who last month opened a political office in Qatar, have intensified fears that progress on rights may backslide. If you are having a dialogue between the Afghan government and the Taliban, you are actually having a dialogue between a group that hates womens rights and a group that couldnt care less about womens rights, says Heather Barr, Afghanistan researcher at Human Rights Watch. The government says it is committed to upholding womens rights at the negotiating table should talks move forward. The progress that has taken place in the past 10 years has to be maintained, says Adela Raz, a spokeswoman for the president. Ehsanullah Amiri and Habib Khan Totakhil contributed to this article.
Candidate Put Forward for Egyptian Prime Minister

CAIROLeaders of the hard-line Islamist Nour Party and secular party leaders have agreed after marathon negotiations to put Ziad Bahaa-Eldin, a London-trained economist, forward as candidate for prime minister, officials from Mr. Bahaa-Eldins Social Democratic Party said. By Tamer El-Ghobashy, Matt Bradley and Charles Levinson They agreed to put Mohamed ElBaradei, leader of an umbrella grouping of political parties called the National Salvation Front, up for one of multiple vice-president posts, the party officials said. Mr. ElBaradei had been tapped as prime minister on Saturday, but his swearing-in was canceled at the last minute after the Nour Party raised objections. Military-appointed interim President Adly Mansour still has to formally name both men to their positions, and both men have to accept. The coalition of parties backing Messrs. Bahaa-Eldin and ElBaradei and the military are keen to keep the Nour Partys support for the interim government to give it a broader base of support that includes secular and Islamist political parties, analysts and coalition party officials say. Mr. Bahaa-Eldin, a founding member of the liberal, secular Social Democratic Party, which was formed after Egypts revolution in 2011, has yet to say whether he will accept the position. Party leaders were meeting late Sunday night to decide what to do, according to Fareed Zahran, one of the partys founders. Mr. Bahaa-Eldins last public post was as head of a government financial regulatory body. He resigned that post shortly after Egypts 18day uprising in 2011 when the military tapped a former Mubarak crony to be prime minister. Though he never publicly said so, many prorevolutionary forces in Egypt hailed the resignation as a show of support. In the capital on Sunday, activists on both sides of Egypts widening political divide staged protests. In Cairos Nasr City neighborhood, ousted President Mohammed Morsis mostly Islamist supporters maintained their vigil, demanding that the deposed president be reinstated. At what has become the staging ground of their movement, Rabaa Mosque, thousands crowded around a stage and chanted in unison with rally leaders. Anti-Morsi protesters trickled in to Cairos Tahrir Square throughout the afternoon, and opposition lead-
Margherita Stancati/The Wall Street Journal
Mohamed ElBaradei, left, with interim President Adly Mansour on Saturday. ers said they were planning for larger protests to begin that evening. Leaders from the Tamarod campaign, the anti-Morsi signaturegathering campaign that started the movement to oust the president two months ago, urged Egyptians on Saturday to remain in city squares throughout the country on Sunday to confirm that this is not a coup. As the sun began to set, significant crowds from both camps began to assemble rapidly at their respective demonstrations. At Tahrir, crowds cheered as military helicopters flew over the square. Outside the Republican Guard Club, where Mr. Morsi was last known to be held, a smaller sit-in closed down Salah Salem Streeta major boulevard normally teeming with traffic to and from suburbs and Cairo International Airport. Supporters erected cinder-block and barbed-wire barriers to block the flow of traffic. Directly across from the clubs entrance, they set up a stage, where speakers encouraged the crowd to chant and sing.
The protesters were separated from a heavy presence of soldiers protecting the club by barbed wire. Imamssenior religious figures lined the barrier on the protesters side to prevent anyone from getting too close. The soldiers stood impassively as some in the crowd taunted them with chants insulting Defense Secretary Gen. Abdel Fattah Al Sisi. Late Saturday, a spokesman for the office of Mr. Mansour said Mr. ElBaradei, a leader of the secular groups who opposed ousted President Morsi, hadnt been appointed prime minister. The official state news agency had earlier reported that Mr. ElBaradei would be sworn in Saturday, sparking criticism from Mr. Morsis Islamist supporters. Mr. ElBaradei was sick in bed on Sunday, according to opposition leaders close to the negotiations about who would be the next premier. Mr. ElBaradei had been scheduled to be on NBCs Meet the Press Sunday morning, but canceled, citing laryngitis and a fever and said he was under doctors orders not to do television interviews, according to host David Gregory. According to Mr. Gregory, Mr. ElBaradei told him that he still expected to be named the leader of Egypt as early as Sunday but said the country is falling apart.
WORLD NEWS
Garment Trade In Cambodia Under Pressure

BY KATE OKEEFFE PHNOM PENH, CambodiaThis small Southeast Asian country was supposed to become a model for the world apparel industry, with tough factory monitoring and strong worker protections. But a dozen years after the United Nations International Labour Organization launched a program to manage Cambodias booming garment tradethe first of its kind in the worldlabor activists say many factories still suffer from problems that triggered calls for more oversight in the first place, including the abuse of workers rights. Accidents at two Cambodian factories in May, including one that left two people dead when part of a shoemaking factory collapsed, highlight what activists say are continuing unsafe conditions. Cambodias opposition party has made better working conditions one of its big campaign issues in the national election set for July 28, calling for the monthly minimum wage for workers to rise to $150, almost double the current level, and for working hours to be limited to eight hours a day. The countrys struggle to transform its garment industry offers lessons for Bangladesh, where more than 1,100 people were killed in the April collapse of a garment-factory building. Since then, retailers from H&M to Wal-Mart Stores Inc. have pledged to tighten factory monitoring there. The ILO, meanwhile, is considering launching a factorymonitoring program in Bangladesh, incorporating lessons from its Cambodian project, said Deputy Director General Sandra Polaski. But Cambodias experience speaks to the difficulty in radically transforming working conditions. The core problem is the way the supply chain is structured, which exploits the most vulnerable people, the workers, says Sanjiv Pandita, executive director of the Asia Monitor Resource Center, a nongovernmental organization focusing on Asia labor issues. Labor activists say the government, factories, brands and even some unions keep labor costs down for their own economic benefit. Workersoften extremely poor and uneducatedhave little leverage. There is a lot of injustice in Cambodia even after years of work to improve factories, said Lao Bunna, a 43-year-old who works in one of the heavily guarded garment complexes that line the chaotic
roads into Phnom Penh, the capital. Workers at Ms. Laos factory often feel faint because there are few windows and poor air circulation, she said. Her boss told her and other employees that they would be fired if they refused to work overtime, she added. She has declined to join a union, saying she fears retaliation from factory owners. Her complaints point to gaps between reality and Cambodian law which prohibits laborers from being asked to put in excessive overtime or work in overheated factories, and protects their right to unionizes and the voluntary ILO program that is meant to monitor adherence to those laws. Officials at the factory declined to comment on these issues. Cambodias Secretary of State of the Ministry of Labor Oum Mean said the country doesnt have problems with garment factories because it has appropriate legislation in place to police them. If the factories do not follow the labor law, we will punish them, he said. He also said that competitive labor costs in Cambodia can attract investors to the country, which in turn improves the lives of Cambodians. Cambodia exploded onto the global garment scene in the 1990s. Development specialists saw the sector as a major growth opportunity for the country, which had only recently emerged from the genocidal Khmer Rouge regime, which according to some estimates left 1.7 million people dead during the late 1970s. Taking advantage of cheap labor, factories sprouted up in Phnom Penh residential areas as well as on farmland and rice paddies on the outskirts. There are 462 export factories now, said Ken Loo, secretary general of the Garment Manufacturers Association in Cambodia. That is up from 185 exporting factories in 2001, he said, citing his earliest records. But the rapid growth was accompanied by complaints of sweatshop conditions. As activists called for a solution, U.S. officials negotiated a 1999 trade deal with Cambodia. Washington offered to expand access to the American marketwhich had quotas on garment importsif Cambodian firms improved labor standards. The ILO launched a local body, known today as Better Factories Cambodia, to monitor progress. Better Factories Cambodia was a powerful force in educating factories, their business partners and the
Associated Press
A rescue officer tries to clear people from the wreckage of a factory that collapsed south of Phnom Penh in May.
U.N.-backed overseer Better Factories Cambodia has loosened its auditing standards.
AUDITING AND REPORTING PRACTICES Auditors make both announced and unannounced factory visits Public summary reports detail specic factories progress by issue Public summary reports list names of specic factories Individual factory reports publicly available Worker representatives briefed on individual factory reports PRE 2005
twice each year
Better Factories?
Factories have high levels of noncompliance in many areas, according to Better Factories' April 2013 report.
REGULATION Limit overtime work Ensure reasonable temperature in factory Provide sufcient medical staff Pay employees child-care costs Provide soap and water near toilets FACTORIES FOUND NONCOMPLIANT 96% dont comply 68% 66% 61% 52%
POST 2005
once a year or less
YES
NO
Sources: Stanford Law School & Worker Rights Consortium (audits); Better Factories Cambodia (compliance)
public on labor issues, say union leaders and activists. Conditions at many factories have improved since the program got underway, they say. The program has helped hold factories to paying at least the minimum wage and has served as a neutral intermediary in Cambodia, said Jill Tucker, Better Factories Cambodias chief technical adviser. The program is funded by international buyers and Cambodias government and garment association, as well as by foreign governments including the U.S. But the U.N. program lost some teeth in 2005, with the expiration of the 1970s-era Multi-Fibre Arrangement, which set quotas for apparel imports into rich countries. The end of quotas removed important leverage the U.S. used to pressure factories to change. As factory owners worried about losing guaranteed access to U.S. markets, they pressed the ILO on another frontasking Better Factories to stop naming manufacturers in their public reports, according to Ms. Polaski. Negative assessments,
they reasoned, could kill their business in a more competitive global trade environment. The program agreeda move Ms. Polaski called a bad decision that eroded its progress in the country. The program now submits confidential reports to the factories, whose business partners have the option to buy them. It also publishes public summaries of its assessments that dont name the factories. The ILO is now pushing for greater transparency in all of its monitoring programs around the world, Ms. Polaski said, including in Cambodia and in any potential venture in Bangladesh. Mr. Loo of the manufacturers association said the factories werent powerful enough to have forced the program into making the change and said the ILOs present method of reporting is much better than naming and shaming. The long-term effectiveness of the Better Factories initiative has come under fire by a pair of recent reportsan August 2012 evaluation by Cambodias Community Legal
Education Centre and the Netherlands-based Clean Clothes Campaign, and a February 2013 report by Stanford Law School and the U.S.-based Worker Rights Consortium. Among the continuing problems they identified were excessively low wages, a shortage of independent unions and abuse of workers rights to participate in unions and claim benefits. Meanwhile, employers are increasingly signing workers to shortterm contracts lasting three or six months, which critics say let them easily terminate workers if they join unions or seek bonuses or maternity leave benefits. An April 2013 Better Factories Cambodia report said that 90% of the newly-registered factories it assessed say all of their workers are on short-term contracts. Better Factories Cambodias Ms. Tucker concedes her programs influence has been waning but says it hopes new strategies, including increased transparency, will help. Sun Narin and Patrick Barta contributed to this article.
Korean Governments Thaw in Talks to Reopen Joint Industrial Park

BY KANGA KONG SEOULNorth and South Korea agreed early Sunday to take initial steps toward reopening their joint industrial zone, a rare modest consensus between the sides after months of fractious relations. South Korean owners of businesses with manufacturing facilities at the Kaesong Industrial Complex will visit the park from Wednesday to conduct maintenance checks on equipment that has been idle since April. They will be allowed to return with raw materials, finished products and equipment, with their safety guaranteed by the North, a joint statement said. Representatives from each side will meet again on Wednesday at the park to discuss ways to reopen the facility and prevent another sudden closure. Until April, the Kaesong complex was the sole example of inter-Korean economic cooperation. Home to facilities for 123 South Korean small manufacturers, around 53,000 North Korea workers provided cheap labor for the companies and a steady source of foreign currency for the Pyongyang regime. But as relations between the Koreas deteriorated following the Norths nuclear bomb test in February and subsequent military drills in the South, North Korea on April 9 pulled all of its nationals from the plant for the first time since it opened in 2004. It specifically cited its displeasure with the portrayal of the park in the South as a cash cow for the Pyongyang regime. About $90 million in annual wages were paid directly to the Norths government for work done at the facility. North Korea initially rebuffed of-
fers of dialogue over the complex from the South and pulled out of recent high-level talks over inter-Korean cooperation. But last week it accepted a proposal for low-level talks about Kaesong for Saturday. It also restored a communications line between the sides that allows coordination of South Korean traffic heading to and from the plant, which lies a few kilometers inside North Korea.
IN DEPTH
Bloomberg News
Eight years after his forced resignation from AIG, Maurice Hank Greenberg is staging an improbable comeback. In 2011, Mr. Greenberg appeared on Bloomberg TV, above.
At 88, Former AIG Boss Is Building a New Empire

BY LESLIE SCISM
Greenbergs Fast-Growing Insurance Conglomerate Is Collecting Billions in Premiums All Over the Globe
ately, Maurice Hank Greenberg, former chief executive of American International Group Inc., has been traveling the world, with stops in Shanghai, Istanbul, Manila and other far-flung locales. The 88-year-old hasnt been sightseeing. Eight years after his forced resignation from AIGwhich he turned from an obscure property-casualty player into a global financial powerhouseMr. Greenberg is staging an improbable comeback. Hes quietly building a fast-growing insurance conglomerate, called Starr Cos., thats collecting billions in premiums all over the globe. Sipping herbal tea in his Park Avenue offices decorated with paintings, sculptures and photographs of him with world leaders, Mr. Greenberg said he has no thought of retiring. I am doing what I do best, he said. I like building things. His reign at AIG famously ended amid a giant accounting scandal. And today his rebranding efforts are complicated by one final obstacle from the past: a trial on civilfraud charges alleging he used accounting shenanigans to portray an unduly rosy picture of AIGs results. Late last month, the New York Court of Appeals denied an effort by Mr. Greenbergs lawyer, prominent trial attorney David Mr. Greenberg has long denied he did Boies, to win dismissal of the civil-fraud anything wrong, and maintains that Mr. charges that stuck from the original suit Spitzer never should have brought the case brought by New Yorks then-Attorney Genbecause, among other things, AIGs earnings eral Eliot Spitzer in 2005. restatement from the affair shaved off just The ruling followed a 3% of shareholders equity, federal judges approval of an amount he considers a $115 million pact to settle immaterial. The U.S. A New Plan class-action shareholders Chamber of Commerce Starr's property-casualty litigation against Mr. filed a friend-of-the-court premiums have grown rapidly. Greenberg and other forbrief in the state case call100% mer AIG executives that ing for its dismissal, and 2012: 80% covers the same accountpoliticians who lent suping issues. In 2009, Mr. port include former gover75 Greenberg agreed to pay nors Mario Cuomo and Cumulative growth $15 million to resolve SeGeorge Pataki, who cosince 2008 curities and Exchange wrote an opinion piece in 50 Commission allegations reThe Wall Street Journal in lated to AIGs accounting May. 25 methods; he admitted no Meanwhile, Mr. Greenwrongdoing. berg prevailed on a matter In the latest ruling, the affecting Starrs sizable 0 states highest court said AIG holdings: A federal 2008 '09 '10 '11 '12 the attorney generals ofclaims court judge ruled Source: Starr The Wall Street Journal fice, which had abandoned on June 26 that an entity its effort to seek monetary he heads could proceed damages from Mr. Greenberg in the wake of with a lawsuit against the U.S. government the class-action settlement, could try the over alleged unconstitutional elements of civil fraud matters and seek other relief AIGs bailout during the 2008 financial crisuch as a ban on serving as an officer of a sis. The government says it did nothing public company. wrong. Starr was AIGs largest shareholder until the government takeover. In identifying causes of the 2008 markets meltdown, the governments Financial Crisis Inquiry Commission cited stunning instances of governance breakdowns and irresponsibility that included AIG senior managements ignorance of the terms and risks of the companys huge exposure to mortgage bonds. No one expected the feisty Mr. Greenberg to disappear when he left AIG. With a commanding presence, he had dominated the insurance industry for decades, and was one of the most powerful executives in the broader financial-services world. He was an often-brusque, hard-charging boss known for boundless energyand impatience with managers, analysts and others who didnt live up to his standards. Of his reputation as a tough boss, Mr. Greenberg said: I wouldnt ask anybody to do anything I wouldnt do. Because Mr. Greenbergs new venture is privately held and has ample capital, the New York ruling is unlikely to have immediate consequences for the firm, insurance experts say. He doesnt intend to take his Starr public, so a potential ban on serving as a public officer would be moot. No matter the legal outcome, the road ahead is likely to be tough. Competition is
IN DEPTH
fierce and the property-casualty insurance industry faces headwinds, including ultralow interest rates that hurt insurers investment income. Mr. Boies said he believes the case will be dismissed by the lower courts and plans to argue that the evidence used by the state is inadmissible hearsay. Last year, Starrs units took in about $2.7 billion in gross premiums from insuring businesses in the aviation, construction and marine industries, among others. The volume is a fraction of AIGs $45 billion in property-casualty premiums. But if it was public, Starr would be large enough to edge into the top 25 of property-casualty insurers traded on U.S. stock exchanges, as measured by gross premiums. Many insurance brokers and their customers welcome Mr. Greenbergs return to the business. He has a great track record of bringing some of the best talent in the industry to work with him, said Al Tobin, an executive with insurance brokerage Aon PLC. Mr. Greenberg has been warmly greeted as a speaker at various industry events over the past several years, Mr. Tobin and others note. To his friends, Mr. Greenberg, a D-Day combatant who earned a Bronze Star in the Korean War, has always seemed indomitable. Starrs U.S. unit, Starr Indemnity & Liability, has an A, or excellent, rating from insurance specialist A.M. Best, the same as AIG and many other insurers. Besides its U.S. offices, Starr operates in Argentina, Bermuda, Brazil, Hong Kong and London, among other places. Starrs trajectory is something of a reprise for Mr. Greenberg. As the face and undisputed leader of AIG, Mr. Greenberg built it into a sprawling conglomerate with businesses in 130 countries, its market capitalization peaking at more than $200 billion in 2000. In March 2005, under pressure from the board amid Mr. Spitzers investigation, Mr. Greenberg stepped down. The break was traumatic. AIG was our family, said his wife, Corinne. It was dreadful.This was what we had devoted ourselves to. For his part, Mr. Spitzer, who resigned as governor in 2008 in the wake of a prostitution scandal, said in an interview earlier this year that he still believes in the case. He recently added that the courts decision to proceed says precisely what I said for years about this case, which is that theres evidence this conspiracy of illegal conduct began with Hank Greenberg. Only the acolytes of Hank Greenberg ever tried to refute that fact. After leaving AIG, Mr. Greenberg still ran Starr International, an investment and charitable firm that primarily held AIG shares, including many Mr. Greenberg and other Starr executives had set aside for future use rather than distribute to themselves after they took AIG public in 1969. In 2005, Starrs AIG shares were worth more than $17 billion. He also headed C.V. Starr & Co., which owned four specialty agencies that generated business for AIG. Mr. Greenberg offered the agencies to AIG, he said, but AIG offered significantly less than the roughly $1 billion he said his advisers estimated they were worth. He decided to keep them as part of a new insurance conglomerate. I know the world of insurance better than anything else, Mr. Greenberg said. People were getting in touch with me, Could I come to work for you? I just had to answer the phone and get any number of people I wanted. He concluded the new company, while much smaller than AIG, could be a significant force in relatively short order. Beginning in 2006, Starr International sold tens of millions of AIG shares to raise $4.3 billion. But the firm then got caught up in divorce-like proceedings as Mr. Greenberg and AIG separated their affairs. In claims in federal court in New York, AIG maintained Starr owed it the $4.3 billion as well as about 185 million AIG shares it still held. Meanwhile, the unimaginable happened: AIG nearly collapsed, weighed down by bad bets on the U.S. housing markets, and sought government help. Starrs remaining AIG shares plummeted in value. At the trial in 2009 over the disputed assets, Mr. Greenberg was grilled by AIGs lawyer about old memos as the insurer tried to prove the shares had been put in a trust for AIGs benefit. Mr. Greenberg insisted the shares were for Starrs purposes. I had no reason to think we were going to lose, Mr. Greenberg said. How can you lose something it was so clear we owned? He prevailed. In an interview, forewoman Karen Jaroneski said the jury saw Mr. Greenberg as a brilliant businessman, a little bit cutthroat, and I dont think any of us wanted to help him retain the money. Nevertheless, jurors concluded AIG hadnt proved a legitimate claim to it. When the Starr team heard the verdict, you could hear the screams [of joy] all over this floor, said Edward Matthews, a former senior vice chairman of AIG who now works at Starr. At AIG, Mr. Greenberg was legendary for placing phone calls to his managers at odd hours, sometimes as he exercised. That has continued at the new venture, despite his advanced age. He always has been in the business 24/7, said Howard Smith, a former AIG chief financial officer who is a defendant in the civil fraud case and denies any wrongdoing. He is now a vice chairman at Starr. Startup insurance companies arent unusual in the property-casualty insurance industry. The island of Bermuda is dotted with them, many launched with funding from private-equity firms. These startups often are focused on reinsurance, which involves taking on some of the risk of the policies that insurers sell to businesses or individuals, because such insurance requires less staffing than, say, a car insurer selling to the public and handling thousands of small claims. But the strategy requires hiring experienced managers, which is one reason Mr. Greenberg has hired many former AIG managers. Starr has about 2,400 employees; AIG currently employs 63,000, down from 116,000 at its peak. In a statement, AIG said it has a seasoned and very deep bench of talented property and casualty executives ready to assume broader responsibilities. In the U.S. and abroad, Starr has spread beyond reinsurance to sell insurance to business customers. Its expanding roster of policyholders includes some big names, in-
He was known for boundless energy. Of his reputation as a tough boss, he said: I wouldnt ask anybody to do anything I wouldnt do.
cluding Alcoa Inc. With the net worth of the various Starr entities now topping $6 billion, Starr has adequate money for expansion, Mr. Greenberg said. A lot of the new business effort involves Mr. Greenberg using his force of personality to open doors, Mr. Matthews said. Last year, Mr. Greenberg traveled nine times to China. He flew from New York to Oman on a Friday and back on Sunday. In 2011, the mayor of Shanghai visited Mr. Greenbergs estate in Brewster, N.Y. Mr. Greenberg is an institution in the Philippines, said Enrique Razon Jr., a ports magnate in the country who has met with Mr. Greenberg twice in Manila since 2011. Mr. Greenberg had visited there frequently when AIG owned one of the countrys biggest life insurers, since sold to help repay its bailout. When Mr. Greenberg traveled to Manila in January, many Filipino government and business officials wanted to sit beside him, talk to him, get his point of view, said Carla Hills, a former U.S. trade representative who was at some events attended by Mr. Greenberg. The executives trip was tied to a gathering of a U.S.-Philippines relations development group for which Mr. Greenberg is honorary co-chair, including a meeting with the countrys president. Mr. Greenberg also met with the head of Philippine American Life and General Insurance Co., the company AIG used to own, about teaming up on sales. Since the January visit, Philippine regulators have given Starr approval to sell some types of insurance in the country. Back at Starr headquarters one April afternoon, Mr. Greenberg met with about 20 young employees. If you could make any change, what would you changebesides fire me? he asked. Two volunteered that processes for moving along certain insurance forms needed improvement. In his office later, Mr. Greenberg said he is in fighting shape as he marches ahead. He recently spent a week in the Florida Keys, where he had daily tennis, biking and fitness-center workouts. And yet his bitterness over AIG has hardly faded. Among the perceived slights that still anger Mr. Greenberg is a set of missing chairs that match an antique dining table in his office at Starr. AIG, he said, had once agreed to give back the furniture, but then said the chairs couldnt be located. An AIG spokesman declined to comment on the matter. I dont believe it, Mr. Greenberg said. Its oddbut everything that has gone on is odd. Chad Bray contributed to this article.
Starr Companies (3)
From top photo: Mr. Greenberg hob-nobbed with former U.S. President Richard Nixon, Premier Zhu Rongji of China and Boris Yeltsin of Russia. Mr. Greenberg said he has no thought of retiring.
OPINION: REVIEW & OUTLOOK
Belgiums Tax-Fairness Swindle

ast week Belgium announced it would raise a host of taxes in an effort to bring its budget deficit below 3% of GDP this year. The changes will supposedly make the tax code more fair, meaning that the government will get an even larger share of what Belgians earn. The measures include a new corporate levy, which is supposed to prevent companies from using loopholes and exemptions in the tax code to lower their taxable profits to zero if they still pay dividends to their owners. Theres also an excise tax on tobacco and alcohol, including beer. Belgiums beloved Duvels and De Konincks are usually un-
touched by the governments duty Like so much recent talk of fairness hikes, but not this time. in tax codes, Belgiums tax hikes are reThis is supposedly fair because ally a revenue-grab. Were all for elimitaxing vice is almost always fair game. nating loopholeswhen simplification Never mind that such isnt a euphemism for tax The latest rate hikes hikes. The Belgian state taxes tend to be regressive, since the less-wellspends the equivalent of are just another off, on average, spend a more than 50% of GDP a revenue-grab. higher percentage of year, and its 50% top their incomes on these marginal personal inindulgences. The governcome-tax rate kicks in at ment is also ending lawyers exemption just 37,331 a year. Is that fair? from value-added taxes, a quirk unique Most Western countries tax codes to Belgium. How exactly lawyers man- are mind-bogglingly complex in part aged to wrangle an exemption from because one mans loophole is anVAT in the first place is a separate others worthwhile incentive. Years question. back, Belgium introduced the idea of
notional interest that businesses could deduct to even out the tax treatment between equity and debt. In most countries, debt-interest payments are tax deductible, but dividends to equity holders are not. Now that same Belgian notional interest, intended to cure one perversity in the tax code, is being targeted with the new fairness tax because some companies learned to use it too well. Other things being equal, simpler taxes are fairer taxes. But when the government already collects nearly half the national income for itself, higher taxes simply spread the unfairness of excessive taxation around.
South Koreas Kaesong Blunder

outh Korea threw Pyongyang a lifeline over the weekend with an agreement to reopen the Kaesong Industrial complex. Since the North closed the cross-border manufacturing zone in April, Seoul had an opportunity to let it die and compensate the companies that were led into this mess a decade ago by then President Kim Dae Jung. Instead the new administration of Park Geun Hye is repeating one of the worst mistakes of the misbegotten Sunshine Policy of a decade ago. The Kim regime will again collect $90 million per year in wages allegedly for its workers, a sum that, believe it or not, could make a critical difference in its
survival. Coming as the United Nations that maintaining a modicum of aid, trade begins its investigation into human and dialogue diminishes the chances that rights abuses in the North, such a sub- the North will stage armed attacks. Its sidy will be judged harshly by history. certainly true that the Norths sinking of Better yet for the the corvette Cheonan and North, it gets to keep Kae- Seoul agrees to reopen shelling of Yeonpyeong Issong as a bargaining chip. in 2010 came after a source of cash for land The Souths managers are suspension of production potential hostagesin the in Kaesong the previous North Koreas past they have been preyear. dictator. vented from leaving. And But these events were Seoul evidently believes all part of Pyongyangs efthat keeping Kaesong open fort to create a sense of is important to preserving peace between crisis and drive a wedge between South the two sides, which means the mind Korea and the U.S. Temporary closures of games will continue. Kaesong are part of the Kims toolbox. Some South Korean officials tell us Shutting the complex down for good
cant solve the problem entirely, but it should diminish their leverage and hasten the regimes eventual collapse. Seouls wavering means its even more critical that Washington not reward the North for its bad behavior. In this regard, its encouraging that the Obama Administration has stiff-armed Pyongyangs June 16 offer of talks on mutual denuclearization. The North defied the U.S. when it successfully tested a medium-range missile for the first time last December and detonated a third nuclear bomb in February. Any talks now will legitimize it as a nuclear weapons state, which is precisely why the North is so eager to get back to the table.
Part-Time America
he U.S. labor market may be gaining a little more steam, judging by Fridays June jobs report. Imagine how much better it might do if ObamaCare werent encouraging employers to hire so many part-time workers. The Labor Departments survey of businesses found 195,000 net new hires in June, 202,000 in the private economy. Payrolls for April and May were also revised upward by a total of 70,000, which means the average for the last three months is about 200,000. Thats up from the 182,000 monthly average over the last year. One positive development is that the number of long-time unemployed, those out of work for six months or more, fell again and is down by one million workers over the past year. The dismally low labor participation rate ticked up to 63.5% from 63.4% in May as 177,000 more Americans entered the workforce, though the rate is still below the 63.8% from last June. Average hourly wages climbed a welcome 10 cents and for the first time hit $24. The disappointments include a big jump of 247,000 in the number of discouraged workers, those who have stopped looking for a job. This could be a one-month anomaly given the other increases, but it bears watching. Also disappointing is the big jump in the number of Americans who want to work full time but could only find part-
time work. That number leapt to 8.23 million, a 322,000 one-month increase. Total part-time employment rose by 432,000, more than double the total number of net new jobs. The broadest measure of unemploymentwhich includes discouraged workers and those who cant find a full-time job for economic reasonsstill totals more than 20 million Americans and the rate unexpectedly rose in June to 14.3% from 13.8%. This could also be a one-month outlier, and at this stage of an expansion youd expect the number of part-time jobs to be falling as companies do more
full-time hiring. Yet as the nearby chart shows, the number of part-time workers who want full-time work has stayed stubbornly high. The number at this stage in the last expansion was closer to 4.5 million. Retail (37,000) and leisure and hospitality (75,000) businesses accounted for more than half of the new jobs in June. And its revealing that the average hours worked in retail have fallen to 31.4 from 31.6 hours a week over the past year, and the average hospitality job now is still 26.1 hours a week. One explanation is almost surely ObamaCare. The law requires employers
Notable & Quotable

Elliott Abrams writing about the Egyptian coup in National Review online on July 3: 1. The removal of an elected president by the army is a coup, whether we like that president or not. There are cases where a president is removed by the military pursuant to legislative or judicial action, or due to brazen violations of legitimate judicial or legislative action, as happened in Honduras in 2009. The Obama administration wrongly called that a coup, but what happened in Egypt this week clearly was one. 2. It was not, however, something that came out of thin air. It was the product of misconduct on the part of President Morsi and the Muslim Brotherhood. He and the MB knew full well that they had lost the support of most Egyptians and that Morsi had been elected in a 5148 vote, not a landslide. Instead of seeing that as reason to rule by compromise and collaboration, they saw it as reason to rush toward seizing more and more power. Egyptians had every reason to fear that the MB was seeking to make its hold on power irreversible, and to act to prevent this. 3. Even if this coup was inevitable due to MB conduct, it would have been better if it had been delayed by six or twelve months.
with more than 50 workers to provide health insurance to all employees or pay a $2,000 penalty per worker. The law also defines a full-time job as 30 hours a week. All of this gives businesses that operate on thin marginsand thats most businessesan incentive to hire more part-time workers. On Tuesday the Obama Treasury announced it is postponing this employer mandate until 2015, and perhaps this will encourage more full-time hiring. But thousands of businesses, especially in retail and fast-food, have already started to cap employment for many workers at 30 hours and they know their reprieve is only for a year. If President Obama really wants to spur hiring, hed let Congress delay the employer mandate forever.
Pepper . . . and Salt
THE WALL STREET JOURNAL
Look, we used to have a superhero here he was nothing but trouble.
OPINION
North Koreas Enemy Zero

[ Journal Interview ] with Park Sang Hak
BY DAVID FEITH Paju, South Korea Its nerve-racking to drive toward the North Korean border with Park Sang Hak. Called Fireball by his admirers, the North Korean-born Mr. Park is designated Enemy Zero by the Pyongyang regime, which two years ago sent an agent into South Korea to assassinate him with a poisontipped pen. On this summer morning, he promises to do again what so infuriates the Kim dictatorshiplaunch large balloons into North Korea carrying leaflets, computer-memory sticks and sweets for the oppressed people of the hermit kingdom. In return, Pyongyang promises to physically eliminate the kind of human scum that commits such treason. Adds the North Korean military: The U.S. and the present puppet authorities of South Korea should not forget even a moment that the Rimjin PavilionMr. Parks favorite launch site near the Demilitarized Zone separating the two countriesis within the range of direct sighting strike of the Korean Peoples Army. When he tries to drive the truck slowly through the cordon to a different launch site, a large scuffle breaks out. Shoving matches pit uniformed and plainclothes police against Mr. Park and fellow activistsmost of whom, like him, are native North Koreans who defected to the South sometime in the past 15 years. The most recent defectors wear handkerchiefs to cover their faces, because their identification in photos could mean imprisonment or execution for family members left behind. The grim, chaotic scene ends when Mr. Park is shoved into a police car and driven to the Paju Police Station. He is released later that day, but not without a reinforced sense that something is rotten in one of the worlds most prosperous democracies. Launching balloons is legal activism that I can do as a free citizen, he tells me (through an interpreter) when we meet again two days later. But his arrest shows that the threatening and blackmailing by the North Korean regime work well in the international community. And especially in Seoul, he argues, where successive South Korean governments have played down the catastrophic human-rights abuses across the border. To be born in North Korea is generally a life sentence in the worlds cruelest totalitarian state. There is no freedom of speech or worship. North Koreans cant travel without official permission, and border guards have shoot-tokill orders for anyone trying to flee. More than 200,000 languish in kwalliso, political prisons akin to Stalins gulag, where more than one million have died. Almost no one owns a car, only about 10% of apartments have refrigerators, and some 10% of the population died of starvation in the mid-1990s. The average 7-year-old is 8 inches shorter and 22 pounds lighter than peers in South Korea. Mr. Park is one of roughly 25,000 North Koreans to escape and get to the South, and his balloon launches aim to break the information monopoly held by the Kim family. In addition to praising the Souths liberal democracy, the leaflets reveal unflattering truths about Pyongyangs rulers, such as Kim Il Sungs craving for mistresses during his reign from 1948-94. The digital memory sticks inform North Koreans about the world, including people power movements and life inside South Korea as captured by news articles, movies and (especially) soap operas. The idea, says Mr. Park, is that even in North Korea the truth can set you freebut only if you have access to it. We dont want the South Korean government or the U.S. government to start a war, he says. What were waiting for is to change the [Pyongyang] regime by the hands of North Koreans who are educated with the truth. . . . Thats the only way we can give freedom to the 24 million people in North Korea. This strategy of pursuing regime change from within was explicitly rejected by South Korean leaders during the Sunshine Policy years of 1998-2008. Seoul believed that Kim Il Sungs successor, his son Kim Jong Il, would lose interest in nuclear weapons and loosen his grip at home if he saw that no outside forces were working to oust his regime. So South Korean presidents feted him at summits, gave him economic benefits, and ignored human rights. Sunshine didnt stop North Koreas nuclear drive, and South Korean voters have since rejected it twice at the polls. But five years of conservative leadership in Seoul havent made life easier for Mr. Park, who cant recall whether his latest arrest is number seven or eight. South Koreans like saying that we are all in the same family, same ethnic group, we share the culturebut theyre just saying that, not really feeling it or believing it, he says. Many South Korean people think that when the Koreas are unified, they will have tant, the fashion of Kim Jong Eun and his wife, or the [defectors] who are wandering Laos and China and risking their lives? South Korean teachers also fail to inform their students about the North. He cites a recent survey in which large numbers of highschool students couldnt identify when the Korean War broke out or which side invaded the other. He adds that when he speaks about North Koreans dying of starvation, young South Koreans sometimes ask questions such as If there isnt rice, why cant they cook noodles? Park Sang Hak was born in 1968 into the elite of North Korean society. His father was a senior official in the Workers Party with responsibility for smuggling computer technology into North Korea and two siblings defected across the Yalu River into China, having pleased the border guards with 10 times the usual bribe. Taking refuge in the home of a Chinese Communist Party official known to his father, Mr. Park needed three months to secure false papers for his familys passage into South Korea. Upon arrival in Seoul, he realized that Kim Il Sungs famous promisethat North Koreans would wear silk clothes, eat white rice with meat soup every day, and live in wellheated tile-roofed homeshad come true only in the South, the land that Pyongyangs propaganda had insisted was hell for humankind. Once in South Korea, Mr. Park didnt immediately take up the anti-Pyongyang cause, working instead at Seoul National University. His spur to activism came in 2003, when he learned that as a result of his familys defection, the regime had tortured his uncles to death. His cousins had become street beggars, and to this day he doesnt know if they are alive. After I learned of that, he says, I had to stand up and do something. By 2008, Mr. Park was meeting in New York with President George W. Busha far cry from a childhood spent, in standard North Korean fashion, learning math in school by adding and subtracting the number of imperialist Americans killed and maimed by glorious soldiers of the Peoples Army. He credits Mr. Bush with bringing his activism to international attention and speaks with pride of the president calling him Fireball (a name first bestowed on him by American activist Suzanne Scholte). No South Korean president has ever met with Mr. Park. Still, he has some gripes with the U.S., especially the Bush administrations 2008 decision to remove North Korea from the list of state sponsors of terrorism. But Mr. Park doesnt fault Americans for thinking of North Korea more as a nuclear threat than a humanrights violator. For that he blames South Korea: If your house is on fire, and you dont care much about it and run away, you cant expect other people to extinguish it for you. Mr. Park notes that South Koreas president visited China last week without publicly pressing Beijing to stop repatriating defectors to North Korea, where they face imprisonment or worse. In Washington, meanwhile, North Korea remains off the terror-sponsor list, and U.S. officials want to resume negotiations with the Kim regime. Theyre going to deceive you again and again and again, Mr. Park warns. At least he offers some consolation as our conversation ends: Most of his balloon launches take place in secretwithout advance notice or the glare of camerasso the South Korean authorities let them proceed. Thus 30 to 40 times a year, when wind conditions are favorable and donors provide sufficient funds, Mr. Park launches 200,000 leaflets northward toward the hermit kingdom. Each one is considered a threat by Pyongyang. No regime so fragile can last forever.
Sending balloons aloft with leaflets and memory sticks, a dissident enrages Pyongyang. South Korea isnt too happy with him either.
North Korean threats are generally discounted as bluster, but driving toward the border has a way of concentrating the mind. The highway from the South carries little traffic in either direction and is separated from the Imjin River by barbed-wire fences, guard towers and civil-defense loudspeakers. Yet once we arrive at the balloon-launch site, it becomes clear that Mr. Park has a different antagonist to contend with: South Korea, which has deployed a few hundred police to stop his airborne humanitarian mission. The police let him speak to assembled local media, but when Mr. Park tries to retrieve his balloons from a pickup truck, three rows of plainclothes officers block the way. Mr. Park tries to push through, but the police push back.
Thorold Barker, Editor, Europe, Middle East & Africa Bruce Orwall, Senior Editor, Europe Gren Manuel, Executive Editor, Europe Terence Roth, Managing Editor, Europe Brian M. Carney, Editorial Page Editor Lauren Berkemeyer, Marketing Kate Dobbin, Communications Florence LeFevre, Institutional Sales Europe Michael Lloyd, Institutional Sales U.K. Jonathan Wright, Circulation Sales Kelly Leach, Publisher
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to take all the economic burden for developing North Korea, which is deprived and underdeveloped, so will have to pay more taxes for that. Mr. Park has little sympathy for this dollars-and-cents concern, even as he acknowledges South Koreas efforts to resettle 25,000 defectors, including him and his family. The GDP of South Korea is $23,000 per person, he notes. After reunification, after the North Korean regime collapses, the North Korean people will come and see this affluence and theyre going to ask you, What did you do when we were suffering back in North Korea? What kind of answer should we give to them? The problem is visible, says Mr. Park, in how South Korean journalists report on North Koreas new dictator. They mention Kim Jong Un even more than North Korean media, he says, sounding incredulous and adding that reporters in the South speak of Pyongyang as if it were a normal government, not a totalitarian tyranny. They call Kim Jong Un by his formal names. . . . Its like calling Hitler by his full rank and title, to pay respect. Then there is the continuing media frenzy over the style sense of Ri Sol Ju, North Koreas twentysomething first lady. South Korean media is sometimes the propaganda office of the North Korean Workers Party, says Mr. Park. Which one is more impor-
Ken Fallin
from Japan and elsewhere. The work earned Mr. Parks father richeslarge amounts of U.S. currency, an Omega watch from Great Leader Kim Il Sung, even a Mercedes-Benzand eventually a promotion into the intelligence directorate responsible for sending spies into South Korea. But he decided to defect in 1999, while stationed in Tokyo, telling his family that with North Koreans starving to death, to aid the Kim regime was a crime against the people. The younger Mr. Park didnt want to leave, since at age 31 he was a rising bureaucrat on the make. I knew that within a few years I was going to be a member of the Party, which is really prestigious. I didnt even serve in the militarywhich is allowed only for elitesbut I still got the membership. He owned a car, an imported Toyota. I blamed my father for abandoning his faith in communism and becoming a capitalist, he recalls. But over a two-month period, as he listened to a taped message sent secretly by his father, young Mr. Park began to see things differently. I felt for the first time that I wasnt working for people but rather reigning over people, he says. I felt like a criminal. I felt guilty for spending a lot of money and having a luxurious life based on the efforts and miserable lives of ordinary citizens. On Aug. 9, 1999, he, his mother
Mr. Feith is a Journal editorial page writer based in Hong Kong.
OPINION
Why Im Not Cheering With My Fellow Egyptians

BY AHMED FETEHA The streets teem with millions of Egyptians demanding change. The president remains defiant. He makes a few speeches and offers some concessions, but the protesters insist its too little, too late. We want him out, they shout. A few days later, the president is ousted. The atmosphere in Tahrir Square is ecstatic: The blasts of fireworks compete with cries of Long live Egypt! That description could apply to the ousting of Mohammed Morsi on Wednesday or the toppling of Hosni Mubarak in 2011. In neither instance did I join the cheering late into the night. How would throwing out the president solve Egypts problems? What would happen once the makeshift tents in Tahrir Square came down and the euphoria wore off? In 2011 and last week, I asked my family and friends such questions and was called a pessimist, a cynic and a government-sympathizer. But no one had good answers. This time, I am slightly more hopeful. The Egyptian army toppled a group that stands directly at odds with modernity. During the Muslim Brotherhoods short reign, the Islamist organization dismissed critics as enemies of Islam, forged alliances with ex-terrorists, threatened opponents with violence, and pushed through a constitution that laid the foundation for an Iranian-style theocracy. To think what would have happened to Egypt if the Brotherhood ruled for another 10 years is terrifying. over. My social-media feeds have turned into a swamp of self-satisfied pronouncements, conspiracy theories and ultranationalistic sentiments. Overnight, the Muslim Brotherhood transformed from a group that 13 million people voted for to a bunch of traitors who must be hanged. Today we showed that we are a great nation, a friend wrote on Facebook. We were held back by Hosni Mubarak and the Muslim Brotherhood who are Americas puppets. Now they are gone, we will lead the world. Another friend photoshopped a picture of Army chief Abdul Fatah Al Sisi on the cover of Time magazine. The caption: Dont worry, people! Saudi Arabia is threatening to withdraw its investments from America if it doesnt support our revolution! Amid such fervor, reality seems to have no place. Few dare to ask how Egypt got into this mess. Few mention that the Muslim Brotherhood, with all its bigotry and backwardness, was the free choice of Egyptiansand that it still has millions of supporters. Egyptians dont want to hear that they were the ones who let extremism flourish until the
But that is as far as my optimism goes. The coup showed that Egypts political culture hasnt developed much, if at all, in the past few years. Once again, the countrys hardships were blamed on one man. Again, Egyptians expressed a nave hope that this revolution, at last, was the beginning of a prosperous future. In another repeat of 2011, populism supported by an all-toowilling Egyptian media has taken
Getty Images
Few mention now that the Muslim Brotherhood was elected. What comes next?
Brotherhood controlled the nation. I remember when the 9/11 attacks happened, the teachers at my Cairo middle school celebrated the event. It was Gods revenge, they told us. Americans are finally paying the price for their enmity to Islam, they said. Its no wonder that in a country where teachers felt free to cheer terrorism, voters would later put the Muslim Brotherhood in power.
Edmund Burke wrote that liberty without wisdom and virtue is the greatest of all possible evils. Millions of my countrymen exercised liberty last week. Only serious introspection about the events of the past two years will lead to wisdom.
Mr. Feteha, a Bartley Fellow at the Journal this summer, is the business editor of Ahram Online, Egypts largest English language news website.
Lessons From a Democratic Experiment

BY MATTHEW KAMINSKI Mishas enthusiasms filled rooms. He loved to show off his modern presidential palace, or give impromptu tours of Tbilisi, the spruced-up capital of his Caucasus nation. How about a helicopter ride over a new Black Sea resort? The things that are happening are so spectacular, he used to say, followed by some boast about Georgias latest achievement. bumpy the road from a revolution to something better can be. Mishas experience is illustrative. Nine years ago, he was the street demonstrator who brought down a president who had stayed too long. The Rose Revolution he led made Georgia a beacon of liberty, as President George W. Bush declared in Tbilisi in May 2005. Standing next to him, Misha beamed. Some things took the breath away. Overnight, he fired all 15,000 traffic cops. A lot of the countrys culture of petty corruption went with them. The World Banks latest Ease of Doing Business ranking puts Georgia ninth, higher than any other developing country. Growth averaged 6% in his era. A remote place devastated by civil wars in the 1990s won the worlds admiration. Georgians are resilient, passionate and creativeyet also impulsive and hot-headed. Misha has these traits in excess. His tolerance for political opposition and a free press faded with time. A low point came in the fall of 2007, when he sent the police to put down antigovernment protests and pulled an opposition national television channel off the air. He backtracked, but the damage was done. Over nearly a decade of strongwilled rule, friends became enemies andin another Georgian specialtyplotted revenge. Thats where Bidzina Ivanishvili, a reclusive billionaire who made his fortune in Russia in the 1990s, enters the scene. He returned home a decade ago, helped Misha for a few years and broke with him for unclear reasons. Next thing Misha knew, Bidzina was bankrolling an opposition movement called Georgian Dream. Starting in 2011, Misha set out ing the sitting head of state a talented master of cheating who does not respect Georgian laws. After the authors of Ukraines 2004 Orange Revolution lost power through free elections three years ago, many got tossed into jail or were forced into exile by the new president, Viktor Yanukovych. Bidzina isnt as crude, says Caucasus expert Tom de Waal, and Georgia hasnt regressed as far as Ukraine. The opposition works well with the ruling coalition in a functioning parliament, and the electorate wants Georgia in NATO and the EU one day. Bidzinas political prosecutions wont get it there. This is not the way of mature democracies. Mishas worst instincts were checked by close ties and obligations to the West. Georgia was once, though no more, a U.S. priority. Few seem to know what, beyond a personal thirst for vengeance, drives Bidzina. In On Democracy, political scientist Robert Dahl lists the perennial threats to popular government from the 1300s onward: Economic decline, corruption, oligarchy, war, conquest, and seizure of power by authoritarian rulers, whether princes, monarchs or soldiers. Little wonder so many of these experiments have failed. Its as hard for nations as for people to overcome ingrained habits. Its tempting to give up on democracy for the Arab world and most of the former Soviet Union. Georgias experience cries for something else: commitment, patience and faith from its leaders, citizens and friends abroad.
What Georgias experience teaches us about Egypt and other countries struggling toward freedom.
No more. At 45, Mishaotherwise known as President Mikheil Saakashviliis a political corpse. Since his party lost power in parliamentary elections last fall, he comes off erratic, embittered, selfpitying or resigned. Misha brought his country its first free elections and boom times. He survived a war with Russia in 2008 and Vladimir Putins threats to hang him by his testicles. But Misha didnt change Georgias all-or-nothing political culture. He thrived in it, until it turned on him. Hobbling to the end of his final (under the law) presidential term later this year, he exits the stage with Georgias democratic future uncertain. Theres a moral here. With the end of the Cold War, Czechs, Balts and other Central Europeans shook off totalitarianism and joined the West. Georgia seemed headed for that happy ending too. But you dont need to look too long at Egypt today to realize how
European Pressphoto Agency
At 45, Saakashvili is a political corpse. to destroy Bidzina. (Theyre both known widely by their first names.) He revoked Bidzinas Georgian nationality, saying his dual French citizenship was illegal. The bank he owns and his television stations were harassed. Mishas aides suggested the billionaire was Mr. Putins secret agent, without ever offering any proof. The Georgian Dreams victory in Octobers parliamentary election shocked both men. The process itself was beautiful, Misha told me recently, without a hint of sarcasm. Democracy means constantly outperforming yourself or you are out on your backside, the president said a few years ago, and he accepted the loss. For all his flaws, hed given his people the right to fire him through the ballot box. Power smoothly changed hands after a free and fair electiona first in Georgian history. In their private meetings, Vice President Joe Biden casually refers to him as George Washington instead of Mr. President, Im told, which is intended, presumably, as a bit of salve for Mishas wounded pride. Bidzina, who after the election got his Georgian passport back and became prime minister, isnt as generous. An eye for an eye is the way of the Caucasus. Now the stronger man, Bidzina is out to destroy Misha. He called for him to resign immediately last fall, but backed off after the U.S. and Europe complained. Prosecutors went after Mishas allies. Dozens have been detained and charged. In the most aggressive move to date, former Prime Minister Vano Merabishvili, who runs Mishas political party, the United National Movement, was arrested in late May on allegations of corruption. Mr. Merabishvili was a possible candidate for president in October elections. Hes in jail, awaiting trial. Last week, Bidzina said Mishas own arrest couldnt be excluded, call-
Mr. Kaminski is a member of the Journals editorial board.
Pound/Euro 0.8607 0.42%
Yen/$ 100.93 0.88%
Global Dow 2126.15 0.00%
Gold 1212.90 g 3.13%
Oil 103.22 1.96%
3-month Libor 0.26990
10-year Treasury g 1 26/32 yield 2.718%
Tycoons Rise and Fall: A Modern Greek Drama

BUSINESS & FINANCE 19
Chinas Price Scrutiny Wont Faze Pharma Firms

HEARD ON THE STREET 32
Monday, July 8, 2013
THE WA L L ST REET JOU R NA L .
europe.WSJ.com
Alcoa Is Foiled as a Forecaster of Earnings

[ Ahead of the Tape ]
BY SPENCER JAKAB It is not only a clich that Alcoa Inc. sets the tone for earnings seasonit is also no longer really true. The company is still economically significant and is the first Dow component to report. The vagaries of the aluminum market mean, though, that it isnt the industrial bellwether of yore. Then there is the fact that Alcoas shares have dropped on the day following its earnings report two-thirds of the time since 2008. It hasnt done all that well on other days, either. The equity bull market has effectively passed it by. Alcoa has lagged behind the broad market by nearly 25 percentage points this year, leaving it near a four-year low. Even if Alcoa beats the consensus forecast for secondquarter earnings of six cents a share on Monday, up from zero a year earlier, investors will likely be more interested in managements comments on the glutted market for metals. The news there is dependent on developments in China. Even though some unprofitable aluminum smelters in that country closed this year, lowercost ones have opened and its share of world production continues to surge. The dire commodity outlook and sagging earnings on the materials side of Alcoas business prompted Moodys to downgrade the companys debt to junk status in May. Management now has an intense focus on generating cash regardless of the commodity environment. In the five years through 2009, Alcoas free cash flow was negative $4.1 billion. Since then, it has generated positive $2.1 billion. Alcoa recently announced the permanent closure of an Italian smelter and is reviewing the future of another 11% of its 4.2 million metric tons of capacity. In a market filled with companies willing, and for the moment able, to operate at a loss, Alcoa is acting rationally. Investors often say that the
market can remain irrational longer than you can stay solvent. But Alcoa can muddle through for many years in the current environment while servicing its debt and paying a dividend. The profits of its manufacturing businesses are already near record levels. Whenever the aluminum market returns to balance, the improvement in the commodity side should be dramatic. Alcoas share price implies that may not happen for ages. Of course, nobody rings a bellwether at the bottom of the market.
Investors are dumping shares of some high-end smartphone makers as demand weakens and competition bites. Share performance:
20% Nokia 10 0 10 20 30
Volatile Ride
Banks Find Confusion in Volcker Rule

BY JULIE STEINBERG The so-called Volcker rule is designed to place a buffer between banks and the risks they take, but one aspect has left broad confusion among banks, their employees and clients. A provision in the rule, part of the Dodd-Frank financial overhaul passed in 2010, outlines curbs on participation in bank-run investments by directors and employees. As regulators finalize the rule, scheduled to take effect a year from now, banks are reaching widely different interpretations of what that employee-participation measure means. At Citigroup Inc., all 257,000 employees of the bank are no longer allowed to invest alongside customers in the banks own funds, according to a person familiar with the decision. But at UBS AG, the banks financial advisers can continue to make such investments, though only if they have pitched the investment first to their clients. However, UBS executives cant invest unless they have a direct relationship with the fund, said a person familiar with the Swiss banks plans. The discrepancies are the latest wrinkle in the final writing of the Volcker rule, which will force banks to scale back bets they make using their own capital. Banks know the broad outlines of the rule, but regulators may not issue a final version until later this year, leaving banks little time as they scramble to comply by July 2014. The employee-participation provisiondesigned to avoid a situation where banks, in the event of a crisis, rush to rescue heavily employee-invested funds, said a person involved in the rule-making processis causing particular consternation. Alan Johnson, managing director of New York-based compensationconsulting firm Johnson Associates, Please turn to page 22
Apple Samsung Electronics Research In Motion HTC March April May June July
An HTC store in Taipei
Source: FactSet
Photos: Bloomberg News; Associated Press
A Samsung showroom in Seoul
Battle Toughens for Smartphone Makers

BY EVA DOU AND MIN-JEONG LEE Samsung Electronics Co.s weaker-than-expected earnings guidance for its second quarter and tepid results from HTC Corp. show that high-end smartphone makers are starting to see growth taper amid intense competition and cheaper devices flooding the market. Samsungs market value fell an additional $6.5 billion on Friday after the worlds biggest smartphone maker by shipments said it expects an operating profit of between 9.3 trillion won and 9.7 trillion won, or $8.2 billion and $8.5 billion, for the second quarter, disappointing investors who had been hoping the figure would reach at least 10 trillion won. Since mid-March, Samsungs shares have fallen 17% because of concerns about sales of its high-end Galaxy S4 smartphone, launched at a lavish Broadway-style event at Radio City Music Hall in New York City. The quarterly estimate represents growth of 44% to 50% from the 6.46 trillion won in operating profit posted a year earlier, and a slowing from the 54% increase in operating profit for the first quarter. Still, it would be Samsungs best quarterly operating profit. But brokerages have been cutting sales forecasts, citing overly optimistic estimates and component orders placed for the third quarter. A lot of portfolio managers are looking at smartphone exposure negatively this year, because they feel that penetration on the highend, in developed markets, is close to peak, said Arete Research Partner Brett Simpson. Taiwanese smartphone maker HTC, which unveiled its high-end One smartphone this spring, said on Friday that its unaudited secondquarter net profit fell 83% to 1.25 billion New Taiwan dollars (US$41.8 million) as its sales declined and it spent more on marketing. Revenue dropped 22% to NT$70.7 billion. HTCs shares have slid nearly 30% in the past month as reports of slowing sales in June from May tempered initial optimism over its premium, metal-shelled HTC One. Samsung and HTC arent alone in finding shareholders skittish. Investors dumped shares in Research In Motion Ltd. after the company in June said it lost $84 million in its first quarter and only shipped 2.7 million new smartphones, a fraction of what Apple Inc. sold in its latest period and about half the number sold by struggling rival Nokia Corp. Nokia, which is slated to release second-quarter results on July 18, is attempting to return its smartphone business to profitability with the new Lumia devices, which run on Microsoft Corp.s Windows Phone software. But so far Lumias have done little to stem Nokias decline. Nokias position in the smartphone market dropped to number 10 in the first quarter, according to marketresearch company Gartner. The whole high-end smartphone industry is slowing, which is not just an HTC problem, said Barclays analyst Dale Gai. Its a saturated market. That means the battle for these high-end customers is getting fiercerand more expensive. HTC is more than doubling its marketing spending this year in its attempt to counter Samsung, even as its revenue has fallen from last year. Samsung, sitting on a growing pile of cash, is expected to spend increasingly to market its products this year after spending a total 13 trillion won in 2012, up 38% from a year earlier. High smartphone penetration rates in developed markets such as North America and Western Europe are leading to slower growth for high-end models, analysts say. Though premium models are most
profitable for mobile-phone makers in general, they may have to look to cheaper models for growth, targeting emerging markets where growth potentials remain high, they said. Apple is widely expected to launch a lower-cost version of its iPhone later this year, people familiar with the situation have said. While Samsung and HTC have long made midrange phones, both are expected to bend their premium line down to more price-conscious customers. Samsung has already announced the stripped-down version of its flagship Galaxy S4 Mini, while analysts say HTC has a smaller version of the One in the works. HTC declined to comment on coming products. The mid and entry-level smartphones are quickly picking up share, and are getting quite powerful in their capabilities, said CK Lu, an analyst at Gartner in Taiwan. Chinese companies Huawei Technologies Co. and ZTE Corp. now occupy two of the top five spots in global smartphone shipments. Local and Chinese manufacturers made up 29% of the global smartphone market in the first quarter, compared with 13.2% year earlier, according to Gartner. Juhana Rossi in Helsinki contributed to this article.
(S$b) 250 200 150 100 50 0
Temasek steps up investments in Asia

SARS Epidemic Dotcom Peak Listing of SingTel
Global Financial Crisis
Period (in years)
S$215b
Portfolio Value2
18 17 16 17 5 9 10
Since inception (1974) 30 20 10 5 3 1
16 15 14 13 3 5 9
74 3 75 4 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 December 5
Market value Shareholder equity
94 5 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 March 5 Financial Year

US$ % Returns S$ % Returns
Shareholder equity before fair value reserve 6
Asset % Mix
31 31 24 24 20 21 12 12 6 6 7 6
Sectors
Value-at-Risk % Mix
46 46 9 11 14 20
Financial Services Telecommunications, Media & Technology Transportation & Industrials Life Sciences, Consumer & Real Estate Energy & Resources Others
4 5 7 10 14 14
2013 2012
164 129 90 103
185 130
186
193
198
215
46 20 0 3 18 16 5 25 16 6 27 18 8 17 10 7 13 6 -30
43 16 9 6 15 5 15 10 1 14 13 9
04
05
06
07
08
09
10
11
12
13
04
05
06
07
08
09
10
11
12
13
One-year
10-year
20-year
Investments & Divestments (S$b)
S$7b Net investments for the year

32 13 3 1 5 05 13 06 5 17 07 08 16 09 21 16 9
10-year Annualised S$ Returns2 to Temasek (%)

8
22 10 6 10 13
20
S$215b S$117b
% Returns 20
9 11
15 12
13 13
S$98b
04
16
Investments
Divestments
Newer investments made after 31 March 2003 Older investments held as at 31 March 2003
6 5.3750% 5.1250% 4.5000% 4.3000% 4.6250% 4.0000% 4.0475% 4.2000% 3.3750% 4.2000% 3.7850% 3.2650% 2.2 2.3750% 1.9 1.5 1.0 0.4 0
2013 2015
65 65 04
71 71 05
91 84 06
114 93
120
118 120
128
134
146
156
13 7 8 9 6 5 10
Issue Size (S$b) 7
144
150
155
158
169
18 13 11 11
3
2 1.0 0.6
2050
Coupon (%)
07
08
09
10
11
12
13
04
05
06
07
08
09
11
12
13
Fair value reserve Shareholder equity before fair value reserve
0.5
0.3
0.5
2035
0.9 0.9 0.3 0.6
1 0
2019 2020 2022 2023 2025
Year of Maturity
2029
2039 2040 2042
USD Bond
SGD Bond
GBP Bond
Relative Likelihood
Peaks indicate most likely returns outcome Higher likelihood of higher negative returns in downside case Higher likelihood of higher positive returns in upside case
ve
Base case Downside case Upside case
Compounded Annualised 20-year Returns (%)
+ ve
Relative Likelihood
Building People
Rebuilding Lives
Community Mandate from Temasek
Non-prot Philanthropic Organisations Community Engagement Platforms Building Capabilities
Temasek Education Foundation Temasek International Foundation Temasek Cares Temasek Foundation Temasek Life Sciences Laboratory Singapore Millennium Foundation Singapore Technologies Endowment Programme
ve
20-year Base case 10-year Base case
Compounded Annualised 10 and 20-year Returns (%)
+ ve
Building Communities
Seeding New Public Good Institutions
Wealth Management Institute Sim Kee Boon Institute for Financial Economics Stewardship & Corporate Governance Centre
BUSINESS & FINANCE
Classic Games Score Digitally

BY IAN SHERR Scrabble might want to consider adding iPad to its dictionary of acceptable words. The Hasbro Inc. board game, which was created about threequarters of a century ago, has found a new audience as one of the most popular games for tablets. It is now the 14th best-selling app ever for Apple Inc.s iPad. Scrabble isnt alone. Its online cousin, the Zynga Inc. word game Words With Friends, is ranked No. 8. Other titles from the boardgame world such as TheCodingMonkeys Carcassonne, United Soft Media Verlag GmbHs Settlers of Catan and Hasbros Monopoly have become mainstays of the app stores popularity lists. Chip Lange, who oversees Electronic Arts Inc.s digital versions of Hasbros classics, says the reason these games have found such an audience on tablets is because they are timeless classics to begin with. The sales havent been limited to tablets, either. Eric Hautemont, chief executive at Days of Wonder Inc., says that 16% of the people who buy the iPhone or iPad version of Ticket To Ride buy the physical version of the game within a month. Overall, he says, between 30% and 40% of those who purchase the iPad version will eventually buy the board game. The reason for the tablet versions popularity and the strong crossover in sales, he adds, is that players touch the screen. When you play with your computer you know youre playing on a computer, he says, and the keyboard and mouse keep players at a physical and emotional distance from the action. The iPad is transparent. Mr. Hautemonts team is also working on a version of the game for devices powered by Google Inc.s Android software. Thorsten Suckow, head of the project overseeing the hit Settlers of Catan board game on mobile devices, says that between the iPhone and the iPad, the game has sold more than three quarters of a million units since the respective versions launched in 2009 and 2010. People dont just buy the game, he adds. Many also buy expansion maps. Guido Teuber, the companys managing director and head of business development, says that customers buy both the digital and real-life versions of games because they offer different experiences. The digital game, for example, has a campaign element that enables players to discover new areas, something the board game doesnt do. Its almost episodic, Mr. Teuber says. In one twist, Recreating board games on mobile devices has been
more successful than some other attempts to marry the physical and digital worlds. Hasbro, for example, attempted to offer a version of its Battleship game, called zAPPed, that integrated real-world ships with the game, allowing players to place the Battleship pieces on the iPad screen. Hasbro declined to discuss sales. But game play matters, said Mark Blecher, Hasbros senior vice president of digital gaming. Great brands get consumers to try a game, but they wont stick with it and tell their friends about it unless its fun. The companys digital efforts havent just amounted to selling more games. Ideas developed for digital versions, such as a bet you know it feature for Trivial Pursuit that enables gamers to wager whether a player knows the answer, have been brought to the physical ones. EA also designed a version of Monopoly called Monop-
Reuters
A digital version of Scrabble oly Hotels, in which players build rooms inside the hotels in the game, that has been made into its own physical version. Its as mainstream a trend as weve seen in the market, Mr. Lange said. And these are games that are as mainstream as it gets.
Mexicos Beer Duopoly May Come to an End

[ The Week Ahead ]
BY AMY GUTHRIE MEXICO CITYMexicos antitrust regulator could soon issue a last call for beer makers sales exclusivity agreements with corner stores and restaurants, clearing a path for craft brewers and other players to crash a lucrative party co-hosted by Anheuser-Busch InBev NVs Grupo Modelo unit and Heineken NVs Cervecera Cuauhtmoc Moctezuma. In response to a complaint lodged by SABMiller PLC, the worlds second-largest brewer by sales, and several small Mexican beer companies, Mexicos Federal Competition Commission ruled on the case in June and is expected to make its decision public this week. SABMiller officials didnt respond to numerous requests for comment. The Mexican beer market, the worlds fifth-biggest according to Euromonitor, is a virtual duopoly, with Modelo brands like Corona claiming around 58% of the 67 million hectoliters of brew sold in Mexico each year, while Cervecera Cuauhtmoc accounts for 41%. The companies have long offered restaurants and small quickie marts incentives, such as discounts or assistance securing alcohol vending permits, in exchange for the outlets only offering their companys beer portfolios. The country is Heinekens largest market, accounting for about 16% of sales, while it represents around 13% of AB InBevs pro forma sales, according to Credit Suisse calculations. Mexicos large, youthful population and expanding economy have beer executives convinced that beer consumption in the country is poised for greater growth. Every year, a million Mexicans reach drinking age. In the north, annual beer consumption averages 100 liters per capita, on par with many heavy beer-drinking northern European countries, while in central Mexico consumption is closer to 35 liters, comparable to southern Europe. This is a country which is very interesting for brewers, said Marc Busain, head of Heinekens operations in Mexico. In addition to positive demographics, beer is part of the culture, Mr. Busain said in a recent interview. Heineken officials in Mexico declined to comment on the anticipated antitrust ruling and its potential impact. The Dutch beer powerhouse acquired Cervecera Cuauhtmoc, a 123-year-old Mexican brewery with brands like Dos Equis, from retail and beverage group Femsa in 2010. Through that deal, Femsa, which runs Mexicos largest convenience store chain, Oxxo, took a 20% stake in Heineken, then valuing Femsas Mexican beer assets at $7.35 billion. Oxxo only carries Heineken-made beer brands. AB InBev closed its $20.1 billion takeover of the half of Modelo it didnt already own in June. An AB InBev spokeswoman in Mexico City also declined to comment ahead of the antitrust announcement. Around half of the beer sold in Mexico each year is channeled through small, mom-and-pop convenience stores, many of which agree to sell only one of the two brewers brands in exchange for branded awnings, signs or refrigerators, as well as discounts on beer purchases, credit and even assistance with local permits. Those perks come at the cost of customer satisfaction, said Fernando Lpez, manager of the Mi Tienda corner store in central Mexico City. I think consumers like the variety, he said, standing next to a plain white fridge stocked with both Heineken and Corona. If you dont have the brand they want, they might go somewhere else. Mr. Lpez said he expanded his beer offering more than a year ago because his local Heineken distributor stopped offering the customary 10% discount to exclusively stock that companys beers. At a nearby seafood and beer joint called La Cervecera, manager Ernesto Escobar disagreed that consumers are clamoring for more beer options. Id say that out of the 1,600 customers we serve each month, maybe 50 will ask for the other companys brands, he said. Even then, the customer usually knows which brand is comparable in the other brewers portfolio. La
Cervecera only carries Heineken brews. Modelo and Cervecera Cuauhtmoc both offer a portfolio of more than 10 beer brands each. Restaurants and bars account for around 15% of beer sales in Mexico, and represent the ideal entry point for craft brews, brewers say. We want the consumer to be the one able to choose, instead of the restaurant owner imposing a product for economic benefits or the store owner because they helped him secure permits, said Jaime Andreu, founder of Cervecera Primus, a Mexico Citybased microbrewer that joined in the antitrust complaint. Mr. Andreu said roughly 95% of restaurants and bars in the country only serve either Modelo or Cuauhtmoc beers. No matter how far the antitrust ruling reaches, analysts say the strength of Mexicos heritage beer brands, as well as those brewers expansive distribution muscle, will remain a barrier to entry for others attempting to penetrate the market.
The Week Ahead looks at coming corporate events.
INDEX TO BUSINESSES
This index of businesses mentioned in todays issue of The Wall Street Journal is intended to include all significant reference to companies. First reference to the companies appears in bold face type in all articles except those on page one and the editorial pages.
Businesses
Aegean Airlines............19 Alcoa ..................... 1,11,24 Allergan.........................15 American International Group..........................10 Anheuser-Busch InBev..........................18 Aon................................11 Apple........................15,18 Asiana Airlines...............6 Associated British Foods............................3 Barnes & Noble ............ 32 Beam.............................27 Best Buy.......................32 Boeing.............................6 Canadian Pacific Railway........................7 Chevron.........................32
China Rongsheng Heavy Industries Group ....... 21 Citigroup .................. 15,24 Credit Suisse Group.....18 Danone..........................20 Days of Wonder............18 Debenhams.....................3 Dell................................32 Electronic Arts..............18 Estee Lauder.................27 Fonterra Co-Operative Group..........................20 Genworth Financial......18 GlaxoSmithKline......15,32 Goldman Sachs Group..........................22 Google...........................32 Hasbro...........................18
Heineken N.V................18 Hennes & Mauritz.......3,9 HSBC Holdings ............. 24 HTC................................15 Inditex.............................3 J.P. Morgan Chase ................. 1,22,24 KB Financial Group.......24 KDB Financial Group....24 KorAm Bank..................24 KPMG............................27 Legg Mason .................. 22 Liberty Fashion Wears...3 Maersk Line..................18 Marfin Bank..................19 Marfin Investment Group Holdings.....................19 Microsoft..................15,32 Morgan Stanley............22
Nestle............................20 Nokia........................15,32 Northern Trust..............22 Olympic Air...................19 Petroleo Brasileiro........32 Rail World.......................7 Research in Motion......15 Ryanair Holdings..........19 SABMiller......................18 Samsung Electronics....15 Skanska.........................27 SNS Reaal.....................22 Starbucks......................27 Swiss Bankers Association................23 Tetra Pak.......................20 UBS ............................... 15 United Soft Media
Verlag.........................18 Wal-Mart Stores ............ 9
Wells Fargo................1,22 Yahoo.............................32
ZTE................................15 Zynga ............................ 18
Corrections Amplifications
Higher policy rates, reductions in benefits and other recent changes by Genworth Financial Inc. to its long-term-care insurance business are aimed at benefiting the company and consumers. An In Depth article Wednesday incorrectly said the moves were made solely to help Genworth. The Maersk Lines first Triple-E class cargo ship, the Maersk McKinney Mller, is set to sail this month from a South Korean shipyard to Europe via Malaysia. A Business & Finance article on Tuesday about the supership incorrectly said it would make the trip via Singapore.
Readers can alert the London newsroom of The Wall Street Journal to any errors in news articles by emailing wsjcontact@wsj.com or by calling +44 (0)20 7842 9901.
BY DEBORAH BALL AND ALKMAN GRANITSAS
ModernDrama:GreekTycoonsFall
crisis, despite signs early this year that Greece was turning the corner. Other tycoons who built their fortunes on the easy money flooding Europe after the birth of the single currency are also in dire straits. In Spain, Florentino Prez, a construction magnate who made a fortune by flipping stakes in large listed companies, is buried in debt. Spiros Latsis, among Greeces richest men, has seen his own fortune halved and was recently forced to cede control of Eurobank, once a leading pillar of his empire. Mr. Vgenopoulos, who came from a modest Athens home, found he had a Midas touch when as a lawyer he successfully managed distressed debts in the shipping industry. That brought him his first big payout as well as valuable contacts with Greeces shipping magnates. He later parlayed those contacts into a thriving investment business. Then, in 2006, he engineered the three-way merger of Cypruss second biggest lender, Cyprus Popular Bank PCL, or Laiki, with Greeces Egnatia Bank and his own Marfin Bank, a deal that brought him even greater riches and established his reputation as a deal maker, say bankers who worked with him at the time. He represented a new player on the scene, said Panagiotis Petrakis, economics professor at Athens University. But he also very much symbolizes the rise and fall of Greece. In 2007, Mr. Vgenopoulos took a huge leap by setting up a new private-equity fund, dubbed Marfin Investment Group, or MIG, aimed at investing in Greecethen a darling of international investors. Puffing on Cuban cigars, Mr. Vgenopoulos, a champion fencer who represented Greece at the 1972 Olympics, smoothly sold big investors on his ability to exploit the regions promise, say bankers and former executives who worked closely with him. Despite his relatively thin track record, Greek shipping tycoons, Fidelity, Dubais royal family and other heavyweights plunked down hundreds of millions each, for a total of more than 5 billion, one of the biggest private-equity fundraisings ever.
BUSINESS & FINANCE
ATHENSThree years ago, Andreas Vgenopoulos, a Greek lawyerturned-tycoon, was riding high. His investment fund, which had 15 billion ($19.2 billion) to spend following one of the biggest private-equity fundraisings ever, had just snapped up Olympic Air. Mr. Vgenopoulos was hailed as a national hero for saving Greeces long-suffering flag carrieran event he celebrated with a grand soire in an Athens airport hangar with Cirque du Soleil acrobats performing for the assembled guests. Meanwhile, the three-way merger he engineered between Cyprus and Greek banks three years earlier had created Greeces fifth-largest financial institution and netted him a small fortune. Today, however, Mr. Vgenopoulos has become a symbol of Greeces travails and the extraordinary pain the countrys business community is suffering. He has put Olympic on the block, his private-equity fund is in the red and buried in debt, and he stands accused of bringing Cyprus to the brink of bankruptcy. His assets on the island were temporarily frozen last month, while Cyprus officials probe his role in Cypruss collapse. This month, a senior Cypriot lawmaker charged that lending practices at Mr. Vgenopouloss bank, Marfin Popular, had cost Cyprus billions of euros, forcing it into a 10 billion bailout. A major scandal has been perpetrated against the banking system of Cyprus, said Dimitris Syllouris, head of the pro-government European Party. At least 4 billion has been lost through this plot. Mr. Vgenopoulos calls the allegations ridiculous and he declined to comment for this article. But his rise and fall underscores how Southern Europes onetime economic renaissance was built on low interest rates and a giddy, debtfueled boom that papered over deep structural problems. And his story underscores the many challenges still facing businessmen in the country at the center of Europes debt
Associated Press
Andreas Vgenopoulos in 2009 as he discussed plans to save Olympic Air. The carrier suffered with Greeces economy. With leverage, Mr. Vgenopoulos had 15 billion to spend, although he would never tap those extra loans. After violating the covenants on its loans last year, MIG is currently negotiating with its lenders to extend the maturity of its bank debt and ease the terms. Mr. Vgenopoulos had quickly snapped some of the jewels of Greek industry at peak prices: hospitals, the countrys biggest food company, and a ferry operator, as well as assets in places like Croatia and Serbia. But Olympic Air was the symbol of Mr. Vgenopouloss attempt to become a latter-day Aristotle Onassis, who founded the airline in the 1950s. In 2009, Mr. Vgenopolos bought the airline, which was losing 1 million a day, for 180 million, after the state failed three times to sell it. The deal was greeted with euphoria at home, as he pledged to renew the fleet, turn a profit by 2011 and make Olympic a world-class carrier. At a party to celebrate the deal, the Cirque du Soleil acrobats were on hand. Television ads hailed the salvation of Greeces national carrier. Olympic spreads its wings and rises to where it belongs: up highGreece up high, intoned one ad. We did our duty, said Mr. Vgenopoulos in a March 2009 ceremony celebrating the acquisition. We promise to do everything to make Greeks proud of a new Olympic. Instead, Olympic has swooned along with Greeces economy. Squeezed by competition from Aegean Airlines and Ryanair and an economy in a tailspin, Olympic sold lucrative international slots such as London, and has shriveled to a domestic airline. Today it mostly ferries passengers to the Greek islands on routes that are often subsidized by the government. And long delays by the Greek state in paying Olympic for the routes have further squeezed the airline. Moreover, Greek domestic airline traffic has fallen by nearly 30% since 2009, while international traffic is down 13%, according to Greek airline consultant Andreas Papatheodorou. Olympic today carries a third fewer passengers than when Mr. Vgenopoulos bought it, and it lost 19 million in the first half of last year. Its a question of vanity, said Rigas Doganis, former CEO of Olympic. Mr. Vgenopoulos must have felt he could do something with it, but it showed a lack of understanding of the airline. Mr. Vgenopoulos is now trying to sell it to Aegean at half the price he paid for it, but is battling European Union antitrust opposition. If the sale doesnt go through, Olympic may further shrink, relying almost entirely on the subsidized routes, say analysts. Meanwhile, just like most of the Greek bourse, the MIG fund has lost 95% of its value, while its current liabilities exceeded its current assets by about 1 billion at the end of last year. This spring, MIG, which posted a 1.26 billion loss last year, launched a rights issue for up to 660 million to help ease a continuing renegotiation of its huge debt, but has yet to close the issue. The issue, which was due to close at the end of May, has since been extended through July amid weak market sentiment. The company has also put a slate of assets on the block. Mr. Vgenopoulos is also under renewed fire for his role in tying together the Greek and Cypriot banks. When Popular Bank, as it now known, closed early this year as part of Cypruss bailout, it was already being kept afloat by an emergency lifeline from Cypruss central bank. But those problems emerged only after Mr. Vgenopoulos had left the bank in late 2011 when it became clear that Popular Bankalong with rival Bank of Cypruswould need billions of euros in new capital from the Cypriot government following a 200 billion debt restructuring in neighboring Greece, something that would ultimately force Cyprus to seek its own bailout from euro zone peers. Marfin Popular, as well as its bigger local rival, Bank of Cyprus PCL, suffered some 4.3 billion in combined losses on the Greek government bonds they held. Those losses, combined with billions of euros in nonperforming loans, forced them to ask the Cyprus government for aid, and in turn led Cyprus to seek a rescue from its euro-zone partners and the International Monetary Fund. But critics say that years of overaggressive lending in Greeceincluding loans made to support MIGs capital increase when Mr. Vgenopoulos was still in chargeleft Marfin Populars balance sheet so stretched that Cyprus found it impossible to restructure or find a buyer for the bank. In a counteroffensive, Mr. Vgenopoulos, known for this brash style, this year launched legal proceedings against Cyprus, saying MIG shareholders, which held a significant stake in Marfin Popular, had lost 824 million from the nationalization of the bank. A court case is [the] only way to deal with the slander and mudslinging, he told a Cyprus newspaper recently.
Mr. Vgenopouloss MIG group snapped up high-profile businesses including Olympic Air and Greeces top ferry operator.
Associated Press, DPA/Zuma Press, Getty Images
BUSINESS & FINANCE
China Digs In Over Solar Tariffs

EU Hopes to Offset Alleged Chinese Solar Gear Sales in Europe at Unfairly Low Prices
Average cost for Chinese solar-panel exports to Europe
2.5 per watt 2.0 1.5 1.0 0.5
/Associated Press
BY MATTHEW DALTON BRUSSELSThe Chinese government is adopting a tough line with Europe in talks to resolve a multibillion-dollar trade dispute over solarpanel equipment, leaving the two sides with significant differences after weeks of negotiations, people familiar with the discussions said. The talks aim to prevent the dispute from mushrooming into a fullblown trade war involving French wine, German luxury cars and other goods that form the backbone of one of the worlds most important trade relationships. Negotiators from the European Commission, the European Unions executive arm, have been in Beijing for more than two weeks trying to reach a settlement that would prevent sharp increases in tariffs on Chinese solar-panel equipment on Aug. 6, possibly sparking a series of retaliatory measures from Beijing. With the tariffs, the commission is seeking to offset alleged Chinese dumping of solar-panel gear on the European market at unfairly low prices. Plunging European solarpanel prices have led dozens of European producers to close their plants in the past two years, costing the region thousands of jobs. Positions appear to have narrowed somewhat, but people following the talks say significant differences remain. The two sides are negotiating a settlement that would impose a minimum price on panels, solar cells and silicon wafers exported from China in exchange for the commission backing off a plan to impose average tariffs of around 47%. Last month, the commission imposed the tariffs at the temporary lower rate of 11.8%
Prices Dim
Swiss Firm Tetra Pak Under Probe By Beijing

BY LAURIE BURKITT BEIJINGChina is starting an investigation of Swiss packaging maker Tetra Pak International SA, the latest in a growing roster of foreign companies under scrutiny here for possible anticompetitive behavior. Tetra Pak, which makes packaging for beverage and dairy companies that sell their products in China, is suspected of abusing its market position, Zhang Mao, the head of Chinas State Administration of Industry and Commerce, said in a speech, which was posted on the agencys website Friday. More than 20 regional watchdog agencies are investigating the companys practices, he said. Tetra Pak didnt respond to requests for comment. A spokeswoman for dairy company Fonterra Cooperative Group Ltd. said Thursday that the New Zealand company was being investigated by the National Development and Reform Commission. The same agency announced Tuesday that it had begun investigations of foreign makers of infant formula, including Switzerlands Nestl SA and Frances Danone SA, for possible price fixing and anticompetitive activity. Fonterra, Nestl and Danone have said they are cooperating with Chinese authorities. It isnt clear that the probes are related. Chinese officials didnt respond to requests for comment. Government investigations have centered around the dairy industry, a sector in which leaders have said they are looking to build up strong domestic companies.
55
EUROPEAN CENTS PER WATT
2009
'10
'11
'12* '13
A worker monitors a solar panel production line in a factory in Quzhou, China. to allow some time for talks. The commission wants the minimum price to be above 55 European cents (71 U.S. cents) per watt of solar-panel energy, the current price of Chinese solar panels sold in Europe, an EU official said. But that price is already well below the 1.12 per watt the commission suggested just last month as an approximate price that would offset the economic damage inflicted on European producers by dumped Chinese exports. Meanwhile, the Chinese government is insisting on a price of no more than 50 European cents per watt, a person familiar with the negotiations said. The Chinese believe they are in a fairly good position to strong-arm the commission, said Fredrik Erixon, director of the European Centre for International Political Economy, a Brussels-based think tank. Chinese officials in Brussels declined to comment. Neither side has spoken publicly about progress in the talks. The commissions negotiating position in part reflects the fact that the price of solar panels has fallen sharply since the year ending in July 2012, which was the period the commission examined during its investigation. That is because government subsidies in Europe for solar panels have been cut amid the regions economic crisis, hurting demand. European solar-panel producers and the commission also believe that continued dumping by Chinese exporters has further driven down the price. The prices in the investigation period are medieval history for the solar industry, said Lourdes Catrain, an attorney at Hogan Lovells in Brussels representing several
*For the 12 months ending in July As of July 1 = $1.29 Source: European Commission
companies opposed to the tariffs. But people following the case say the commissions position may also be the result of a weak negotiating mandate given to it by EU member states, a majority of which opposed temporary duties in a vote in May. The commission pushed ahead with the tariff plan without their support, but it will need backing from a majority of EU nations to impose multiyear duties in December. The Chinese government has been lobbying EU nations to oppose the commissions tariff plan. It has also taken trade measures that European analysts say are intended to retaliate against the EU for the solar-panel tariffs. China said it would consider placing tariffs on imports of European wine, while the government is also considering a complaint it received to place tariffs on luxury cars made in Europe.
Hedge-Fund Investor Escapes Troubleat a Cost

BY GREGORY ZUCKERMAN It is one thing for a hedge-fund manager to sell investments. It is quite another to dump everything, close the firm and hand millions back to investorsfor the second time in three years. That is the unusual step Nick Krsnich, a mortgage-focused hedgefund investor who previously was Countrywide Financial Corp.s chief investment officer, took last month after he concluded that mortgage bonds and other investments were on thin ice. The opportunity wasnt there anymore, Mr. Krsnich says. I just couldnt invest money for people at 4% or 5% yields on mortgagebacked bonds. So far, Mr. Krsnichs move looks prescient. Since he closed his $36 million JMN Structured Strategies Fund on June 7, mortgage-securities prices have tumbled, lifting yields above 6%. Mr. Krsnich predicts market prices will continue to slump as the Federal Reserve becomes less active as a bond buyer, a view at the center of the debt-market selloff of the past month. Nonetheless, Mr. Krsnichs decision carries potential peril. If the market strengthens, his move will look like folly. And some investors say that whatever happens, Mr. Krsnich may be jeopardizing any chance of raising money again. Hes taking short-term career risk, says Andrew Martzloff of Bitteroot Capital Advisors, a firm in Bozeman, Mont., that invests in investment firms for wealthy individuals. It may be too much of a challenge to restart the firm if new opportunities arise. Some billionaires, such as George Soros and Stanley Druckenmiller, have returned outsider money to invest for themselves. But because fundraising is so unpredictable, less prominent managers such as Mr. Krsnich usually prefer to search for new investment opportunities while clinging to cash and continuing to charge clients hefty management fees, rather than hand money back to investors. In my 25 years in the business Ive never had a manager sell everything, send it back and say the opportunities are overit just doesnt happen, says Jay Krieger, a principal at Fundamental Capital Management in Pasadena, Calif., which invests in hedge funds. Usually managers say theyve found new, clever things to do, even if they havent. Mr. Krsnich knows those risks better than most. He ran a $200 million fund for Colchis Capital Management, LLC, in early 2011, when he became worried about the markets outlook, sold his investments and closed that fund. Mr. Krsnich avoided losses when the market subsequently weakened, but some investors were upset that he decided to return cash, rather than search for bargains elsewhere in the market. He was able to promising career as a pitcher in the farm system of the Detroit Tigers. He struck out Kirk Gibson in spring training one year, though he also served up a barrage of long homers to the slugger. I think one of his home runs is still in orbit, he says. Mr. Krsnichs career ended when he slipped on wet infield grass and tore up his knee. Joining the mortgage business, Mr. Krsnich rose within Countrywide. At one point he was responsible for bundling home loans into about $400 billion of bonds a year, or about 20% of the entire market. Mr. Krsnich became an outspoken critic of Countrywides push for market share and what he thought was an unhealthy embrace of risk. He left the company, which was sold to Bank of America Corp. in 2008, before the housing collapse. Mr. Krsnich developed a model for valuing mortgage bonds, became excited about beaten-down mortgage bonds and hung his shingle in San Francisco in September 2008. That month, Lehman Brothers Holdings Inc. collapsed and markets imploded, resulting in an immediate loss of nearly 11% for his fund that year. Mr. Krsnichs distressed fund rebounded, scoring gains of 34% in 2009 and nearly 16% in 2010. Part of the gains came from buying pay-option mortgages, or those that allow homeowners to miss a mortgage payment while adding that sum to the interest-accruing balance. Mr. Krsnich took his daughter to visit homes backed by these mortgages, determined that many were of high quality, and started buying. But Mr. Krsnich worried that mortgage prices had gotten too high in 2011, and shut down his fund early that year, returning investor cash. Mr. Krsnichs new fund, based in Palm Beach Gardens, Fla., gained 21.5% last year and was up 5% this year, before his latest decision to close. The gains compared favorably with many mortgage investors, especially those like Mr. Krsnich who dont use much leverage. Explaining why he pulled the plug, Mr. Krsnich says his concerns stretch beyond mortgage and debt investments. The U.S. has been throwing more debt at a debt problem, he says. I came out of Countrywide and if you give more debt to a person who hasnt proven they can pay back the loan, its usually a situation that doesnt work out well. Some investors in Mr. Krsnichs fund applaud how he avoided the markets recent losses, but they now have to redeploy funds at a time when interest rates remain low and the investing climate is unsettled. Others are troubled by his decision to step back from the market because they continue to invest in other hedge funds. Im happy with what he did, Mr. Krieger says, but I dont want to hear it because I have exposure elsewhere.
Josh Ritchie for The Wall Street Journal
Nick Krsnich closed his fund and handed money back to investors. raise just 15% of the earlier sum for the JMN Structured fund. Mr. Krsnich says he is well aware that his recent move could have been a career killer. People say Im crazy, Mr. Krsnich says. But they told me when I left Countrywide I was nuts. I dont like to be seen as a quitter but I didnt like what was going on in the market then and I dont now, he says. Mr. Krsnichs background is as unusual as his recent decision. Two of his uncles played in the major leagues and Mr. Krsnich had his own
BUSINESS & FINANCE
Snowden Case Is a Test for Hong Kong

[ The Business ]
BY JOHN BUSSEY
One of the reasons global business likes Hong Kong so much is that it has a reputation as a place where the rule of law prevails. So its unfortunate when the city even appears to fall short of that principle, as it seemed to recently. Business takes note, though not quite the way the rest of the world might. Hong Kong hit the headlines when authorities there, saying paperwork wasnt complete, decided they couldnt act on a request from the U.S. seeking extradition of Edward Snowden, the sensation who leaked U.S. spy secrets. Instead, Mr. Snowden was allowed to leave the territory. The U.S. howled. It blasted China for alleged interference and claimed Hong Kong had caved to Beijings whim. But dont think the fireworks will change how business expects Hong Kong to do business. Foreign companies long ago separated the political from the commercial, even within this bastion of legal principle. China has already called the shots in a number of cases involving cross-border issues, starting from right after the handover, says one American banker in Hong Kong. Most business people figure that stuff doesnt have much to do with their day-to-day business. And besides, if you dont like how it works in Hong Kong, whats your alternative? Theres a reason Hong Kong is a favorite regional hub for global companies big and small. Its
Citizens protested for broader democratic rights in Hong Kong last week on the anniversary of its handover. efficiency and hustle are legendary, and its legal system is respected the world over. The American Chamber of Commerce in Hong Kong has nearly 2,000 members and is a powerful voice for U.S. business interests outside America. So the business worlds expectations of the territory have always run high. Britain may have handed Hong Kong back to China in 1997, but economic and political freedoms in capitalist Hong Kong far outstrip those in China. For the last 19 years, the territory has placed ahead of every country in the world in the Index of Economic Freedom published by the Heritage Foundation and this newspaper, a ranking that also measures the rule of law. Far from beating the drum in the Snowden case, some business people say that, whatever the legal rules in play, maybe Hong Kong and China were smart to quickly get rid of an irritant that could have seriously damaged U.S.-China relations. If that sounds like accommodation, its partly because Hong Kong has long had to navigate tricky waters. Its also because some erosion of its authority has indeed occurred, threatening human rights and business practices. On the list: an attempt by some Hong Kong lawmakers to enact antisubversion rules at the behest of Beijing; a decision to let Chinese companies listed on the Hong Kong stock exchange employ mainland auditors, who arent always up to standard; a proposed school curriculum for Hong Kong favorable to the Chinese Communist Party; and Beijings resistance to universal suffrage in the territory (not that the British did much better on this score). The list goes on. Might accommodation spill into commercial disputes, especially those involving China? Foreign companies involved with mainland enterprises are usually delighted to have Hong Kong as the agreed seat for the arbitration of business disagreements. It beats arbitrating in China, which is widely seen as a less impartial venue. Hong Kong has a long history as a strong and reliable arbitration center, says Beth Trent of the International
Institute for Conflict Prevention & Resolution. But some lawyers say corporate clients increasingly worry that Hong Kong may be too close to China to ensure impartiality. So, when its possible, some are going elsewhere for arbitration. Notably, a survey of companies in 2010 by the University of London and sponsored by White & Case found that Singapore, a relative newcomer to the business of dispute resolution, had emerged as the most popular Asian seat for arbitration. No doubt Singapores proximity to increased business activity in South and Southeast Asia is boosting its popularity. As for the recent blowup over Edward Snowden, sensitivities are still tender. Any perceptions that Hong Kong had skirted the rule of law are inaccurate and misguided, Donald Tong, Hong Kongs commissioner for the U.S., told me. The rule of law in the territory is sacrosanct. Theres still a long-shot possibility that Hong Kong may not be done with Mr. Snowden. The ex-Booz Allen Hamilton employee is now believed to be encamped in the transit zone of the Moscow airport. The U.S. earlier revoked his passport. So, Russia could do what other countries have done when someone arrives without proper documents: send the traveler back to the airport of origin. Not likely. But were it to happen, the U.S. might get its extradition. And business-friendly Hong Kong would get yet another opportunity to show that, in this remarkable city, principle still rules.
Bloomberg News
Write to John Bussey at john.bussey@wsj.com; follow @johncbussey on Twitter
Chinas Credit Crunch Felt at Rongsheng Shipyard

BY CHAO DENG AND COLUM MURPHY RUGAO, ChinaAn anxious shipyard worker named Li and the deserted shops around him offer a glimpse of the tough choices that many of Chinas most bloated industries present to Beijing. The 46-year-old Mr. Li, who gave only his surname, said he works for China Rongsheng Heavy Industries Group Holdings Ltd. The company on Friday said it is struggling to pay employees and suppliers and is in talks with its bankers for additional credit. Rongsheng also is seeking financial help from the government and shareholders amid a prolonged industry slump. Mr. Li, speaking in a quiet supermarket in this eastern Chinese city centered on shipbuilding, said he is waiting for months of back pay. If something happens within the family and theres no money, then there is no hope, said the father of two, who migrated from Yunnan province to work in the Rongsheng shipyard. The struggles of Rongsheng, its workers and its hometown illustrate the hard choices Chinas government faces in trying to overhaul its economy. Ranked among the biggest three Chinese shipbuilders, Rongsheng offers a potential test of Beijings willingness to allow a major employer to fail as Chinas economy restructures. While overcapacity in several industries threatens to become a drag on Chinas economic growth, many of the companies in those sectors are big employers, important to social stability in their communities. Early last week frustrated workers blockaded the gates to Rongshengs Rugao shipyard demanding that the company pay unpaid salaries for April and May, according to workers interviewed over the weekend. Mr. Li said many workers are talking about halting work again in August if overdue salaries arent paid. It is always important for us to be deeply concerned about the welfare of our workers, a Rongsheng spokesman said, declining further comment. Chinas slowdownthe economy grew at a 7.7% annual rate in the first quarter, compared with 7.9% in the fourth quarterappears to be fueling labor tensions. China Labour Bulletin, a labor-rights group based in Hong Kong, said 201 labor disputes took place in China in the first four months of this year, almost double the figure a year earlier. Chinas credit crunch, a lack of export orders and the general economic slowdown have made the problem worse over the last couple of years, said Geoffrey Crothall, a spokesman for China Labour Bulletin. When orders dry up, workers are often the first ones not to get paid. over the weekend, the majority of storefronts were locked up and windows taped over. Few customers hung around the remaining restaurants and stores, which sell items ranging from household appliances and company uniforms to train tickets for workers to return to their hometowns. Business has declined by 67% this year. We cant even afford the rent, said barbershop-owner Yu Zhaoqiao, who moved to the neighborhood four years ago. At one point, we had 13 on staff. Now its just me. Mr. Yu has converted one of his two rooms into an electronics shop because there werent enough barbershop customers, but he says the entire operation will close if business doesnt improve. Upstairs from his shops, dormitories that once were filled with Rongsheng workers appear empty. Now its the rats that live there, Mr. Yu said. A man who gave his surname as Chen said he and his friends have invested hundreds of thousands of dollars of their own money and bank loans into the supermarket since its opening last September across the street from the shipyard. Business has not been good
The struggles of Rongsheng illustrate the hard choices Chinas government faces in overhauling its economy.
Rugao is feeling the effects. Across the street from the shipyards main gates, an ad hoc town had sprung up to serve the once bustling facility, which at its peak employed around 28,000 people. A company representative last week said that its workforce now has about 12,000 people. On a street near the shipyard
since the beginning of the year, the 34-year-old said. He said nearby mom-and-pop shops starting closing in March and so, too, will his supermarket if the Rongsheng shipyard shuts down. We wouldnt be able to find workers to hire even if we wanted to because most of his employees were wives of Rongsheng workers, he said. A Rongsheng contract worker with the surname Wu said his salary was between 4,000 yuan and 5,000 yuan, or roughly $650 to $800, a month. Were a lot less busy, than before, said Mr. Wu, 40. We used to work Saturdays and Sundays, and now we never work on weekends. Last year it was at least 30 days a month. He said he has got some odd jobs to tide him over until he gets his back pay and that he planned to stay in the area until the Rongsheng issue was resolved. Its not easy to get your salary if you leave, Mr. Wu said. Back at the supermarket, Mr. Li, the Rongsheng worker from Yunnan, already was thinking of an alternative. If the shipbuilding industry is not good, maybe I can go work at a shoe factory, he said. Dinny McMahon contributed to this article.
BUSINESS & FINANCE
Banks Understate Risks, Global Regulators Find

BY GEOFFREY T. SMITH The discretion banks use in judging the riskiness of their long-term assets can overstate their capital ratios by as much as 20%, global regulators said in a final report on the subject Friday. The long-awaited report, by the Basel Committee on Banking Supervision, appeared to confirm what many outside the banking industry had long suspected: that banks have a structural bias toward understating the risk embedded in the vast majority of their investments, so as to make them look better-capitalized and protected against possible shocks than they actually are. As such, the report may provide the regulators with the empirical ammunition to impose new and tighter rules on the banks, which may in turn put pressure on them to raise their capital levels yet again. Any such discussions would only formally begin in September when the Basel committee next meets. While some variation in risk weightings should be expected with internal model-based approaches, the considerable variation observed warrants further attention, said Stefan Ingves, governor of Sveriges Riksbank in Sweden and chairman of the Basel committee. Banks in Europe and the U.S. have spent much of the past five years trying to meet new and tougher capital standards imposed by their regulators in a bid to prevent a repeat of the crisis that erupted in 2008. The report, based on data from more than 100 banks world-wide, focused on the degree to which banks use the freedom allowed under existing rules to determine for themselves the riskiness of their businesses. The principle of such risk weighting is the cornerstone of both pre- and postcrisis rules for determining capital needs, and Mr. Ingves has already made clear it will remain so. However, the committee, which comprises the national regulators for all the worlds major banking jurisdictions, has fretted for a long time that banks have been using loopholes in the rules to make themselves look stronger than they are. The report found that differences in risk-weighting approaches from bank to bank could cause a banks capital ratios to deviate by as much as 20%. That means a bank that, under standardized measure, had a risk-adjusted capital ratio of 10%, could report one of either 8% or 12%, depending on how conservatively it worked. However, the committee noted most of the banks involved in the survey showed a deviation of no more than 1% from the standardized norm. Under the new Basel III accords, banks must keep a minimum of 4.5% in top-drawer capital relative to their risk-weighted assets, but they face restrictions on the payments of dividends and staff bonuses if the ratio is less than 7%.
Dutch See Dangers In Property Loans

BY MAARTEN VAN TARTWIJK AMSTERDAMThe Dutch central bank has told lenders to build up bigger capital cushions for potential losses on real-estate loans, the latest move by the regulator to protect the sector against the countrys property slump. Banks must set aside a buffer of 6 billion ($7.75 billion) in highquality capital to cover additional risks and unexpected losses, the central bank, which acts as the regulator for the banking sector, said in a letter to Dutch Finance Minister Jeroen Dijsselbloem that was released late Thursday. The requirement comes as banks have already taken almost 3 billion in provisions against troubled loans, it said. The Dutch commercial-property market has been especially badly hit, with soaring vacancy rates and
The report suggested banks, especially in Europe, tended to assign much lower risk-weights to their exposures to companies and to other banks under internal models than they would under the standardized Basel methodology. At the same time, European banks mainly choose to adopt the standardized approach to valuing their sovereign exposures, as this most often generates a zero risk-weightingdespite the well-publicized problems of many euro-zone sovereigns. The report didnt offer any simple solutions to reduce the scope for such deviations in the future. Although it suggested additional disclosure requirements may help, officials are conscious that banks already publish more information than most people can easily assess, and that further requirements might hinder rather than help. Some countries, such as Germany, want to expand the use of minimum risk-weights to ensure that at least some of the risksparticularly in sovereign exposures are captured in the Basel ratios. However, even the Deutsche Bundesbank accepts that insisting on such a step now would only intensify the squeeze on the regions banks, making the continuing credit crunch worse in many countries. As such, any agreement on blanket floors for risk weights on certain asset classes also seems still to be far off. Christopher Lawton in Frankfurt contributed to this article.
falling prices. This has triggered a wave of bankruptcies among construction firms and property developers and in February led to the nationalization of SNS Reaal NV, a banking and insurance firm that had a large exposure to the sector. While SNS Reaal was considered a special case, its downfall has fueled uncertainties about the property books of other Dutch banks. The Dutch central bank this year started a so-called asset quality review and said that lenders have a substantial buffer of provisions and capital available to weather the slump. It will this year review the valuation of the property portfolios and assess if the banks capital buffers are big enough. The Netherlands six largest lenders have an exposure of 80 billion to the Dutch property market, the central bank said.
Continued from first page even that was modest by historical standards. Revenue growth has been skimpy, too. You could have basically two quarters in a row of lackluster revenue and weak earnings growth. Thats bad, says Dan Greenhaus, chief global strategist at BTIG, a trading firm in New York. However, Mr. Greenhaus adds that he believes earnings growth could pick up later this year. Earnings growth is one of the biggest forces in the stock market. Faster growth usually pushes stock prices higher, while slow or no growth tends to make them vulnerable to a fall. But many investors started paying less attention when the Fed flooded the world with cheap money. Things are getting back to normal now that the Fed is looking for the exit. The problem: The more analysts and investors scour financial statements, economic forecasts and other indicators of future profit growth, the less there is to like. Wed be very surprised if there was a huge pop in earnings, says Wayne Lin, who helps oversee $9 billion as chief strategist at Legg Mason Global Asset Allocation. If you dont have top-line growth and your margins are at historically high levels, where are you going to get your earnings from? The implication is theres not a whole lot of upside for stock prices, he adds. Mr. Lin predicts mediocre returns from stocks and bonds. After years of boosting earnings through cost-cutting, many compa-
Earnings Not Likely to Fill Void

nies need revenue growth in order to keep the bottom line growing, analysts say. But that is a daunting challenge because of still-sluggish economic growth. Revenue at companies in the S&P 500 is expected to climb just 1.2% in the second quarter compared with a year earlier, according to FactSet. Just three months ago, analysts projected second-quarter earnings growth of 4.2%. Even the currentforecast for per-share profit growth of 0.6% is too rosy for some investors. Even though the expectations are low, I think companies will still have a hard time trying to meet their numbers, says Omar Aguilar, chief investment officer for equities at Charles Schwab Investment Management. The silver lining: U.S. stocks look better than bonds because of the pounding bonds are taking as investors brace themselves for life after the Fed. Mr. Aguilar also prefers U.S. stocks to shares of non-U.S. companies because growth is even slower in other parts of the world. The MSCI Emerging Markets Index is down 13% so far this year, pounded by disappointments such as Chinas weak manufacturing activity in June. U.S. earnings will come out as decent, but some other markets will potentially have more negative surprises, says Anjun Zhou, who helps oversee more than $25 billion as head of multi-asset research at Mellon Capital. In absolute terms, it may not look so rosy, but the question for investors is: What are their alternatives?
By some measures, U.S. stocks still look somewhat cheap. The S&P 500 is trading at 13.9 times projected earnings for the next four quarters, or slightly less than the 10-year average of 14.1, according to FactSet. A year ago, the overall market had a price-to-earnings multiple of 12.3. Financial firms are expected to post the strongest earnings-seasonperformance, with analysts predicting a 17% per-share profit jump. Earnings are expected to slump 8.2% for S&P 500 companies in the materials sector, and to slip 2.3% at industrial companies. Batterymarch Financial Management Inc., a Boston asset manager that oversees $12.7 billion, has been adding to positions in cyclical sectors such as banks and technology. Companies in those industries offer better growth prospects and lower valuations than defensive corners of the stock market where investors flocked earlier in the year, says Stephen Lanzendorf, head of the developed-markets team at Batterymarch. Jim McDonald, chief investment strategist at Northern Trust Corp., says he isnt too worried about earnings season. The Chicago firm manages $810 billion. Theres an under-appreciation of the stability in the global economic numbers, he says. For example, the Institute for Supply Managements purchasing managers index for June indicated a slight expansion in U.S. factory activity. That was an improvement from May, which showed the first contraction since November.
Continued from page 15 said he has worked with banking clients frustrated with the lack of guidance on the employee-participation portion of the rule. This is just one more thing where the rules werent quite clear, he said. The skeptics said it would take a long time for the rules to come out, and I guess they were right. Typically, bank employees who meet certain wealth thresholds have been able to invest in the banks own private-equity funds, hedge funds and feeder funds that allow access to private investments. Bank employees have enjoyed the potentially lucrative investment opportunity that offers. Meanwhile, many outside investors in the funds like financial firms to make their own significant investments so that managers have a vested interest in their performance. The current provision, as outlined, says that no directors or employees can invest unless they are directly engaged in providing investment advisory or other services to the fund. Banks say it isnt clear what directly engaged means, and regulators havent yet provided much help. A spokesman for the Federal Reserve, one of the agencies overseeing the rule, declined to comment. So banks are trying to figure out which of their employees are providing services to the fund, with varying results, said Michael Wolitzer, a partner at New York law firm Simpson Thacher & Bartlett LLP who has advised banks on this issue. Some are hewing strictly to the outlines of the rule. Citigroups prohibition on any employee investing in funds sponsored by the bank, no matter their association, could change depending on the final rule, said a person familiar with the banks decision. J.P. Morgan Chase & Co. is preventing its employees from investing in bank-sponsored funds unless they have a direct relationship with the funds, said a person familiar with the banks move. That could change once the bank gets more guidance, this person said. Morgan Stanley has told its financial advisers that if they dont have a client in the fund, they cant invest, according to a person familiar with the firms operations. The bank also is restricting investment to those actively managing the fund,
Lenders Confused by Rule
this person said. Other firms are still figuring out their plan of attack. Wells Fargo & Co., for example, hasnt decided yet how it will comply. We are still analyzing aspects of the rule, a spokesman said. Some bank employees arent happy about having to give up the investment opportunity and dont see why the issue has attracted regulatory scrutiny. Why in a million years would the government have a problem if senior bankers wanted to invest? asked a managing director at UBS. Its crazy they dont allow it, because dont you want to know that senior management is willing to invest the same as the client? Theres no real logic to it. Banks typically dont disclose the total payouts to employees from these funds, but they can be lofty. At Goldman Sachs Group Inc., for example, 2012 distributions from employee investment funds totaled $18.7 million for Michael Sherwood, a vice chairman, according to the firms proxy filing. A Goldman spokeswoman declined to comment on how much Mr. Sherwood initially invested or when. Distributions to the firms 12 top executives totaled nearly $170 million for 2012, according to the filing. But it isnt just top executives who would be banned from investing. Mr. Johnson of Johnson Associates estimates thousands of employees per bank would be affected typically managing directors who meet the wealth minimums. Banks often take care to mention that employees are investing in the same fund as a client to telegraph that their interests are aligned. If managers have skin in the game, the thinking goes, they will have an incentive to produce good returns and be attuned to the risks of the investing strategy. Some employees believe the rule will dilute that comfort for clients by narrowing the universe of employees allowed to make bets alongside them. Still, as the banks await the final wording of the rule, some employees are resigned to the loss of the perk. Im personally unhappy about it and I like being in some of these funds, but I dont have clients and I dont manage the funds, said one managing director at Morgan Stanley. The law is the law.
MARKETS
BY AINSLEY THOMSON AND JOHN REVILL
U.K.-Swiss Tax Deal Seen Falling Short

LONDONThe U.K. government could be left with a big hole in its public finances this year and Swiss banks could lose millions of pounds paid in advance after a landmark tax agreement between the two countries apparently failed to raise anywhere near the money expected. U.K. Treasury chief George Osborne last year hailed the deal as the largest tax-evasion settlement in British history and told Parliament it was expected to raise 5 billion ($7.45 billion) over the next six years. He had been banking on it raising 3.2 billion this financial yearmoney already factored into the budget. The Swiss Bankers Association said Friday that the figure was likely to be much lower. It said there are fewer untaxed U.K assets in Switzerland than previously thought, mainly because many British clients have declared residency in Switzerland, meaning they are not liable for U.K. tax. In addition, it said some British clients have opted for voluntary disclosure of their assets, which means they make their own payments directly to the U.K. tax authority. This implies the U.K. will gain at least some revenue from U.K. citizens with Swiss accounts. The Treasury said Friday that its estimates arent off-track, adding that it had already factored in the issues raised by the SBA when it made the deal. There is no reason to revise the overall yield estimate at this point, it said. The actual amounts collected from the tax won't begin showing up in the U.K. national accounts until August. As part of the tax deal, Swiss banks made a prepayment of 500 million Swiss francs ($522.7 million) in January, which they can begin recovering only after 800 million francs had been paid to the U.K authorities. The SBA warned that the possibility cannot be ruled out that either none or only a small part of the banks guarantee payment of 500 million francs will be recovered. Any shortfall that materializes would be particularly uncomfortable for Mr. Osborne, following a similar episode last year, when the Treasury received 1.2 billion less than he had budgeted from the sale of fourthgeneration mobile telephone licenses. Under the Swiss-U.K. deal, which came into force Jan. 1, U.K. citizens with undeclared savings in Swiss
U.K. Treasury chief George Osborne, above, faces possible repayment shortfalls. bank accounts are liable for a oneoff 21% tax on their savings and up to 41% on future capital gains. In return, the anonymity of their accounts will be preserved. Credit Suisse AG said Friday it expects a negative after-tax impact of no more than 90 million francs, which would be recognized in its results. The bank said it would bear 20% of the ultimate cost of the guaranteed amount. UBS AG said its share in the upfront payments was around 100 million francs. We will take into account all information available to us in our assessment of the impact of the arrangement on our second-quarter results, which will be reported July 30, UBS spokesman Dominique Gerster said. The tax deal has had plenty of critics: The U.K. Parliaments Treasury Select Committee in December cautioned the proceeds from the deal may not meet expectations if assumptions about the potential tax
liabilities and expected behavior of those affected dont hold. In particular, the committee warned that Britons with Swiss bank accounts could choose to simply move their money to another country. Fridays revelation comes as Switzerland struggles to preserve its bank-secrecy laws in the face of mounting global pressure from nations seeking to repatriate taxes owed by citizens who have stashed funds in Swiss accounts. The Swiss government has also agreed to a similar withholding tax deal with Austria, which also goes into effect this year, though a third deal, reached between the Swiss and German governments, was rejected by the German upper house of parliament in December. Negotiations with Italy on a similar deal to the U.K. model are ready to resume after a pause following the countrys elections this year, said a spokesman for the Swiss department for International Financial Matters. No talks have taken place with France. Earlier this week, the Swiss government announced a framework to allow Swiss banks to cooperate with the U.S. Justice Department, which will set up a special program to regularize the tax affairs of Swiss banks with American clients.
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FUND NAME NAV GF AT LB DATE CR
OT VGB 08/31 USD
INTERNATIONAL INVESTMENT FUNDS

NAV
2155.22
%RETURN YTD 12-MO 2-YR

NS NS NS
FUND NAME
GH FUND S GBP GH Fund S USD GH Fund USD Hedge Investments Leverage GH USD MultiAdv Arb CHF Hdg MultiAdv Arb EUR Hdg MultiAdv Arb GBP Hdg MultiAdv Arb S EUR MultiAdv Arb S GBP MultiAdv Arb S USD MultiAdv Arb USD
NAV GF AT LB DATE CR
OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT OT EQ EQ EQ EQ EQ EQ OT OT OT OT OT CYM CYM GGY GGY GGY JEY JEY JEY JEY JEY JEY JEY JEY JEY JEY JEY JEY JEY JEY JEY GGY GGY GGY 06/21 06/21 06/21 06/21 06/21 06/21 06/21 06/21 06/21 06/21 06/21 06/21 06/21 06/21 09/28 09/28 06/30 06/30 04/30 04/30 06/21 06/21 06/21 GBP USD USD USD USD CHF EUR GBP EUR GBP USD USD EUR USD USD EUR EUR USD EUR USD USD EUR GBP
Bloomberg News
NAV
155.77 174.60 305.32 158.86 138.52 98.19 109.20 118.84 122.30 129.11 139.97 206.18 95.75 179.18 151.22 82.99 127.84 135.07 104.69 105.31 132.51 119.90 128.14

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NAV
452.58 64.00 457.25 88.10 68.55 165.97 338.55 97.74 184.66 106.16 223.98 92.40 475.67 110.83 504.15 459.66 129.34 172.76 134.01 201.79 117.87 129.95 110.24 96.91 128.77 167.45 163.13 127.10 105.88 306.11 99.89 174.12 364.78 123.23 79.12 276.58 12231.17 6782.96 10491.83 75.71 139.62 327.77 877.24 116.74 111.78 72.96 59.54 142.90 124.25 137.73 10127.89 132.20 705.10 102.76 102.00 136.82 138.06 166.07 136.10 136.76 576.51 125.15 179.41 135.55 100.24 114.46 105.25 91.92

26.1 -22.4 -0.7 -13.6 8.1 12.3 -7.7 -4.7 -8.2 -7.9 -11.6 -9.3 -9.9 7.7 3.0 -0.3 -0.2 0.0 0.1 1.6 -3.0 0.7 1.3 4.7 6.2 6.8 7.2 -5.7 -1.7 -6.7 2.3 8.5 -4.7 11.5 -9.6 -10.3 40.1 43.0 39.5 -17.1 -8.2 -4.3 4.9 11.2 11.0 -12.2 -9.4 7.7 0.0 -0.1 0.0 0.1 12.4 -0.1 0.0 4.0 9.9 13.9 0.6 14.0 -2.9 -0.2 7.3 -4.6 -2.2 4.5 -0.3 -2.9 22.5 -18.3 1.2 0.1 13.8 17.0 1.8 NS -1.1 0.7 -2.0 -1.2 -1.1 10.5 11.2 6.7 4.6 6.8 6.2 14.2 1.8 2.9 7.2 19.0 15.9 14.8 16.9 -3.0 1.2 1.1 3.1 16.9 7.6 12.0 1.2 0.5 57.6 58.3 54.8 -11.8 -4.4 9.7 8.7 19.7 NS -6.0 -1.4 16.5 -0.1 -0.1 0.0 0.2 24.6 -0.2 0.1 23.5 13.5 20.8 7.3 19.1 -2.5 0.0 7.8 -7.9 11.0 15.1 1.0 5.8 17.6 NS 2.7 NS -6.9 4.9 -7.0 NS -1.6 NS -9.6 NS -12.5 5.5 4.6 7.2 5.5 5.1 7.3 6.1 2.2 3.2 NS 0.8 6.0 5.2 3.0 NS -2.3 5.8 NS 3.4 -4.9 9.7 NS -15.3 19.3 21.0 17.8 NS -3.5 0.3 6.3 9.2 NS NS -16.3 2.4 0.0 0.3 0.1 0.3 8.6 0.0 0.2 5.9 7.3 9.5 5.8 11.2 3.1 0.4 10.1 4.6 NS 4.4 2.5 -7.0
FUND NAME
Europn Forager USD B Latin America USD A Paragon Limited USD A UK Fund USD A
EU GL EU OT EQ EQ EQ OT CYM CYM CYM CYM 05/31 06/30 12/31 04/13 USD USD USD USD
NAV
293.48 NS.00 NS.00 157.94

4.0 NS 12.7 1.8 9.8 NS 12.7 NS 7.5 NS 14.2 NS
n ALEXANDRA INVESTMENT MANAGEMENT

AlexandraConvertibleBondFundI,Ltd.(ClassA) OT
n PT CIPTADANA ASSET MANAGEMENT Tel: +6221 25574 883 Fax: +6221 25574 893 Website: www.ciptadana-asset.com
Indonesian Grth Fund GL EQ BMU 06/26 USD 179.47 0.1 2.9 -2.6
n BANC INTERNACIONAL D'ANDORRA. BANCA MORA. Avgd. Meritxell 96, Andorra la Vella. Andorra. Ph. +376.884884 www.bibm.ad
Andfs. Anglaterra Andfs. Borsa Global Andfs. Emergents Andfs. Espanya Andfs. Estats Units Andfs. Europa Andfs. Franca Andfs. Japo Andfs. Plus Dollars Andfs. RF Dolars Andfs. RF Euros Andorfons Andorfons Alternative Premium Andorfons Mix 30 Andorfons Mix 60 NAV UK GL GL EU US EU EU JP US US EU EU GL EU EU OT EQ EQ EQ EQ EQ EQ EQ EQ BA BD BD BD EQ BA BA AND AND AND AND AND AND AND AND AND AND AND AND AND AND AND 11/16 07/04 11/02 07/04 07/04 07/04 07/04 07/04 10/22 07/04 07/04 07/04 05/31 07/04 12/19 GBP EUR USD EUR USD EUR EUR JPY USD USD EUR EUR EUR EUR EUR 8.47 6.08 14.77 10.25 17.71 6.26 9.65 635.47 9.66 11.90 11.49 15.33 98.52 9.82 8.96 2.8 3.0 -20.4 -0.7 9.8 -1.4 5.7 35.3 2.3 -2.6 -0.6 0.2 5.2 0.0 4.4 5.3 3.6 5.7 -19.2 11.8 13.0 3.5 14.6 46.3 3.0 -0.3 3.1 4.2 5.2 2.8 7.1 10.9 14.9 -4.5 -4.7 -8.2 4.2 -8.4 -1.4 15.1 6.2 -0.5 2.0 2.9 -0.8 -1.1 -2.5 9.8
n HSBC Uni-folio
Asian AdbantEdge EUR Asian AdvantEdge Emerg AdvantEdge Emerg AdvantEdge EUR Europ AdvantEdge EUR Europ AdvantEdge USD Real AdvantEdge EUR Real AdvantEdge USD Trading AdvantEdge Trading AdvantEdge EUR Trading AdvantEdge GBP
n THE NATIONAL INVESTOR PO Box 47435, Abu Dhabi, UAE Web:www.tni.ae

MENA Special Sits Fund MENA UCITS Fund UAE Blue Chip Fund OT OT OT OT BMU 05/30 USD OT IRL 06/20 USD OT ARE 06/20 AED
1138.06 1148.76 7.55
10.1 11.2 47.9
13.8 17.1 61.8
5.5 5.8 19.8
n CG Portfolio Fund Ltd
n HSBC Trinkaus Investment Managers SA n CHARTERED ASSET MANAGEMENT PTE LTD - TEL NO: 65-6835-8866 E-Mail: funds@hsbctrinkaus.lu Fax No: 65-6835 8865, Website: www.cam.com.sg, Email: cam@cam.com.sg Telephone: 352 - 47 18471
CAM-GTF Limited OT OT MUS 06/28 USD 331477.03 -17.6 -8.1 -7.1
OT CYM 06/07 GBP
25839.68
n YUKI MANAGEMENT & RESEARCH n YMR-N Series

YMR-N Growth Fund Yuki 77 General
n Citadele Republikas square 2a, Riga, LV-1522, Latvia
Citadele Eastern Europ Bal EU BD LVA 07/04 EUR Citadele Eastern Europ Bd EU BD LVA 07/04 USD Citadele Russian Eq EE EQ LVA 07/04 USD
15.94 19.52 19.90
-1.6 -1.5 -11.2
4.7 4.7 1.0
0.6 3.1 -12.6
n DJE INVESTMENT S.A. internet: www.dje.lu email: info@dje.lu phone:+00 352 269 2522 0 fax:+00 352 269 25252
DJE Real Estate P DJE-Absolut P DJE-Alpha Glbl P DJE-Div& Substanz P DJE-Gold&Resourc P DJE-Renten Glbl P LuxPro-Dragon I LuxPro-Dragon P LuxTopic-Aktien Europa LuxTopic-Pacific OT OT LUX 07/05 EUR OT OT LUX 07/05 EUR OT OT LUX 07/05 EUR OT OT LUX 07/05 EUR OT EQ LUX 07/05 EUR EU BD LUX 07/05 EUR AS EQ LUX 07/20 EUR AS EQ LUX 07/20 EUR EU EQ LUX 07/05 EUR OT OT LUX 07/05 EUR 4.93 240.76 181.10 266.94 124.26 151.38 144.57 140.29 18.97 20.18 -3.7 2.6 5.2 5.5 -27.0 0.1 -8.5 -8.8 -2.1 -5.0 -6.4 14.4 12.9 12.6 -27.9 4.3 5.0 4.4 9.8 5.0 -9.1 2.6 -3.8 4.7 -23.2 4.3 7.6 7.0 2.6 -1.1
HSBC Trinkaus Golden Opportunities Prosperity Return Fund A Prosperity Return Fund B Prosperity Return Fund C Prosperity Return Fund D Renaissance Hgh Grade Bd A Renaissance Hgh Grade Bd B Renaissance Hgh Grade Bd C Renaissance Hgh Grade Bd D
OT JP EU EU EU EU EU EU EU
OT BD BA BA BA BA BA BA BA
LUX LUX LUX LUX LUX LUX LUX LUX LUX
07/04 07/04 07/04 07/04 07/04 07/04 07/04 07/04 07/04
USD JPY JPY USD EUR JPY JPY USD EUR
78.69 8432.90 8648.94 77.72 126.53 10315.04 10376.25 92.65 104.17
-39.1 -10.8 0.1 -13.7 -5.1 -1.3 9.9 -5.3 -3.4
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JP JP JP
EQ IRL 07/05 JPY EQ IRL 07/05 JPY EQ IRL 07/05 JPY EQ IRL 07/05 JPY EQ IRL 07/05 JPY EQ EQ EQ EQ EQ EQ IRL IRL IRL IRL IRL IRL 07/05 07/05 07/05 07/05 07/05 07/05 JPY JPY JPY JPY JPY JPY
12656.00 8554.00 15802.00 8771.00 9563.00 5429.00 10111.00 8994.00 6076.00 17913.00 8735.00
45.8 62.4 72.6 41.5 49.0 44.8 64.2 29.3 38.5 78.4 71.6
59.3 79.8 85.6 53.8 48.5 57.4 82.4 37.1 47.0 85.6 100.5
17.1 23.1 25.4 16.8 11.5 13.9 26.0 11.2 12.9 27.2 27.4
n Yuki 77 Series
n Yuki Asia Umbrella Series

Yuki Rebounding Gro Fd Yuki Chugoku Jpn Gen Yuki Chugoku JpnLowP
n Yuki Chugoku Series
JP JP
n Yuki Mizuho Series

Yuki Mizuho Jpn Dyn Gro Yuki Mizuho Jpn Exc 100 Yuki Mizuho Jpn Inc Yuki Mizuho Jpn Lg Cap Yuki Mizuho Jpn LowP Yuki Mizuho Jpn Val Sel
n MP ASSET MANAGEMENT INC. Tel: + 386 1 587 47 77

MP-BALKAN.SI MP-TURKEY.SI EE OT
JP JP JP JP JP AS
EQ SVN 08/12 EUR OT SVN 07/04 EUR
19.29 45.86
-1.9 -5.9
-8.4 9.3
-10.9 6.7
n HERMITAGE CAPITAL MANAGEMENT LTD. Tel: +7501 258 3160 www.hermitagefund.com

The Hermitage Fund GL EQ JEY 03/12 USD
n OTHER FUNDS For information about these funds, please contact us on Tel: +44 (0) 207 842 9694/9633
Medinvest Plc Dublin OT EQ IRL 09/30 USD NS.00 NS 1.3 -4.4
963.12
4.5
105.6
-23.2
n HORSEMAN CAPITAL MANAGEMENT LTD. T: +44(0)20 7838 7580, F: +44(0) 20 7838 7590, www.horsemancapital.com n MERIDEN GROUP Horseman EurSelLtd EUR EU EQ GBR 05/31 EUR 299.09 18.0 35.3 11.6 Tel: + 376 741 175 Fax: + 376 741 183 Email: meriden@meriden-ipm.com
Horseman EurSelLtd USD Horseman Glbl Ltd EUR Horseman Glbl Ltd USD EU EQ GBR 05/31 USD GL EQ CYM 05/31 USD GL EQ CYM 05/31 USD 323.55 496.29 496.29 NS NS NS NS NS NS NS NS NS Antanta Combined Fund Antanta MidCap Fund Meriden Opps Fund Meriden Protective Div EE EE GL GL EQ EQ OT EQ AND AND AND AND 06/21 06/21 07/03 11/24 USD USD EUR EUR 231.23 365.38 23.38 NS.00 -12.1 -8.6 -7.9 -2.8 -17.3 -18.9 -14.6 NS
n WINTON CAPITAL MANAGEMENT LTD Tel: +44 (0)20 7610 5350 Fax: +44 (0)20 7610 5301
Winton Evolution EUR Cls H Winton Evolution GBP Cls G Winton Evolution USD Cls F Winton Futures EUR Cls C Winton Futures GBP Cls D Winton Futures JPY Cls E Winton Futures USD Cls B GL GL GL GL GL GL GL OT OT OT OT OT OT OT CYM CYM CYM VGB VGB VGB VGB 06/30 06/30 06/30 06/30 06/30 06/30 06/30 EUR GBP USD EUR GBP JPY USD
n HSBC ALTERNATIVE INVESTMENTS LIMITED T +44 20 7860 3074 F + 44 20 7860 3174 www.hail.hsbc.com HSBC ALTERNATIVE STRATEGY FUND
Special Opp EUR Special Opp Inst EUR Special Opp Inst USD Special Opp USD OT OT OT OT OT OT OT OT GGY GGY GGY GGY 06/21 03/31 03/28 06/21 EUR EUR USD USD 113.41 88.51 123.18 119.77 120.89 134.78 148.49 127.60 148.65
-25.7 -33.9 -25.1 NS
NS.00 NS.00 NS.00 NS.00 NS.00 NS.00 NS.00
6.1 6.6 6.5 4.2 4.4 NS 4.5
2.4 2.8 2.6 4.7 5.1 NS 5.1
0.8 1.0 0.8 3.5 3.6 NS 3.5
6.0 0.7 4.2 5.7 5.0 4.7 5.1 4.9 5.1
19.8 -0.3 18.5 20.0 10.0 9.9 10.7 10.8 10.9
10.5 13.3 10.6 10.8 2.3 2.8 3.2 3.6 3.9
n POLAR CAPITAL PARTNERS LIMITED International Fund Managers (Ireland) Limited PH - 353 1 670 660 Fax - 353 1 670 1185 n Pictet Funds (Europe) SA, ROUTE DES ACACIAS 60, CH-1211 GENEVA 73 Tel: + 41 (58) 323 3000 Web: www.pictetfunds.com
Pictet-Abs Ret Gl Conserv-P EUR Pictet-Abs Ret Gl Div-P EUR Pictet-Agriculture-P EUR Pictet-Asian Eq ExJpn-P USD Pictet-Asian Loc Cur Dbt-P USD OT OT GL OT OT OT OT OT AS BD LUX LUX LUX LUX LUX 07/04 07/04 07/04 07/05 07/05 EUR EUR EUR USD USD 100.43 112.80 151.23 165.06 145.85 -4.7 -6.1 2.8 -6.6 -5.9 -3.8 -4.3 5.4 3.2 -1.5 -0.6 -1.3 3.6 -6.6 0.6 Global Technology Japan Fund USD Polar Healthcare Class I USD Polar Healthcare Class R USD OT JP OT OT EQ EQ EQ EQ IRL IRL IRL IRL 07/03 07/05 07/03 07/03 USD USD USD USD 18.60 21.60 22.57 22.20 7.7 21.1 24.0 23.8 12.3 22.2 35.4 35.0 NS NS 7.8 1.3 5.5 21.1 20.7
INDICES
FUND NAME NAV %RETURN GF DATE CR NAV 1-WK 1-MO 1-Q 1-YR 2-YR n ARIX ABSOLUTE RETURN INVESTABLE INDEX Feri Institutional Advisors, www.feri.de n CG Portfolio Fund Ltd
NAV OT ARIX Composite Gross USD OT OT GBR 05/31.00 OT CYM 06/07.00 USD1559.27 GBP25839.68 5.1 5.3 8.5 10.9 2.3 9.8
n HSBC Portfolio Selection Fund

GH Fund CHF Hdg GH Fund EUR Hdg (Non-V) GH Fund GBP Hdg GH Fund Inst USD GH FUND S EUR OT OT OT OT OT OT OT OT OT OT GGY GGY GGY GGY CYM
06/21 06/21 06/21 06/21 06/21
CHF EUR GBP USD EUR
n Hemisphere Management (Ireland) Limited

Discovery USD A Elbrus USD A Europn Conviction USD B GL OT EU OT CYM 12/31 USD OT CYM 05/31 USD EQ CYM 05/31 USD
101.35 9.91 155.84
NS NS -1.3
NS NS 3.8
Data as shown is for information purposes only. No offer is being made by Morningstar, Ltd. or this publication. Funds shown arent registered with the U.S. Securities and Exchange Commission and arent available for sale to United States citizens and/or residents except as noted. Prices are in local currencies. All performance figures are calculated using the most recent prices available. 12-month and 2-year returns may be calculated over 11- and 23-month periods pending receipt and publication of the last month end price.
For information about listing your funds, please contact: Lauren Berkemeyer tel: +44 20 7572 2102; email: lauren.berkemeyer@dowjones.com
MARKETS
CONSUMER GOODS
BUSINESS BRIEFS
Lululemon Founder to Sell Over $200 Million in Stock
However, human rights groups and nongovernmental organizations operating in the region have accused Shell of being too quick to blame oil theft for spills that could have been caused by other factors, such as operational error or aging infrastructure. Almost two-thirds of the oil released from the pipeline during the incident burned up at the site, Shell said. The June 19 incident on the 150,000 barrel-a-day Trans Niger Pipeline released nearly 2,700 barrels of oil, equivalent to just over a third of all the oil the Shell joint venture has reported spilled from its facilities since January, Shell said in a report published on its website. The high incidence of theft from pipelines has started to dent Nigerian government revenues because it frequently forces the shutdown of large volumes of oil production. The fire and spill on the Trans Niger Pipeline highlights the difficulty companies face in tackling the problem. Oil thieves tapped into the pipeline at night, even as the Shell Petroleum Development Co., or SPDC, had worked during the day to repair damage done by more thieves a few weeks earlier, Shell said. SPDC is a joint venture between Shell, stateowned Nigeria National Petroleum Corp. and the local units of Frances Total SA and Italys Eni SpA. In an effort to help reduce oil spills, SPDC announced in June it was planning to spend $1.5 billion to build a new pipeline that will bypass a section of the Trans Niger Pipeline that has been particularly badly affected by theft. Last week, Amnesty International and the Nigerian National Coalition on Gas Flaring and Oil Spills called for an independent inquiry of the June 19 fire on the Trans Niger Pipeline to determine who was responsible. A Shell spokesman said the appropriate Nigerian authorities are already investigating the matter. The company said NACGOND was present during the joint investigation conducted into the fire and spill, which concluded that the incident was caused by oil theft. Sarah Kent and Benot Faucon
The HSBC building in Seoul. HSBC is refocusing on what it sees as key areas.
BY FIONA LAW AND KANGA KONG
HSBC to Quit Koreas Retail Banking Market

efforts to improve shareholder returns and adapt to a tougher economic and regulatory landscape. Global banks are battling everhigher costs as regulators push them to hold more reserve capital, while shareholders increasingly demand more dividends. Chief Executive Stuart Gulliver said in May that the job cuts will help the bank save up to $3 billion a year, in addition to $4 billion in annual savings achieved since he laid out a new strategy for the bank two years ago. That initial attack on costs included the elimination of around 46,000 jobs and the closure or sale of 52 businesses, including exits from retail banking and wealth management in 17 markets, a HSBC spokeswoman said Friday. The bank cut retail branch networks last year in Russia, Thailand, Colombia and Japan, where it also exited private banking. HSBC is refocusing on what it sees as key markets. These include its home bases of the U.K. and Hong Kong, mature economies including the U.S., Germany and France, and faster-growing countries such as China, Indonesia and Brazil. The plan to shut its retail banking in South Korea requires regulatory approval, the lender said Friday.
HONG KONGHSBC Holdings PLC said Friday that it plans to exit retail banking and wealth management in South Korea, the banks latest move to rid itself of inefficient businesses. HSBC will eliminate around 230 jobs as it winds down those operations but will continue to run its more profitable investment-banking business in South Korea, a spokeswoman said. KDB Financial Group, one of South Koreas biggest banking groups, was in talks last year to buy HSBCs retail-banking business there, which HSBC deemed non-core early in the year. But talks ended in July last year when KDB Financial didnt want to take on all of HSBCs employees as part of the deal. HSBC has struggled with retail banking in South Korea, where domestic banks tend to dominate a competitive market. Citigroup Inc. has been an exception, expanding its customer base after it bought KorAm Bank in 2004. HSBCs announcement comes just weeks after it revealed new cost-cutting measures. It said in May that it would cut an additional 14,000 jobs world-wide as part of
With just 11 branches in South Korea, HSBC had problems attracting retail customers from competitors such as Kookmin Bank, one of the big-four banks that dominate the countrys retail-banking market. Kookmin Bank, part of KB Financial Group, has 1,198 branches nationwide. The other three are Woori Bank, Hana Bank and Shinhan Bank. HSBC opened its first branch in South Korea in 1984. It had $22.5 billion in assets as of the end of March. Its South Korea operations including retail, corporate and investment bankingrecorded a net profit of $37.3 million between January and March, and a net profit of $163 million last year, according to Financial Supervisory Service, the countrys financial regulator. HSBCs retail-banking operation in South Korea isnt profitable, but its investment and corporate-banking operations have been doing well, an official with the Financial Supervisory Service said. HSBC declined to comment. Data from Dealogic shows that HSBC ranks 16th in investment banking revenue in South Korea this year, having made $5 million in the country. J.P. Morgan, with $20 million in fees, ranks first. Isabella Steger contributed to this article.
Lululemon Athletica Inc. said its chairman and founder Dennis Chip Wilson is planning to sell another chunk of his holdings worth more than $215 million, just weeks after a smaller share sale by the billionaire raised questions about its timing. The Vancouver-based yoga-gear maker said in a regulatory filing that Mr. Wilson could sell 3.4 million shares, or about 2.34% of the company in the open market or via private transactions. Such a sale would take his ownership down to 25.41% from 27.75%. Last month, Mr. Wilson sold about $50 million worth of shares four days before Lululemons stock plummeted when the company released the unexpected news that its chief executive, Christine Day, was planning to leave the company. That sale was part of a prearranged trading plan he had set up months earlier. The shares Mr. Wilson now may sell dont appear to be part of such prearranged plans, which let company executives and directors buy or sell shares under preset conditions even if they have inside information when the trades occur. Lululemon didnt specify when the stock sales would take place, but said the shares could be sold into the market or via private transactions. A company spokesman didn't respond to requests for comment Friday. Mr. Wilson, who founded Lululemon in 1998 after selling a surf and skate-wear company, remains the companys largest shareholder. Serena Ng
Bloomberg News
RESOURCES
Shell Outlines the Details Of Niger Delta Oil Spill

Royal Dutch Shell PLC said Friday that a fire in June caused by oil theft on a major pipeline in the Niger Delta resulted in the largest oil spill from facilities operated by its Nigerian joint venture this year. The incident is the latest example of the environmental and economic impact from oil spills in the region. Shell says that the vast majority of environmental damage in the Niger Delta results from spills caused by thieves who breach pipelines in order to steal oil.
For more breaking news, go to WSJ.com/Business and follow @wsjbusiness on Twitter.
Online>>
Fund Scorecard Systematic Futures

Trade futures, options, and FX contracts according to trend-following strategies Strategy relies on technical/price-driven analysis Ranked on % total return (dividends reinvested) in Euros for one year ending July 05, 2013
Leading 10 Performers
FUND FUND RATING * NAME FUND MGM'T CO.
LEGAL CURR. BASE
YTD
% Return in $US ** 1-YR 2-YR 5-YR
1 1 4 NS 3 5 5 NS 4 4
Oil-Price Gap Divides OPEC

BY SARAH KENT LONDONThe price of benchmark oil from some members of the Organization of the Petroleum Exporting Countries has fallen in the past year, the group said in its annual report Friday, highlighting the prospect of a deepening rift between producing countries that are most affected and those that remain largely unscathed. The unexpected energy boom in the U.S. is causing a revolution in global oil trade as Americas appetite for high-quality crude grades similar in quality to the oil extracted from the countrys shalerock formations dwindles. African OPEC members such as Nigeria and Algeria are the worst affected, with their exports to the U.S. shrinking substantially in recent years. The average price of Algerias Saharan Blend on the spot market fell by 1.3% in 2012 to $111.49 a barrel, while Nigerias Bonny Light slipped 0.4% to average $113.66 a barrel, the report said. Exports from Nigeria and Algeria to the U.S. almost halved between April 2011 and April 2012, according to the U.S. Energy Information Administration. Between April 2012 and April this year, Nigerias exports fell an-
other 16% to 12.2 million barrels, while Algerias exports slumped 38% to 4.8 million barrels, the data showed. Meanwhile, according to OPECs annual report, the price of Angolas benchmark grade, Girassol, rose by just 0.6% last year, as Algeria also saw a decline in its exports to the U.S. But many other members, such the groups largest producer Saudi Arabia, are relatively unscathed by the U.S. production boom. According to OPECs annual report, most other members saw the average price of their benchmark crude grades rise by around 2% to 3% between 2011 and 2012.
Acer Cube Acer Finance EURFRA Acc Bayou City Bayou City USDUSA Capital, LP Capital, LP Quantedge Quantedge Capital USDCYM Global Fund Cardwell Cardwell USDCYM Global Fund 3x Investment Technologies Roy G. R.G. Niederhoffer USDCYM NiederhofferOptimalAlphaFundB Capital Management Inc Crabel Crabel Capital USDUSA Multi-Product Class AA Management LLC Covenant Covenant Capital USDUSA CapitalManagementOriginal Management LLC Thema Symphonia SGR EURITA S.p.A. Briarwood Briarwood Capital USDUSA Fund LP 2XL Management Inc Leveraged Merriman Inc USDUSA Global Opportunity Fund
15.40 52.33 -17.51 -21.70 15.17 47.70 19.93 13.00 6.52 28.98 29.40 34.57 19.68 26.36 24.49 41.65 24.80 7.59 NS 3.80
13.59 24.79 20.39 10.62 12.07 23.20 18.73 17.01 5.36 21.31 8.56 NS 17.11
1.12 18.60 10.61 12.60 17.36
8.82 15.84
NOTE: Changes in currency rates will affect performance and rankings. KEY: ** 2YR and 5YR performance is annualized NA-not available due to incomplete data; NS-fund not in existence for entire period
Source: Morningstar, Ltd 1 Olivers Yard, 55-71 City Road London EC1Y 1HQ United Kingdom www.morningstar.co.uk; Email: mediaservice@morningstar.com Phone: +44 (0)203 107 0038; Fax: +44 (0)203 107 0001
GLOBAL MARKETS LINEUP

Major stock market indexes
Region/Country EUROPE Euro Zone Austria Belgium Czech Republic Denmark Finland France Germany Hungary Ireland Italy Netherlands Norway Poland Portugal Index Stoxx Europe 600 Stoxx Europe 50 Euro Stoxx Euro Stoxx 50 ATX Bel-20 PX OMX Copenhagen OMX Helsinki CAC-40 DAX BUX ISEQ FTSE MIB AEX All-Shares WIG PSI 20 Close
Stock indexes from around the world, grouped by region. Shown in local-currency terms.
PREVIOUS SESSION
Net change -3.84 -38.47 -4.20 -50.53 2.19 -28.70 0.79 -27.78 -55.46 -188.31 38.48 -68.88 -274.46 -1.98 0.38 -502.86 -24.28
PERFORMANCE Percentage change Yr.-to-date -1.31% -1.45 -1.57 -1.91 0.10% -1.12
Closed
52-wk. 13.3% 8.1 17.7 16.1 14.9 14.8 -4.7 14.8 18.1 18.5 21.8 10.5 26.1 13.1 13.8 14.2 10.6 14.1
288.31 2620.32 263.92 2596.01 2247.52 2539.40 873.39 482.34 6020.66 3753.85 7806.00 18893.81 4001.02 15533.69 352.53 522.15 45110.89 5407.32
3.1% 1.7 1.2 -1.5 -6.4 2.6 -15.9 6.6 3.8 3.1 2.5 0.20 4.0 17.8 -4.5 2.9 0.07 6.4 -5.0 -4.4 0.16
Region/Country Russia Spain Sweden Switzerland Turkey U.K. ASIA-PACIFIC Australia China Hong Kong India Japan Singapore South Korea AMERICAS Brazil Mexico
Index RTSI IBEX 35 OMX Stockholm SMI ISE National 100 FTSE 100 DJ Asia-Pacific SPX/ASX 200 CBN 600 Hang Seng Sensex Nikkei Stock Average Straits Times Kospi DJ Americas Bovespa IPC
Close 1268.59 367.53 7781.98 73111.83 6375.52
PREVIOUS SESSION
Net change -12.02 -133.60 -1.90 -49.61
PERFORMANCE Percentage change Yr.-to-date -16.9 -0.94% -1.67 -0.51 -0.63 -0.72 0.50% 0.98 0.01 1.89 0.44 2.08 0.72 -0.32 0.77 -1.21 -1.40 -3.7 6.9 14.1 -6.5 8.1 2.2 4.1 -8.8 -8.0 0.4 37.7 0.1 -8.2 11.0 -25.8 -7.1
52-wk. -6.6 16.8 15.6 25.8 16.5 12.6 11.0 16.4 -8.3 5.3 11.3 58.6 6.4 -1.3 17.7 -18.4 2.0
7868.4
-2297.80 -3.05 -46.15 0.68 47.00 2.36 386.00 84.98 291.04 22.61 -5.83 3.16 -552.67 -577.31
136.18 4841.70 18972.31 20854.67 19495.82 14309.97 3169.73 1833.31 411.73 45210.49 40623.09
-0.46 -1.46 -2.36 -1.69 -1.74 -0.56 -1.10 -0.45
Note: Americas index data are as of 5:00 p.m. ET.
Sources: SIX Financial Information; WSJ Market Data Group
Dow Jones Indexes

Price-toDividend earnings yield* ratio* Dows Jones Index PERFORMANCE (euros) Last Daily 52-wk. PERFORMANCE (U.S.dollars) Last Daily 52-wk. Price-toDividend earnings yield* ratio* Dows Jones Index PERFORMANCE (euros) PERFORMANCE (U.S.dollars) Last Daily 52-wk. Last Daily 52-wk.
MSCI indexes
2830.39 2126.15 207.95 2759.51 2832.33 235.92 1356.71 1303.72 1621.91 439.95 17066.43 200.12 0.06% 0.00 0.06 -1.86 0.13 -0.36 -1.97 -2.32 -2.17 0.31 1.06 -0.16 16.0% 17.2 13.1 18.8 18.1 -1.4 18.0 23.3 13.6 -8.5 21.4 10.4 Turkey Titans 20 -c Global Select Div Asia/Pacific Select Div U.S. Select Dividend -d S&P Glb Nat Resources Islamic Market Islamic Market 100 Islamic Turkey -c Sustainability Europe S&P Glb Infrastructure Luxury DJ-UBS Commodity -p 737.81 211.10 321.02 1101.31 2431.99 2395.88 2620.10 4241.71 133.99 2032.74 1795.66 125.54 -3.07% -1.08 0.02 0.62 -0.69 0.10 0.08 -1.67 -2.11 -0.89 -0.72 -1.00 16.6% 4.7 5.4 19.0 -5.9 11.9 12.9 15.5 19.1 4.9 27.3 -8.3
2.58%18.27 2.90 21.62 3.09 13.84 3.53 18.06 2.53 19.16 2.96 14.09 3.65 17.58 3.65 19.65 4.17 16.52 4.15 8.02 2.06 19.66
Global TSM Global DOW Global Titans 50 Dev Europe TSM Developed Markets TSM S&P BMI Emg Markets S&P Europe 350 S&P Euro Europe Dow BRIC 50 U.S. TSM Kuwait Titans 30 -c
Developed and emerging-market regional and country indexes from MSCI Barra as of July 05, 2013
Price-toDividend earnings yield ratio Morgan Stanley Index LOCAL-CURRENCY Last Daily
PERFORMANCE
1559.85 216.94
0.62% 12.4% 0.68 8.5
6.20%21.95 5.57 15.59 3.49 14.84 2.39 17.25 2.77 15.77 3.62 19.99 4.20 19.91 1.94 13.45
192.19 292.27 1148.93 1907.20 2385.44 94.98 1402.14 1650.30 111.20
-0.47% 0.64 1.70 -0.08 0.70 -1.51 -0.28 -0.11 -1.01
0.4% 1.1 -9.7 8.2 14.2 0.6 22.1 -8.6
YTD
52-wk.
2.70% 15 2.70 2.50 2.50 3.30 2.90 3.60 3.70 3.50 4.70 2.60 2.70 4.10 3.80 16 16 16 15 11 14 15 15 11 19 26 6 12 15 4 16 13 21 9 15 10 18 17 26 15
ALL COUNTRY (AC) WORLD* 358.26 -0.59% World (Developed Markets) 1,448.22 World ex-EMU World ex-UK EAFE Emerging Markets (EM) EUROPE EMU Europe ex-UK Europe Value Europe Growth Europe Small Cap EM Europe UK Nordic Countries Russia South Africa Japan China India Korea Taiwan US BROAD MARKET US Small Cap EM LATIN AMERICA 178.73 1,459.59 1,665.87 922.10 100.09 157.87 105.49 98.30 98.19 217.81 274.38 1,898.47 178.96 708.27 986.18 725.24 53.08 755.02 524.10 281.62 1,828.71 2,754.78 3,109.29 -0.53 -0.32 -0.41 -1.24 -1.08 2.35 -2.14 2.41 2.46 2.23 1.81 2.10 3.06 2.43 1.42 1.49 -1.13 -0.36 1.56 1.06 0.61 -0.29 0.00 0.00 -1.21
5.4% 8.2 9.3 9.0 3.9 -12.6 3.9 0.4 4.5 1.4 6.5 9.0 -11.6 8.7 3.5 -7.6 -2.5 -8.7 36.8 -15.5 -1.2 -9.6 1.8 13.7 17.0 -18.1
14.8% 17.2 16.8 17.9 17.0 -1.6 15.3 20.3 19.2 14.0 16.6 24.8 -1.8 14.9 16.1 -2.2 12.7 4.5 53.7 -1.0 11.7 -2.8 8.3 19.7 25.7 -11.7
1176.69 1115.75 1189.91 359.55
-1.31 12.9 -1.66 18.0 -1.57 8.9 0.93 -12.3
*Fundamentals are based on data in U.S. dollar. Footnotes: a-in US dollar. b-dividends reinvested. c-in local currency. Note:All data as of 2 p.m.ET.
Source: S&P Dow Jones Indices
Cross rates
USD Australia Canada Denmark Euro Israel Japan Norway Russia Sweden Switzerland U.K. U.S. 1.1028 1.0570 5.8125 0.7793 3.6600 100.9347 6.2644 33.3286 6.8175 0.9625 0.6707 ...
U.S.-dollar and euro foreign-exchange rates in global trading

GBP 1.6442 1.5760 8.6664 1.1619 5.4571 150.4916 9.3401 49.6923 10.1647 1.4350 ... 1.4910 CHF 1.1458 1.0983 6.0392 0.8096 3.8028 104.8706 6.5087 34.6282 7.0833 ... 0.6969 1.0390 SEK 0.1618 0.1550 0.8526 0.1143 0.5369 14.8053 0.9189 4.8887 ... 0.1412 0.0984 0.1467 RUB 0.0331 0.0317 0.1744 0.0234 0.1098 3.0285 0.1880 ... 0.2046 0.0289 0.0201 0.0300 NOK 0.1760 0.1687 0.9279 0.1244 0.5843 16.1124 ... 5.3203 1.0883 0.1536 0.1071 0.1596 JPY 0.0109 0.0105 0.0576 0.0077 0.0363 ... 0.0621 0.3302 0.0675 0.0095 0.0066 0.0099 ILS 0.3013 0.2888 1.5881 0.2129 ... 27.5774 1.7116 9.1061 1.8627 0.2630 0.1832 0.2732 EUR 1.4152 1.3565 7.4591 ... 4.6969 129.5273 8.0390 42.7699 8.7487 1.2351 0.8607 1.2833 DKK 0.1897 0.1819 ... 0.1341 0.6297 17.3650 1.0777 5.7339 1.1729 0.1656 0.1154 0.1720 CDN 1.0433 ... 5.4989 0.7372 3.4626 95.4885 5.9264 31.5303 6.4496 0.9105 0.6345 0.9460 AUD ... 0.9585 5.2709 0.7066 3.3190 91.5286 5.6806 30.2227 6.1822 0.8728 0.6082 0.9068
3.80 3.90 3.20 3.10 1.80 3.50 1.40 1.10 3.30 2.00 1.50 3.50
AC ASIA PACIFIC EX-JAPAN 425.41
Source: ICAP Plc.
*Twenty-three developed and 26 emerging markets
Source: MSCI Barra
Commodities
Prices of futures contracts with the most open interest
EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.MDEX: Bursa Malaysia Derivatives Berhad; LIFFE: London International Financial Futures Exchange; COMEX: Commodity Exchange; LME: London Metals Exchange; NYMEX: New York Mercantile Exchange;ICE-EU: ICE Futures Europe *Data as of 7/4/2013 ONE-DAY CHANGE Commodity Exchange Last price Net Percentage
Currencies
AMERICAS
Year high Year low Per euro
London close on July 5

In euros Per U.S. dollar In U.S. dollars
EUROPE Euro zone euro 1-mo. forward 3-mos. forward 6-mos. forward Czech Rep. koruna-b Denmark krone Hungary forint Norway krone Poland zloty Russia ruble-d Sweden krona Switzerland franc 1-mo. forward 3-mos. forward 6-mos. forward Turkey lira U.K. pound 1-mo. forward 3-mos. forward 6-mos. forward
Per euro
In euros
Per U.S. dollar
In U.S. dollars
Argentina peso-a Brazil real Canada dollar Chile peso Colombia peso Ecuador US dollar-f Mexico peso-a Peru sol Uruguay peso-e U.S. dollar Venezuela bolivar ASIA-PACIFIC Australia dollar 1-mo. forward 3-mos. forward 6-mos. forward China yuan Hong Kong dollar India rupee Indonesia rupiah Japan yen 1-mo. forward 3-mos. forward 6-mos. forward Malaysia ringgit-c New Zealand dollar Pakistan rupee Philippines peso Singapore dollar South Korea won Taiwan dollar Thailand baht
6.9323 2.9044 1.3565 650.36 1.2833 16.7408 3.5719 26.635 1.2833 8.15 1.4152 1.4184 1.4246 1.4336 7.8833 9.9514 78.2607 129.53 129.51 129.46 129.35 4.0962 1.6648 128.206 56.086 1.6443 38.697 40.141
0.1443 0.3443 0.7372 0.001538 0.7793 0.0597 0.2800 0.0375 0.7793 0.122717 0.7066 0.7050 0.7019 0.6976 0.1268 0.1005 0.0128 0.007720 0.007721 0.007724 0.007731 0.2441 0.6007 0.0078 0.0178 0.6082 0.02584 0.02491
5.4021 2.2633 1.0570 506.80 1927.63 1 13.0453 2.7835 20.756 1 6.35 1.1028 1.1053 1.1101 1.1171 6.1431 7.7547 60.9850 100.93 100.92 100.88 100.80 3.1920 1.2973 99.905 43.705 1.2813 30.155 31.280
0.1851 0.4418 0.9460 0.001973 0.0005188 1 0.0767 0.3593 0.0482 1 0.157480 0.9068 0.9047 0.9008 0.8952 0.1628 0.1290 0.0164 0.009907 0.009909 0.009912 0.009921 0.3133 0.7708 0.0100 0.0229 0.7805 0.03316 0.03197
1 0.9999 0.9996 0.9990 25.980 7.4591 295.53 8.0390 4.3064 42.770 8.7487 1.2351 1.2348 1.2341 1.2327 2.5248 0.8607 0.8609 0.8612 0.8616
1 1.0001 1.0004 1.0010 0.0385 0.1341 0.003384 0.1244 0.2322 0.02338 0.1143 0.8096 0.8098 0.8103 0.8112 0.3961 1.1619 1.1616 1.1612 1.1606 2.0670 0.1108 0.2129 1.1009 2.7242 0.0005156 0.2078 0.0765 0.2122
0.7793 0.7792 0.7789 0.7785 20.245 5.8125 230.29 6.2644 3.3558 33.329 6.8175 0.9625 0.9622 0.9617 0.9606 1.9675 0.6707 0.6708 0.6711 0.6714 0.3770 7.0301 3.6600 0.7079 0.2861 1511.45 3.7505 10.1824 3.6730
1.2833 1.2834 1.2838 1.2846 0.0494 0.1720 0.004342 0.1596 0.2980 0.03000 0.1467 1.0390 1.0393 1.0399 1.0411 0.5083 1.4910 1.4907 1.4901 1.4894 2.6525 0.1422 0.2732 1.4127 3.4959 0.0006616 0.2666 0.0982 0.2723
Corn (cents/bu.) Soybeans (cents/bu.) Wheat (cents/bu.) Live cattle (cents/lb.) Cocoa ($/ton) Coffee (cents/lb.) Sugar (cents/lb.) Cotton (cents/lb.) Rapeseed (euro/ton) Cocoa (pounds/ton) Robusta coffee ($/ton) Copper ($/lb.) Gold ($/troy oz.) Silver ($/troy oz.) Aluminum ($/ton) Tin ($/ton) Copper ($/ton) Lead ($/ton) Zinc ($/ton) Nickel ($/ton) Crude oil ($/bbl.) Heating oil ($/gal.) RBOB gasoline ($/gal.) Natural gas ($/mmBtu) Brent crude ($/bbl.) Gas oil ($/ton)
CBOT CBOT CBOT CME ICE-US ICE-US ICE-US ICE-US LIFFE LIFFE LIFFE COMEX COMEX COMEX LME LME LME LME LME LME NYMEX NYMEX NYMEX NYMEX ICE-EU ICE-EU
491.75 1227.75 659.75 122.075 2,200 120.70 16.24 85.23 400.00 1,527 1,806 3.0705 1219.60 18.860 1,809.50 20,075.00 6,926.00 2,075.00 1,866.50 13,775 103.21 2.9889 2.8934 3.618 106.80 910.75
-11.00 -23.00 -5.25 0.125 -30 -0.70 -0.18 -0.51 2.25 -8 -14 -0.1040 -32.30 -0.840 -8.00 -25.00 5.50 4.50 -10.50 -95 1.97 0.0377 0.0552 -0.071 1.89 13.00
-2.19% -1.84 -0.79 0.10% -1.35 -0.58 -1.10 -0.59 0.57 -0.52 -0.77 -3.28 -2.58 -4.26 -0.44 -0.12 0.08 0.22 -0.56 -0.68 1.95 1.28 1.94 -1.92 1.80 1.45
605.00 1,351.00 821.75 132.325 2,443 165.95 20.20 89.56 441 1,591 2,215
489.50 1,186.50 652.25 117.825 2,059 117.10 16.24 77.80 392 1,421 1,704
2473.69 0.0004043
3.8200 2.9855 1,702.40 1,179.40 32.500 18.170 2,165.50 1,764.50 25,150.00 19,525.00 8,286.00 6,676.00 2,455.00 1,961.00 2,214.00 1,820.50 18,665 13,615 103.40 3.2045 3.1184 4.5170 114.37 983.50 86.24 2.7376 2.6508 3.3500 96.65 829.25
13193 0.0000758
10280 0.0000973
MIDDLE EAST/AFRICA Bahrain dinar 0.4838 Egypt pound-a Israel shekel Jordan dinar Kuwait dinar Lebanon pound Saudi Arabia riyal South Africa rand United Arab dirham 9.0215 4.6969 0.9084 0.3671 1939.61 4.8129 13.0669 4.7134
Sources: SIX Financial Information; WSJ Market Data Group
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1474.20 0.0006783
1148.78 0.0008705
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a-floating rate b-financial c-government rate c-commercial rate d-Russian Central Bank rate. Source: ICAP Plc.
BLUE CHIPS & BONDS
Major players & benchmarks

Stoxx Europe 50: Friday's best and worst...
Company Country Industry Volume Previous close, in local currency
Below, a look at the Dow Jones Stoxx 50, the biggest and best known companies in Europe, including the U.K.
Dow Jones Industrial Average

LAST: 15135.84 YEAR TO DATE: OVER 52 WEEKS
P/E: 17
s 147.29, or 0.98% s 2,031.70, or 15.5% s 2,363.37, or 18.5%
STOCK PERFORMANCE Previous session
YTD
52-week
High Close Low
Reckitt Benckiser Grp Tesco HSBC Hldgs GlaxoSmithKline H&M Hennes & Mauritz B Rio Tinto BHP Billiton Anglo American PLC Schneider Electric Bayer
United Kingdom United Kingdom United Kingdom United Kingdom Sweden United Kingdom United Kingdom United Kingdom France Germany
Nondurable Household Products Food Retailers & Wholesalers Banks Pharmaceuticals Apparel Retailers General Mining General Mining General Mining Electrical Components & Equipment Specialty Chemicals
1,107,613 20,181,257 31,181,759 8,598,469 2,576,592 5,995,934 8,441,816 6,004,667 1,992,285 2,361,749
4,780 341.15 712.50 1,712 232.10 2,636 1,667 1,217 56.00 80.06
0.38% 0.37 0.15 unch. -0.04% -4.41% -3.64 -3.64 -3.08 -3.04
22.4% 1.1 9.5 27.2 3.4 -25.4 -22.3 -36.1 2.1 10.6
36.6% 7.5 25.8 15.4 -5.3 -16.5 -11.2 -43.7 26.9 40.2
15500
15000
14500
50day moving average
...And the rest of Europe's blue chips

Company/Country (Industry) Volume Latest, in local currency STOCK PERFORMANCE Latest YTD 52-week Company/Country (Industry) Volume Latest, in local currency STOCK PERFORMANCE Latest YTD 52-week
Apr.
12
19
26
3 May
10
BP PLC 24,879,672 United Kingdom (Integrated Oil & Gas) Royal Dutch Shell A 3,685,291 United Kingdom (Integrated Oil & Gas) 33,337,845 ING Groep Netherlands (Life Insurance) Zurich Insurance Group 292,465 Switzerland (Full Line Insurance) Imperial Tobacco Grp 3,874,810 United Kingdom (Tobacco) Diageo 4,089,505 United Kingdom (Distillers & Vintners) National Grid 7,040,229 United Kingdom (Multiutilities) 2,480,808 Unilever United Kingdom (Food Products) Barclays 43,780,483 United Kingdom (Banks) Novartis AG 2,705,799 Switzerland (Pharmaceuticals) BG Grp 4,938,369 United Kingdom (Integrated Oil & Gas) Nestle 4,382,964 Switzerland (Food Products) British American Tobacco 3,819,699 United Kingdom (Tobacco) AstraZeneca 1,799,547 United Kingdom (Pharmaceuticals) Roche Holding Part. Cert. 850,485 Switzerland (Pharmaceuticals) BNP Paribas 5,069,314 France (Banks) Telefon L.M. Ericsson B 4,096,186 Sweden (Telecommunications Equipment) ABB 3,243,523 Switzerland (Industrial Machinery) UBS 8,513,834 Switzerland (Banks) SAP 3,851,472 Germany (Software)
454.00 2,107 7.25 249.90 2,282 1,962 749.00 2,730 291.50 67.60 1,132 62.50 3,480 3,214 238.10 42.96 76.90 20.64 16.33 54.50
-0.16% -0.17 -0.18 -0.24 -0.26 -0.30 -0.40 -0.40 -0.41 -0.44 -0.53 -0.64 -0.76 -0.76 -0.79 -0.82 -0.84 -0.86 -0.91 -0.96
6.8% -1.3 2.7 2.7 -3.5 8.9 6.2 14.7 11.2 17.7 12.3 4.9 12.0 10.3 29.4 0.9 18.1 10.1 14.4 -10.3
4.6% -4.1 38.4 14.9 -10.1 18.5 9.6 26.0 73.3 25.1 -15.3 7.6 3.8 9.5 43.3 41.3 22.3 29.2 46.9 19.6
Moet Hennessy Louis Vuitt 732,806 France (Clothing & Accessories) Vodafone Group 77,066,170 United Kingdom (Mobile Telecommunications) Financiere Richemont 1,065,678 Switzerland (Clothing & Accessories) Unilever CVA 5,493,010 Netherlands (Food Products) Total 3,664,321 France (Integrated Oil & Gas) Siemens 3,413,433 Germany (Diversified Industrials) Sanofi SA 2,780,435 France (Pharmaceuticals) Standard Chartered 5,602,510 United Kingdom (Banks) L'Air Liquide 682,012 France (Commodity Chemicals) Deutsche Bank 7,665,939 Germany (Banks) 13,077,901 Telefonica S.A. Spain (Fixed Line Telecommunications) E.ON SE 10,718,045 Germany (Multiutilities) Banco Bilbao Vizcaya Argn 57,240,414 Spain (Banks) 13,554,705 Deutsche Telekom Germany (Mobile Telecommunications) ENI 13,948,205 Italy (Integrated Oil & Gas) 2,589,800 Allianz SE Germany (Full Line Insurance) Banco Santander S.A. 55,670,675 Spain (Banks) Anheuser-Busch InBev 1,750,026 Belgium (Brewers) Daimler 5,191,404 Germany (Automobiles) BASF 3,943,644 Germany (Commodity Chemicals)
125.05 191.75 84.45 30.75 37.19 77.50 79.06 1,470 94.03 31.77 9.86 11.94 6.52 8.81 15.75 110.55 5.01 67.96 47.66 66.96
-0.99% -1.11 -1.17 -1.17 -1.44 -1.70 -1.75 -1.77 -1.80 -1.87 -2.14 -2.41 -2.44 -2.46 -2.48 -2.51 -2.64 -2.78 -2.89 -3.01
-10.3% 23.4 18.3 6.6 -5.4 -6.3 10.7 -6.7 -1.1 -4.5 -3.1 -15.6 -4.8 3.1 -14.1 4.4 -14.9 3.4 14.1 -6.7
1.4% 5.1 58.0 13.9 1.8 16.3 31.6 2.5 3.4 16.0 -3.4 -29.1 21.9 4.7 -6.6 41.9 2.3 8.0 34.9 19.4
Note: Price-to-earnings ratios are for trailing 12 months
DJIA component stocks

Stock Symbol Volume, in millions Latest Points CHANGE Percentage
AT&T Alcoa AmExpress BankAm Boeing Caterpillar Chevron CiscoSys CocaCola Disney DuPont ExxonMobil GenElec HewlettPk HomeDpt Intel IBM JPMorgChas JohnsJohns McDonalds Merck Microsoft Pfizer ProctGamb 3M TravelersCos UnitedTech UtdHlthGp Verizon WalMart
T AA AXP BAC BA CAT CVX CSCO KO DIS DD XOM GE HPQ HD INTC IBM JPM JNJ MCD MRK MSFT PFE PG MMM TRV UTX UNH VZ WMT
Sources: SIX Financial Information
Tracking credit markets & dealmakers
Credit derivatives
Spreads on credit derivatives are one way the market rates creditworthiness. Regions that are treading in rough waters can see spreads swing toward the maximumand vice versa. Indexes below are for five-year swaps.
Markit iTraxx Indexes
Index: series/version Mid-spread, in pct. pts. Mid-price Coupon SPREAD RANGE, in pct. pts. since most recent roll Maximum Minimum Average
Credit-default swaps: European companies

At its most basic, the pricing of credit-default swaps measures how much a buyer has to pay to purchase-and how much a seller demands to sell-protection from default on an issuer's debt. The snapshot below gives a sense which way the market was moving yesterday.
Showing the biggest improvement...

Yesterday Yesterday Five-day 28-day Valeo Stmicroelectronics EDP - Energias de Portugal GKN Hldgs Alliance Boots Hldgs ENI Tesco ENEL Gas Nat Carrefour 141 76 357 145 105 115 95 230 192 122 12 6 25 10 7 8 6 14 12 7 13 4 11 15 4 3 4 2 1 3 12 8 23 19 2 11 15 7 9 8
CHANGE, in basis points
And the most deterioration

Yesterday Yesterday Five-day 28-day Rhodia Royal Bk of Scotland Norske Skogindustrier Royal Bk of Scotland Astrazeneca Roche Hldg Skandinaviska Enskilda Banken Smurfit Kappa Fdg Deutsche Bahn HBOS 54 233 2557 230 58 40 103 112 46 87 1 4 27 1 ... ... ... ... ... ... 1 13 144 9 ... 1 3 2 ... 1 ... 49 27 52 4 5 15 5 ... 5
CHANGE, in basis points
Europe: 19/1 Eur. High Volatility: 19/1 Europe Crossover: 19/1 Asia ex-Japan IG: 19/1 Japan: 19/1
1.12 1.66 4.46 1.62 1.06
99.44% 96.95 102.22 97.14 99.71
0.01% 0.01 0.05 0.01 0.01
1.32 1.90 5.29 1.72 1.23
0.87 1.00 3.68 0.98 0.73
1.08 1.60 4.40 1.22 0.96
Spreads
Spreads on ve-year swaps for corporate debt; based on Markit iTraxx indexes.
In percentage points
Note: Data as of July 4
Index roll
t
3.00 Asia ex-Japan IG 2.00 1.00 0 1 Australia

t
Jan. Feb. Mar. April May June July 2013

Source: Markit Group
Behind Asia's deals: Bank revenue rankings, Japan

Behind every IPO, bond offering, merger deal or syndicated loan is one or more investment banks. Here are investment banks ranked by year-to-date revenues from recent deals.
Revenue, in millions share Equity capital markets PERCENTAGE OF TOTAL REVENUE Debt Mergers & capital markets acquisitions Loans
Nomura Mizuho Morgan Stanley Daiwa Securities
$422 274 208 162 160 98 74 70 61
22.2% 14.4 10.9 8.5 8.4 5.1 3.9 3.7 3.2
54% 20 38 44 32 47 44 ... 14
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Sumitomo Mitsui Financial Group JPMorgan Goldman Sachs Mitsubishi UFJ Financial Group Bank of America Merrill Lynch
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Also, receive emails that summarize the days trading in Europe and Asia. To sign up, go to WSJ.com/Email.
t 17 24 31 7 June 14 21 28 5
17.0 14.8 4.4 79.2 3.7 4.8 4.4 19.9 10.3 5.6 3.4 8.8 22.4 12.7 5.0 17.5 2.4 16.7 5.0 3.9 8.1 25.0 36.4 7.2 2.0 1.3 2.6 2.3 8.0 5.4 $35.83 7.81 76.31 13.06 104.20 82.14 120.51 24.57 40.52 63.82 53.00 91.57 23.24 25.58 78.29 24.06 194.93 53.99 87.87 99.86 47.16 34.21 27.97 78.34 111.54 81.34 96.53 66.17 51.30 75.21 0.21 0.10 1.73 0.23 1.31 0.29 1.43 0.02 0.03 0.21 0.60 0.88 0.33 0.40 0.56 0.30 1.68 1.22 1.09 0.49 0.61 0.20 0.32 0.23 2.09 0.94 1.80 0.63 0.29 0.45 28% 38 27 44 31 15 11 13 25 17% 13 36 11 16 36 45 7 54 ... ... ... 21 2 ... 79 8
14000
13500
13000
0.59% 1.30 2.32 1.79 1.27 0.35 1.20 0.08 0.07 0.33 1.15 0.97 1.44 1.59 0.72 1.25 0.87 2.31 1.26 0.49 1.31 0.59 1.16 0.29 1.91 1.17 1.90 0.96 0.57 0.60
Source: WSJ Market Data Group
Source: Markit Group
29%
Source: Dealogic
PERSONAL JOURNAL
Wanted: Gurus Who Have Actual Experience

BY MELISSA KORN What can a 20-something Tunisian medical intern teach senior managers at KPMG LLP? A lot, apparently. Skander Mzah, a doctor who participated in the 2010-2011 Tunisian revoluMANAGEMENT tion, was one of about a dozen speakers featured at the accounting firms October 500-strong new-partner meeting in New Delhi. The topics of Mr. Mzahs speech included lessons learned during Tunisias political turmoil and how to mentally prepare for change. Companies have long hired motivational speakers and business gurus to address employee audiences. But lately, fueled by demand for a more tangible return on investment and boredom with the regular speaker circuit, event planners are tapping CEOs, historians, and even fighter pilots, to offer a fresh take on topics such as crisis management and corporate culture. The shift has been accelerated by growing fervor for TED talks, a conference series featuring short addresses from multiple academics, politicians and executives. Inspired by the enthusiasm surrounding such talks, KPMG staged its meeting as a TEDx event, under the TED umbrella but independently organized. Its not just telling someone else to go out and do something, says David Lavin, whose Lavin Agency represents the founders of Kiva and ING Direct, neuroscientists and politicians, among others. [Speakers] are saying, Look what Im doing. Its pretty cool. What are you doing? Construction company Skanska ABs U.S. arm held its annual management meeting in Phoenix in March, just as the 430 senior executives and high-potential employees were about to implement a new strategy that had been several years in the planning. So the firm hired two former fighter pilots to discuss the steps needed to successfully execute a mission, including how to define a project, analyze progress, celebrate success and debrief at the end. Jim OShea, senior vice president and chief administrator at Skanska USA, wanted to ramp up the level of introspection among staff as the company embarked on Young company founders like Twitters Biz Stone are called authentic, great storytellers.
Asking Price | Tapping CEOs, Historians and Even Fighter Pilots

Twitter co-founder Has spoken at: The Art of Marketing, Turnaround Management Association, Hult International Business School Booking Fee: $75,000 (est.) its new direction. Plus, seeing the high-energy, uniformed pilots really [woke] everybody up. Its hard to quantify the impact an outside speaker can have on a group of employees. But one way around that has been to create agendas that look more like howto guides that yield tangible and immediate results beyond just motivating people. In April, 150 staffers from the marketing team at liquor company Beam Inc. met in Los Angeles for a biannual conference. To kick off the three-day event, Beam hired The Moth, a group of professional storytellers best known for a weekly pub-
Biz Stone
Zappos CEO Has spoken at: Ernst & Young Strategic Growth Forum, General Mills, Credit Suisse Entrepreneurs Summit Booking Fee: $75,000 (avg.) lic radio broadcast. They are the best at teaching people how to tell better stories, says Chief Marketing Officer Kevin George. And with just a few seconds or minutes to convey messages about brands including Jim Beam and Makers Mark, Beams stories need to be sharp. The Moth team broke down the structure of a story, pointing out why certain parts were compelling, and then had Beam staffers tell tales to one another. Mr. George says that the prior conference, which included an address about millennials by advertising executives, wasnt as interesting.
Tony Hsieh
The Moth senior producer Has spoken at: Beams Global Marketing Conference, Kellogg Foundation, Mass Mutual, Nike Booking Fee: $15,000 (avg.)
Kate Tellers
Mr. George declined to say how much Beam spent on the April event, but says the payoff was obvious. Company representatives met to discuss new-product innovation in May, and rather than just discuss the products function, Mr. George says they asked one another, Whats the story that goes with this product? How do we tell consumers? And firms seem willing to pay the price, shelling out tens or even hundreds of thousands of dollars for each speaker. But Mr. Lavin says the money is minimal in the context of pulling high-salaried executives away from their work for multiple days. And he says that one
good idea can pay for itself very, very quickly. Of course, companies also want their planned events to be fun. Firms may look to create a bonding experience for their staffers or show some appreciation for hard work, says Don Epstein, CEO and founder of Greater Talent Network Inc. Companies want serious content, but at the same time they want to entertain, says Mr. Epstein, whose clients include football star Tiki Barber and ice cream legends Ben Cohen and Jerry Greenfield. CEO-lebrities, successful business leaders with strong personal brands such as Zappos.coms Tony Hsieh, combine serious content and entertainment, says Peter Jacobs, an agent at CAA Speakers Bureau. When The Art of Productions Inc. co-founder Scott Kavanagh is booking his daylong conferences on marketing and leadership, he looks for speakers with hands-on business experience, rather than just the people who write about it. Featured speakers at a Toronto marketing conference last month included Twitter co-founder Biz Stone and former marketing executive Seth Godin. Young company founders like Mr. Stone are authentic, great storytellers, Mr. Kavanagh says, and tend to be easier to relate to than older management giants like Jack Welch. To be sure, celebrity academics such as Clayton Christensen and Michael Porter, both of Harvard Business School, remain in high demand. But many managers have already seen them speak, so companies must reach beyond the usual suspects when they want guests affiliated with the weighty HBS brand. Nancy Koehn, an HBS historian who has written about Abraham Lincoln and the explorer Ernest Shackleton as leaders in periods of crisis, has seen an uptick in invitations to corporate events. In the past year, she has spoken about Mr. Lincoln to teams at Starbucks Corp. and Este Lauder Cos., among others, and discussed Mr. Shackletons harrowing Antarctic experience with a sales team at sunglass maker Oakley Inc. Ms. Koehn says executives take comfort in knowing that even Mr. Lincoln doubted himself sometimes, and they see in Mr. Shackleton a guide for high-stakes crisis management.
BY RACHEL EMMA SILVERMAN AND MELISSA KORN
Office Bullying Works for the Bullies, Not for Others

It can pay to be a bully. In a rather disheartening study, a team of researchers led by Darren C. Treadway, of the University at Buffalo School of Management, found that many workplace bullies receive positive evaluations from their supervisors and achieve high levels of career success, despite organizational efforts to curtail bullying. The researchers sought to study the relationship between workplace bullying and job performance. They collected behavioral and job-performance data from 54 employees of a U.S. health-care firm, and found a strong correlation between bullying, positive job evaluations and social and political skill in the workplace. The study defines workplace bullying as systematic aggression and violence targeted toward one or more individuals by one individual or by a group. The researchers found that many bullies thrive by charming their supervisors and manipulating others to help them get ahead, even while they abuse their coworkers. Because many bullies can possess high levels of social ability, they are able to strategically abuse co-workers and yet be evaluated positively by their supervisor, the authors write. If people are politically skilled, they can do bad things really well, says Dr. Treadway. (Political skill, Dr. Treadway says, is the ability to effectively understand others at work and to use such knowledge to influence
Brett Gundlock for The Wall Street Journal
In fact, those who arent bullied can be even more inclined to leave.
others to act in ways that enhance ones personal and/or organizational objectives.) The study notes that workplace bullying is prevalent: About half of all U.S. employees have wit-
nessed workplace bullying and more than a third have been the target of bullying, according to past research. The researchers suggest that firms assess civility and camaraderie as part of performance and help staff develop skills to manage bullies. The study was published earlier this year in the Journal of Managerial Psychology. Another study has found that workplace bullying doesnt affect just the target of a bosss cruel jokes or physical abuse. The study from the University of British Columbia finds that other employees are just as hurt by the inappropriate behavior. Sometimes, more so. Just working in that toxic en-
vironment can [have a negative effect], says Sandra Robinson, a professor at University of British Columbias Sauder School of Business and a co-author of the study. The study, based on a survey of 357 nurses at 41 units of a Canadian hospital system, found that employees have similarly high turnover intentions, or thoughts about calling it quits, whether they were the direct target of bullying or just worked in departments where bullying was common. In fact, those who werent directly bullied can be even more inclined to leave, their more positive treatment creating a sense of moral uneasiness, the researchers say in their paper.
BOOKS
The Romance of a Decaying World

The Transylvanian Trilogy By Mikls Bnffy Everyman, 1,454 pages, $60 BY MAX EGREMONT Mikls Bnffy knew about disintegration. A Hungarian aristocrat born in 1873, he had large properties in Transylvania that until 1918 were within the vast, ramshackle AustroHungarian Empire. He saw at close quarters the last years of a great European power as it, with the Continent, slipped into decline. In a life divided between the arts and politics, he was not only director of the Budapest Opera House and the National Theater but a long-time member of parliament and, briefly in 1921, foreign minister of Hungary. A marble bust of Bnffy stands today in the Budapest opera house, and it was he who, in 1916, organized the last Hapsburg coronation, that of the ill-fated Emperor Karl. Bnffy died destitute in Soviet-dominated Budapest in 1950. His life is a grim parable of central Europes 20th century. From early on he wrote. The plays and short stories culminated in three novels known collectively as The Transylvanian Trilogy (1934-40). Set in the years 1904 to 1914, and ending with the outbreak of World War I, the trilogy was written when Europe was becoming a cockpit for dictators. Bnffy felt that the warning signs had been there for years in the increasingly inwardlooking and selfish behavior of the old ruling class. With the novelsindividually titled They Were Counted, They Were Found Wanting and They Were Divided in words drawn from Belshazzars Feast in the Book of Danielhe wished to revive the hopes, however misguided, of an earlier, more innocent age, as well as to show the decadence and introspection that had led to its end.
Daniel Gheorghita
As the protagonist marches to war in 1914, he feels as if he were looking back from beyond the grave.
His method was simple and romantic: Through a story of passionate love, Bnffy would reveal a decaying world. Count Balint Abady and his married lover, Adrienne, represent virtue against evil and chance as they move from castles and palaces to grand town houses or set up assignations in ancestral forests. The spirit of modernism (which Bnffy supported in his role at the National Theater) has no role here; nor does that of Freud. Bnffys aim was ambitious, to reflect decline and disaster, political and personal. Not since the work of Benjamin Disraeli and Anthony Trollope had there been such a comprehensive attempt to join fiction and politics. Like those Victorian novelists, Bnffy knew his world. His characters are almost all from the aristocracy, living a life of pheasant shoots, fox hunts and parties. But they have power, in parliament and at the imperial court. He shows how the prewar generations extravagance, snobbery and selfishness contrasts with the beauty of its surroundings. The great houses have libraries, but there is a sadness about how seldom they are consulted. Great importance is given to the trivia of sport, social scheming and clothes, including (for the men) a taste for English clothes
that verges on madness. Dueling is rife, letting pompous nonentities set themselves up as arbiters of a complex code of language, choice of weapons and dress. For the women, all that matters is marriage to a well-born man, even if he is dull and you arent faithful to him. Count Antal Szent-Gyorgyi, hereditary Master of the Horse to the King of Hungary, has a rigid order of precedence in giving out invitations to his shoot: Bad shots are out, as are persons of Czech origin or those who talk about politics, whereas anyone who was able to trace his descent from the days of the Arpad Kings, especially if they had earned no black marks by unfortunate behaviour in the ensuing centuries, is welcome. This could be pre-revolutionary France, and Bnffy well conveys the air of a world on the edge. A casual remark can lead to a duel, sessions of the Budapest parliament descend into riots, fortunes are lost in an evenings gambling. The old emperor, Franz Joseph, has an unpredictable and autocratic heir in Archduke Franz Ferdinand, who the nobles fear may bring about revolutionalthough this problem at least seems solved in August 1914 when the Archduke is murdered at Sarajevo. The Tartar looks and manner of several of the characters remind us that Hungary was, for centuries, on Europes most eastern ramparts. But danger comes not just from events but from national character. Hungarians, Bnffy writes, have an Oriental yearning for nirvana, which makes them reluctant to strive for worldly achievement. Or are they just lazy? Certainly this cant be said of the trilogys central figure, the young, idealistic Balint Abady, the inheritor (like the author) of Transylvanian estates. Balint, whose father died young, has to cope with his adoring, conventional mother and the corrupt agents and lawyers whom she has
indulged for years. There is also the tortuous Hapsburg empire: a patchwork of peoples and languages that stretched from Austria across northern Italy, through Hungary, Croatia, the Czech lands, Slovakia and the Balkans. In Transylvania, Romanians, although in the majority, were under the control of Hungarian landlords. This society was deeply fractured; much of imperial policy was concerned with trying to keep down minorities that, particularly in the case of Hungary, had proud cultures and histories. Balints ostensible good life of parties, sport, love and politicslike his creator, he serves in the Hungarian parliamentis fatally distant from the rest of his country, let alone the world. Europes slide toward war reaches Bnffys aristocrats only as a distant murmur. Balint is, of course, his creators stand-in. His ideas for improving his estates, helping the Romanians, shunning sleaze and party politics resemble Bnffys ownin the novel Balint delivers one of Bnffys own speeches in parliament. And Balints illicit affair with the married Adrienne echoes Bnffys liaison with an actress who was shunned by his aristocratic family. Like Mikls Bnffy, Balint has a large town house in Kolozsvar (now the Romanian city of Cluj-Napoca) and a huge castle in the country, Denestornya (a version of Bnffys own Bonczhida). The trilogy, however, doesnt read like realism. Theres a fairy-tale feel to Balints life, complete with stage villains like a thieving estate manager and Adriennes mad, sinister husband. Clichs, often very enjoyable, can take the books into Georgette Heyer territory: Adrienne, the damsel in distress, moves like a lithe panther; her tears sparkle like diamonds; often the couple walks at dawn or twilight through the Transylvanian meadows and forests (which Bnffy loved), invariably under a full moon; Venice sees the
flowering of their love. Against these, however, are fine touches, like the cold saliva of an old ladys kiss, the gliding step of an aristocrat used to highly waxed floors and the sad, deep innocence of the pre-1914 lives of the rich. A wily lawyer thinks about Balint: This Count isnt a bad fellow . . . not a bad fellow at all, but, oh dear, how little he knows about life! Hes like a child. Sex is, for the time, dealt with quite frankly; Adriennes problem, put right by the gentle Balint, is that she has been made frigid by her husbands frenzied assaults. Gypsies are often at hand, sometimes taken into grand beds, even living with owners of manor houses or castles, but not asked to dinner except to provide the music. The trilogy has its longueurs. Goodness and decency, especially when, as with Balint, they are quiet and sweet, are not exciting; and Hungarian political crises make hard reading. Luckily, there are lively characters, particularly the novels naughty boy, Balints charming but weak cousin, Count Laszlo Gyeroffy, a brilliant musician and reckless gambler. Drunkenness, long nights at cards or making love to women hung about with pearls consume Laszlo; and his descent is a powerful part of Bnffys theme of decline. Not even the strong woman whom Laszlo takes up with can save him in the end. The trilogy ends with Balints farewell to his estate as he sets off for war in August 1914. The roads are crowded with cheerful volunteers and reservists going to their regiments, the anger and bitterness of the empires constituent peoples all apparently gone. Its the books most moving scene, partly because what comes next is both terrible and clear. Hurrah for the war! the soldiers cry. The count thinks of how his generation had drifted farther and farther away from the practical wisdom of their forebears. Reality
had been gradually replaced by selfdeception, conceit and sheer wrongheaded obstinacy. Everyone was guilty, all the upper strata of Hungarian society. He feels as if he were looking back from beyond the grave. After defeat in 1918, Austro-Hungary was split up by the victorious Western powers; Mikls Bnffys beloved Transylvania went to Romania, partly (it has been said) because of the charm of the Romanian Queen Marie, who stormed the Paris peace conference with 63 dresses and 83 pairs of shoes. After a frustrating time as foreign minister, when he tried to have the treaty revised, Bnffy retired to his castle, now in another country. There he worked to keep Hungarian culture alive under Romanian rule and wrote his books. This Everyman edition (reprinting the 1990s translation by Bnffys daughter and the writer Patrick Thursfield) has a fine introduction by the historian Hugh Thomas describing the slow decline of the Austro-Hungarian empire and telling of Bnffys last years. In 1943, he tried to persuade the Romanians and Hungarians to disengage from their German alliances and make a separate peace with the Allies, avoiding Soviet invasion. In revenge, the retreating German army burned Bonczhidaa destruction completed by Allied bombers. Mikls Bnffy died in poverty in Budapest, having at last been allowed to leave Romania and join his wife, the actress whom he had been able to marry only after his fathers death in 1929. The Transylvanian Trilogy shows that it is possible to keep an earlier time fresh by combining imagination and memory. The novels atmosphere and fascination come from the clear evocation of a world. This, you feel, is how things really were. Mr. Egremonts Forgotten Land: Journeys Among the Ghosts of East Prussia was published last year.
BOOKS
The Spy Who Loved By Clare Mulley Pan, 424 pages, 8.99 BY MARK YOST Nearly seven decades after the Allies invaded Normandy, there are many vivid images of World War II in the collective American psyche: of paratroopers landing behind enemy lines, of ferocious battles on land and sea. But the war was fought in other ways as well, not least in a shadowy world of duplicity and covert stratagems. The shadow war was often fought by brave individuals whose names may be lost to history.
The daughter of a count set up a vast network that took radios and weapons into occupied Poland.
At least one such name will be better known now. In The Spy Who Loved: The Secrets and Lives of Christine Granville, Clare Mulley describes one of the Allies most effective counterespionage agents. One lesson of this well-written and thoroughly researched book is that government officials ensconced in ministerial offices can be a hindrance to chameleon-like secret agents out in the field. Christine Granville was actually a name given to heralong with
phony paperswhen she was being secreted out of Eastern Europe in the trunk of a British legation car ahead of the advancing Nazis. She was born Maria Krystyna Janina Skarbek, the daughter of a Polish count and a Jewish mother. She was a fixture at debutante balls and bohemian salons in 1930s Warsaw and spent winters skiing in Zakopane, Poland, the Carpathian equivalent of Gstaad. When Nazi tanks rolled into Poland in September 1939, she was in Africa with her husband, a Polish diplomat. They soon took a ship to Britain. He chose to continue his diplomatic work in London; she used her upper-crust connections to volunteer her services to the anti-Nazi cause, tapping into the old-boy network that was forming the backbone of what would become Britains clandestine force, the Special Operations Executive. According to British records, a flaming Polish patriot . . . expert skier and great adventuress proposed a bold plan in late 1939 to ski over the Carpathians into Poland and set up an intelligence network. This is where she ran into her first cock-up (as the British would say) with Allied bureaucracies. She was delayed for months because the Polish government-in-exile in London worried that she was an amateur, and in the pay of the English. As Ms. Mulley reminds us, British and Polish officials, eager to control policy and assets, treated each other with a sense of rivalry. Once cleared, Granville proved to be anything but a liability. Working with Granville was An-
The Divine Amateur
OPERATIVE Maria Krystyna Janina Skarbek, alias Christine Granville. drzej Kowerski, another well-to-do Pole who risked life and limb for the Allied cause and who was, according to the author, the only man who ever really knew Granville. In the course of her espionage work, she was more than willing to use her guile and aristocratic good looks to seduce men as circumstances required. Indeed, the title of The Spy Who Loved can feel, at times, euphemistic. Christine and Andrzej, as lovers and fellow freedom fighters, set up a vast network over the Carpathians that took weapons and portable radios past roving border patrols and
into Nazi-occupied Poland. Their couriers, on returns trips, brought out intelligence on German troop movements that helped the Allies to anticipate Hitlers move against Stalin and to recover Allied pilots shot down on raids over Poland. It proved to be one of the Allies most important underground networks and yielded reams of intelligence. Christines own movements on behalf of the network put her into contactintimate contactwith a Polish count. (At night they slept together, . . . satisfying the desire that had grown with the fear of the last few weeks.) Much of the popular history of World War II espionage has centered on the French Resistance. In addition to telling us Granvilles story, Ms. Mulley reminds us of the intelligence work that took place in Poland and other parts of Eastern Europe, where the population lived in constant fear of arrest, torture, transportation and extermination. Despite her success, Granville was again stymied by her handlers. When it became impossible for her to continue working in Eastern Europe (she had become too widely known), she spent time in Egypt as London decided what to do with her. Both the British and Polish investigated her loyalties, even wondering if she might be a double agent. The problem had more to do with infighting between administrative factions, Ms. Mulley explains, than with any real doubt about which side Granville was on. Once freed to resume her work, Granville distinguished herself in
France and Italy ahead of the Allied invasion of Europe. Now she was Jacqueline Armand, a valuable courier (and the lover) of Francis Cammaerts, a Belgian-born operative in the employ of the British. He was head of operations in Vercors, the stronghold of one of Frances most successful Resistance groups. When their network was penetrated and Cammaerts captured, Granville executed what a British handler called one of the most remarkable personal exploits of the war. Christine was aware there was a price on her head, and yet she strode straight into the Gestapo offices, Ms. Mulley writes. It was the sort of encounter that would turn most mouths dry. But it was exactly the kind of situation in which Christine naturally flourished. She negotiated a ransom for Cammaertss release, promising the officials who facilitated his escape that they would be given favorable treatment when the Allies liberated France, a promise the British reneged on. Granville floundered after the war. With no more networks to run, her mission turned to obtaining British citizenship, something she was denied several times but very much needed since she couldnt return to Soviet-controlled Poland. She died an ignominious death in a London boardinghouse, having seduced one too many men. One British functionary described her dispatches from the field as good reading. The same can be said of Ms. Mulleys biography of this extraordinary woman. Mr. Yost is a writer in Houston.
Creation By Adam Rutherford Viking, 272 pages, 20 BY JOHN GRIBBIN I was slightly taken aback by the title of Adam Rutherfords book, Creation. Mr. Rutherford is a respected, and respectable, science writer with the journal Nature; surely he couldnt be espousing creationism? The title of the books first chapter, Begotten, Not Created, is much more reassuring, and truer to the themes of the book. In fact, there are two themes. In the first part, Mr. Rutherford discusses the origin of life on Earth; in the second part he looks to the future in the light of the possibilities opened up by human interference in the processes of life. As he puts it, the great theories of biology are now being tested with groundbreaking experimentation. So why call the book Creation? Because in the next few years, for only the second time in four billion years, a living thing, probably something akin to a cell, will be born in the laboratory without coming from an existing cell. We will be the creators. The first part of the story will be familiar to anyone with an interest in the history of life on Earth, which might have made it tedious in the hands of a less expert storyteller. The main point is certainly one that cant be overemphasized or repeated too often. All life is made of cells. All cells operate on the same principles, based on the same genetic code incorporated into DNA. There is overwhelming evidence that all cells on Earthmeaning all life on Earth descend from a single ancestor, per-
haps not the first cell but the only one to leave descendants around today. Indeed, life on Earth may have arisen only once, in the equivalent of what Charles Darwin called a warm little pond, way back when our planet was young. This Last Universal Common Ancestor, or Luca, was around some four billion years agoor four million millennia ago, as the author puts it. In telling the story of Luca, Mr. Rutherford covers the history of the idea of the cell, from the pioneering studies of Isaac Newtons contemporary Robert Hooke right up to the
The Life of the World to Come?

swirls around the honeycomb rocks. And that, perhaps, is where the first cell formed. Although the probability of a single living cell emerging may have been small, he reminds us, it only had to happen once. Cells, it also turns out, are easy to make (although living cells may be harder). The molecules that make up the balloon-like skin of a cell have a head and tail structure, like a miniature tadpole. If the head likes water and the tail hates water, a collection of these molecules floating in water will naturally curl themselves up into tiny bubbles, with their tail pointing inward. Many experiments have now shown that other kinds of molecules that would have been around in the oceans of the young Earth do naturally form more complex compounds, on the edge of life, if there is an energy supply. The last step, from nonlife to life, hasnt yet been completed in the laboratory. But just about everything else in the way of tinkering with life has, and this is the theme of the books second part. If the biological twentieth century was concerned with taking cells apart to understand how they work, writes Mr. Rutherford, the 21st century has given us the ability to put them back together again in new ways, for specific purposes. His examples range from a goat whose milk contains strands of silk that can be extracted and spun into thread, potentially offering a way to produce natural material to repair damaged ligaments or make puncture-proof tires, to the Minimal Genome Project, an effort to make the simplest possible living cell. He makes a fascinating comparison between the workings of a cell and the
All cells on Earth likely descend from a single common ancestor that lived about four billion years ago.
current moment, via the discovery of the nature of DNA and the cracking of the genetic code. He then goes back to the beginning, to offer a smorgasbord of theories concerning the origin of the first cell, conjuring up graphic images of the primordial Earth bombarded from space with comets carrying many of the chemical precursors to life and of volcanic vents deep beneath the surface of the oceans where heat energy can stimulate chemical reactions. Referring to a kind of hot spring that exists deep beneath the ocean, he writes: The hydrothermal vents of the Lost City offer up a model for the nursery of first life. Due to the precise qualities of the chemicals bubbling up from the reactions between the rocks and the sea, they form natural proton gradients in the
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START SMALL Mycoplasma genitalium, a type of bacteria whose simple structure made it ideal for the Minimal Genome Project, an effort to create a living cell. way a computer is programmed and controlled using logic gates, and he draws an analogy between genetic engineering (cutting and pasting stretches of DNA) and word processing (cutting and pasting stretches of text). One breathtaking technique still far from being used in laboratory animals, let alone humansis the development of a terminator virus that can enter a living cell, determine if the cell is cancerous and, if it is, kill it. If not, the cell isnt interfered with. For me the highlight of the book comes near the end, where Mr. Rutherford takes an informed stand against the unthinking opponents of genetic engineering, especially genetically modified foods. His arguments are clear and compelling but not easily summarized in abbreviated form. I cant resist, though, repeating one of his comments. The British newspaper the Daily Mail, he notes, once teased a story by writing: Scientist accused of playing God after creating artificial life by making designer microbe from scratchbut could it wipe out humanity? The very straightforward answer to that question, says Mr. Rutherford, is no, as is inevitably the case when newspaper science headlines end with a question mark. To find out why not, read the bookand bear the aphorism in mind when reading newspapers. Mr. Gribbin is a visiting fellow in astronomy at the University of Sussex and author of Planet Earth.
SPORT
Murray Brings the Title Home for Britain

BY TOM PERROTTA WIMBLEDON, EnglandAfter 77 years, it would have been too easy. It hadnt rained. The sun was bright, the air calm, the sky without a single cloud, the temperature just so. No one had been hurt. Andy Murray was about to beat Novak Djokovic for the Wimbledon titleall he had to do was win one more point. And then came the agony, and a chance for Murray to show off what will be remembered as his trademark trait when his tennis career ends: resilience. After losing a 40-0 lead, Murray saved three break points and withstood a last-ditch assault from Djokovic to win 6-4, 7-5, 6-4. That last game will be the toughest game Ill play in my career, ever, Murray said. When it was over Sunday evening, Murray turned to the crowd and assembled press and shouted, Yes! Yes! Yes! He exchanged high fives with fans and walked around Centre Court seemingly in a daze as fans yelled, Andy! Andy! Andy! Andy! He kneeled and put his head on the grass. He wandered over to his chair and sat down. Then he got up again and climbed through the crowd to the players box where his family, girlfriend and coaches were looking on. He almost forgot to hug his mother, who came running down from her seat as Murray headed back down to the court. He climbed back up and hugged her. Just how that last game went my head was kind of everywhere, Murray said. At the end of the match I didnt quite know what was going on. The applause was surely like no other in Wimbledon history: louder, longer, happier. Murray had not only won the most important title of his career, but he had put on a show. He smothered Djokovic with hustle, with defense, with touch and most of all, with remarkable passing shots on the run. He held nothing back, just like his coach, Ivan Lendl, had wanted him to do. It couldnt have gone better. I understand how much everyone wanted to see a British winner at Wimbledon, Murray told the crowd during the trophy presentation. I hope you guys enjoyed it. Did they ever. On the hill behind No. 1 Court, fans basked in the sun and cheered, and jumped up and down after Murray won. Inside Centre
Associated Press
Novak Djokovic of Serbia congratulates Andy Murray of Britain after their Wimbledon finals battle Sunday, which Murray won in three sets. Djokovic and Murray have played together 19 times, are both 26 years oldborn just seven days apartand are ranked No. 1 and No. 2 in the world, respectivelly, going into the match. Court, there were shouts of I love you, Andy! and Youre a genius, Andy! The crowd was often too excited for its own good: Several times they cheered before points ended, thinking a Djokovic shot had gone out. There were, of course, moments of concern for Murray and his fans. In the first set, Murray broke serve and then gave the break right back, before regaining the lead. In the second set Murray fell behind 4-1. In the third set, he won the first two games but lost the next four. But Murray kept finding a way out of trouble, just as he did in the quarterfinals, when he lost the first two sets against Fernando Verdasco, and in the semifinals, when he lost the first set to Jerzy Janowicz and had his momentum broken when the tournament referee decided to close the roof before it became too dark to play. After the Verdasco match, Lendl, speaking in the players garden, said that is what Murray does best. I dont think anybody can question that in Andy, his resilience, Lendl said. Lendl is one of the U.S. Opens alltime great champions (he won it three times and played in eight finals) and he also won the Australian Open twice and the French Open three times. But at Wimbledon, he never did better than runner-up. Murray said he wanted to win this title for his coach, too. I think this was the next-best thing for him, Murray said. He believed in me when a lot of people didnt. For Djokovic, the defeat was his second stinging loss in as many Grand Slam tournaments. At the French Open, he led Rafael Nadal by a break of serve in the fifth set of their semifinal before losing. Against Murray at Wimbledon, Djokovic kept coming back from deficits, only to make an untimely error or poor decision when he needed something more. He praised Murrays persistence. He was getting some incredible shots on the stretch and running down the drop shots, Djokovic said. He was all over the court. Djokovic and Murray have played 19 times. Theyre both 26born just seven days apartand ranked No. 1 and No. 2 in the world. They played in last years U.S. Open final (Murray won) and in this years Australian Open final (Djokovic won). They are the two best in the sport at returning serve, and the two best in the sport on hard courts. But for Murray, this titleon the lawns of Wimbledonmeant everything. After losing in last years final to Roger Federer, he came back to the All England Club to win a gold medal in singles at the Olympics, where he beat both Djokovic and Federer. He skipped this years French Open to rest his aching back: Wimbledon mattered more and he wasnt going to take any chances. After he won the grass-court warm-up event at Queens Club last month, the expectations could have been overwhelming. The last four or five years, its been very, very tough, very stressful, a lot of pressure, Murray said. Its so hard to avoid everything because of how big this event is, but also because of the history and no Brit having won.
LONDONBritain is the home of noble sporting defeat. Its history is full of heartbreaking near misses, teams and players who are remembered for fighting bravely and losing, all accepted with a pick-me-up clap and a stiffly uttered, Unlucky. So when Andy Murray became the first British man to win Wimbledon in 77 years, beating Novak Djokovic in straight sets Sunday, fans werent prepared. It was very un-English-not only winning, but when he came under pressure, not buckling and going away and everyone saying, Oh, he tried ever so hard, said Lars Smith, who watched the match at a pub in North London. In England, he said, if you win easily, its a bit vulgar. Thats what Americans and Australians do. Two of the England national soccer teams best-remembered World Cup games are its 1990 semifinal de-
As Murray Takes Wimbledon, Nation Experiences a Bizarre Feeling: Victory

feat against West Germany on penalty kicks and its 1998 second-round loss to Argentina, also on penalties. Henry Cooper was Britains most famous boxer of the 1950s and 1960s for once knocking down Muhammad Ali in his prime even though he lost the fight. And the high point of Tim Henmans career was an epic semifinal defeat to Goran Ivanisevic at Wimbledon over three days in 2001. You get to the stage where you dont think its going to happen, said Pete Rigby, watching the final in the Marquess of Anglesey pub in central London. A bit like the World Cup. Murray, of course, is British, but not English. Hes a proud Scotsman who counts two of his most famous countrymen among his biggest fans Sean Connery and former Manchester United manager Alex Ferguson. That, combined with his sometimes dour public image, meant that it took the English public a while to come around to the 26-year-old from Dunblane. For one ticket scalper outside the All England Club, it might have been the cause of slow business. Good luck to the kid, but he is Scottish, isnt he? he said. But several fans said they warmed to Murray after a BBC documentary that aired before the tournament showed a softer side of him, stripped of the grave intensity he carries on court. More importantly, he had also grown into that role of the lovable British loser. Becky Heap, 27, said at the All England Club that Murrays loss a year ago, and the tears he shed on Centre Court afterward, won over many fans. Her sister Charlotte Heap, 25, added, All the Brits love the underdog. The party from the All England Club spread to pubs all over the city, though it was never on the scale of last summers Olympics, when the likes of Jessica Ennis, Mo Farah, and Greg Rutherford had the whole country wrapping itself in the Union Jack. Still, in a pub in Covent Garden, tense silence was interspersed with raucous applause and more cursing than a Wimbledon steward would probably stand for throughout the final set. And as Murray squandered three match points, the final took on the vibe of a World Cup penalty shootoutjust the kind of situation where British fans have learned to watch their favorites fall apart. Hes nervous isnt he? Sam Rigby said to her husband, covering her eyes during points. Bless him. But once Djokovic put his final return in the net, the place erupted. You needed to see it. Its history, Pete Rigby said. My dad hasnt seen this, let alone me. Murrays victory completed an unusually good weekend for British
sports. On Saturday, the British and Irish Lions rugby team hammered Australia to secure its first tour victory since 1997. Then, cyclist Chris Froome pulled on the yellow jersey in the Tour de France. He grew up in Kenya and South Africa, but Britain is happy to claim him. And Britains summer of sporting success is set to continue: Englands cricket team will begin the Ashes series against Australia as the favorite. That said, England has its priorities. Lifting the Wimbledon hoodoo is big, but it isnt that big. At least not with soccer season around the corner. It doesnt compare to the World Cup in 1966 obviously, but its up there, said Stephen Gilmour, a bricklayer from Middlesbrough who cheered every point like a goal. Youve got the World Cup next year. Now its all football, as long as England qualify. Joshua Robinson
OFF THE WALL
U.S. Fedspeak Spawns Flights Of Metaphors

BY VICTORIA MCGRANE t a news conference in midJune, Federal Reserve Chairman Ben Bernanke struggled to explain what the Fed is trying to do, attempting this metaphor: Were going to be shifting the mix of our tools as we try to land the ship in a smooth way onto the aircraft carrier. He then turned to automobiles, a favorite of central bankers. Trying to distinguish between reducing the Feds monthly bond-buying and raising short-term interest rates, he said the former is akin to letting up a bit on the gas pedal as the car picks up speed while the latter is beginning to apply the brakes. There is a long tradition of explaining complex monetary policy with metaphors. Back in 1955, in a speech littered with analogies to driving, bomb shelters and school exams, then Fed Chairman William McChesney Martin made popular the line that the duty of the Fed was to take away the punch bowl just as the party gets good. Central bankers are partial to plumbing, often talking about the flow of credit, the spigot and liquidity. They traffic in aircraft references, too. Former Fed Chairman Alan Greenspan and his lieutenants in the 1990s referred incessantly to headwinds the econ-
Central Bankers Wax Poetic on Policy
They invoke punch bowls, animal husbandry, plumbing, aircraft references and even Scarlett Johansson.
omy was fighting, a word Mr. Bernanke had used from time to time. Nobel Laureate Milton Friedman once said the Fed could fight deflation by throwing money from a helicopter. Mr. Bernanke made a passing reference to that several years ago and was ridiculed as Helicopter Ben. After Mr. Bernankes recent difficulty in explaining what the Fed is planning, several of his colleagues made their own attempts. Atlanta Federal Reserve Bank President Dennis Lockhart explained that Mr. Bernanke was talking about using a nicotine patch and markets reacted as if he wanted to go cold turkey. And Jeffrey Lacker of the Richmond Fed said the Fed is continuing to spike the punch, though at a decreasing rate over the next year. I try to be really careful about metaphors, Mr. Lacker says. I dont want to overuse them because it gets confusing, because too many metaphors just sort of spoils the broth, he says, then pauses, laughs and asks, Is that a metaphor? The president of the Dallas
Fed, Richard Fisher, is a font of analogies and puns. He has used boats and Shakespeareas part of the same analogyas well as cocaine, gastric bypass surgery and the actress Scarlett Johansson (The Houston and Austin and Dallas commercial real estate markets are hotter than Scarlett Johansson.) In a December 2012 speech in Gainesville, Texas, Mr. Fisher turned to animal husbandry to describe why uncertainty was leading businesses to hold on to cash instead of investing it. His ranch in East Texas he said, is home to a 1,000-kilogram breeding bull named Too Big To Fail. Now, Too Big has plenty of liquidity at his disposal; hes fully equipped to do what we want him to do, Mr. Fisher explained. But if we put him on the opposite side of the fence from those pretty cows, hes unable to perform. Think of the uncertainty Ive just spoken ofas a fence, he said. He brought the house down with that one, said Kent Sharpe, executive director of the Gainesville Economic Development Corp. Mr. Fisher says someone from a cattle-breeding group wrote him to say for the first time we understand how monetary policy works. I think you can use [metaphors] in two ways, Mr. Fisher says. One is to get people to listen, and the other is to explain policy. Because metaphors can be so powerful in shaping public impressions of the Fed, officials sometimes pick them with care. Minneapolis Fed President Narayana Kocherlakota, for one, objects to colleagues, and reporters, who liken the economys reliance on Feds easy credit to an addict hooked on drugs. His more sober reference: A coat. Its still wintry conditions. I know it feels like it should be May by now, and we should be able to take off the coat. But we well know in Minneapolis that it doesnt always happen. And you should keep your coat on when its cold out. Politicians have been quick to add to the proliferation of metaphors. In May, Rep. Kevin Brady (R., Texas) complained to Mr. Bernanke about the fragile condition of the economy: At this point, the patient ought to be out of the hospital and playing baseball with its kids. Sen. Amy Klobuchar (D., Minn.) offered an alternative status report on the economys health: Were out of intensive care thanks, in part, to the Feds actions. And were probably out of the hospital. But one of the problems is, because of this brinkmanship that goes on on the Hill here, we keep having to go back to the emergency room. All these competing metaphors have, if you will, ruffled some feathers.
Associated Press
Nobel Laureate Milton Friedman once said the Fed could fight deflation by throwing money from a helicopter. Mr. Bernanke, above, made a passing reference to that several years ago and was ridiculed as Helicopter Ben. I hate most of these metaphors, complains Laurence Meyer, a former Fed governor now at forecaster Macroeconomic Advisers. Fed officials should stick to punch bowls and cold turkey, two metaphors he said that are immediately recognizable and immediately put in the minds of the audience what the [official] is talking about. If you have to think about the metaphor instead of monetary policy than theres really a communication problem, he says. Economists at the Bank for International Settlements apparently agree. The consortium of central banks, which has been skeptical about recent aggressive Fed policies, takes exception to the metaphor that economies, like airplanes, have a stall speed that is, if the economy grows too slowly its at risk of falling into recession. The economy is self-correcting, said Wai-Yip Alex Ho and James Yetman in a working paper published last fall. Even if policy makers make mistakes, the economy will grow again eventually. If an aircraft stalls, there are no self-correcting mechanisms, they wrote. A crash is irreversible and permanent. Perhaps we need a better analogy. Sarah Portlock contributed to this article.
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Microsoft keeps hitching its fortunes to lame horses. It shows how rickety parts of the software giants business are. Barnes & Noble, Best Buy, Nokia, Yahoo and Dell all face very difficult circumstances of their own. While Microsofts deals with most of them make sense, its relatively unpopular products and a changing competitive environment mean they may not prove particularly fruitful. Start with Microsofts troubled mobile business. One big strategic challenge has been getting smartphones powered by its operating system, Windows Phone, into the market. Its first big deal to address this saw it agreeing to pay Nokia $250 million a quarter to make Windows Phone its primary smartphone platform. That isnt much money for Microsoft, and it is mostly offset by royalties Nokia pays back. But Microsofts traditional business model revolves around the company being paid by gadget makers for using its software, not the reverse. Microsoft needs to
Microsoft Products Need a Boost

Slow Progress
Performance, weekly data
150% 100 50 0 50
Nasdaq Composite
Steve Ballmer, CEO of Microsoft
03
05
10
13
Source: WSJ Market Data Group The Wall Street Journal
make concessions to help Windows Phone build momentum, sure. Yet it is hard to see payments ever flipping into Microsofts favor in a big way. That is because Google offers its Android mobile operating system without charge. It can afford to do, so since this promotes its cash-cow search business. Meanwhile, Microsofts own search engine, Bing, remains one of the companys weaker products underlined by Yahoos reported desire to get out of a
10-year deal to host its search results. With Android free, why would handset makers ever make a big commitment to Microsofts mobile operating system? They might if customers were demanding Windows Phone handsets in huge numbers. But that is unlikely as well, given mobile-software developers are focused on building apps for platforms that already have significant market sharenamely Android and Apples iPhone. Af-
ter all, having lots of compatible software available cemented Windows-based computers dominance of the PC market. Conversely, a lack of it will work against Windows-based smartphones. Nor can deals with the likes of Barnes & Noble and Best Buy really overcome this weakness. It isnt clear what Microsoft was aiming for strategically when in 2012 it pledged up to $605 million in total to support B&Ns business building tablets. Last month, amid intense competition, the bookseller said it will cease making color tablets. The recently signed Best Buy deal makes more sense. It is difficult for Microsofts Surface tablet to compete with Apples iPad without having more significant retail distribution. So Microsoft plans to put Windows Stores featuring its products inside hundreds of Best Buy locations. But it remains to be seen if wider distribution can really spark enough consumer interest in the Surface to lift significantly its global market
share: just 2% in the first quarter, according to Strategy Analytics. In contrast, the iPad had 48%. Meanwhile, the PC business is so difficult that not only is Microsoft floating a $2 billion loan to support the proposed private-equity buyout of Dell, it also is cutting prices on its PC software. The latter is so that PC manufacturerswho make razor-thin marginscan deliver lowerprice products better able to compete with tablets. Judging from Microsofts top line, it is hard to argue that the company is broken: Revenue is expected by analysts to rise 7% a year through 2015. But that is partly a reflection of the fact that companies dont quickly replace their corporate software. For its long-term health, Microsoft needs to find success selling software for the most popular types of computers. That means smartphones and, increasingly, tablets. Its difficulty doing that, or attracting partners that arent in desperate need of their own help, bodes ill for its future. Rolfe Winkler
China Price Scrutiny Wont Faze Pharma
Brazils Shadow Over Petrobras

This is no way to run an oil companyunless, of course, the goal is to run it into the ground. Dominating the energy landscape in Latin Americas largest economy and controlling the worlds biggest offshore discovery in decades, Petrleo Brasileiro should be seeing a bright future. But surging local fuel demand, spurred in part by tight state control of domestic prices, is savaging the companys earnings. Whats more, Brazils sudden crisis will increase the pain. Petrobras must pay global prices in U.S. dollars for fuel imports but sell domestically in local currency at artificially low prices. In the last two years alone, after-tax losses in the companys domestic refining and marketing operations were $17.4 billion. A series of governmentsanctioned fuel-price increases starting last spring seemed to help. But the Brazilian reals slump, down about 12% against the dollar in just two months, has undone this. Meanwhile, stubborn inflation and recent protests mean the government likely wont help with further fuel increases, possibly until after October 2014 elections. These losses, plus sagging
Jobs Data Work Over Bond Buyers

There was plenty to like about Fridays employment reportunless, that is, you happened to own bonds. The economy added 195,000 jobs in June, according to the Labor Departments latest update, better than the 160,000 economists had expected. With April and May figures revised upward by a total of 70,000, job gains have averaged 196,000 in each of the past three months. Earlier fears that the job market would stall as a result of higher taxes and government spending cuts were misplaced. The unemployment rate stayed at 7.6%, but for a good reason: More people decided to get back in the hunt for jobs, rejoining the labor force. Indeed, the survey of households on which the unemployment rate is based suggests the job market may be even stronger than what is shown by the job figures, which are based on a separate survey of employers. After adjusting for differences from the employer survey, the household survey showed a gain of 350,000 jobs last month, with an average gain of 314,000 over each of the past three months. Every silver lining has a cloud, though. In this case it is that it now looks even more likely that the Federal Reserve will start scaling back its bond purchases in September. That is one reason the Treasury market sold off Friday. But it isnt the only reason. The selloff sent the yield on the 10-year Treasury note to a 23-month high of 2.72%. The two-year note also sold off. But its yield, at 0.40%, was still below the high of 0.43% reached in late June. As a result, the yield curve, as defined by the difference between the two-year and 10year yields, steepened. Historically, a steeper yield curve has indicated bond investors expect stronger economic growth. Given the crosscurrents in the market, including the Feds commitment to keeping overnight rates low at least until unemployment falls through 6.5%, investors wouldnt want to overinterpret what has happened to the yield curve. But the stock market told a similar story of stronger growth expectations Friday. Shares of economically sensitive companies, like
output at existing fields and cost overruns in its massive offshore projects, have taken their toll. Dollar-denominated investors in Petrobras suffered the worst returns of any large, integrated oil company in 2011 and 2012and are on track to make it three years in a row. A comparison with U.S. supermajor Chevron is instructive. In terms of proven reserves and refining capacity, the two companies are very similar. But Petrobrass market value of $82 billion is only about a third of the total at Chevron. Investor jitters over emerging markets and specifically over Brazils subpar growthits gross domestic product has lagged behind estimates for five quarters in a rowwont help the real rebound against the dollar. One silver lining of slower growth is that domestic fuel demand also should rise more slowly. That should provide some relief on refining and marketing losses. And there is light at the end of the tunnel: By 2015 or so, Brazil should become a net oil exporter, and Petrobras could be far more profitable. That is only if Brazils government doesnt strangle its golden goose further, though. Spencer Jakab
banks, retailers and manufacturers rallied while defensive areas, like utility and telecom shares, were weak. The market environment that lately has arisen bears some resemblance to 1994, when the Fed began raising rates after a long hiatus. One important difference is that, with inflation now running too low for its taste, the Fed has little interest in slowing the economy. Another is that yields would probably have to go a lot higher before enticing investors away from stocks. At the start of 1994, the 10-year yielded 5.83% (it would close at 7.84%), and the S&P 500 was trading at 17 times the past years earnings. Today, the S&P 500s price/ earnings multiple is 16 times. For long-term Treasurys it could be a very long year. Justin Lahart
Hire Rates
2.8%
10-year Treasury yields last week, minute by minute
2.6
2.4
2.2 Mon.
Source: FactSet
Tues.
Wed.
Fri.
Note: Thursday was a holiday in the U.S.
Chinas economic watchdog is set to investigate the costs and pricing of drugs from about 60 domestic and international pharmaceutical firms. That doesnt mean pharma groups should catch a cold. Emerging markets constitute a key plank of the industrys growth outlookparticularly for European companies like GlaxoSmithKline, Novartis and Sanofi, which already make a quarter to a third of operating profit there, says Deutsche Bank. Sales in emerging markets grew at an average annual rate of 16% from 2007 to 2011, according to IMS Consulting, compared with 5% in developed markets. Nations such as China, India and Brazil could account for up to half the growth in pharmaceuticals sales starting in 2015. But individual markets contribution to pharmas bottom line is, as yet, limited. China accounts for about 2% to 5% of sales for European companies. Moreover, those sales are markedly less profitable than in developed markets. Companies like Glaxo have been cutting prices to increase volume growth. The U.K. companys operating profit margin across its emerging-markets business is about 34%; in the U.S., its closer to 70%. The focus of Chinas investigation isnt yet clear. One target could be products on the 500-strong national essential-drugs list, a recently expanded roster of medicines fully paid for by the state that comprises mostly low-cost generics. International pharmaceutical companies have capitalized on fears about lowquality local products, using their brand names to get premium prices for off-patent medicines. That premium is coming under pressure. But pharma groups should benefit as a larger chunk of Chinas vast population gains access to their products. And, longer term, there is the chance to improve profitability as more patented, innovative medicines are introduced to the market. New drugs are launched in China on average five to seven years after their international debut, a lag the government wants to remedy by encouraging local clinical and research investment. That Chinas authorities like governments the world overare seriously scrutinizing drug pricing is unsettling. But Big Pharma doesnt need a sick note just yet. Helen Thomas

The Wall Street Journal

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VOL. XXXI NO. 111 MONDAY, JULY 8, 2013

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