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THURSDAY, MARCH 3, 2016 ~ VOL. XXXIV NO. 24

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Whats
News

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ome hedge funds are

betting that oil and the
value of battered energysector assets will rise following oils price plunge. A1

BY NEKTARIA STAMOULI

 Germanys competition
watchdog is probing Facebooks data gathering. B1
 The judge in the battle
between Porsche and a
group of hedge funds is
bringing back witnesses. B5
 Two Nigerian communities can sue Shell in the
U.K. over oil spills, a London court ruled. B2
 Activist shareholder
ValueAct Capital Management joined the board of
Rolls-Royce. B2
 Toyota said it will reorganize into smaller units
to develop new models. B2
 The number of superrich people world-wide
fell last year for the first
time since 2008. B5

World-Wide
 A clampdown along Balkan borders has stranded
30,000 migrants in Greece, in
a last-ditch EU gambit to halt
the inflow of refugees. A1

ALBIN LOHR-JONES/PACIFIC PRESSL/ZUMA PRESS

 Aubrey McClendon, a
pioneer of the U.S. shale-oil
boom, died in a car crash a
day after he was indicted
by a federal grand jury. B1

 More Chinese investors

are setting up new funds
in Hong Kong after Beijings crackdown. B5

SHOW OF HANDS: Every member of the United Nations Security Council, including the U.S., China and Russia, voted Wednesday to
impose new sanctions on North Korea, demanding that it roll back its advancing nuclear-weapons and ballistic-missile programs. A4

Funds Turn Bulls on Energy

Despite oil glut, some
bet on rising prices or
buy battered stocks
BY LAURENCE FLETCHER
AND GEORGI KANTCHEV
Several hedge funds are
starting to bet that assets in
the battered energy sector are
through the worst of their dismal run.

Oil is down nearly 70% since

June 2014, and analysts say
there are few signs that the
global oversupply of crude will
soon abate.
But some hedge-fund managers have recently started
betting on rising oil prices, or
picking up the stocks or credit
of battered energy companies
in the belief that prices have
dropped too far.
We turned bullish on en-

ergy two weeks ago, said

Gennaro Pucci, founder of
hedge fund PVE Capital LLP,
which invests in credit and
oversees more than $1 billion
in assets. He said he previously
was betting on falling prices.
Mr. Pucci said he had
bought the credit of companies
including U.S. shale-oil producer Continental Resources
Inc. and pipeline operator
Kinder Morgan Inc. He pointed

Indicted Ex-CEO Dies in Car Crash

 A new commander took

charge of U.S. and allied
forces in Afghanistan as a
suicide bomber attacked an
Indian consulate. A4
 Cruzs victories in three
GOP state contests bolster
his claim that he has the best
chance to stop Trump. A7
 Sanders plans to fight on
for the Democratic nomination despite Super Tuesday
losses, his campaign said. A7
 Bin Laden felt his influence wane during his time at
his home in Pakistan, newly
released papers show. A4
 Jordanian forces targeted
suspected militants in a raid
that led to a shootout and
left eight people dead. A4
CONTENTS
Arts & Ent............... A9
Business & Tech. B1-4
Capital Account.... A2
Crossword.............. A12
Heard on Street. B10
Markets Digest..... B8

Money & Inv... B5-10

Opinion.............. A10-11
Personal Journal.. A8
Technology............... B3
U.S. News............. A6-7
Weather................... A12
World News....... A2-4

3.20; CHF5.50; 2.00;

U.S. Military (Eur.) $2.20

s Copyright 2016 Dow Jones &

Company. All Rights Reserved

 Economic woes show in

shrunken superrich................. B5

BY GERALD F. SEIB

Donald Trump cruised out

of Super Tuesday in fine
shape. By contrast, Republican leaders who had been
hoping he would stumble
emerged still in
ANALYSIS a fix, facing
tough choices,
uncertain options and perhaps a moment
of truth in the next two
weeks.
Mr. Trump won from Georgia and Alabama in the South
to Massachusetts in the
North. Afterward, he chose
to tone down his rhetoric in
an apparent effort to appear
presidential. He held an ac-

SEAN GARDNER/REUTERS

 A Persian Gulf bloc designated Iran-backed Hezbollah

a terrorist group, fueling the
fight between the Sunni
states and Shiite Iran. A3

to compelling valuations and

an oil price he believes will
stabilize between $30 and $40
a barrel.
On Wednesday, Brent crude,
the global benchmark, edged
up 0.3% to $36.93 a barrel.
Pierre Andurand, one of the
worlds top energy traders
Please see ENERGY page A2

SHALE PIONEER: Aubrey McClendon, a leading figure in the U.S. shale

boom, died Wednesday, a day after the former Chesapeake Energy chief
was indicted on conspiracy charges. Above, Mr. McClendon in 2012. B1

Swiss Firms
Face Tough
Slog Against
Strong Franc
BY JOHN REVILL
ZURICHFor many advanced economies, economic
growth of just under 1% is
pretty pedestrian. Not so in
Switzerland, where a huge rise
in the value of its currency
threatened to upend the export-dependent economy.
Against that backdrop, 0.9%
growth in gross domestic
product last year was pretty
impressive. Swiss companies
particularly the midsize manufacturers that help anchor the
roughly $700 billion economyproved nimble in adjusting costs to stay competitive,
through extra working hours,
pay freezes and stepped-up
production.
But doubts persist on how
much longer Switzerland can
withstand the effects of its suPlease see FRANC page A2

Africas Tarantino Brings

Mayhem to Uganda Slum
i

IDOMENI, GreeceA clampdown along Balkan borders

has left 30,000 migrants
trapped in Greece, marking a
new stage in the humanitarian
crisis swamping Europe.
Countries farther up the
migration trail, from Macedonia to Austria, are now letting
in only a few hundred a day,
and sometimes no one.
Allowing migrants to be
stranded in Greece is considered the EUs last option to
halt the relentless inflow of
people from the Middle East,
South Asia and Africa. More
and more EU governments
have lost faith in German
Chancellor Angela Merkels
policy of stopping irregular
migrants at Turkey, spreading
bona fide refugees around the
EU, and keeping Europes internal borders open.
Ms. Merkel warned this
week of chaos in Greece, but
other European Union leaders
say there is no alternative to
shutting down the Balkan migration route.
The first priority is to rapidly stem the flows, European
Council President Donald Tusk
said on Wednesday while visiting Croatia, a country on the
now-constricted Balkan trail.
Europes monthslong furor
over migration is testing our
Union to the limit, Mr. Tusk
said.
Senior EU officials argue
Please see CRISIS page A2

GOP Faces Moment of Truth

 The U.N. Security Council

voted unanimously to impose
new sanctions on North Korea over its nuclear-arms and
ballistic-missile programs. A1
 Syrian regime forces
backed by Russian airstrikes pushed to make
strategic gains, intensifying attacks on rebels. A4

DLR 113.85 g 0.12%

Greeces
Migrant
Crisis
Deepens

Unanimity at the U.N. Security Council Over North Korea

Business & Finance

 VW rejected allegations
it failed to disclose in a
timely manner the potential
liabilities from the emissions-cheating scandal. B1

EUROPE EDITION

Wakaliwood churns out bloody hit films

for about $180 apiece

 Carson says he sees no

political path forward
in Republican race.... A6
 The road ahead........... A6
 Setbacks aside, Sanders
plans to fight on......... A7
tual press conference, lowered his decibel level and
largely avoided insulting his
foes. Im becoming diplomatic, he declared.
His opponents, meanwhile,
remain splintered, with unproven appeal and limited
reach.
Sen. Ted Cruz showed he

can win, but he is hardly beloved within the party. Sen.

Marco Rubio won the caucuses in Minnesota, giving
him the fuel needed to carry
on, but didnt win any of the
bigger primaries elsewhere,
and lots of the partys donors
have bet on him. If those two
continue to divide the antiTrump vote, they may pave
the road to the nomination
for Mr. Trump.
In short, those atop the
Republican Party who hoped
Tuesday would throw a stop
sign in front of a man who
dislikes the partys establishment, insults its donor base,
disagrees with its traditional
Please see TRUMP page A6

Oracle #1
Cloud ERP

BY JOE PARKINSON

shackle Kampala slum called

Wakaliga, Wakiliwood churns
KAMPALA, UgandaOn a out a movie a month. The avpotholed road next to an open erage cost, say the filmmakers,
sewer, four men faced off in a is about $180.
The thrifty theatrics are the
Kung Fu battle. A khaki-clad
brainchild of Isaac
soldier ran up,
Nabwana, a local
firing a machine
resident who has
gun
fashioned
made 45 featurefrom old lawnlength movies in
mower
parts.
the slum. Dubbed
Two
cannibals
Africas Tarancaked in mud and
tino for his highdried grass apoctane,
violent
proached
the
comedies, the dibloody corpses
rector cites Chuck
and licked their
Issac Nabwana
Norris,
the
lips.
Welcome to Wakaliwood, a Rambo movies and televisions
movie studio and production cop classic Hawaii Five-0 as
house that is riding a wave of inspirations. His movies, inpopularity in East Africa and cluding Ebola Hunters, The
drawing a cult following over- Cannibals and Valentine: Saseas, with crowded screenings tanic Day, fill theaters across
in Hong Kong, Stockholm the country and have been
Please see FILM page A3
and New York. Based in a ram-

1,675

150

Oracle Cloud
ERP Customers

Workday Cloud
ERP Customers

Oracle has their act together better than SAP

Aneel Bhusri, Workday CEO

Midsize and large scale Enterprise Fusion ERP Cloud customers.

oracle.com/modern-finance or call 1.800.ORACLE.1
Copyright 2015, Oracle and/or its affiliates. All rights reserved.

For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com

THE WALL STREET JOURNAL.

A2 | Thursday, March 3, 2016

WORLD NEWS

oo big to fail is the

postcrisis obsession
that refuses to go away.
Democratic presidential
candidate Bernie Sanders has
built his campaign on the
claim that big banks are a
menace to society and should
be broken up. Two weeks ago
he found an ally in Neel
Kashkari, a Republican who
ran George W. Bushs bailout
program and
recently became president
of the Federal
Reserve Bank
of Minneapolis.
CAPITAL
At the root
ACCOUNT
of these conGREG IP
cerns is that if
any financial
institution is
so big or important that the
government cant let it collapse, investors will lend to
it too cheaply. That de facto
subsidy provides an advantage over smaller competitors and encourages management to borrow too much,
making it more likely to collapse.
But the preoccupation
with too big to fail is misplaced. In their zeal to stamp
out any possibility of future
government bailouts, policy
makers risk creating new
vulnerabilities that could undermine the economy and
make the next crisis worse.
Huge financial companies
certainly borrowed and lent
recklessly in the run-up to
the U.S. mortgage crisis, but
not because they were per-

ceived as too big to fail. Indeed, when the International

Monetary Fund studied the
big banks stocks and creditdefault swaps, which offer
protection against the bank
defaulting, it found that the
biggest banks had little borrowing advantage over
smaller companies before the
crisis. (An exception: Fannie
Mae and Freddie Mac, the big
mortgage-finance companies,
clearly did borrow more
cheaply thanks to their status
as government-sponsored
enterprises.)
That too big to fail subsidy emerged afterward, as
government bailouts, in particular after the failure of
Lehman Brothers in 2008,
made it clear that no big firm
would be allowed to collapse.
Regulators have since
struggled to expunge that
subsidy in two ways. The first
is to force the biggest financial companies to have more
capital, especially equity, to
absorb losses. This makes
them less likely to fail and
less profitable, thereby discouraging them from growing
large in the first place.
The second way is to make
it easier to close down a big
bank. Through living wills
and resolution rules, regulators would recapitalize a bank
on the verge of bankruptcy by
bailing-in bondholders, i.e.
giving them back less than
100 cents on the dollar or converting them to shareholders.
These two steps have significantly shrunk the too-

ENERGY FRANC
Continued from Page One
who made big profits by correctly calling the plunge in oil
prices in late 2014, said in his
latest letter to investors that
he is cautiously constructive
on oil prices at the moment.
Mr. Andurand, founder of
London-based hedge fund Andurand Capital Management
LLP, had predicted last fall that
oil could go as low as $25 a
barrel, but said in a recent investor letter that he expects
oil to end the year higher as
inventory levels stabilize. A
spokesman for Andurand declined to comment.
Oil prices have rebounded
in recent weeks from the decade-lows reached in January
on hopes that major producers
will cap their output. A persistent glut of crude has weighed
on the market in the past two
years, fueled by rising output.
Overall, bullish bets on
Brent made by hedge funds
and other money managers
rose 12.4% during the past
week to their highest since
such records began in 2011, according to the Commitment of
Traders report from Intercontinental Exchange Inc.
Investors are less optimistic
on the U.S. oil benchmark,
West Texas Intermediate, in
which the number of bets on
higher prices has barely ticked
up this year.
Meanwhile, the size of
hedge-fund bets on oil stocks
rising increased 77% over the
week ended Feb. 18, the biggest gain in any sector, according a J.P. Morgan Chase & Co.
note to hedge-fund clients.
The bet on energy is far
from a sure thing, market participants say. Hedge funds
raised billions of dollars to invest in distressed oil-and-gas
companies after the oil price
began to fall in 2014, but many
sustained losses as the bets
proved too early. Investors
also bought into oil stocks late
last year, hoping that moves to
cut costs and spin off businesses signaled their share
prices had bottomed, but that
bet also proved too early.
Few in the market believe
oils rebound will be smooth.
Worries about global growth
engulfed financial markets early
this year, adding to concerns
about oils longer-term oversupply. Storage tanks around
the world are brimming with
oil, and many traders are chartering ships to use as floating
storage, leaving key ports such
as Rotterdam, Europes busiest,
congested with oil tankers.
The consensus is that people are still pretty negative on
oil in the near term, said Robert Duggan, partner at SkyBridge Capital. However, he
said betting against the oil
price at such low levels had become hard because of the potential for it suddenly to rise.

Continued from Page One

percharged currency, which
makes exports pricier and
erodes overseas revenue when
it is converted into francs.
Companies are doing all
kinds of thingsthey have
been very adaptive, said Hans
Hess, president of the manufacturers association Swissmem. But some companies
are really strugglingand jobs
have been lostand have had
to cut back on their investments, he said. His group expects job losses and company
closings to accelerate in 2016
and 2017 as Switzerland digests the stronger franc.
Dental-implant
maker
Straumann AG, based in Basel,
took radical steps to shield itself. The company, which generates around 91% of its sales
outside Switzerland but has
37% of its costs in francs,
asked staff to accept a 5%
wage cut. Leading the way,
Chief Executive Marco Gadola
took a 35% cut.
The measures helped Straumann avoid eliminating jobs in
Switzerland and increased
profitability during 2015, although the company still took
a 37 million franc ($37.1 million) hit to sales. The company
paid its Swiss staff a bonus to
compensate for the earlier pay
cut.
Such efforts helped the Al-

CRISIS
Continued from Page One
that a humanitarian crisis in
Greece, ameliorated with EU
money, would help deter further migrants from traveling
to Europe. On Wednesday, the
EU executive in Brussels said
it could send Greece 300 million quickly, from a new 700
million emergency fund for
the bloc.
Greece is rapidly becoming
a pressure cooker. Refugees
and other migrants are growing frustrated and angry. Hundreds tried to storm the border with Macedonia on
Monday, only to be driven
back with tear gas. The presence of riot police and military
vehicles is growing daily. Authorities are hastily building a
network of camps around the
country, hoping to spread the
trapped migrants and avoid
major unrest.
At Idomeni alone, nearly
10,000 people were stranded
by Wednesday at a camp built
for 1,500. Most are sleeping in
tents or in the open, in muddy
fields next to the razor-wire
border fence erected by Macedonia.
An air of growing desperation hangs over the camp.
There is little sign so far that
the closed border or squalid

MARY ALTAFFER/ASSOCIATED PRESS

Critics of Too Big to Fail Go Too Far on Banks

banks share its fragility.

Thats why regulators in
1984 bailed out Continental Illinois, only the U.S.s seventhlargest bank, and, over the
next seven years, the uninsured depositors of the 14th-,
33rd- and 36th-largest banks.
The recent financial crisis began with the failure of lightly
regulated investment funds
and mortgage lenders such as
New Century Financial before
engulfing Bear Stearns, the
smallest of the five standalone investment banks.
The latest upheaval in European banks shows the same
thing. Europes rigid rules require bondholders to be
bailed-in if banks fail or in
some circumstances come
close to regulatory capital

Swiss Slowdown
A stronger franc has raised difculties for manufacturers.
Manufacturers new orders, change from the same quarter
a year earlier, based on the Swissmem Index
30%
20
10
0
10
20
30
2010

2011

2012

2013

2014

2015

How many euros one Swiss franc buys

1.10
1.00
0.90
0.80
0.70

Wednesday: 0.92*

0.60
09

10

11

12

13

*London close
Sources: Swissmem (index); Tullett Prebon (currency)

14

15

16

THE WALL STREET JOURNAL.

pine economy advance 0.9% in

2015, down from 1.9% growth
the previous year. It eked out
the gain, and kept unemployment below 4%, despite the
Swiss central banks stunning
decision on Jan. 15, 2015, to
abandon a long-standing cap it

had set on the francs value

against the euro.
Switzerland isnt alone in
confronting a strong currency.
Companies in Sweden, which
also is outside the eurozone
but exports a lot of its goods
there, have a tradition of mov-

conditions are deterring people from fleeing the Middle

Easts war zones for Europe.
Ramadan Muhamad, a 27year-old hotel manager from
Syria, said he and his wife
have been sleeping in a small
tent by the fence for 10 days.
My wife is eight months
pregnant. This means I have
one month to go somewhere
safe, he said. His wife had
breathing problems after
Macedonian police fired tear
gas to disperse people trying
to force their way across the
border, he said.
Like most people here, Mr.
Muhamad wants to reach Germany, where he fears the policy of welcoming refugees
wont last much longer.
Ms. Merkel is under huge
domestic pressure to reduce
the numbers of refugees and
migrants arriving to Germany,
after around a million came in
2014.
Germanys interior ministry
said on Wednesday that arrivals in the country have fallen
to a few hundred a day lately,
compared with about 2,000
daily in February, and peaks of
around 10,000 a day in September.
On Wednesday Macedonia
let only about 170 people pass
through the fence, via a checkpoint where hundreds, mainly
from Syria, wait after their papers have been verified.

At night, the air near the

border fence becomes suffocating as people burn garbage
to stay warm. Many children
can be heard coughing. Nongovernmental organization
Doctors Without Borders says
it has been treating many people suffering from the cold,
and some with respiratory
problems.

Greeces worry is
that a huge number
of migrants could be
stuck indefinitely.
Greeces foreign minister
Nikos Kotzias told Greek
broadcaster Skai on Tuesday
that the country can cope with
up to 150,000 refugees. Some
officials say privately they fear
the number could rise much
higher than that.
Greeces worry is that a
huge number could be stuck
here indefinitely. The EUs
scheme for relocating refugees
around the continentchampioned by Ms. Merkelis
floundering for lack of takers.
Fearing violence, Greek authorities are trying to reduce
the crush at the border with
Macedonia by putting up migrants further south, including
in Athens and its port of Piraeus. Army bases, public

minimums. Last year, creditors

of four small failing Italian
banks and one Portuguese
bank, itself the product of a
previous failure, found themselves bailed-in. Earlier this
year, investors in contingent
convertible bonds of
Deutsche Bank feared the
same fate because Deutsche,
though at no risk of failure,
was low on capital. These
events fueled fears that many
banks were at risk of the same.
While the panic has subsided, banks shares and confidence have taken a hit,
which could impair lending
at a time when the eurozone
economy badly needs more
credit.
U.S. regulators have relied
on so-called stress tests to

he best solution to too

big to fail is to require
the biggest institutions to issue so much equity
capital that only genuine
business benefits such as
economies of scale could justify staying so largenot expectation of a bailout. U.S.
banks are nearly there: Their
equity capital equaled 12.5%
of risk-adjusted assets in
2014, more than double the
5.5% of early 2009.
They may need more, and
regulators have hinted as
much. With sufficient equity,
such a bank would fail only
in a systemic crisis so deep
and destructive that countless other banks are sucked
down. Whether its one $2
trillion bank or five $400
billion banks on the verge of
collapse, no government at
that point would stand by
and let the panic run its
course. Nor should it.

ing production abroad as they

grow, both to get closer to important markets and to escape
the effect of the exchange rate.
Truck maker Scania AB, for
example, has a factory in Brazil, while network-equipment
maker Ericsson and clothing
retailer Hennes & Mauritz AB
have production all over the
world. Swedens economy increased sharply at the end of
2015, far outpacing Swiss
growth.
What set Switzerland apart
was the scale of the francs
rise. It went from buying
0.83 to 1.01 immediately after the cap was dropped last
year, a rise of nearly 22%. The
franc softened after that but
still remained strong, closing
2015 up more than 10% against
the euro. As a result, Swiss exports to the eurozonethe
countrys largest export marketfell 6.7%.
At least 0.5% of growth
went down the river in 2015
because of the francs rise,
said Rudolf Minsch, chief
economist at Economiesuisse.
The effect is much stronger
than appears in the figures.
Georg Fischer AG, which
makes machines used to produce mobile phones and computer-tablet parts, took a 245
million franc hit to its 2015
sales from the currencys rise.
The company responded by
asking its staff to work four
more hours a week, amid
other measures, and profit improved. We have a good rela-

tionship with our employees,

so we were able to find a
quick conclusion, said Chief
Executive Yves Serra. That
gave us time to bring in other
measures.
Among Switzerlands corporate giants, Nestl SAs annual
sales were reduced by 7.4%
when translated into francs,
and the strong currency hurt
profit at its Nespresso business, which makes its coffee
capsules in Switzerland. Pharmaceuticals giant Roche Holding AG also reported a major
currency impact.
But large companies with
global operations can mitigate
costs by producing more outside Switzerland. Nestl CEO
Paul Bulcke called the currency-translation effect aesthetics, at the end of the day.
If wasnt just aesthetics for
plastic-injection-molding company Scheu AG. I remember
thinking, Oh, no, this is going
to be bad, said owner and
manager Rene Scheu, looking
back to the SNB announcement. But it was worse. We
now face an uncertain future.
The companys 20 employees agreed to work two hours
extra a week, but it still reported a loss last year as sales
fell and it lost customers that
moved outside Switzerland to
cut their own costs.
Half of our customers are
in Europe, and most of our
costs are in Switzerland, so
that makes life very difficult,
Mr. Scheu said.

The failure of Lehman Brothers in 2008, and the resulting chaos, ushered in the too big to fail era.
big-to-fail subsidy. Yet even
if it were eliminated, the
failure of such a bank would
still transmit a devastating
shock through its financial
interconnections. Thus, critics insist, the only solution is
to break the banks up into
something smaller.
But how small? The failure
of a bank, even a big one, because of idiosyncratic problems such as a rogue trader is
seldom a threat to the
broader financial system. By
contrast, systemic financial
crises occur when numerous
banks, investors and regulators collectively misprice risk.
At that point even a moderately sized banks failure can
be contagious because the
market realizes that other

ensure the biggest banks can

survive a bad economic spell.
Going a further step and
breaking them up could have
countless unintended consequences. Smaller, specialized
units could be more vulnerable to collapse and become
breeding grounds for new risk
as part of the less-regulated
shadow banking system.
Large banks could not take
over weaker ones, robbing
regulators of one effective
remedy for dealing with failures. It could deprive customers of the benefits of a large
banks scale and diversity.

parks, sports stadiums and

other facilities are hastily being turned into refugee camps.
But many migrants fear
they may be detained indefinitely in the new camps and
prefer to sleep rough. For
those who have some cash left
after crossing Turkey and the
Aegean, hopes of reaching
Germany now depend on
smugglers ability to bypass
fences and riot police.
Many, however, are out of
money and at a loss.
Vayel Yasan, a 34-year-old
engineer who fled Syrias war,
is among many sleeping outside a container terminal at
Piraeus, with a blanket for a
bed. With bus services for migrants restricted, hes thinking
of walking the 400 miles to
the border. He said his biggest
fear is being sent back to the
Middle East.
Many Syrians and Afghans
at the dockside are debating
alternative routes into Europe,
from hiding on a cargo ship to
Italy, to walking over the
mountains into Albania.
Smugglers have been approaching them with promises
of transit, but prices ranging
from 1,000 to 3,000 ($1,087
to $3,262) are beyond reach
for many of the asylum seekers, who say they spent all
their cash on the dangerous
crossing from Turkey to the
Greek islands.

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Thursday, March 3, 2016 | A3

THE WALL STREET JOURNAL.

WORLD NEWS

Fearful Aleppo Readies for Return to War

Rebel-held side of city
lays contingency plans
in case truce fails and
regime lays a siege

BEIRUTAs a cease-fire began in Syria and quickly

threatened to unravel, Mosaab
Khalaf, an agricultural engineer, went out to a public park
in Aleppo and began tilling the
soil to plant lettuce, potatoes
and parsley.
He and others on the rebelheld side of the divided city,
lacking confidence in international peace efforts after five
years of war, are preparing for
the worst in case the Assad regime succeeds in laying another siege.
Mr. Khalaf said virtually all
parkland there that wasnt already being used to bury the
dead had been given over to
growing food.
Instead of using the parks
for enjoyment like we used to,
they are either planted with
vegetables or with martyrs
now, he said by phone.
Aleppo, once Syrias most
populous city with more than
two million residents, has
been divided for years between rebels in the east and
the regime of President Bashar
al-Assad in the west. An estimated 300,000 people still live
in the east, where they have
been subjected to frequent airstrikes and shelling.
A regime offensive in early
February seized territory
north of Aleppo, cutting off
one of two rebel supply lines
and threatening to encircle the

KARAM AL-MASRI/AGENCE FRANCE-PRESSE/GETTY IMAGES

BY RAJA ABDULRAHIM

A 38-year old rebel commander chatting by phone Wednesday with family as he sat in the middle of a bombed-out district in Aleppo
citys eastern half. Despite the
cease-fire that started Saturday, rebels and opposition activists say sporadic airstrikes
have continued around the
main road and towns the regime would need to secure to
complete a siege.
This is a war, a siege could
happen in 24 hours, said Ammar Abu Ahmad, manager of a
local aid organization, Sham
Humanitarian.
Sieges have become a common tactic in the Syrian war,
employed by all sides, including
Islamic State extremists. Aid
agencies say regime forces
both the army and allied militiashave used them more sys-

tematically, in an attempt to
force rebels out or pacify opposition neighborhoods.
U.N. human- rights chief
Zeid Raad al-Hussein said this
week that aid was still being
repeatedly obstructed, although he didnt say by whom,
and that thousands were at
risk of starvation.
At least 23 people starved
to death amid a siege of Madaya, a Damascus suburb, by
the Assad regime that began
in July, according to Doctors
Without Borders. Only after a
global outcry in January did
the Syrian regime allow U.N.
agencies to deliver aid.
Many of those who fled

eastern Aleppo in February,

fearing a similar fate, werent
allowed into Turkey and have
now returned home, still
afraid, Mr. Abu Ahmad said via
Skype.
The cease-fire permits attacks to continue against two
terrorist groupsIslamic State
and Nusra Frontbut the regime and its backers use the
label to describe much of the
armed opposition. On Sunday,
the Syrian government accused
terrorists of firing artillery
on Nubil, a pro-regime town in
northern Aleppo province.
Meanwhile, city leaders, aid
organizations and residents in
rebel-held Aleppo have been

stockpiling food, fuel and

medicine in case their situation deteriorates.
About two weeks ago, an
agricultural organization in
Aleppo province donated
about a ton of seedsincluding green beans, watercress,
tomatoes, eggplant, radishes,
okra and pumpkinsto the opposition Aleppo city council.
Mr. Khalaf, who works for
the council, and his team of
city employees and volunteers
are distributing them for
planting at homeyards, balconies, rooftopsfor personal
consumption or in parks to
help feed others.
The council is also looking

to buy farm animals in the

countryside to bring into the
city to raise, although it is
having trouble raising funds.
When we saw the army advancing and taking areas, we
tried to pivot in the direction
of agriculture and raising animals such as chickens, rabbits
and sheep, Mr. Khalaf said.
We need to raise awareness
about the importance of gardening in the shadow of a
siege.
Ziad Khayyata, a program
manager with Kesh Malek , a
Syrian nonprofit based in Turkey, helped the council reach
out to leaders in Madaya and
Douma, another besieged Damascus suburb, for advice.
We were asking them,
What are the biggest pieces of
advice you could give us?
Mr. Khayyata said by phone
from Turkey. What are things
you should have done but
didnt? What are the things
you could have done to improve the situation during the
siege?
As a result, eastern Aleppo
has prohibited flour, biscuits,
dates and produce from being
taken out of the city, and is
coordinating with rebel checkpoints to help enforce the
measure, said Brita Hagi Hassan, president of the Aleppo
council.
The Aleppo opposition
council also has instituted
weekly prices for goods and
established a complaints department to monitor reports
of inflation, after being
warned by the other councils
about price gouging during a
siege. The local courts and police are working with them on
enforcement.

Gulf Bloc Designates

Hezbollah Terrorists

Regime Forces Hit Rebels in Syria

BY ASA FITCH
AND DANA BALLOUT

BEIRUTSyrian government forces backed by Russian

airstrikes pushed to make
strategic gains on Wednesday,
intensifying attacks on rebels
the day after the U.N. set a
date next week for the resumption of peace talks.
Still, neither the Syrian
government nor opposition
formally indicated on Wednesday that it saw the increasing
violence as jeopardizing the
truce in place since Saturday.
Both sides appeared wary of
playing the spoiler in the first
serious attempt to halt the
bloodshed.
The stepped-up government
offensive focused on hilltop
towns in the northwestern
province of Latakia and the
countryside north of Aleppo,
Syrias largest city.
Activists also reported
bombardment in the countryside around the central city of
Homs and across Idlib, a province bordering Turkey that is
mostly controlled by rebels,
dominant among them the al
Qaeda offshoot Nusra Front.
The regime proclaimed
small victories against Islamic

FILM
Continued from Page One
watched millions of times on
social media.
My aim is to entertain the
world, Mr. Nabwana said recently as he briefed his Kung Fu
fighters and cannibals before
another take. Uganda has lots
of problems, but look at what
were creating here. Soon I hope
Mr. Tarantino will be compared
to me!referring to American
director Quentin Tarantino.
A 47-second clip from Mr.
Nabwanas violent action comedy Who Killed Captain Alex?
has been watched on Facebook
more than 11 million times. A
Kickstarter campaign Mr. Nabwana hoped would raise $200
garnered almost $15,000. He
used it to buy cars and trucks
to blow up on screen.
Thats a big cash injection
for a studio that relies mostly
on community help. The actors,
with stage names like Jet Li
and Apollo Creed, are local volunteers who drive moto-taxis
and sell vegetables at roadside
markets. The weapons and vehicles used as props are made
from scrap metal and car parts.
Mr. Nabwana edits his films
at home on computers he assembled from discarded motherboards and keyboards. Local

children, including Mr. Nabwanas daughter, Rachel, train

for roles at Wakaliwoods inhouse Kung Fu school, run by
actor and Wing Chun expert
Bukenya Charles, who calls
himself Bruce Yu.
Ugandans accustomed to
watching movies from Hollywood and Nigerias silverscreen juggernaut, Nollywood,
have flocked to the dramas set
in familiar places.
Wakaliwoods success persuaded a 45-year-old New
Yorker, Alan Hofmanis, to
move to the slum. After his
girlfriend dumped him in
2012, he happened to see a
Wakaliwood clip at a Lower
East Side bar. He traveled to
Kampala days later. Now
known affectionately as the
muzungu, or white foreigner,
he writes, co-directs, acts and
promotes the movies abroad.
I worked in film for a decade and no one is innovating
as much as these guys, said
Mr. Hofmanis, who played Jesus in one recent film and wore
a hollowed-out goat carcass in
another. Theyre real-life action heroes. Theyre throwing
everything into it.
Messrs. Nabwana and Hofmanis are making Ugandas first
action trilogy, about Joseph
Kony, the infamous Lords Resistance Army leader. They hope
it will be screened this year at

BASSAM KHABIEH/REUTERS

A man walked amid rubble in rebel-held Jobar on Wednesday.

State, too. It seized a village
from the extremist group in
eastern Aleppo province, an
advance also reported by activists, and heavily bombed
the Islamic State-held city of
al-Bab in northeast Aleppo.
Both Islamic State and
Nusra Front are excluded from
the truce, which was designed
by the U.S. and Russia and
backed by the U.N. Security
Council. The cease-fire has
largely held despite violations
reported by all sides, surprising Syrians desperate for a reprieve from five years of vio-

lence and officials negotiating

a complicated end to the war.
Wednesday, the fifth day of
the truce, saw an uptick in attacks by various groups across
the country, raising tensions
ahead of a rescheduled March
9 start date for peace talks in
Geneva. Staffan de Mistura,
the U.N. special envoy, said
Tuesday the talks would begin
two days later than originally
planned for logistical reasons.
The previous attempt to
start such talks collapsed before it even got off the ground,
in part because the regime

JOE PARKINSON/THE WALL STREET JOURNAL

DUBAIThe Saudi-dominated bloc of Persian Gulf

countries said it was designating Hezbollah a terrorist organization, adding fuel to the
confrontation between the regions Sunni Muslim monarchies and the Lebanese Shiite
movements main allyIran.
Wednesdays declaration by
the six-member Gulf Cooperation Council comes two weeks
after Saudi Arabia canceled a
$4 billion aid package for Lebanons security forces and a
week after five members of
the bloc warned their citizens
against traveling to the heavily tourism-dependent country.
Together with Russian and
Iranian forces, Hezbollah militias have played a crucial role
in bolstering the Syrian regime of President Bashar alAssad against an array of
rebel groups, some of whom
are supported by Saudi Arabia.
GCC head Abdullatif alZayani said Hezbollah wasnt
engaged in unspecified hostile acts only in Syria, but in

Yemen and Iraq, too. He said

the actions posed a threat to
Arab national security.
On Tuesday, the head of
Hezbollah, Hassan Nasrallah,
accused Saudi Arabia of orchestrating car bombs in Lebanon and fomenting instability
in the country for the sake of
weakening the movement.
[Saudi Arabias] problem is
with Hezbollah, Mr. Nasrallah
said in a televised speech.
They want the government,
political powers, and Lebanese
people inside and outside Lebanon to stand in the face of
Hezbollah so that it abandons
its stance from Saudi, even if
that requires incitements, civil
war or toppling the government.
Last weekend, Hezbollah
supporters blocked roads to
protest what they said was an
unflattering depiction of Mr.
Nasrallah on the Saudi-owned
MBC-TV.
Lebanons politics hew
closely to sectarian lines, including a Sunni faction led by
the former prime minister,
Saad al-Hariri, that is supported by Riyadh.

BY NOUR MALAS

Isaac Nabwana, left, who started movie studio Wakaliwood in a slum in Kampala, Uganda, has
made 45 feature-length movies. He edits at home on computers assembled from discarded parts.
the Cannes Film Festival. People get very confused that were
making successful movies from
a slum, said Mr. Hofmanis.
Camera cranes and tripods
are made from tractor parts
and other scrap. To re-create
gunshot injuries, Mr. Nabwanas
wife, Harriet, fills condoms
with fake blood. We used to
fill them with real animal
blood, but actors got sick with a
disease passed on from cows.
So we switched to food coloring, she explains. In addition
to her costume-direction duties,

she acts, runs rehearsal workshops and does camera work.

Wakaliwoods mechanical
mastermind is Dauda Bissaso,
an actor also known as the engineer. He used to run a
street-food business called
Obama Japati, after the U.S.
president. Now he builds weapons, vehicles and technical
equipment from scrap metal.
Mr. Nabwana calls him a genius with a blowtorch. He
built one weapon based on the
huge machine gun used by Arnold Schwarzenegger in Pred-

ator, using a motorcycle engine to rotate the barrels.

I never went to school, but
I watched engineers and mechanics, and I knew my brain
worked the same way, Mr. Bissaso said recently while demonstrating how a harplike musical instrument fires bullets
from hidden chambers. I got
the idea for this from the Antonio Banderas movie Desperado, where guitar cases
housed heavy weaponry.
Mr. Bissaso is putting finishing touches on a full-scale fake

and its allies escalated an offensive around Aleppo as opposition negotiators were arriving in Geneva.
Wednesdays bombardment
in Idlib and Latakia provinces,
where Nusra Front is interspersed with other rebels, underscored how contested terms
of the truce agreement are.
Rebels say the fact that they
fight side-by-side with Nusra
Front in these places gives the
regime and Moscow an excuse
to continue attacks there.
In some areas hit daily by
the Syrian air force for years
and, more recently, Russian
strikessuch as the western
Damascus suburbs and Aleppo
citya welcome quiet held.
The situation is calm in
the city but in the countryside,
it is a catastrophe, said Abdelrazzaq Zakrour, a photographer in Aleppo city.
People here hope for a solution to come out of this
truce and the peace talks, aid
worker Ammar Ahmad said in
the besieged Damascus suburb
Moadhamiya, where the U.N.
delivered humanitarian aid on
Monday. But we know not to
be too hopeful. We expect the
regime to revert to course.
helicopter. Mr. Nabwana said
he long coveted a chopper and
remembers being chased
by one as a child during
Ugandas civil war.
Although actors and crew
work for nothing, they get to
keep half the profits from any
DVDs they sell on the street.
We do man-to-man, doorto-door all over the country to
sell them, said Mr. Nabwana.
Nearby, a young volunteer was
hunched over a stack of DVD
burners. The films sell for up
to 3,000 shillingsabout $1
and the team has a window of
only about one week before
they are pirated. They often
travel in full costume to maximize sales.
Mr. Nabwana is already preparing the next generation of
Wakaliwood stars. On a recent
day, he watched as six child
actors practiced roundhouse
kicks and Wing Chun poses for
a film called Bad Black,
based on Karate Kid.
Movies are in the DNA of
this ghetto, he said. Blowing
things up is the highest form
of creativity.

VIDEO

WSJ
.COM

See video about

Wakaliwood and
Ugandas film
business at
wsj.com/ahedvideo.

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THE WALL STREET JOURNAL.

MN PR

WORLD NEWS

U.N. Hits North Korea With New Sanctions

Security Council
increases pressure on
Pyongyang to roll back
its nuclear program

MALAYSIA

Newly Found Debris

May Come From Jet

There is a high possibility

that debris found in Mozambique is from a Boeing 777 jet
of the type used to operate the
missing Malaysia Airlines Flight
370, Malaysian Transport Minister Liow Tiong Lai said, but he
added that early reports have
yet to be confirmed.
The Associated Press cited a
U.S. official as saying debris
washed up over the weekend
had been tentatively identified
by experts close to the investigation as a part from the same
type of aircraft as the missing
flight.
The official said the debris
appeared to be the leading edge
of the right-hand horizontal stabilizer of a Boeing 777. He said
the part was being transported
to Malaysia.
Gaurav Raghuvanshi
ECB

Bank Weighs Action

On Negative Rates

The European Central Bank is

studying ways to offset the
costs of subzero interest rates
for banks, a top ECB official said,
signaling that the central bank
could be preparing to cut rates
again.
The comments come a week
before a key ECB rate-setting
meeting at which the central
bank has pledged to review its
roughly 1.5 trillion ($1.6 trillion)
bond-purchase program and
other policies to combat persistently low inflation.
In a speech in Frankfurt,
Benot Coeur, who sits on
the ECBs six-member executive board, said the bank is
studying carefully the
schemes used in other jurisdictions that aim to mitigate the
impact of subzero rates on
bank lending.
The ECB cut its deposit rate
to minus 0.3% in December,
which means it charges banks a
fee on deposits rather than paying interest.
Tom Fairless
and Matthew Dalton
JORDAN

Eight Die in Raid

On Terror Suspects

with passage of the U.N. measures, sanctions on two of North

Koreas most powerful government bodies as part of a
broader effort to try to choke
off funding to Pyongyangs nu-

dead after a raid by security

forces that sought to arrest suspected militants, a government
spokesman confirmed.
The people who died in the
operation in Irbid were seven
wanted men and a member of
the security forces, Mohammed
Momani told state media.
The target of the raid was a
terrorist group, he told the Associated Press. Previous statements by the security forces
had only referred to the wanted
men as outlaws.
Associated Press

New Commander Takes Over in Kabul

JAPAN

Work Harassment
Of Women Detailed

Three out of 10 working

women in Japan say they have
experienced sexual harassment
at work, a government study
said.
The results reflect the difficulties women face in Japan,
even as Prime Minister Shinzo
Abe has sought to make it easier for them to enter and remain
in the nations aging, dwindling
workforce.
Parliament has also encouraged companies to hire and promote more women.
Last year, it passed legislation
that requires big companies to
set numerical targets for the
percentages of women hired and
those promoted to management
positions.
Jun Hongo
OECD

Inflation Rates
Continue to Climb

Global inflation rates picked

up for a fourth straight month in
January, although that revival is
likely to prove short-lived following sharp falls in commodity
prices since the start of the
year.
The Organization for Economic Cooperation and Development said the annual rate of inflation in its 34 members rose
to 1.2% from 0.9% in December,
bringing it closer to the 2% regarded by most central bankers
in developed economies as consistent with healthy economic
growth.
It was the highest rate since
November 2014.
The Paris-based research
body said inflation across the
Group of 20 largest economies
also rose, to 2.6% from 2.5%. The
G-20 accounts for 85% of estimated global economic output.
The acceleration in inflation is
unlikely to provide much relief
for central bankers, since it was
driven by a steadying of energy
prices in late 2015 that has
since been reversed.
Paul Hannon

ZULKIFLI/EUROPEAN PRESSPHOTO AGENCY

A shootout in Jordans thirdlargest city left eight people

must abandon these dangerous

programs and choose a better
path for its people, Mr. Obama
said.
The Obama administration
also announced, to coincide

SHAKEN: Indonesian residents took shelter in the open after a

strong earthquake shook Padang, West Sumatra, on Wednesday.

clear-weapons and ballistic-missile programs.

The U.S. Treasury Department blacklisted both the National Defense Commission and
the Workers Party of Korea

BY JESSICA DONATI

KABULU.S. Army Lt. Gen.

John Nicholson took command
of U.S. and allied forces in Afghanistan on Wednesday, just
as a bloody assault on an Indian consulate highlighted the
challenges facing the country.
The country has been witnessing a surge in insurgency
since the departure of most
foreign troops at the end of
2014, while the Afghan governments grip on security has
weakened.
The attack on the Indian
Consulate in Jalalabad, in eastern Afghanistan, was the latest
to hit a diplomatic mission or
international organization in
the city, near the Pakistan border. Several people were killed
and more than a dozen injured
by the suicide bombing, followed by an hourlong gunbattle.
There was no claim of responsibility, but fighting
among the militant Taliban
group, U.S.-backed government
forces and Islamic States Afghan affiliate has been escalating in the area.
U.S. and allied officials say
the militant Taliban group now
controls or heavily influences
around a third of country
more than at any time since
the U.S. invaded in 2001 to topple the Taliban regime.
Gen. Nicholson, who is starting his fourth deployment to
Afghanistan, will have to weigh
calls for greater intervention
against demands to end the
U.S. involvement.
He is expected make a recommendation on how many of
U.S. troops should remain after
this year within his first three

RAHMAT GUL/PRESS POOL

World
Watch

U.S. officials say North Korean leader Kim Jong Un, above, ordered a Jan. 6 nuclear test.

represent the only right way to

deal with the nuclear issue on
the Korean Peninsula, Mr. Liu
said.
Russian Ambassador Vitaly
Churkin said the aim of the
sanctions was to shut down financial support for North Koreas nuclear and ballistic programs and encourage a return
to talks. He also said that Moscow didnt want the resolution
to be used to choke off North
Koreas economy.
The Security Council resolution, the result of negotiations
between the U.S. and China and
co-sponsored by 55 countries,
targets North Koreas financial
institutions, cargo shipments
and exports of natural resources, as well as its access to
aviation fuel.
It would also impose measures on an expanded list of individuals and entities connected
to the regime.
Among provisions are a complete ban on all types of weapons transfers to and from North
Korea and a mandatory inspection by U.N. member states of all
cargo going to and from North
Korea by air, sea and land.
Jay Solomon
contributed to this article.

Lt. Gen. John Nicholson took command of U.S. and allied forces in Afghanistan on Wednesday.
months. He has previously said
troop numbers should be based
on conditions on the ground.
The United States is committed to an enduring relationship with Afghanistan, Gen.
Nicholson said at a ceremony
marking the start of his command.
There are currently about
10,000 U.S. troops and an additional 6,000 allied forces stationed in Afghanistan. The U.S.
force is scheduled to drop to
around 5,500 by the end of this
year, but many senior military
officers oppose the plan to
withdraw troops.
U.S. forces have been repeatedly drawn into combat
situations even after their
transition to a training-focused
mission in 2014.

Gen. John F. Campbell, who

stepped down as the top commander on Wednesday, has
been among those calling for
more to be done to help Afghan
forces fighting the Taliban.
Changes in the enemy situation, the Afghan government,
the Afghan Security Forces
themselves, and the region are
all creating a confluence that
demands our attention, and
our support, Gen. Campbell
said at the ceremony.
The U.S. military has wider
authority to target Islamic
State fighters as well as al
Qaeda members operating in
Afghanistan this year. Afghan
officials want that authorization to be widened to allow attacks against the Taliban to
help local forces, which have

shouldered the brunt of the

conflict.
The Afghan government has
held regional peace meetings
with representatives from Pakistan, the U.S. and China in an
effort to end the long-running
conflict, which killed or injured
more than 11,000 Afghan civilians last year.
Officials expect Taliban
members to meet the group in
early March, but most Afghan
and coalition officials say
meetings are unlikely to stem
the violence as many insurgent
commanders oppose the process.
In January, representatives
of the group said a timeline for
the withdrawal of all foreign
forces was a condition for the
process to start.

Bin Laden Felt His Influence Wane

BY ALAN CULLISON
WASHINGTONOsama bin
Laden bequeathed to jihad a
fortune he estimated at $29
million, according to documents found in his home that
show the al Qaeda leader
struggling for relevance in his
final years.
The documents, among 113
released by the U.S. government Tuesday, were the second batch of a trove declassified by the director of national
intelligence after they were
seized at bin Ladens Abbottabad, Pakistan, compound by
Navy SEALs who killed him in
2011.
Mostly dated between 2009
and 2011, the correspondence
offer glimpses into a period of
decline for bin Laden and his
terror group, which had been
worn down by years of drone
strikes and arrests but which
today is resurgent in North Africa and the Middle East.
Among bin Ladens fears:
After one of his wives visited a
dentist in Iran he fretted that
a tracking device could have
been implanted in her tooth,
according to the documents.
The size of the [computer]
chip is about the length of a
grain of wheat and the width
of a fine piece of vermicelli,

he wrote in one letter.

The al Qaeda leader tried
before his death to bridge widening rifts with Islamists who
would one day join Islamic
State, but was hampered and
out of touch as a drone campaign killed his lieutenants
and disrupted his lines of
communication with the outside world.
From his compound in Abbottabad, he sent plaudits and
praise to fellow Islamists waging jihad across the Middle
East, in which he appeared to
be grappling with his growing
insignificance to day-to-day
struggles in the Arab world.
Correspondence seized in
Abbottabad praised the revolts
of the Arab Spring, congratulating Islamists of Libya and
Tunisia for removing those
despots, tyrantsthose oppressive corrupt criminals.
But bin Laden reacted with
disbelief to reports from underlings in Iraq who described
how al Qaeda was losing control of groups there, and to indications that the Islamist
cause was being undermined
by runaway brutality.
We have heard from more
than one person at the leadership level that they are claiming to be an independent state
and to have no ties with al

ASSOCIATED PRESS

UNITED
NATIONSThe
United Nations Security Council
voted unanimously to impose
new sanctions on North Korea,
demanding that the defiant regime in Pyongyang roll back its
advancing nuclear-weapons and
ballistic-missile programs.
All 15 members of the Security Council, including the U.S.,
China and Russia, voted on
Wednesday to approve measures that will require mandatory inspections for all cargo to
and from North Korea and cut
off shipments of aircraft and
rocket fuel.
Samantha Power, the U.S.
ambassador to the U.N., said the
sanctions were the toughest of
any passed over two decades.
President Barack Obama
hailed the adoption of the resolution. Today, the international
community, speaking with one
voice, has sent Pyongyang a
simple message: North Korea

KNS/AGENCE FRANCE-PRESSE/GETTY IMAGES

BY FARNAZ FASSIHI

Central Military Commission for

their alleged central roles in
overseeing Pyongyangs nuclear-weapons program.
There was no response from
Pyongyang, which carried out
its fourth nuclear test Jan. 6 and
a ballistic missile launch a
month later in spite of standing
U.N. resolutions and international warnings.
U.S. officials said North Korean leader Kim Jong Un ordered the January nuclear test
through his position as first
chairman of the National Defense Commission.
China and Russia, while supporting the new U.N. sanctions,
both asked for a resumption of
international negotiations with
North Korea. They also warned
against increasing military presence on the Korean Peninsula,
saying it would deter dialogue.
Chinas U.N. ambassador, Liu
Jieyi, said the resolution demonstrates the seriousness of the
international community in opposing the further development
of North Koreas nuclear capacities. But he added that Security
Council resolutions couldnt
solve the regions nuclear issues
and called for negotiations.
Dialogue and negotiation

Osama bin Laden

Qaeda, said one letter to bin
Laden from an associate.
Bin Laden asked for clarification in a response, saying
we feel that there is some exaggeration in the accounts,
and we feel that the stories
lack accuracy and noting that
although he was far from the
field, he personally knew Abu
Musab al-Zarqawi, the Sunni
extremist who founded al
Qaeda in Iraq, the precursor to
Islamic State.
After Mr. Zarqawi was
killed by a 500-pound bomb
dropped by a U.S. aircraft on a
compound, bin Laden eulogized him as a lion of jihad
and the man of firmness and
relevance.

Although al Qaeda was under intense pressure and U.S.

forces were closing in on him
in 2011, bin Laden planned a
media campaign to mark the
10th anniversary of the Sept.
11, 2001, attacks on New York
and Washington, the documents show.
The campaign would assess
al Qaedas past work and future plans, a senior intelligence official said.
Bin Laden also looked into
more strikes and was angling
for a follow-up to the Sept. 11
attacks, encouraging underlings to find a hijack-type operation, the official said.
The group was already too
depleted to launch such an attack, however, the official said,
and other correspondence
complained that various plots
were frequently broken up by
arrests and drone strikes.
Intelligence officials say it
is unclear whether bin Laden
accurately estimated his
wealth in his will, which he
composed in 1996 when residing in Sudan, pledging his
riches to Jihad and for the
sake of Allah.
Most of his wealth reportedly passed into the control of
relatives after he was expelled
from Sudan and was put on a
U.S. wanted list.

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To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com

THE WALL STREET JOURNAL.

Thursday, March 3, 2016 | A5

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Will I have the drive to enjoy it?
And the plan to make it happen?

Whenever you reach that next chapter in your

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And keep yourself and your finances in good
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For some of lifes questions, youre not alone.
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THE WALL STREET JOURNAL.

A6 | Thursday, March 3, 2016

For Clinton,
Party Ties
Are a Plus
BY COLLEEN MCCAIN NELSON

MINNEAPOLISBeing too
cozy with the establishment
wing of the party has been
anathema to many Republican
presidential candidates this
year. Not so on the Democratic
side, where Hillary Clinton has
leaned on the party however
she can.
An army of surrogates,
from senators to local and
state officials, have rallied to
Mrs. Clintons cause in recent weeks, providing highprofile firepower to help the
former secretary of state
fend off Sen. Bernie Sanderss insurgent campaign.
Democratic officeholders
and party stalwarts have
done everything from knocking on doors to appearing in
Mrs. Clintons stead.
Key Democrats helped
Mrs. Clinton romp to victory
in South Carolina. And with
11 states holding primaries
and caucuses on Tuesday,
Mrs. Clintons team of surrogates worked to ensure that
her
message
resonated
across the country.
The Democratic establishments impact on the Clinton-Sanders race stands in

sharp contrast to the Republican presidential campaign,

which has already felled a
number of candidates closely
aligned with the party brass
amid the rise of Donald
Trump, the embodiment of
the antiestablishment wave.
Jim Manley, a Democratic
strategist, said the dynamic
highlights a disconnect between how voters view their
own parties. Republicans in
particular have had it with
elected officials, he said.
Among Democrats, theres
anger, but very little of it is
directed toward elected officials.
The difference between
the two parties came into
sharp relief in South Carolina, where Republican former Florida Gov. Jeb Bush
called upon a whos who of
the Republican establishment, including his brother,
former President George W.
Bush, and his mother, former
first lady Barbara Bush.
The result: Mr. Bush finished a distant fourth, with
less than 8% of the vote.
He ended his campaign as
soon as the results were tallied.
Mrs. Clinton, meanwhile,

Super Tuesday Results

Clinton

Sanders

Outline shows
Super Tuesday states

Cruz

Vt. 16

Minn.
77
Colo.
66

Trump

Number of pledged
delegates at stake

Previously won

Rubio

Vt. 16

Minn.
38

Mass.
42

Mass.
91
Okla. 38

Okla. 43

Va. 95

Tenn. 67

Texas
222

Texas
155

Ga. 102
Ark. 32

Tenn. 58

Ala. 53

Alaska 28

Va. 49

Ga. 76
Ark. 40

Ala. 50

Results as of Wednesday, 8:30 a.m. EST

THE WALL STREET JOURNAL.

Source: Associated Press

was buoyed in the state by

an assist from leading Democrats and by some well-timed
endorsements.
Rep. James Clyburn, the
unofficial dean of the South
Carolina Democratic Party,
had pledged to remain neutral in the Democratic contest, but just days before his
states primary, he threw his
support behind the former
secretary of state.
The political arm of the
Congressional Black Caucus
endorsed her, as well, as did
a long list of state legislators. The strong show of support before the South Carolina primary, particularly
from African-American leaders, helped Mrs. Clinton solidify support from black
voters, who made up more
than half of the electorate
in Saturdays contest.
Mrs. Clinton cruised to
victory, winning by 48 per-

centage points.
Jaime Harrison, chairman
of the South Carolina Democratic Party, attributed the
divergent fates to Mrs. Clintons deep connections to
Democrats in the state and
growing antipathy among
rank-and-file Republicans toward party leaders.
I hear from Republicans
that they feel as if the establishment has betrayed them,
the establishment isnt fighting for what they believe in,
he said. Thats part of the
antiestablishment tenor on
the Republican side, and I
dont think thats the feeling
on the Democratic side.
David Winston, a Republican strategist, said that the
dynamic on the Republican
side has devolved into a contest of who can make the
most outrageous statement,
and that has overshadowed
endorsements, undercutting

HHHHH

CAMPAIGN
WIRE
HHHHH

REPUBLICAN PRIMARY

Carson Says He Sees

No Path Forward

Ben Carson on Wednesday

said he no longer saw a political
path forward for his struggling
presidential campaign and will
skip a Republican primary debate set for Thursday.
Even though I will not be in
my hometown of Detroit on
Thursday, I remain deeply committed to my home nation, America, Mr. Carson said in a statement released by his campaign. I
do not see a political path forward in light of last evenings Su-

the influence of leading Republicans. The whole focus

of the discourse has been
trying to get attention, he
said. The most outrageous
statement gets the attention.
Mr. Winston noted one exception, though, pointing to
South Carolina Gov. Nikki
Haleys decision to back Sen.
Marco Rubio, a last-minute
endorsement that helped the
Florida senator to a secondplace finish.
More of the Republican
establishment has begun to
coalesce around Mr. Rubio in
recent days in an effort to
derail Mr. Trump, so far with
little success. The former reality-TV star maintains a
commanding lead in the
polls.
For her part, Mrs. Clinton
continues to rely on other
leading Democrats as she
campaigns across the coun-

try. In Massachusetts, Rep.

Richard Neal has been knocking on doors for the former
secretary of state. In Virginia, Gov. Terry McAuliffe
has been actively campaigning for Mrs. Clinton.
Joe Trippi, a Democratic
strategist and former campaign manager for Howard
Deans presidential bid, said
the dynamic in this campaign
reflects the view among top
Democrats that Mrs. Clinton
is the partys most formidable candidate. The Democratic establishment came
together to support her.
Among Republicans, no
one was strong enough to
pull the establishment together, Mr. Trippi said. The
establishment couldnt decide who to get behind, and
they still cant, and now its
probably too late.
Byron Tau contributed
to this article.

per Tuesday primary results.

Mr. Carsons announcement
stopped short of a campaign suspension. He said he would reveal
more details about his political future in a Friday speech. Mr. Carson is a retired neurosurgeon who
was briefly the GOP polling frontrunner in November. He fell out of
the top tier of candidates after his
fluency on national-security issues
was tested, and he repeatedly
struggled in the GOP debates.
Reid J. Epstein

That shows the influence of

social media and earned media
in the election, said William
Powers, a research scientist at
the Laboratory for Social Machines at the MIT Media Lab.
The analysis studied tweets
from Aug. 1, 2015, to a week ago
to conclude who was influencing
the election and combined that
with media mentions. The lab analyzed the 500 million tweets sent
each day and pulled out the ones
that related to the 2016 election.
Researchers started with a list of
10,000 people and organizations
and narrowed that down to 150.
An algorithm that combined Twitter followings with retweets was
used to determine influence.
The first 11 are presidential
candidatesboth still in the race
and those who have dropped
out. Coming in at number 12
was Fox News as the first media organization. CNN was at 19.
Natalie Andrews

SOCIAL MEDIA

Trump, Clinton Are

Top Online Influencers

Republican front-runner Donald

Trump and Democratic front-runner Hillary Clinton are at the top
of the list in a Massachusetts Institute of Technology study of influencers of the presidential election, based on social-media and
mass-media mentions.

JONATHAN ERNST/REUTERS

POLITICS COUNTS | Randy Yeip

The Road Ahead as Parties March

Toward Choosing Their Nominees

Democratic presidential candidate Hillary Clinton has leaned on the party establishment during her run.
Remaining pledged delegates

Cumulative number of pledged delegates available by date

TRUMP
Continued from Page One
positions on trade and mocks
its neoconservative foreignpolicy thinkerswell, the day
provided more of a speed
bump.
Now the anti-Trump forces
have basically four choices:
The first is to simply fight
on over the next two weeks,
hoping that the vote in the
next big states on March 15
provide something different.
The problem in this scenario
is simplethough Mr. Cruz
won his big home state of
Texas, he was clobbered by
Mr. Trump in the states of
the deep South that were
supposed to form his base.
There remain deep questions
about how broad his appeal
can be.
Meanwhile, the candidate
with the best chance of stopping Mr. Trump in the pivotal
state of Florida on March
15and the one who seems
to have the best general-election profileis Mr. Rubio.
But he still needs a big-state
primary victory.
Those backing Messrs. Rubio and Cruz are promising
that the next two weeks will
produce something previously unseen, which is a big
and vicious TV advertising
campaign to take down Mr.
Trump, especially in the giant media-market state of
Florida.
In no state except perhaps Iowa has the case been
prosecuted against Donald

Trump in the air, says one

Republican strategist Tuesday night. Trust me, the
case will be prosecuted, big
time.
Similarly, Katie Packer,
who has organized a super
PAC raising money from Republican donors for ads to
block Mr. Trump argued that
71% of Republican delegates
are still to be chosen, and
pledged that her group would
be at work to steer them
away from Mr. Trump.
Never in my lifetime have I
seen a nominee who was so
abhorrent to his party, she
said.

There is uncertainty
about how Donald
Trump would fare in
a general election.
The second option is for
party leaders to somehow
persuade everybody except
Mr. Cruz to get out of the
race so he can consolidate
the anti-Trump vote. The
problem there is that party
leaders despise Mr. Cruz, almost as much as they dislike
Mr. Trump. And the big
states coming upFlorida
and Illinois, for example
look more like Rubio states
than Cruz ones. Oh, and the
other big one on March 15 is
the home state of Ohio Gov.
John Kasich, who shows no
sign of going away.
The third option is for
leading party figures to take
a stand on conscience and

declare that they wont back

Mr. Trump as the nominee,
hoping that will reverse the
tide. Some have done so in
recent days. Others are saying quietly the same things
those dissenters have said
publicly: that Mr. Trump is
divisive, that he is stirring
dark and angry emotions, and
that he doesnt have the temperament to be president.
But will they say so publicly
during the next two weeks in
an attempt to change the dynamic?
Which leaves the fourth
option: acquiesce to the
Trump movement. That is a
particularly tough choice for
the partys conservative activists, who dont consider
Mr. Trump one of their own.
But one such activist Tuesday
night offered the rationale
for doing so: We have a responsibility to stop Hillary
Clinton, he said. Mr. Trump
would at least appoint more
conservative Supreme Court
justices than she would, he
added, will delegate decisions
to policy experts and at least
supports big tax cuts.
Hovering over it all is a
large cloud of uncertainty
about how a nominee as unconventional as Mr. Trump
would fare in a general election. One GOP strategist argued Tuesday night that he
would produce a shattered,
decimated party in the fall.
Mr. Trump, meantime, argued that I have millions
and millions and millions of
people.
We will have to wait to see
who is right.

DEM.

REPUBLICANS

REP.

March
2,000

More than half of

available total by March 15

1,500
1,237 needed to win nomination
15th:
691
delegates

1,000
500

15th:
367
delegates

April
Through Super Tuesday: 33% of total

0
Feb.

March

April

May

June

DEMOCRATS

26th:
384

26th:
118

May

4,000
Half of available
total by March 15

3,000
2,000

2,383 needed to win nomination

1,000

June
7th:
694

Through Super Tuesday: 26% of total

0
Feb.

March

April

May

7th:
303

June

Upcoming caucuses and primaries

March 5

Kansas; Kentucky (R);

Louisiana; Maine (R);
Nebraska (D)

March 6

Maine (D);
Puerto Rico (R)

March 8

Hawaii (R); Idaho (R);

Michigan; Mississippi

March 10 Virgin Islands (R)

March 12 Washington, D.C. (R);
Guam (R); Northern
Mariana Islands (D)
March 15 Florida; Illinois; Missouri;
North Carolina;
Northern Mariana
Islands (R); Ohio

March 22 American Samoa (R);

Arizona; Idaho (D); Utah

May 10

Nebraska (R);
West Virginia

March 26 Alaska (D); Hawaii (D);

Washington state (D)

May 17

Kentucky (D); Oregon

May 24

Washington state (R)

April 3

North Dakota (R)

June 4

Virgin Islands (D)

April 5

Wisconsin

June 5

Puerto Rico (D)

April 9

Wyoming (D)

June 7

April 19

New York

April 26

Connecticut; Delaware;
Maryland; Pennsylvania;
Rhode Island

California; Montana;
New Jersey; New
Mexico; North Dakota
(D); South Dakota

June 14

Washington, D.C. (D)

May 3

Indiana

May 7

Guam (D)

Note: In some cases, no national convention delegates are bound to presidential contenders
on the basis of results in these contests, but are chosen later in the process.
Sources: the parties; Associated Press; TheGreenPapers.com

Colorado, North Dakota and

Wyoming GOP wont hold
presidential preference votes.

THE WALL STREET JOURNAL.

THE WALL STREET JOURNAL.

Thursday, March 3, 2016 | A7

After Wins, Cruz Sees a Two-Horse Race

STAFFORD, TexasSen. Ted

Cruzs victory in his home
state was sweet, but his wins
in Oklahoma and Alaska were
even sweeter.
The trio of Republican presidential-primary victories on
Tuesday gave Mr. Cruz new
grounds to claim he is in the
strongest position to lead the
partys opposition to businessman Donald Trump.
Mr. Cruzs chief rival for
second place in the GOP field,
Sen. Marco Rubio of Florida,
managed to land his first win
of the primary season, in the
Minnesota caucuses. But even
after a big, 11th-hour push in
Virginia, Mr. Rubio lost there
to Mr. Trump.
Mr. Rubio, in a speech to
supporters in Florida on Tuesday night, promised to seize a
home-state victory on March
15.
For the two weeks until
then, Mr. Cruz will have bragging rights as the candidate
who has the most victories
over Mr. Trumpnow in four
states, including his earlier
win in Iowa.
This is a huge night that
turns it into a two-man race,
said Saul Anuzis, a Cruz supporter and former chairman of
the Michigan Republican Party.
Cruz is the only person who
can seriously challenge Trump,
and all the other candidates
have to make a tough decision.
Even one of Mr. Cruzs
harshest critics, former presi-

DAVID J. PHILLIP/ASSOCIATED PRESS

BY JANET HOOK
AND BETH REINHARD

Republican presidential candidate Ted Cruz addressing a crowd in Texas, one of three states that he won in voting on Tuesday.
dential rival Sen. Lindsey Graham of South Carolina, saw the
results as a game changer. We
may be in a position where we
have to rally around Ted Cruz
as the only way to stop
Trump, Mr. Graham said in a
CBS interview.
As Mr. Cruzs supporters
packed in to celebrate at the
Redneck Country Club, a Cruz
friends restaurant near Houston, they cheered at the early
news that he had won the

state.
The cheers were even
louder when Oklahoma was
called for Mr. Cruz.
Of course, the day brought
disappointments to the Cruz
team because the campaign
had invested heavily across
the many Southern states that
favored Mr. Trump on Tuesday.
But the Oklahoma win offered a reminder of Mr. Cruzs
strength among evangelical

voters.
Oklahoma has one of the
highest proportions of evangelical voters, who make up
about 40% of its population.
According to exit polls, 38% of
white evangelicals backed Mr.
Cruz on Tuesday, compared
with just 23% who supported
Mr. Trump. Mr. Trump, however, did far better among
nonevangelical voters, 35% of
whom voted for the celebrity
billionaire.

Even though playing on his

home turf in Texas, Mr. Cruz
took nothing for granted,
spending Monday and Tuesday
campaigning there. He marshaled endorsements from
Texas Gov. Greg Abbott, former Texas Gov. Rick Perry and
other popular GOP officeholders.
But Mr. Trump gave him a
run for his money by making
one of his rare television advertising purchases and by

holding a large rally in Fort

Worth last weekend, where he
unveiled the endorsement of
New Jersey Gov. Chris Christie.
Mr. Cruz had also bet heavily on Oklahoma, investing
time and resources just ahead
of March 1.
He rolled a list of endorsements there earlier this week
and rallied crowds in Tulsa
and Oklahoma City on Sunday.
There, he criticized Mr. Trump
for waffling over accepting
the endorsement of David
Duke, a longtime Ku Klux Klan
leader.
There were 155 delegates at
stake in Texas, the largest
cache awarded on Super Tuesday.
Mr. Cruz has called it the
crown jewel of Super Tuesday and repeatedly said Tuesday was the most important
day of the Republican primary
season.
Mr. Cruz appealed to fellow
Republicans state pride and
their conservatism, and quoted
famous words of fallen heroes
of the Alamo.
And he pleaded with voters
across the Super Tuesday battleground to rally behind him
if they wanted to stop Mr.
Trump.
If you dont want to see
Donald Trump as the nominee, if you dont want us to
give this election to Hillary
Clinton, I ask you to stand
with us today, Mr. Cruz said
before casting his vote in
Houston.
Rebecca Ballhaus
contributed to this article.

Campaign Setbacks Aside,

Sanders Plans to Carry On
Despite significant losses
on Super Tuesday, Sen. Bernie
Sanders plans to fight on for
the Democratic presidential
nomination, with opportunities for victory this weekend
and plenty of money to fuel a
long battle with front-runner
Hillary Clinton.
But even if he loses, Sanders aides and allies say he has
already won. Hes succeeded in
pushing the issues he cares
most about to the center of
the debate. Hes pushed Mrs.
Clinton to the left on several
points. And he is sure to
emerge from this contest with
strength at this summers
Democratic National Convention and as a higher-profile
figure in the national debate.
The Sanders campaign has
targets throughout the spring
but he faces long odds overall.
Still, he appears determined to
continue, at a minimum, rallying progressives and picking up
delegates where he can, even if
Mrs. Clinton mounts a steady
march to the nomination.
The Clinton campaign is go-

ing to want it to be over, and

the Democratic establishment
is going to want the race to be
over, said Tad Devine, Mr.
Sanderss chief strategist. The
voters dont want it to be over.
The Vermont senator has
also proved that its possible to
fund a presidential run on small
donations. Mr. Sanders raised
more than $42 million in February alone, his highest monthly
haul. That gives him plenty of
money to move forward.
By midway through the evening, Mrs. Clinton had added
330 delegates to her total, allowing her to take a big lead
in the overall delegate race.
But Democratic rules award
delegates
proportionally,
meaning both candidates are
likely to win a healthy slice
even in states that they lose,
and Mr. Sanders had added
143 delegates to his total.
Mr. Sanders reminded his
supporters of these rules in a
speech celebrating victory in
his home state of Vermont
early Tuesday evening.
This is not a general election. Its not winner take all,
he said. If you get 52%, you

get 48%, you roughly end up

with same amount of delegates in a state. By the end of
tonight we are going to win
many hundreds of delegates.
Ahead of the results, his
campaign
manager,
Jeff
Weaver, emphasized that the
process was designed to be
drawn out. Were going to accumulate a lot of delegates
and were going to go forward.
This campaign is going all the
way to the convention, he
said in an interview Tuesday.
Sanders aides say his next
chances for a good showing
will come this weekend with
caucuses in Kansas and Nebraska on Saturday and, particularly, in Maine on Sunday.
All three states are largely
white, and hes done much
better with white voters than
he has with minorities. Caucuses also tend to attract the
most liberal, motivated voters,
which could give him an edge.
Also voting Saturday is
Louisiana, where half the
Democratic primary voters
were African-American in
2008, giving Mrs. Clinton an
advantage that could offset

BRIAN SNYDER/REUTERS

BY LAURA MECKLER

Sen. Bernie Sanders with his wife, Jane, at his side as he spoke to supporters in Vermont on Tuesday.
Sanders gains elsewhere.
After that, the Sanders campaign sees a showdown in
Michigan, which hosts a Clinton-Sanders debate on Sunday
and its primary on Tuesday.
Mr. Weaver said Mrs. Clintons past support for certain
trade deals, and kind words
early on for the pending
Trans-Pacific
Partnership,
would be a major issue in
Michigan, an industrial state
that has suffered from free

trade and globalization.

But the former secretary of
state will enter Michigan with
advantages of her own. She has
given extraordinary attention to
the water crisis in Flint, where
a cost-cutting move wound up
poisoning the water supply with
lead. Mr. Sanders has also spoken out on the issue, but public
polls show Mrs. Clinton with a
double-digit lead in the state.
Also voting next Tuesday will
be Mississippi, another South-

ern state rich with AfricanAmerican voters and expected

to be a Clinton stronghold.
Mr. Devine acknowledged
his candidate will have to improve his standing with African-American voters in order
to win the nomination.
Were going to work hard
at it, he said. Mr. Sanders and
his aides have been making
similar vows for months and
he is still struggling to win African-American support.

U.S. NEWS

Apple Fight Pushes Judges Into New Role

The fight over smartphone
encryption is shining a spotlight on the relatively obscure
role of federal magistrate
judges, low-level jurists who
have become increasingly influential in shaping unsettled
areas of privacy and surveillance law.
Two weeks ago, it was a
magistrate judges order in
California that ignited a national debate over the legal
boundaries between law enforcement and technology.
At issue in the case: whether
the government can use an
18th-century law to compel Apple Inc. to help unlock a cellphone used by a shooter in the
San Bernardino, Calif., attack in
December, which killed 14 people. U.S. Magistrate Judge
Sheri Pym sided with the government, prompting strong opposition from Apple and other
tech companies. The iPhone
maker has filed papers appealing the decision.
But on Monday, U.S. Magistrate Judge James Orenstein
sided with Apple in a separate
drug case in Brooklyn, N.Y., saying the 18th-century law, called
the All Writs Act, doesnt give

MONA EDWARDS/REUTERS

BY NICOLE HONG

A woman supporting Apple at its San Francisco store last week.

the government the authority to
force Apple to extract data from
a locked phone.
The rulings have put the
lowest level of the federal judiciary at the center of one of
the most sensitive policy debates facing the U.S.: where to
draw the line between privacy
and national security. The discussion is likely to continue for
years and reach the countrys
highest courts and lawmakers.
Magistrate judges are generally responsible for pretrial
matters such as handling initial court appearances for

criminal defendants and reviewing government applications for search warrants.

But the nations magistrate
judges are now at the forefront
of interpreting an area of law
with little precedent, especially
as it relates to the use of new
technologies and investigative
tools by the government. Magistrate judges have been the
first ones to reason through the
legality of computer hacking by
the government, as well as the
use of stingrays, a cellphonetracking tool that is often used
without a search warrant. Rou-

tine surveillance requests from

the government increasingly
carry constitutional implications around privacy, which is a
departure from the past, former government officials say.
The situation is very unusual, said Michael Vatis, a
former official at the Justice
Department and Federal Bureau
of Investigation. Magistrate
judges are not generally trying
to set important precedents.
The magistrate position was
created by Congress in 1968 as
a way to relieve the congestion
on federal court dockets. The
nations 500 or so full-time
magistrate judges dont get life
tenure and instead serve eightyear terms that can be renewed.
Data on magistrates decisions are particularly hard to
come by. Most of them arent
public; government applications for search warrants or
surveillance are almost always
filed under seal so the target
isnt tipped off.
Such applications are also
ex parte, meaning there is no
one on the other side contesting
the government. Former government officials say magistrate
judges historically have granted
the bulk of applications placed
before them by the government.

U.S.
Watch
ECONOMY

Private-Sector Hiring
Rose in February

Private-sector hiring jumped

in February, the latest sign that
rocky financial markets and
slowing growth abroad havent
derailed the U.S. job market.
Private payrolls in the U.S.
rose by 214,000 last month, said
payroll processor Automatic Data
Processing Inc. and forecasting
firm Moodys Analytics. The report is based on data collected
from ADP clients, in addition to
lagged government figures.
Despite the turmoil in the
global financial markets, the
American job machine remains in
high gear, said Mark Zandi, chief
economist of Moodys Analytics.
The U.S. service sector, which
represents most of the economys
jobs and has been offsetting a
struggling manufacturing segment,
drove payrolls higher after sputtering last month. Service-providing
firms added 208,000 employees in
February, up from a downwardly
revised 174,000 in January.
Manufacturers cut 9,000 jobs

last monththough construction

companies continued to hire and
added 27,000 workers.
Lisa Beilfuss
OREGON

Minimum-Wage Hike
Is Signed Into Law

Gov. Kate Brown signed into

law a minimum-wage bill that
makes Oregon the first state to
mandate higher pay in cities than
in rural areas.
The law enacts a series of
minimum-wage increases
through 2022, with pay set to
reach $14.75 an hour in Portlandone of the highest rates in
the U.S. The minimum wage will
increase to $12.50 in sparsely
populated rural areas and $13.50
in other rural parts of the state.
Oregons current minimum wage
is $9.25 an hour; the first increase kicks in July 1.
Critics say the laws six-year
phase-in is too gradual and will
leave some workers behind.
It is too low, and it is too
slow; it leaves rural workers behind at a lower wage that is really not enough, said Justin
Norton-Kertson, campaign manager for Oregonians for $15.
A spokesman for Ms. Brown
said the new legislation, passed
last month, is more workable
and sensible than previous ballot measures.
Alejandro Lazo

For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com

THE WALL STREET JOURNAL.

A8 | Thursday, March 3, 2016

PERSONAL JOURNAL.

Make Old Laptops Run Like New With Free Software

Neverwares CloudReady
Chrome-based software
can revive aged computers

Lenovo ThinkPad T400, beloved

laptop, was laid to rest after its
slowing hard drive and spinning
hourglass became too much to
bear. Born in 2008, it overcame
Windows Vista in its youth and
went on to a successful Windows 7
career. In lieu of flowers, please
send CD-ROMs.
Hold that obit! The reports of
many laptops death have been
greatly exaggerated.
This week I resurrected five old
laptopsone a
decade oldthat I
had written off
long ago as goners. I didnt spend
money on new
hardware, or take them to an overpriced computer repair store. I
just installed a free software called
CloudReady thats based on
Googles lightweight Web-centric
Chrome operating system. I got
some to work so well Id actually
use them full time.
Chromebooks have taken off in
classrooms, so New York-based
startup Neverware began working
with K-12 schools to revive their
otherwise landfill-bound Mac and
Windows PCs. Neverware charges
schools a fee for its CloudReady
software, but also offers it at no
charge to users. A version released last month allows you to install CloudReady but also keep
Windows, so you can choose which
OS to boot up.
Heres what the PC makers
dont want you to know: Many
aged laptops have the horsepower
to accomplish most Web-based
tasks. In fact, many of them have
more raw power than the $200
Chromebooks selling today.
Theyve just been bogged down by
bloated, gunked-up operating systems. Your revived laptop wont
technically be a Chromebook, but
the software experience is almost
indistinguishable from one.
The catch? Using the Chromecentric software is dead simple
but installing it isnt. It can be a
bit of a project, albeit a fun one,

DREW EVANS/THE WALL STREET JOURNAL

BY JOANNA STERN

Raising the Dead

Joanna Stern tried to revive five laptops with CloudReady. 1. This 2006 Apple MacBook got 20% faster. 2. A 2009 Lenovo ThinkPad T400s now loads websites quickly.
3. A 2012 HP ProBook 4440s was the only one to support dual booting in the test. 4. This 2010 Toshiba Mini NB305 was the only laptop that didnt see a performance
improvement. 5. A 2010 Acer Aspire One 721 is now quick to launch Web apps and toggle between them.
especially with a child who is eager to get a computer and learn
how they work. Once youre
through, youll have saved an old
computers lifeand some money.
Will It Work With My Computer?
That Commodore 64 isnt going
to the coffee shop any time soon.
CloudReady works best on Macs
shipped after 2006 and Windows
laptops shipped after 2007.
Neverware has a list of system
requirements and certified models,
but even if yours isnt on it, this
might still work. Case in point: A
2009 HP Pavilion dv2 I tried
worked well enough.
Nitty-gritty instructions for installing CloudReady vary by computer and can be found at neverware.com/installation. Youll need
to be ready with four things: a
newer Mac or Windows computer
with an Internet connection, a USB
flash drive with a minimum of
8GB, about an hour of time. Here
is an overview of what youll be
doing to your computer.
Step 1: Prepare CloudReady. After downloading the CloudReady

software from Neverwares website, you will need to install it onto

the USB flash drive. Its best to do
this on a newer computer. Even
with a speedier drive, this can take
30 minutes.
Step 2: Back up files on your
old laptop. Before you operate on
that old machine, make sure your
important files are safe.
Step 3: Run (or install) CloudReady. Plug the USB drive into
the old laptop, then reboot the
laptop to the CloudReady USB
drive. You can run the software off
the USB drive. You can also install
it to the laptops internal drive.
Newer laptops will let you preserve the original installed Windows operating system with a
dual-boot option. On older machines, installing the OS requires
erasing everything on the computer.
How Much Faster Are We Talking?
Well, that sounds like an annoying Computer Science assignment. Is it really worth it? Yes. I
never thought Id enjoy my old
ThinkPad or Acer netbook again.

And dont tell Tim Cook: Ive fallen

for a 2006 black MacBook I bought
on Craigslist for $190.
Its wrong to think of the operating system as just a Chrome
browser. You can turn websites
into standalone apps, place them
side by side on the screen and easily jump between them. In my testing, the speakers, trackpad, keyboard shortcuts and volume
controls all just worked.
There are some real drawbacks.
Though CloudReady updates in the
background, it tends to be two or
three versions behind Googles official release. If you run into trouble, Neverware wont provide online or telephone support,
although there are user forums.
And getting Netflix to stream requires extra technical steps.
Still, getting snappy performance from a laptop you never
thought youd use again can outweigh those cons. A six-year-old
Acer Aspire One 721 netbook that
was slower than a herd of snails
with Windows 7 became 2.5 times
as fast with CloudReady, according
to Web browsing tests. It also now

boots up in 35 seconds, versus one

minute with Windows. Its now
quite a good little Web and wordprocessing machine.
My ThinkPad T400s and MacBook didnt see such stark performance improvements. Tests say
they were about 20% faster,
though they felt noticeably snappier.
One exception was an Intel
Atom-powered Toshiba Mini
NB305 netbook with a gigabyte of
RAM. It couldnt handle more than
one or two Web browser tabs
without huffing and puffing.
To my dismay, battery life
across the board was unchanged
after the OS swap. This is where
computers really have evolved
over the past decade.
CloudReady wont fix everything thats wrong with your old
laptop. But if you have an old,
dusty machine lying around that
could be good for you or someone
in your family, try it out. If it
sounds complicated, ask around
for someone to help you. And if it
doesnt work, by all means print
the obit.

For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com

THE WALL STREET JOURNAL.

Thursday, March 3, 2016 | A9

ARTS & ENTERTAINMENT

A Hazy View of History

REVIEW
ERIC GIBSON

FROM TOP: ARCHDIOCESE OLOMOUC; TATE IMAGES

Tate Modern, to lead the effort,

and arranged with the Whitney to
borrow its now-empty Marcel
Breuer building for exhibitions for
eight years. It has been refurbished
Unfinished: Thoughts
and rechristened the Met Breuer.
Left Visible
The largest and most ambitious of
Met Breuer
its inaugural shows is Unfinished:
March 18-Sept. 4, 2016
Thoughts Left Visible, a historical
survey of incompleteness in art. As
part of this initiative, the 20thNew York century collection in the main
The Metropolitan Museum of
building had earlier been reinArts decision to go all in on modstalled. Reimagining Modernism:
ern and contemporary art has the
1900-1950, curated by Randall
potential to enrich the cultural
Griffey, displays it thematically unconversation in a way not seen
der seven headings such as Avantsince the Whitney Museum of
Garde and The City.
American Art and the Museum of
This has been a much-publicized,
Modern Art opened
multiyear effort, and
nearly a century ago.
the anticipation has
Heavyweight
Because the
been high. So it pains
thumbnail history of
me to report that the
artworks
modernism has it
Met has stumbled
enlisted to serve
that new art forms
badly out of the gate.
evolved in opposiUnfinished:
a lightweight
tion to what had
Thoughts Left Visipremise.
gone before, modern
ble is, at least, a
and pre-modern are
feast for the eyes. Cuwidely seen as
rated by Andrea
worlds apart. Yet
Bayer and Kelly Baum
nothing could be
of the Met and Nichofurther from the truthPicasso,
las Cullinan of Londons National
for one, was obsessed with the Old
Portrait Gallery, the nearly 200Masters. The Mets stated aim is to
work show couples major borrowget us to rethink the relationship
ings from the Mets own collection
of old and new by using its unparwith remarkable, even spectacular
alleled collections to view the pres- loans to create a sweeping historient through the lens of the past.
cal survey from the Renaissance to
Four years ago it hired Sheena
the present. Its like a mini-Met.
Wagstaff, formerly chief curator of
But problems quickly emerge.

Above: Titians Flaying of Marsyas (1570s); below: Turners Rough Sea

(1840-45).
The first is with the shows premise. The curators claim the subject
of incompleteness is one of enduring appeal, fascination and pleasure. Its true that throughout history there have been varying
degrees of perplexity and polemic
directed at works of art that have
seemed to defy accepted notions of
a job well done. Yet the show accords a centrality to something
that is more often than not aesthetically peripheral.
We stand mesmerized here by
Titians Flaying of Marsyas
(1570s) not because its sketchy
passages make us wonder whether
he quit too early, but because it is
a harrowing depiction of coldblooded cruelty; before Rembrandts portrait of longtime companion Hendrickeje Stoffels (mid1650s) because of its tender
pathos; before Turners Rough
Sea (1840-45) because of its luminous, apocalyptic vision of nature.
And so on. The idea of the unfinished keeps getting elbowed aside
by the much bigger ideas animating the works on display.

THE INTERVIEW

Where the exhibition really runs

into trouble is in its most critical
portion, the section from about
1945 to the present. The curators
have come up with four types or
categories of incompleteness for
this period, yet these seem fanciful
and arbitrary, and the selections
equally so. One, for example, is The
Infinite. We are told that extending a work of art indefinitely into
either space or time has proven a
reliable way of deferring finish. A
Jackson Pollock drip painting is included as an example. While it may
evoke the infinite, it doesnt follow
that it is therefore incomplete.
The show all but commits ritual
suicide when Ms. Baum, writing in
the catalog about postwar and contemporary artworks, says that,
Whereas a few are literally incomplete, the vast majority were, in
fact, brought to a satisfactory state
of completionyet they still count
as unfinished. That sentence
might be comical if it didnt so
perfectly encapsulate the freewheeling, anything-goes approach
to the terms of the discussion and

the selection of works in this section of the show.

Hanging over the Mets new initiative has been the question of
how it can differentiate itself in a
city that already has four modern
and contemporary museums. Yet it
has significant strengths to play to.
One is first-generation American
modernism, the work of figures
like Marsden Hartley, Arthur G.
Dove and Charles Demuth. They
absorbed the lessons of the new
European art even as it was being
created, and their highly individual
responses to it yielded such masterpieces as Hartleys Portrait of a
German Officer (1914) and Demuths I Saw the Figure Five in
Gold (1928), both in Reimagining Modernism: 1900-1950.
This important phase of American art history has received far
less attention than later movements like Abstract Expressionism
and Pop because the Guggenheims
core collection is European modernism, MoMAs doesnt really take
up American art until about 1945,
and the Whitneys features Hartley
et al. in an exclusively American
context. But the Mets holdings of
Fauvism, Cubism and related styles
mean first-generation American
modernism can be displayed alongside this source material, giving it
its due as a further chapter in the
continuing story of native talent
assimilating European prototypes
to create a New World art on a par
with that of the Old.
Instead the Met has chosen to
forgo its home-court advantage,
opting for a mashup installation
where artists of disparate levels of
ambition and significance are
grouped together more or less as
equals, their individual achievements flattened under various
larger concepts. What it describes
as a comprehensive and unprecedented reinterpretation is actually
quite ordinary, something you can
find in almost any other museum.
One swallow doesnt make a
summer, as the saying goes, so its
too early to make definitive judgments. But based on the evidence
so far, if its modern and contemporary initiative is to realize its full
potential, the Met needs to up its
game in a big way.
Mr. Gibson is the Journals Arts in
Review editor.

VIDEOGAMES

Tina Fey Stays in the Game

BY CARYN JAMES

Margot Robbie plays another reporter, who says your

characters looks would be rated 6 or 7 in the U.S.
but nearly a 10 among journalists in Afghanistan. Isnt
that a little insulting to you?
Not to me, because I feel like thats about right. In a
world where Halle Berry is alive? Yeah, thats about
right. And did that line ring true coming from the point
of view of Margots character? I thought, yes, I buy this.
The film does not take political sides, but does it
say something about war?
I think what Robert [Carlock] has written about eloquently in the screenplay is that Afghanistan is a
place where people have been going for hundreds of
years, thinking theyre going to fix it. They go and
they have a strange adventure, and Afghanistan always wins. And the film is very clear-eyed about the
military. Billy Bob Thorntons character [a U.S. Marine colonel] is doing his absolute best, but also kind
of knows its a somewhat impossible endeavor.
How hands-on were you as a producer?
As hands-on as possible. Lorne Michaels [her SNL
boss] and I produced this together. We were involved
in picking who would direct the movie, in casting, in
figuring out where we could shoot the movie.
Do you feel you have more on the line because youre a
producer as well as the star?
I feel good about the fact that the company is building a varied set of projects, all of which are movies

Infinity and Beyond

BY MICHAEL CALIA

that I personally would want to go see. Sisters is

obviously more of a broad comedy, a party movie,
but it was made with a lot of care within that genre.
You wrote in your memoir, Bossypants, that you learned
from watching Lorne Michaels how not to order people
around but to finesse situations.
I continue to try to absorb that because he is masterful
at it, just letting people have a lot of rope, not micromanaging, but not being afraid to step in.
What have you learned about managing and producing
now that youve done more of it?
Ive learned that the times I feel regret about the way
something came outmeaning a specific moment in a
TV show, or a sceneit almost always traces back to
[the fact that] I had an impulse to say something on
the day and I didnt.
Youre ramping up acting in movies, and producing for
film and television. Is this a turning point in your career?
I dont ever think of anything as the big turn. Its always about: Im going to keep doing these things until they dont let me anymore. And can I put some
building blocks under it that make it last longer? I
might be a producer so that when a role is too young
for me, I hand it off to someone else but Im still part
of the movie. For me its just about the long grift.

THERE WONT BE a Disney Infinity

4.0 this year, the company announced this week, but that doesnt
mean there wont be new play sets
and characters coming from the toyvideogame hybrid.
Part of the interactive toy to life
category that has emerged in recent
years and includes properties such as
Skylanders, Lego Dimensions and
Nintendos Amiibo, Disney Infinity allows people to play several different
games and scenarios using characters
and settings from across Disneys array of franchisesfrom Mickey
Mouse and his crew to Star Wars.
The decision to release more
content but not a whole new version of Infinity in 2016 is related, in
part, to questions from fans about
whether theyd need to buy a new
version, known as a starter pack,
every year, according to John Vignocchi, Disney Infinitys vice president of production. He added that
the technological capabilities of version 3.0 also enable the games
makers to keep updating and adding
more content and new gameplay
mechanics. Releasing a new starter
pack wouldnt be necessary, said
Mr. Vignocchi.
Thats not to say were done
putting out starter packs, he added.
When the time is right, because we
find a particular innovation or something that we think is incredibly
special, well put out a new version.
Mr. Vignocchi declined to comment
further on potential plans.
The Disney franchise is considered the sales leader in the toy to
life category, thanks in large part to
its Star Wars releases in the latter

half of 2015. However, in the quarter ended Jan. 2, which included the
holiday-shopping period, Infinity
posted lower unit sales volumes and
higher inventory reserves.
All told, there will be four new
play sets this year, which will support the main Marvel, Pixar, Star
Wars and traditional Disney properties. The next big release will be the
Marvel Battlegrounds play set on
March 15.
New Infinity releases are often
timed to correspond to new movies
and franchise developments. The
company said it is releasing three
new charactersBlack Panther, AntMan and Visionin conjunction with
the upcoming May release of the
Captain America: Civil War film,
while the two main characters from
Zootopia, which opens Friday in
the U.S., China and several other
countries, will also be available. The
classic Disney animated version of
Baloo, meanwhile, is being released
to resonate with the upcoming liveaction remake of The Jungle Book.
In June, Disney Pixar will release
Finding Nemo sequel Finding
Dory, while Marvel Studios is set to
release its next superhero origin
movie, Doctor Strange, in November. In December, the first standalone Star Wars film, Rogue One,
will hit theaters.
Disney also said this week that it
was changing how it reveals whats
coming down the pike to Infinitys
fan base, a mix of videogame players, young and old, and collectors
who seek out physical figurines. The
company launched Disney Infinity
Next, an online video program aimed
at announcing product updates to
fans directly. Episodes will be rolled
out throughout the year.

DISNEY

How did you approach playing a fictional version

of a real person?
I think I met Kim one time before making the movie.
Im not trying to look or sound like the real Kim. You
try to break down: How is this character similar to me
and different than me? Kim is a real risk taker. Im sort
of faux adventurous. The way I identify with her is that
she has a life that people did not expect her to have.

TOY STORY Two Zootopia characters will be added to Disney Infinity.

CORINA MARIE HOWELL/CONTOUR/GETTY IMAGES

IN WHISKEY TANGO FOXTROT, Tina Fey stars as cable

news writer who becomes an on-air reporter, with an
absurdly steep learning curve, in Afghanistan. She
also is the films producer, continuing a path that has
taken her from Saturday Night Live to starring on
screen and heading a company producing a range of
movie and television projects.
Whiskey Tango Foxtrot is a fictional version of
Kim Barkers memoir The Taliban Shuffle. The film is
Ms. Feys second as producer. The first, Sisters, has
generated more than $100 million at box offices worldwide. Her company, Little Stranger, Inc., was also behind her TV show 30 Rock and the continuing Netflix
series Unbreakable Kimmy Schmidt. The company has
two films and two TV pilots in the works, and just
signed a deal with Universal Pictures. I wish I could
say I had a master business plan, the 45-year-old said.
I dont. I just feel like its about staying in the game.
Edited from an interview.

THE WALL STREET JOURNAL.

A10 | Thursday, March 3, 2016

OPINION
REVIEW & OUTLOOK

Apple Is Right on Encryption

he Apple encryption conflict has turned asked to crack one phone in the entire world,
nasty, as the Obama Administration, as Marco Rubio puts it. This is also false. The
most Republicans and public opinion Justice Department is beseeching Apple to proturn against the tech comvide software retrofits in at
The FBI doesnt want
pany. But, lo, Apple won its
least a dozen public cases, and
first court test on Monday, merely one phone, and its state and local prosecutors
and its legal briefs against the
have stacks of backlogged
court order to unlock an warrant is legally suspect. iPhones they want unlocked
iPhone used by the San Bertoo. In the New York case that
nardino jihadists show it has
Apple won this week, prosecua better argument than the government.
tors wanted Apple to unlock an iPhone even
The FBI is attempting to extract information though the owner has pleaded guilty.
on Syed Rizwan Farooks device but has been
If Apple now writes the program the G-men
frustrated by Apples encryption. So a Califor- desire, then the technique will be used in invesnia magistrate ordered the company to design tigations that have nothing to do with terrora custom version of its operating software that ism as other prosecutors use the same arguwill disable certain security features and per- ment. This is the back door by degrees that
mit the FBI to break the password. Apple has Apple CEO Tim Cook describes.
cooperated with the probe but argues that forcFBI director James Comey told Congress
ing it to write new code is illegal.
last week that the Apple case was unlikely to
One confusion promoted by the FBI is that be a trailblazer and that it also would be inits order is merely a run-of-the-mill search structive for other courts. Well, which is it?
warrant. This is false. The FBI is invoking the This contradiction isnt the only reason to won1789 All Writs Act, an otherwise unremarkable der if Mr. Comey prefers an encryption legal
law that grants judges the authority to enforce precedent over Farooks actual data.
their orders as necessary or appropriate. The
One question is why the phone wasnt immeproblem is that the All Writs Act is not a catch- diately shipped in a faraday bag to Fort Meade.
all license for anything judges want to do. They The National Security Agency has a formidable
can only exercise powers that Congress has decryption unit, and U.S. spooks probably have
granted them.
the ability to hack Farooks phone without ApCongress knows how to require private com- ples services, especially because it is an older,
panies to serve public needs. The law obligates less sophisticated model.
telecoms, for example, to assist with surveilWe bow to no one in defense of antiterror
lance collection. But Congress has never said the programs whose political popularity waxes and
courts can commandeer companies to provide wanes, especially on surveillance. But this case
digital forensics or devise programs it would be isnt about privacy. This is about engineering
theoretically useful for the FBI to haveeven security and its implications for the security
if they are necessary for a search.
of all Americans.
Congress could instruct tech makers from
Back doors are engineering vulnerabilities
now on to build back doors into their devices that make devices less secure. But terrorists
for law-enforcement use, for better or more and criminals will always be able to find some
likely worse. But this back-door debate has underground encrypted communication chanraged for two years. In the absence of congres- nel, so regulating back doors into legal devices
sional action, the courts cant now appoint achieves little national-security benefit. To
themselves as a superlegislature to comman- borrow a line from James Burnham, if theres
deer innocent third parties ex post facto.
no alternative, theres no problem.
What makes the FBIs request so extraordiIf Congress is really going to outlaw stronnary is that the iPhone encryption and secu- ger encryption for law-abiding Americans,
rity methods were legal when they were cre- well, the political class has the right to make
ated and still are. Apple has no more mistakes. But it would be a far more dangerous
connection to the data on Farooks phone than precedent for the courts to do so without guidFord does to a bank robber who uses an F-150 ance from Capitol Hill.
as a getaway vehicle.
Mr. Comey may be leading the government
If the government can compel a manufac- to defeat, which makes the White Houses incoturer to invent intellectual property that does herencebacking this unnecessary showdown
not exist in order to invade its own lawful while claiming to oppose back doorsall the
products, then there is no limiting legal princi- stranger. If this debate really is critical to prople. Could the FBI require a tech maker, for ex- tecting public safety, then Mr. Comey should
ample, to send a malware worm to a users de- appeal to Congress to change the law, rather
vice in the form of a routine update?
than insist that the courts should resolve a maThe other myth is that Apple is merely being jor policy dispute in his favor.

Clinton and Trump Advance

illary Clinton trounced Bernie Sanders

on Tuesday, all but wrapping up the
Democratic presidential nomination.
Donald Trump took another major step toward
the GOP nod, but his competitors did well
enough that they can justify fighting on for two
more weeks to see if they can overtake him in
the winner-take-all states on March 15.
Mrs. Clinton has already started to pivot to
the general election, test-driving themes that
are clearly aimed at Mr. Trump. She scored Republicans as dividers, which takes some nerve
after the Obama years, and she promised to create jobs and raise incomes because she knows
most Americans havent had one in years. Mrs.
Clinton is beating Bernie Sanders by running as
President Obamas heir, but that means she will
have to defend his record in the autumn.
Mr. Trumps night was also impressive by any
measure. He won seven states and finished second in the rest save Minnesota. He won in New
England and the deep South, once again showing
his breadth across the GOP coalition. He lost on
Ted Cruzs home turf of Texas and Oklahoma,
which will keep the Texas Senator in the race.
But the primary races now move out of the South
to Florida and the Midwest, where Mr. Cruzs
brand of religious-based social conservatism
hasnt sold as well.
Marco Rubio gave himself a lifeline by winning the Minnesota caucuses. He also came close
in the swing state of Virginia, and his strong
showing in the Washington, D.C. exurbs and

among college-educated voters show his potential as a general-election candidate. But Mr.
Trump beat him in the rural and blue-collar regions of the state. This GOP divide in Virginia is
a warning sign for Mr. Trump in a state the GOP
must win in November.
John Kasich was a close second in Vermont,
though nowhere else, and he will also try to fight
on as the primaries move North. After his second
place finish in New Hampshire, the Ohio Governor
targeted next Tuesdays contest in Michigan as
must-win, but now hes saying Ohio is the acid
test a week later. Meantime, he and the others are
dividing the non-Trump vote.
The hope of all three challengers is that the
looming prospect of Mr. Trump as the nominee
will cause Republicans to focus on his enormous
vulnerabilities in a fall campaign. As Mr. Rubio
put it Tuesday night, he only began his attacks
on Mr. Trump as a con man five days ago, and
there will be two more debates and TV ads to
press the points. Late-deciding voters did go for
Mr. Rubio in several states, which offers some
hope, but the Florida Senator must win in Florida on March 15 or hes done.
The Trump candidacywith its divisive rhetoric and lack of any core governing philosophy
is threatening to split the GOP in two. The New
Yorker must know this and on Tuesday night he
was at pains to describe himself as a unifier
who would be able to work with Congress. If he
does march to the nomination, he will have a lot
of persuading to do.

The Argentina Comeback

.S. presidential candidates are busy

boasting about the wonders to come in
their hypothetical first 100 days in office. Perhaps they should look south and consider the real-world example of new Argentine
President Mauricio Macri.
This week he settled a dispute with a number
of the countrys creditors that had dragged on
for more than a decade as it tarnished Argentinas reputation. Mr. Macri now has the country
poised for a return to international capital markets and perhaps an economic revival that was
impossible under his Peronist predecessor, Cristina Kirchner.
The Macri administration agreed Sunday
night to pay more than $4.6 billion to Elliott
Management and other U.S. hedge funds holding
Argentine bonds that had been issued prior to
the countrys 2001 default. While many of the
countrys bondholders had accepted government
offers of roughly 30 cents on the dollar after the
default, Elliott and the other holdouts maintained that under the law and their bond con-

tracts they were entitled to be paid in full.

Ms. Kirchners refusal to negotiate with what
she called vulture investors punished her own
country far more than it did the investors. Mr.
Macri understands this and has aimed to resolve the issue.
By agreeing to pay roughly 75% of what Elliott and other funds say they were owed, the
new President has resolved the claims on
about 85% of the bonds owned by holdout
creditors. Assuming his negotiators are able
to resolve the remaining claims, Mr. Macri
seems well on his way to persuading a U.S.
federal judge to lift injunctions that have effectively prevented Argentina from borrowing
in U.S. bond markets. Now President Macri
must persuade Argentine legislators to approve the deal as well.
In December we noted that Mr. Macri spent
his first week in office ending capital controls
and moving toward a stable peso. This weeks
action suggests that the rule of law is returning
to Argentina.

Trump Voters Need a Mirror

Trump supporters are
disappointed in Americas leadership elites.
They have this feeling even if they lack
clear thoughts. Yet this
late moment isnt too
BUSINESS
late for some political
WORLD
types to insist that
By Holman W.
Trump voters must be
Jenkins, Jr.
understood,
even
though Trump voters
have been easy to understand all along.
Indeed, a whiff of fear enters the air
as Mr. Trump progresses toward the
nomination. These disappointed-withelites people are in charge! They are
powerful. Id better scramble over to
their side.
But the relevant point has always
been yes but. One reason to care about
Mr. Trumps past, his statements, his
vulnerabilities is because, on the way to
office and once in office, politicians face
opposition.
The opposition will use his peccadilloes and indiscretions against him. Can
he withstand the onslaught and rally a
coalition? Can he enact a program? Is
the program any good? Would he be a
wounded, embattled and ultimately
failed (and probably absentee) president
from the moment he took office?
To be honest and impolitic, the Trump
voter smacks of a child who unleashes
recriminations against mommy and
daddy because the world is imperfect.
The blaming of elites has gone too
far. The American voter has a big hand
in his own disappointments. His retirement system has been a conspicuous
demographic Ponzi scheme for at least
two generations, yet he keeps voting
for unfunded benefits. The Obama administration complains in its latest
economic report about declining state
and local investment because all the
money is going to the unfunded pension promises negotiated by public-sector employees (i.e., voters) without
also negotiating the taxes to make good
on them.
Yet voters have welcomed being
gulled with talk of lockboxes and trust
funds while their payroll taxes are diverted to unrelated, voter-pleasing
spending and the alleged trust funds
are filled with IOUs by the government
to itself.
Voters stood idly by or cheered as
politicians loaded up the economy with
regulations and growth-killing institutions that undermine productivity.
Yet Trump voters, like children, now
say, But you promised!
My colleague Bill McGurn on Tuesday
described the failure of another populist
conservative
celebrity,
Arnold
Schwarzenegger, to conquer the establishment in California. Thats right, because voters sided with the establishment to defeat impeccably reformist,
Arnold-backed ballot measures to curb
the power of public-sector unions and
end legislative gerrymandering.
In Washington, voters decisively sided
with teachers over students in ousting

Mayor Adrian Fenty and his reformist

schools chancellor Michelle Rhee.
Or read Robert Dewars A Savage
Factory about life in a Ford plant. Read
the Journals own reporting years ago
about worker sabotage of GMs Saturn
experiment or its California plant until
Toyota took it over. Who is busy ruining
the American university at the moment
but the students privileged to study
there, many of them heavily subsidized
by taxpayers.
Americas fix is not unique by any
means. Similar problems define the moment in Western Europe and Japan. The
polarization and bitterness of our politics can be exaggerated, but theres a
reason for the souring mood. Handing
out goodies to voters is more pleasant
than taking stuff away and makes for a
lot more bipartisan conviviality.

The blaming of elites has gone

too far. Voters are behind
their own disappointments.
The deepening strife comes not because we are being victimized by immigrants, plutocrats, Chinese trade negotiators, institutional racists or other
scapegoats proffered by the scapegoat
peddlers.
Weve run out of the ability to credibly promise ourselves more goodies
than a nongrowing population in a nongrowing economy can supply. The resources arent available because we
dont produce themeither because we
cant or wont work productively enough
or because we decline to labor under
high enough tax rates.
It turns out government cannot spare
us collectively from having to adapt and
compete in an economy. It cant suspend
the reality principle.
Not the biggest lie of the electoral
season but a characteristic one is Bernie Sanderss claim that huge sums will
be discovered by taxing Wall Street
speculation. Guess what? Many of the
transactions his speculation tax aims
to tax wont take place if taxed. There
will be no gusher of revenues with
which to continue the expansion of government goodies.
One party, the Democrats, wants to
keep winning by offering free thingsfree
health care, free college. Their bet is they
can extract satisfactory political rents
from being the go-to party for groups
seeking to protect their spending.
The other party, the Republicans, is
stuck being the reform partyif it has
the nerve, which is highly doubtful.
Mr. Trumps slogan, Make America
Great Again, lacks an acting noun. Apparently the Chinese and Mexicans can
bestow concessions that will make
America great againor something.
Until Mr. Trump and his fans show otherwise, he seems but the latest vessel
of denial for voters who dont want responsibility, they want mommy and
daddy.

LETTERS TO THE EDITOR

Trump Is Overruning the Republican Party

Gerald F. Seib does an admirable
job attempting to describe the rise of
Donald Trump and what it means for
the future of the GOP (How Trumps
Army Is Transforming the GOP,
World News, Feb. 23). Im more concerned about what it means for the
future of humanity.
I have long decried the fact that
the electorate increasingly seems to
vote for the guy who tells them what
they want to hear, whether its true
or not. In that regard, Mr. Trump
represents a centuries-old tradition
among those seeking public office.
However, he doesnt deserve the
credit for what is happening in the
primariesthe Internet does. We are
witnessing an election cycle taking
place in the context of an all-out assault on truth, discernment, scientific
inquiry, critical thinking and civil discourse. Mr. Trump isnt encumbered

with the need to be consistent, factual or honest. The culpability for

this precarious situation lies with a
Fourth Estate (The Wall Street Journal included) that has abdicated its
responsibility for holding politicians
and business leaders accountable.
RICHARD LAYTON
Portland, Ore.
If your editorial is right (Americas Moment of Trump, Feb. 22) that
Mr. Trumps now the clear favorite
for the GOP nomination, and if even
he is better than either Democrat,
then Republicans better start focusing on knocking Hillary Clinton out of
the race right now. If the GOP doesnt
know how to fight to win, then it
truly is on the path to extinctionas
is America.
ANNA JACKSON
New York

The Guantnamo Bay Prison Has Done the Job

Regarding your editorial Guantnamo at Bay (Feb. 25): The president tells us that the prison at Guantnamo is a recruitment tool for
terrorists. Thats one of the reasons
why he wants to close the prison and
move the prisoners somewhere in the
states, maybe Colorado. How will his
recruitment tool argument go away
by moving the prisoners to Colorado?
BILL GRAVES
Captain, USN (Ret.)
Rancho Palos Verdes, Calif.
It is always amazing to hear the
defiance of Republicans and Democrats about any step toward closing
Guantnamo Bay and bringing the remaining, untried prisoners to maximum-security prisons in the U.S.
Opponents must have forgotten
that the 20th hijacker of 9/11, Zacarias Moussaoui, together with about
354 other domestic and international
terrorists, have been tried, convicted
and sentenced in federal courts and
now reside in supermax prisons like
the Alcatraz of the Rockies.
Not one of them has ever escaped

from these prisons. There seem to be

no colonies of jihadists developing
around them.
So why do politicians want to keep
Gitmo open? Why do they fear new
enemy combatants on U.S. soil? And
why arent they lobbying to transfer
some or all of the 355 terrorists away
from prisons in their states? Indeed,
where would they go?
JOHN BARELL
New York, N.Y.
Watch for President Obama to try
to invalidate or cancel the 1903 Cuban-American Treaty lease as a way
to give Guantnamo Bay back to
Cuba. This would solve his dilemma.
NICK HRISOMALOS
Indianapolis
Letters intended for publication should
be addressed to: The Editor, 1211 Avenue
of the Americas, New York, NY 10036,
or emailed to wsj.ltrs@wsj.com. Please
include your city and state. All letters
are subject to editing, and unpublished
letters can be neither acknowledged nor
returned.

THE WALL STREET JOURNAL.

Thursday, March 3, 2016 | A11

OPINION

adds as much understanding as the

first or second. Emory Universitys
Mark Bauerlein once showed that
scholarly papers on Shakespeare averaged about 1,000 a yearthree a
day. Who reads them? How much
does a typical paper add at the margin to the insights that Shakespeare
gave us 400 years ago?
Economics as ideology in camouflage. Economists who achieve fame
for genuine intellectual insights, like
Paul Krugman, sometimes then morph
into ideologuespredominantly, although not exclusively, on the left.
The leftish domination of American
academia is partly explained by economics. Federal student-loan programs, state appropriations, special
tax preferences and federal researchoverhead funds have underwritten academic prosperity, even at so-called
private schools. The leftish agenda today is one of big government; academics are rent-seekers who generally
dont bite the hand that feeds them.
The problem is even worse in other
social sciences.
A disconnect between economic
reality and public policy. Three examples come to mind. First, the Keynesian orthodoxy of fiscal stimulus of
the 1950s and 1960s, with its Phillips
curves and the like, was shown to be
spectacularly wrongheaded. The U.S.
experience of the 1970s and the Japanese lost decade of the 1990s are
two demonstrations. Second, centrally planned authoritarian states
with no private property or free
markets (e.g., the former Soviet
Union or North Korea) have been
shown to be monumentally inefficient
and not permanently sustainable.
Third, nations with some free-enter-

By Richard K. Vedder

ike most economics professors,

I have spent my academic lifetime examining the economic
and public-policy effects of issues
involving the production, distribution
and consumption of goods and serviceswhat is known as political
economy. There is, however, a political economy to the very act of producing and disseminating economic
knowledge and examining public
policies. And that political economy
and my assessment of it has changed
over a career spanning more than
half a century. Here are five developments I would emphasize:

Ive seen five big changes

over the past half century.
One is economics as
ideology in camouflage.
Diminishing returns to research.
A core economic principle is the Law
of Diminishing Returns. If you add
more resources, such as labor, to
fixed quantities of another resource,
such as land, output eventually rises
by smaller and smaller amounts. That
applieswith a vengeanceto academic research. Teaching loads have
fallen dramatically (although the U.S.
Education Department, which probably can tell you how many Hispanic
female anthropologists there are
teaching in Arkansas, doesnt publish
regular teaching-load statistics), ostensibly to allow more research. But
the 50th paper on a topic seldom

GETTY IMAGES/IKON IMAGES

The Transformation of Economics

prise capitalism but with growing redistributionist welfare states start

stagnating economicallyEurope beginning after 1970, the U.S. after
2000. Yet many economists (including at the U.S. Federal Reserve) still
champion Keynesian policies and
welfare-state expansions such as
ObamaCare.
The rise of the nonuniversity research centers. A reaction to the
liberal ideological orientation and
inefficiencies of colleges has spawned
this phenomenon. When I was attending college around 1960, the
Brookings Institution, National Bureau of Economic Research and the
Hoover Institution were among relatively few major independent think
tanks. Today there are many, especially ones funded on the right to
provide intellectual diversity, including nationally or regionally oriented
centers such as the American Enterprise Institute, Cato Institute, Heri-

tage Foundation, Heartland Institute

and the Independent Institute, as well
as dozens of state-policy think tanks.
Universities have lost market share in
social-science research.
A major cause of Americas economic malaise: the governments war
on work. My own research with Lowell Gallaway has stressed the importance of labor costs in explaining output and employment fluctuations. If
the price of something rises, people
buy less of itincluding labor. Thus
governmental interferences such as
minimum-wage laws lower the quantity of labor demanded, while high
taxes on labor reduces labor supply,
as do public payments to people for
not working.
One reason living standards in the
U.S. have stagnated: There were 12.7
million fewer Americans working in
January than there would have been
with the 2000 employment-population ratio. Disability insurance claims

have roughly tripled in the past generation (despite greater inherent

workplace safety because of the
declining relative importance of manufacturing and mining); governmentsubsidized student loans and grants
have lured younger Americans away
from work; extended unemployment
benefits prolonged unemployment;
and food stamps now go to nearly 30
million more Americans than 15 years
ago. The government has provided
much more income that is only available if people dont work. So fewer
do. As Charles Murray has noted, this
phenomenon has contributed to
declining social cohesion and arguably even largely explains Donald
Trumps electoral success.
Modern computer technology and
increased econometric sophistication
sometimes yield useful information
about the way the world works economically. But those gains are at least
partially offset by the sharp decline
in historical consciousnesstodays
scholars sometimes think they know
it all, having an arrogance arising
from historical ignorance, often wasting time and energy relearning lessons that those with a good sense of
economic history already know.
It is still satisfying, after half a century, to try to counter that ignorance,
and to teach young people the logic of
the price system, the importance of
private property and other institutions for freedom and prosperity.
Mr. Vedder teaches economics at
Ohio University and is an adjunct
scholar at the American Enterprise
Institute. This op-ed is adapted from
an article in the Winter 2016 issue of
the Cato Journal.

Why the New Sanctions on North Korea Might Work

cyberwarfare capabilities is a case of
smart sanctions aiming to disrupt
personnel networks and precipitate
elite dissatisfaction, as are continued
bans on luxury-good shipments.
A particularly punitive new measure is the targeting of the Norths
commercial tradeincluding exports
of coal, iron, gold, titanium and rareearth mineralsif proceeds from
those exports are going to Pyongyangs nuclear-weapons program.
Sanctions targeting coal would be
highly damaging. In 2015 North Korea
exported $1.04 billion in anthracite
coal to China alone, accounting for
more than 42% of trade between the
two countries.
The sanctions would also further
limit North Korean banks access to
the international financial system. In
the past, when the U.S. Treasury
Department designated the small
Macanese bank Banco Delta Asia in
September 2005 as a primary money
laundering concern, North Korean
accounts in the bank were frozen. This
had a cascade effect with other foreign financial institutions restricting
transactions with North Korea for fear
of reprisals by U.S. regulators.
That action had a severe impact on
financial flows into North Korea,

By Thomas Byrne

f vigorously implemented, the

new China-backed United Nations sanctions could push
North Koreas command economy to the brink of collapse
and make clear the fallacy of what the
regime calls its byungjin doctrine
the parallel development of the military and the economy.
Thats a big ifsanctions against
the Pyongyang regime have a history
of falling short, not least because of
Chinas lack of cooperation. But sometimes even patrons grow weary of
their roles. There are signs that this
time Beijing means business.
The tougher China-backed U.N.
trade and financial sanctions significantly augment sanctions recently adopted by the U.S., South Korea, the EU
and Japan after the Norths fourth nuclear-bomb test in January and sixth
ballistic-missile launch in February.
The new sanctions include a ban
on aviation-fuel shipments to Pyongyang and subjecting vessels going in
and out of North Korea to mandatory
inspection for illicit cargo, an action
tantamount to a naval blockade.
The blacklisting of North Korean
entities associated with the Norths

caused great concern in Pyongyang,

and became tied up with the denuclearization negotiations at that time.
While North Korea has learned to
diversify and disguise its offshore
financing, the newly approved sanctions are likely to crimp hard currency
available to the Pyongyang regime.

China is finally showing

signs of getting serious.
Pyongyang elites may
decide: Time for a change.
Major Chinese banks have reportedly already begun to impede financial transactions with North Korean
citizens. The South Korean newspaper
Dong-A Ilbo recently reported that
some Chinese banks in northeastern
China, including the Dandong, Liaoning Province branch of Industrial and
Commercial Bank of China (ICBC), the
countrys largest bank, have suspended cash deposit and transfer services for accounts owned by North Koreans since December last year.
South Koreas recent decision to
close the Kaesong Industrial Com-

plex will further tighten the screws

on the Norths economy. The joint
North-South venture, launched in
2004 as part of the Souths Sunshine Policy, paid North Korean
workers in the industrial complex
about $560 million over the past 11
years. Yet when South Korea announced it was pulling the plug,
Seoul estimated that around 70% of
the money sent to Kaesong for
wages went to bankroll the development of nuclear weapons and
missiles, to embellish [Kim Jong
Uns] achievements and purchase
luxury goods.
Some question whether the new
sanctions are tough enough. Loopholes include remittances from
North Korean workers overseas, oil
shipments to North Korea, and the
growing exports of manufactured
goods to China.
Yet for sanctions to be effective, a
complete blockade of all of North Koreas external transactions isnt necessary. Smart sanctions seek to avoid
unintended humanitarian effects on
ordinary citizens. At the same time,
they target Pyongyangs weapons systems, cash flow and the elite few of a
regime that has inflicted great suffering on its own people.

The cutbacks in cash flowing into

the economy from the closure of
Kaesong and even partially effective
China-backed U.N. sanctions will
make it difficult for North Korea to finance its perennial trade deficit and
continue burning cash on its nuclearweapons and ballistic-missiles programs. The global slump in commodities prices means the Norths exports
of coal, iron ore and other commodities arent bringing in what they once
did. Meanwhile, demand from China
is also in steep decline as the Chinese
economy slows. In 2015 North Korean
exports to China fell 13%.
The mutually reinforcing web of
newly emerging international sanctions suggests that this time is different from the past. If the new sanctions are strictly implemented and
Beijing keeps up its end of the bargain, the elite in Pyongyang may be
compelled to recognize that they are
worse off with nuclear weapons and
bellicose rhetoric than they would be
with a functioning economy.
Mr. Byrne is president of the Korea
Society in New York City and formerly
regional manager for sovereign risk in
Asia-Pacific and the Middle East for
Moodys Investors Service.

The Trump Test for Principled Republicans

The seemingly inexorable rise of Donald
Trump has created
an existential crisis
for many lifelong Republicans, not the
POLITICS least for principled
conservatives. They
& IDEAS
are asking themBy William
selves whether they
A. Galston
can go along as their
party tacks toward
protectionism, nativism and xenophobia; whether they are willing to
be led by a man who proposed a religious test for immigration policy and
threatens to round up and deport 11
million immigrants unlawfully present in the U.S.
They wonder whether they can accept as president a man who threatens a free press with libel laws redolent of the 1798 Sedition Act (which
nearly destroyed the American re-

public in its infancy), openly advocates war crimes as an instrument of

state policy, approvingly tweets a
quotation from Benito Mussolini and
embraces Kremlin thug Vladimir Putin as a kindred spirit.
There is abundant evidence that
Mr. Trump is, as Sen. Marco Rubio
pungently puts it, a con man. But
suppose we give Mr. Trump more
credit than he deserves and take him
at his word. It is abundantly clear
that no Mexican leader or government would ever agree to pay for his
border wall. What then?
He would lack the legal authority
to impose tariffs on countries such
as China and Mexico that run persistent trade surpluses with the U.S.
What then?
He has proposed a massive tax cut
and other programs that, according
to the Committee for a Responsible
Federal Budget, would add between

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$11.7 trillion and $15.1 trillion to the

national debt over the next decade.
This plan, which would be ruinous if
enacted, wouldnt be adopted, and
candidate Trump has no other economic agenda. What then?
Tom Coburn, a conservative Republican who retired from the Senate
last year, said in a statement Monday
supporting Sen. Rubios candidacy for
the Republican nomination that Mr.
Trump is perpetuating a fraud on
the American people. His empty
promises, bullying and bloviating
rhetoric will only deepen the frustration and disillusionment that gave
rise to his campaign. He simply lacks
the character, skills and policy knowledge to turn his grandiose promises
into reality.
If you think the American people
are angry and mistrustful now,
imagine how they will feel after
three months of (God forbid) a
Trump presidency.
Then there is the way Mr. Trump
has chosen to conduct his campaign,
which has degraded democratic discourse and made the U.S. a global
laughingstock. South Carolina Gov.
Nikki Haley said on ABCs This
Week on Sunday that the New York

billionaire is doing everything . . .

we teach our kids not to do in kindergarten. In recent days, Sen. Ben
Sasse of Nebraska, a rising young Republican star, blasted Mr. Trumps

Chris Christie flunked.

Nikki Haley and
Ben Sasse aced it.
Lets see how others do.
relentless focus . . . on dividing
Americans, and on tearing down
rather than building back up, this
great nation.
And what can one say about Mr.
Trumps repeated refusal on CNN
over the weekend to disavow former
Ku Klux Klan leader David Dukes
praise, followed by the candidates
claim that he couldnt hear the host
clearly through his earpiece? Longtime Republican strategist Stuart Stevens cut to the heart of the matter:
To support Trump is to support a
bigot. Its really that simple.
In a stinging rebuke, Hewlett-Packard CEO Meg Whitmanwho was

Notable  Quotable: Mussolini

From the foreword by translator
Richard Washburn Child for My
Autobiography by Benito Mussolini
(1928):
Mussolini, first of all, and above
all and after all, is a personality
always in a state of flux, adjusting its
leadership to a world eternally in a
state of flux.
Change the facts upon which
Mussolini has acted and he will change
his action. Change the hypotheses and

he will change his conclusion.

And this is an attribute of greatness seldom recognized . . .
The imagination of mere statesmen covers a static world.
The imagination of true greatness
covers a dynamic world. Mussolini
conceives a dynamic world. He is
ready to go on the march with it,
though it overturns all his structures,
upsets all his theories, destroys all of
yesterday and creates a screaming
dawn of tomorrow.

Chris Christies campaign finance cochairwoman until the New Jersey governor dropped out of the racesaid
on Sunday that Donald Trump is unfit to be president. He is a dishonest
demagogue who plays to our worst
fears. Trump would take America on a
dangerous journey. As for Mr. Christies Trump endorsement last week,
she said: For some of us, principle
and country still matter.
Principled Republicans have
choices in the general election other
than supporting their partys nominee. They can sit out the contest.
They can write in the candidate of
their choice. Or they can organize an
alternative. Asked whom he would
support in a Trump/Clinton contest,
Sen. Sasse replied, Neither of them,
adding: If Donald Trump ends up as
the GOP nominee, conservatives will
need to find a third option.
A reasonably well-funded effort on
behalf of an independent conservative candidacy could surmount ballot
access and other technical issues. If
such an effort doesnt come to pass,
it will be because no one cared
enough to try, not because it couldnt
be done.
No doubt some would object that
an independent candidacy would
hand the election to Hillary Clinton.
It might well. Republicans who care
about the integrity of their party, or
about principled conservatism, will
have to decide whether that is the
worst-case outcome.
Kevin Madden, a veteran Republican operative, told the Feb. 28
Washington Post that for many Republicans, Trump is more than a political choice. It is a litmus test for
character.
Indeed it is, and Gov. Christie has
already flunked it. In the next few
weeks, it will be revealing to see how
many leading Republicans emerge
from this test with their honor intact.

THE WALL STREET JOURNAL.

A12 | Thursday, March 3, 2016

STYLE

Quiet, Tailored Milan Becomes a Bold Fashion Leader

BY CHRISTINA BINKLEY

GETTY IMAGES (5)

Milan
Never mind what Parisians say,
Milan is currently the leader of the
fashion conversation. Guccis eccentric-bookworm look, Pradas
whimsical accessorizing, Moschinos kooky viral reach, and
Bottega Venetas luxurious suiting
are setting standards for the rest
of the world.
Even the Italians seem surprised by the sudden onset of love
coming at them from fashion followers who have yawned through
past Milan fashion weeks while anticipating Paris. This new currency
appears likely to translate into actual cash. Bloomingdales, for instance, sent additional buyers to
Milan this season to handle an uptick in its purchasing there, says
fashion director Brooke Jaffe.
Milan has always offered excellent workmanship and glorious
fabrics, but what is setting Italian
labels apart now is the way they
are responding to the times.
Global angst and industry anxieties played out on runways here
with chaotic, devil-may-care fashions that touched on the late 80s
and early 90s. What to do when it
feels like the world is running
amok? Swing from the chandeliersor wear the one that Moschino sent down the runway.
Dolce & Gabbana abandoned
the viva-Italy shtick of recent seasons and instead paired clunky Dr.
Martens-style boots with manly
oversize jackets and gold-braided
coatsthe first man-clothes for
women that the label has put on
the runway since 1993, said Stefano Gabbana. The collections
concept was a princess fantasy
the label licensed the theme song
to Disneys 2015 Cinderella
movie and played it at the show.
But sharp studs poked out from
the heels of otherwise sweet
pumps, and gold safety pins gored
a tiaralooks for a tough-minded
princess. A modern princess is independent, said Mr. Gabbana.
Milan labels werent much
moved by the angst that gripped
New York fashion week about the
five-month gap between fashion
shows for fall and the fashions arrival in stores. The problem, several

Sailing Away

Tough Times

Pink Out Loud

Boys Club

Modern Princess

Prada balanced glamorous

tailoring with whimsical
touches that included sailor
hats and corsets.

Moschino exemplified the

trend toward chaotic, devilmay-care looks touching on
the late 80s and early 90s.

Guccis eccentric collection

included this slightly decadent
pink ensemble with sparkly
princess shoes.

Dolce & Gabbana included a

tougher, more manly look with
gold-braided military-style
coats and pants.

Working off an eccentric

princess theme, Dolce &
Gabbana paired a dress with
Dr. Martens-style boots.

Italian executives said, isnt the production lag but the fact that clothes
are sold in the wrong season.
Springs sleeveless cotton frocks are
currently arriving in stores just in
time to greet shoppers when it is
20 degrees Fahrenheit.
So for next fall, Prada and
Marni simply slipped in some summery poplin items that wont look
out of sync when they hit stores in
August. Prada also launched two
handbags Thursday and had them
available for purchase in select
stores and online by Friday. Earlyrelease tidbits like that should increasingly be part of a luxury labels long tease before
collections hit stores, said Tods
chief executive, Diego Della Valle.
Waiting is part of the point
with luxury, he said at Tods
show, which featured an installationreally a visual ode to artisanshipby artist Vanessa Beecroft, showing models including
Karlie Kloss in roughly stitched
strips of leather.

It is Gucci that is fueling the

current Italian renaissance under
the direction of designer Alessandro Michele. Blingier and with
an air of decadence, the Gucci collection maintained its poet-in-residence look with peculiarly
matched colorsbanana, crimson,
rainbow pastels and forest green.
Many ensembles were so awful
that they were twistedly good,
such as a dusty pink fur coat with
matching bag, tights and sparkly
princess shoes (Cinderella again).
After Wednesdays show, Guccis 6-foot-7-inch chief executive,
Marco Bizzarri, raced backstage
and lifted Mr. Michele in an embrace that left the designers toes
dangling nearly a foot off the
ground. With a year of the designers collections under its GGlogo belt, Guccis revenues are
growing again after steady declines. It has been a pinch-me-Imdreaming turnaround. Guccis
horsebit loafers are suddenly Alistshowing up even in the front

Weather
Shown are todays noon positions of weather systems and precipitation. Temperature bands are highs for the day.

Riga
Moscow
oscow

Glasgow
g w
Copenhagen
C p h g
Co
Dublin
D
b
Berlin
li

Amsterdam
A
d
London

Brussels

Frankfurt
kf

Warsaw
arsaw

Prague
Pra

Kiev
ev

Vienna
V

-15
-10
-5
0
5
10
15
20
25
30
35

Milan

Stationary
Showers
Istanbul
t b

Rain

Madrid
d id

T-storms

Lisbon
Al
i
Algiers

Athens
Ath

T i
Tunis

Snow

Global Forecasts
s...sunny; pc... partly cloudy; c...cloudy; sh...showers;
t...tstorms; r...rain; sf...snow flurries; sn...snow; i...ice

17

11

24

29

33

57

58

36

38

39

45

40

46

48

41

47

49

51

43

30

34

35
37

42

19

26

28
32

13

22

25

31

12

16

21

27

44

10

18
20

23

15

50

52

53

54

55

56

59

60

61

62

63

64

Tomorrow
Hi Lo W
5 -1 r
-2 -7 pc
17 9 c
14 2 s
27 14 pc
6 -3 sn
35 26 pc
17 4 pc
6 0 c
22 10 c
18 9 c
1 -3 sn
7 -2 sh
28 16 t
24 14 s
10 2 pc
29 23 s
14 0 pc
3 -1 pc
23 10 s
17 3 s
1 -8 pc
29 21 s
6 0 pc
6 -1 sn
6
1 r

City
Geneva
Hanoi
Havana
Hong Kong
Honolulu
Houston
Istanbul
Jakarta
Johannesburg
Kansas City
Las Vegas
Lima
London
Los Angeles
Madrid
Manila
Melbourne
Mexico City
Miami
Milan
Minneapolis
Monterrey
Montreal
Moscow
Mumbai
Nashville
New Delhi
New Orleans
New York City
Omaha
Orlando

Today
Hi Lo W
4 0 r
24 18 c
29 18 pc
20 16 pc
28 19 pc
28 10 pc
13 9 c
31 24 c
29 15 s
11 -1 c
28 13 pc
30 23 pc
9 3 c
21 10 pc
15 2 pc
30 25 c
26 16 pc
19 9 pc
27 20 pc
15 0 s
3 -5 sf
37 17 s
-13 -23 pc
2 -1 c
34 26 pc
8 4 r
33 18 pc
24 13 t
4 -1 pc
7 -1 c
29 16 pc

Tomorrow
Hi Lo W
6 3 r
24 19 pc
29 18 s
22 18 c
28 19 pc
24 9 s
14 8 pc
30 25 c
29 13 pc
16 3 pc
26 15 s
30 24 c
8 2 sh
21 13 pc
16 4 pc
31 25 r
30 18 s
18 4 sh
29 19 pc
12 5 pc
4 2 sn
27 17 pc
-8 -19 s
2 0 sn
34 25 pc
10 0 s
33 17 t
22 10 s
3 -3 sn
13 0 pc
27 12 s

Today
City
Hi Lo W
Ottawa
-13 -25 pc
Paris
9 4 sh
Philadelphia
6 0 pc
Phoenix
32 15 pc
Pittsburgh
3 -2 sn
Port-au-Prince
33 20 pc
Portland, Ore.
15 7 pc
Rio de Janeiro
32 23 c
Riyadh
28 17 pc
Rome
14 3 sh
Salt Lake City
17 5 pc
San Diego
20 13 pc
San Francisco
17 13 r
San Juan
29 23 pc
Santiago
31 12 s
Santo Domingo 31 19 pc
Sao Paulo
25 19 t
Seattle
13 7 r
Seoul
12 5 pc
Shanghai
23 14 c
Singapore
31 26 pc
Stockholm
3 0 sf
Sydney
30 21 s
Taipei
24 15 pc
Tehran
17 6 s
Tel Aviv
20 13 sh
Tokyo
15 7 s
Toronto
-6 -15 pc
Vancouver
11 6 sh
Washington, D.C. 7
1 pc
Zurich
4 -2 r

Ice
Tomorrow
Hi Lo W
-8 -19 s
9
1 sh
5 -3 sn
32 17 s
5 -6 pc
33 21 pc
16 10 r
30 23 t
31 19 pc
14 9 pc
16 5 pc
20 15 s
18 15 sh
30 23 pc
32 13 s
31 20 pc
25 19 c
12 8 r
15 9 c
21 13 pc
31 25 pc
3 -2 sn
29 21 s
25 15 pc
21 11 s
20 13 s
15 8 pc
-2 -14 pc
11 6 r
7 0 sn
5 0 r

IN INK, PLEASE | By Elizabeth A. Long

Across
1 Spielberg film
whose cast
earned two
NAACP Image
Awards
8 Start to squeak?
11 Org. for a
30-Down
14 Urchins attire
15 Opportunity to
take stock?:
Abbr.
16 Contractors
offer
17 Box of blocks
18 Shell figure
19 Plaza de Toros
shout
20 Minuscule
amount
21 Aspiration

22 Benchwarmers
23 Jude Fawleys
creator
25 ___ Wrong
(2014 Nico &
Vinz hit)
26 Division dune
nation
27 Osage Hills
State Pk.
location
28 Game with a grid
31 Like Beethovens
Symphony No. 6
34 Inflatable pilot in
Airplane!
35 What can be
found on
portions of
17-, 28-, 51- and
64-Across
37 CBS show with
two spinoffs

39 Say I have no
idea what you
mean, say
44 Minor goal?
47 Ready for the
51-Across,
maybe
48 Breezy Bye!
49 Message from
MADD, perhaps
50 Answer a
charge
51 Service option
52 Key hider
53 Simbas love
54 Lough ___
(Irish lake)
55 Useful reading
for newbies
56 Capers
59 Make ___
double

Solve this puzzle online and discuss it at WSJ.com/Puzzles.

Today
Lo W
0 sh
-8 s
11 pc
6 r
16 c
0 pc
24 pc
-1 pc
-1 c
10 t
4 c
-5 s
1 sh
18 pc
14 s
-2 s
23 pc
3 pc
-5 sn
6 s
1 pc
-7 sn
20 s
-1 r
0 c
-1 sh

Flurries

Rabat
b

Hi
7
-2
18
13
27
5
34
18
7
22
15
2
7
26
22
11
30
12
1
24
19
1
28
8
7
5

Cold
Bucharest
h

Rome

City
Amsterdam
Anchorage
Athens
Atlanta
Baghdad
Baltimore
Bangkok
Beijing
Berlin
Bogota
Boise
Boston
Brussels
Buenos Aires
Cairo
Calgary
Caracas
Charlotte
Chicago
Dallas
Denver
Detroit
Dubai
Dublin
Edinburgh
Frankfurt

1
14

Warm
Budapest
d p

Geneva

of approval from the bleachers.

One of the trends that emerged
there and at Tods, Valextra and
elsewhere over the week is bag
charms. Miuccia Prada loaded her
collection with revenue-boosting
doodads, offering tortoiseshell
mermaids, brass anchors and other
charms. Metal loops on handbags
and belts are designed to cry out
in stores to have a charm hooked
on them. Along with the high-margin belts, bags, corsets, sailor hats,
shoes and other accessories, the
collection is likely to appeal to the
emerging market of teenagers who
are these days beginning to spending their allowances on fashion.
Marco de Vincenzos striking
collection was also notable for
bridging the chasm between zany
fashion and wearable luxury. And
at Roberto Cavalli, designer Peter
Dundaswhose debut collection
for the label in September was disastrousdid an about-face with a
louche but lovely series of long,
slim music-festival looks.

The WSJ Daily Crossword | Edited by Mike Shenk

Munich
i h

Paris

row at Tods, a brand known for

its driving moccasins.
Jeremy Scott, creative director
of Moschino, may have best articulated the seasons sense of laughter in the face of doom. The best
medicine for hysterical times is
historical context, the designer
wrote in his show notes, which detailed the 1497 Bonfire of the
Vanities, when puritanical Dominicans rampaged through Florence.
His point: the terrorists failed to
defeat the Renaissance.
His set was dressed like a
bombed-out palazzo with wrecked
chandeliers and trashed antiques.
Moschinos models wore gowns
that looked half-burnedtheatrical
smoke puffed from the folds. Anna
Cleveland brought down the house
with her whirling turn down the
runway in a smoking tulle gown
yet another runway Cinderella.
After several tepidly received
seasons, Prada veered back on
course with a maximally accessorized collection that drew a roar

IF ITS HAPPENING IN THE

SQUARE MILE, ITS IN OUR APP.
From stocks, bonds and currencies to all the deals and dealmakers,
the WSJ CITY APP keeps your nger on the pulse of the City.
2016 Dow Jones & Co. Inc.All rights reserved. 6DJ3161

60 Runner with a
pale blue neck
61 Experienced in
62 One unlikely to
pass the bar
63 Last in a certain
series
64 Corvette, e.g.
Down
1 Letters on
many Delta
boarding passes
2 Shuttle
astronaut
Jemison
3 The Kardashian
sisters, e.g.
4 Was, as a score
5 Irascible
6 Quarter
7 Shifted hrs.
8 Takeout meal?
9 Tune carrier
10 Misfortune
wished on
another
11 Soon gonna
12 Port of Spains
northern coast
13 Imperative in a
carol title
21 Author of
The Blue Book
of Social Usage
22 Shakers, e.g.
23 Short trip

24 Alias indication
25 Somewhat
29 When tripled, a
Pearl Harbor film
30 One with briefs,
briefly
32 Short notice?
33 Head, in Hebrew
36 Co-star of
Burghoff and
Swit
37 Food in a shell
38 Gumbys
makeup
40 Sour cream
portions
41 Discover
42 ___ culpa
43 Abysmal
44 Classic consoles
45 ___ Be Stupid
(Weird Al
album)
46 Unfathomable
50 One who makes
a lot?
52 Tony-winning
role for Angela
Lansbury
53 Squat
55 Brimless hat
56 Harsh cry
57 ___ chi
58 Octane Booster
brand

Previous Puzzles Solution

L
A
W
S

I
B
E
T

A
S
K
S

S
P
I
T

A
S
T
E
R

S
H
I
R
E

P
A
E
T
L L H
E A L
K E
S E T
A C E
W I
A T S
Y A
S
L
E E T
E D I
M I N
S T E

L UM
I T O
E A D
H E A
A N
D
S
A R
T I M E
A N N A
T I M
H O O
O T
S
R O C K
N
R O
E
O A
D
C L

G
R
A
D
E
R

L
E
T
S
N
O
T

A
T
O
P

D
I
N
A
H

W
I L
S
T I
E S H E
E N D U
P U R
C AM
C KWE
H U
L
I P
T

E
N
A
C
T

S
A
L
E
S

E
V
E
R

D
O
T
E

P
L
E
A

S
L
O
B

Download the
WSJ City App.

For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com

BUSINESS & TECH.

INSIDE:

MONEY &
INVESTING

U.K. Court Setback for Shell

Slump Hits Ranks

Of the Superrich

Nigerian communities can sue over oil spills BUSINESS NEWS | B2

2016 Dow Jones & Company. All Rights Reserved.

FINANCE | B5
Thursday, March 3, 2016 | B1

THE WALL STREET JOURNAL.

VW Defends Timing of Disclosure Indicted

Shale-Gas
BERLINVolkswagen AG
acknowledged for the first
time that former Chief Executive Martin Winterkorn and
Herbert Diess, CEO of the
Volkswagen passenger cars division, were briefed July 27,
2015, about the diesel issue.
It added that the specific
details of that meeting are still
unclear, making it hard to
know if the companys top
management knew about the
emissions fraud already in
July.
The disclosure came as
Volkswagen filed a defense
with a German district court
Tuesday, rejecting allegations
that the company failed to inform financial markets in a
timely manner about potential
liabilities from its emissionscheating affair and published

JOSE GIRIBAS/ROPI/ZUMA PRESS

BY WILLIAM BOSTON

VW said CEO Winterkorn was briefed on the diesel issue in July.

new details about when top
management was informed
about the issue.
It is not clear whether
there [sic] participants under-

stood already at this point in

time that the change in the
software violated U.S. environmental regulations, Volkswagen said in the statement.

Mr. Winterkorn asked for further clarification of the issue.

Volkswagen said it felt compelled to publish the defense
and a more detailed chronology of events in response to
the publication of internal
documents leaked to German
media that suggest Mr. Winterkorn knew as early as May
23, 2014, about the cheating
software.
The question is important
and the answer could have
consequences not only for
Messrs. Winterkorn and Diess,
but also for Hans Dieter
Ptsch, the companys chairman, who was chief finance
officer at the time.
At issue is whether Volkswagens management waited
too long to inform financial
markets of potential liabilities
that would later cause a massive erosion of the companys

share price and market value.

Some investors have complained that Volkswagen management withheld information
from financial markets about
the diesel fraud and are seeking damages. Separately, Germanys financial markets
watchdog, BaFin, is conducting an investigation into
whether Volkswagen failed to
inform markets in a timely
fashion.
Volkswagen said in its defense that technicians informed the companys legal
department and lawyers from
Kirkland & Ellis LLP on Sept.
3, 2015, that modification of
the engine control software
constituted a prohibited defeat device under U.S. law.
The company informed the
California Air Resources Board
and the Environmental ProtecPlease see VW page B2

In France, Elite Schools Emulate Silicon Valley

cole Polytechnique
aims to bring investors,
students together to
churn out startups

Changing Times
Fewer government jobs are
reserved for cole Polytechnique
graduates.
Graduates taking reserved
government jobs

BY NICK KOSTOV

334
301

137
MIGUEL MEDINA/AGENCE FRANCE-PRESSE/GETTY IMAGES

German Investigation
Targets Facebook
BY FRIEDRICH GEIGER
AND SAM SCHECHNER
BERLINGermanys Federal
Cartel Office is investigating
whether Facebook Inc. abuses
its dominance as a social network to harvest personal information, the latest in a series
of
challenges
to
Facebooks privacy policies.
The probe, announced
Wednesday, builds on growing
momentum in Europe to tie together questions of competition law and online privacy.
Privacy advocates argue
that a handful of companies,
including Facebook, are leveraging their ubiquity to amass
data on hundreds of millions
of people, trampling privacy
laws and stifling competitors
in the online ad market. But
executives and lawyers for
large U.S. technology companies say that argument ignores
how competitive their sector
actually isand how easy it is
for users to switch services.
We are confident that we
comply with the law, and we
look forward to working with
the Federal Cartel Office to answer their questions, a

spokeswoman for Facebook

said Wednesday.
The question of how competition law can tackle privacy
protections has been simmering since at least 2007, when
U.S. authorities considered
and approvedGoogles purchase of online ad firm DoubleClick.
According to the German
Cartel Office, Facebook could
be abusing its market position
to force users to consent to the
collection of vast amounts of
personal data from various
sources. The social networks
terms and conditions ask users
for permission to use their
data for advertising purposes
but that isnt always transparent to users, according to the
competition watchdog.
It needs to be clarified
whether consumers are being
sufficiently informed about the
nature and scale of data collection, said Andreas Mundt, the
cartel office president. The office said it was conducting the
investigation in close contact
with the European Commission, consumer protection
groups and other European
competition authorities.

111

100

70

0
1975

1985

1995

2005 2015

Source: the school

THE WALL STREET JOURNAL.

Billionaire Patrick Drahi donated $5.4 million to cole Polytechnique to help fund entrepreneurship.
capitalism.
Many
were
founded to groom the countrys elite, from top civil servants to the executives who
run state-owned companies
that
once
monopolized
Frances economy.
In recent years, however,
Frances HEC business school
and Sciences Po, renowned for
its humanities, have begun to
admit more international students and offer courses in
English.

127

Few institutions embody

the rigidity of Frances higher
education system more than
Polytechnique.
Since the reign of Napoleon
Bonaparte, Polytechnique has
been funded by the government. Every year the school
admits 400 students who are
paid salaries to attend class.
The number of government
jobs reserved for Polytechnique graduates has declined
over time.

Half of Frances 10 biggest

companies by market capitalization are run by the schools
alumni, from Bernard Arnault,
chairman and chief executive
of LVMH Mot Hennessy Louis
Vuitton to Patrick Pouyann,
chairman and CEO of oil giant
Total SA.
Other alumni include Mr.
Drahi and Carlos Ghosn, CEO
of Renault SA and Nissan Motor Co.
Frances corporate behe-

moths are now straining to

growand hirein a global
economy redefined by fastmoving technology firms.
Many are looking to hire graduates who are prepared to innovate and take risks rather
than looking to secure a perch
in government bureaucracy.
Were focusing on innovation. Were looking for passion, said Mr. Arnault,
LVMHs chief executive and
Frances richest man. Were
looking to diversify the profile
of the people we recruit, both
in terms of geography and intellectual origins.
Last year Prime Minister
Manuel Valls ordered a review
of the schools practices. PeoPlease see SCHOOL page B4

BY MIGUEL BUSTILLO
AND LYNN COOK
Aubrey McClendon, one of
the pioneers of the U.S. shale
boom, died in a fiery singlevehicle crash on Wednesday, a
day after he was indicted by a
federal grand jury on charges
of conspiring with an unnamed
company to rig the price of oil
and gas leases in Oklahoma.
Oklahoma City Police said
in a news conference Wednesday that Mr. McClendon, the
former chief executive of
Chesapeake Energy Corp.,
was found dead after driving
into a wall at speeds well in
excess of the 40 mile-per-hour
limit for the area Wednesday
morning. He was 56 years old.
Authorities were trying to
determine whether the crash
was the source of his death, or
whether he had suffered a
health issue beforehand. The
vehicle was so badly burned
that emergency responders
werent immediately able to
tell whether Mr. McClendon
was wearing a seat belt, police
said.
He collided into a concrete
embankment at a high rate of
speed, and the vehicle was immediately engulfed in flames,
an Oklahoma City Police Dept.
spokesman said.
American Energy Partners
LP, the main venture Mr. McClendon had founded to mount
a comeback after being forced
out of Chesapeake in 2013 by
activist investors, confirmed
his death.
It is with deep sadness
that [American Energy] confirms that earlier today, its
founder, Aubrey K. McClendon,
died in a car accident on Midwest Boulevard in Oklahoma
City, the company said. We
will deeply mourn his loss, and
please join us in expressing
our condolences to his family.
Chesapeake also expressed
shock at his death.
Chesapeake is deeply saddened by the news that we
have heard today, and our
thoughts and prayers are with
the McClendon family during
this difficult time, the company said in a statement.
The indictment Tuesday alleged that Mr. McClendon orchestrated a campaign to keep
bid prices down from 2007 to
2012, while he was chief executive of Chesapeake, amid a
Please see AUBREY page B2

Amid Apple-FBI Fight, China Looms

Apples refusal of the U.S.
Federal Bureau of
Investigations request to
help unlock a shooters
iPhone has been a hot topic
not only in the companys
home country but in its biggest foreign market: China.
Some Chinese have
questioned
whether the
move is a marketing stunt,
but others
CHINA
have supported
CIRCUIT
Apple for
LI YUAN
standing up to
the governmentsomething unimaginable for Chinese companies.
Some also have asked: What
if the Chinese government
asked Apple to do the same
thing? Could Apple say no?
That question points to a
significant issue for the company in the current standoff:
Complying with the FBI in
the San Bernardino, Calif.,
iPhone case could make it
much harder for Apple to rebuff the demands of repressive governments in China
and elsewhere abroad for access to the phones of, say,

democracy activists or other

dissidents. Its an especiallyimportant concern for Apple,
which gets most of its revenue from outside the U.S.
The company derives
roughly 25% of its revenue
from the greater China region, which includes the
mainland, Hong Kong, Macau
and Taiwan.
Apple has alluded to this
issue, without naming China.
In its filing to a federal court
in California last week, Apple warned about the dan-

gers of building a backdoor

into the iPhone. Once developed for our government, it
is only a matter of time before foreign governments demand the same tool, the filing says.
Benjamin Qiu, a partner
in law firm Loeb & Loebs
Beijing office, says if Apple
were to lose the battle with
the FBI, Chinas government
would have every reason to
make similar requests.
Compared to the Chinese
government, FBI is a push-

CHINATOPIX/ASSOCIATED PRESS

PARISWhen cole Polytechnique recently opened a

new research center, Frances
top engineering and science
school took a radical step: It
named the building after telecoms billionaire Patrick Drahi.
While splashing a donors
name on academic buildings is
common pracBUSINESS
tice in the U.S.,
EDUCATION the Drahi XNovation Center is part of a
cultural revolution thats
emerging at top French colleges.
The market is open for
anybody who wants to have
their name on the school,
said Jacques Biot, the schools
president.
Polytechnique wants to emulate schools like Stanford
Universitys Graduate School
of Business by bringing investors and students together to
churn out startups that can rejuvenate Frances economy. In
some cases, the school is providing capital to student startups in exchange for ownership
stakes.
The business-savvy approach was once anathema for
Frances leading schools,
which walled themselves off
from the forces of free-market

400 400 400

Baron Dies
In Crash

An Apple store displayed iPhones in Nanjing, China, last year.

over, he says.
Chinas State Internet Information Office, which regulates the Internet, didnt respond to requests for
comment.
On its privacy Web page,
Apple says it has never
worked with any government
agency from any country to
create a backdoor in any of
our products or services.
Chinese technology companies are used to accommodating their governments
demands. Executives say
they have to surrender whatever user information the
government requests, and
abide by frequent updates on
content to be censored.
Says an executive at one
Chinese Internet company,
When government says,
Jump, were expected to
ask, How high?
Increasingly, Beijing is
trying to regulate Western
tech companies in a similar
fashion. A new Internet regulation, effective next week,
bars foreign companies from
publishing online content in
China without prior approval. A draft Cyber SecuPlease see YUAN page B3

THE WALL STREET JOURNAL.

B2 | Thursday, March 3, 2016

INDEX TO BUSINESSES

C
Cairn Energy...............A2
Charles Schwab .......... B6
China Telecom.............B3
Coefficient Investment
.....................................B6
Compagnie Industriali
Riunite ...................... B4
Continental Resources
.....................................A1

D
Deutsche Bank............B9
Deutsche Brse...........B7

E
Elliott Management ... B9
Ericsson.......................A2
Exxon Mobil................B9

F
Facebook......................B1
Fiat Chrysler
Automobiles ............. B4
Flipkart........................B3

G
Georg Fischer..............A2
Green Investment Bank
...................................B10

Gruppo Editoriale
l'Espresso..................B4

Rolls-Royce HoldingsB10
Royal Dutch Shell.......B2

Hantak Investment
Advisors....................B5
Hisense........................B4
H&M Hennes & Mauritz
.....................................A2
Hong Kong Exchanges &
Clearing.....................B7

SABMiller..................B10
Scania..........................A2
Scheu...........................A2
Shares iBoxx USD High
Yield Corporate Bond
.....................................B9
Sharp...........................B4
Shell Petroleum
Development Company
of Nigeria..................B2
Solera Holdings .......... B9
S&P..............................B6
S&P 500.......................B6
Sprint .......................... B9
Straumann Holding....A2

I-K
Intercontinental
Exchange...................B7
Kinder Morgan............A1

L
LCH.Clearnet Group....B7
Ledbury Capital Partners
.....................................A2
Lloyds Banking Group
...................................B10
London Stock Exchange
Group.........................B7

M-N
Moody's.......................B6
Nasdaq OMX Group....B6
National Bank of Greece
.....................................B5
Navitas......................B10
Nestle..........................A2

O-R
Ophir Energy...............A2
Palantir Technologies.B3
Piraeus Bank...............B5
PVE Capital.................A1
Roche Holding.............A2

T-U
Toyota Motor..............B2
Uber Technologies ...... B3
U.S. Bank Wealth
Management ............ A2

V
ValueAct Capital.......B10
Virgin Money Holdings
(UK).........................B10
Volvo ........................... A2

W
Wal-Mart Stores.........B4
Westbrook Asset
Management ............ A2
Wunderlich Securities B6

Y
Yahoo...........................B3

INDEX TO PEOPLE
A-B
Alsalem, Michael........A2
Andurand, Pierre ........ A1
Attali, Bernard............B1
Biot, Jacques .............. B1
Bulcke, Paul................A2

Gadola, Marco.............A2
Gaffney, Chris.............B6
Hanemann, Thilo ........ B4
Haworth, Rob ............. A2
Hess, Hans..................A2
Hogan, Art .................. B6

C-D

J-K

Cook, Tim....................B3
Cryan, John.................B9
Deorah, Kashyap.........B3
Dudley, William .......... B9
Duggan, Robert...........A2

Javid, Sajid................B10
Jenisch, Jan................A2
Keenan, James............B9
Khan, Rehan Yar.........B3
Kingsbury, Shaun......B10

E-H

L-O

Elswick, Jeffery..........B9

Le Mee, Jean-Louis....A2

Li, Charles...................B7
Minsch, Rudolf ........... A2
Orenstein, James........B3

P-S
Perfumo, Diego...........B7
Preclaw, Ryan ............. B9
Pucci, Gennaro............A1
Pym, Sheri .................. B3
Qiu, Benjamin.............B1
Scheu, Rene................A2
Serra, Yves..................A2

T-Z
Thooft, Nathan...........B6
Zdziarski, Jonathan....B3

Toyota to Revamp in April

BY YOKO KUBOTA
TOKYOToyota
Motor
Corp. said Wednesday that it
will reorganize its corporate
structure starting in April,
splitting itself into smaller
units based on product classes
in an effort to develop cars
more efficiently.
The worlds biggest auto
maker, which sells more than
10 million vehicles a year, will
set up new product-type-based
units responsible for vehicle
development and the short- to
mid-term strategy, it said.
Toyota will create seven
units to focus on products including compact cars, midsize
vehicles, commercial vehicles
and the luxury Lexus brand.
Others will focus on advanced
technology, power trains and

VW
Continued from page B1
tion Agency on Sept. 3. A day
later, Mr. Winterkorn was informed.
At this point, Volkswagen
explained in its statement, the
companys management believed the matter was restricted to a relatively small
number of vehicles in the U.S.
Based on past cases, Volkswagens lawyers believed the
matter could be resolved at little cost by disclosing the software modification, agreeing on
measures with U.S. authorities
to make the vehicles compliant, and paying potential fines
in line with past cases, which
were about $91 per vehicle.

AUBREY
Continued from page B1
land-leasing boom across the
U.S.
Mr. McClendon had vigorously contested the charges in
a statement Tuesday evening.
The charge that has been
filed against me today is
wrong and unprecedented, he
said. All my life I have
worked to create jobs in Oklahoma, grow its economy, and
to provide abundant and affordable energy to all Americans. I am proud of my track
record in this industry, and I

REPUBLIC OF ALBANIA
Council of Ministers
National Agency of
Information Society
INVITES COMPETENT COMPANIES
TO SUBMIT PROPOSALS FOR:
Increasing the physical and digital
security in secondary schools,
construction of multi-dimensional
communication platform
The procedure and conditions for
submissions can be accessed via the links:
HTTP: http://app.gov.al
Proposals must be submitted until
April, 15th, 2016 before 13:00 (local time).

connected cars.
By breaking the company
down to a smaller framework
than before, each one can decide more quickly and respond
to changes, spokesman Ryo
Sakai said.
The Wall Street Journal reported the restructuring earlier this week.
President Akio Toyoda and
other executives are concerned that Toyotas decisionmaking is sometimes sluggish,
even though the company restructured several times over
the past five years to become
more nimble, current and former executives have said.
They believe the auto
maker might be too big to decide and act swiftly under the
existing structure, the people
have said.
Volkswagen said it wasnt
aware of the full breadth of
the scandal until the EPA released its notice of violation
Sept. 18, citing potential fines
of $37,000 per vehicle and the
subsequent discovery that the
software was installed on
nearly 11 million vehicles
world-wide.
Volkswagen said the assessment of the concrete global
risks took several days. The
company issued an ad hoc
statement to financial markets
Sept. 22.
After careful examination
by internal and external legal
experts, the company confirms
its belief that its management
board duly fulfilled its disclosure obligation under German
capital markets law, Volkswagen said in its statement.
will fight to prove my innocence and to clear my name.
Within the energy industry,
Mr. McClendon was regarded
as a visionary who early on
grasped the promise of technology that would unlock huge
deposits of oil and natural gas
from dense rock formations
across the U.S.
While at Chesapeake, Mr.
McClendon was long one of
the most aggressive buyers of
land all over the country amid
a bonanza to drill in layers of
shale rock.
His epic lease-acquisition
spree left the Oklahoma Citybased driller with rights to
more than 16 million acres
stretching from Texas to Pennsylvania. It also made the
company cash-poor, bloated
with debt and vulnerable to a
collapse in oil and gas prices.
Once a billionaire, Mr. McClendon was ousted as CEO of
Chesapeake in 2013 after a
shareholder revolt led by activist investor Carl Icahn. He
left the company amid allegations that he improperly mixed
his personal dealings with
company operations. Mr. McClendon denied wrongdoing at
the time.
Erin Ailworth
and Bradley Olson
contributed to this article.

Nigerians Can Sue Shell in U.K.

BY SARAH KENT
LONDONTwo
Nigerian
communities can sue Royal
Dutch Shell PLCs Nigerian unit
in the U.K. over oil spills in the
West African country, a London
court ruled Wednesday, testing
whether energy companies can
be held liable in their home
country for events elsewhere.
The lawsuits, filed with the
London High Court, are the
latest international litigation
to face Shell for environmental
damage stemming from its Nigerian operations. The AngloDutch company reached a 55
million ($77.4 million) settlement in a similar U.K. lawsuit
brought by the Niger Deltabased Bodo community in January 2015.
The company also is being
sued in the Netherlands in a
separate case involving Nigerian oil spills.
The firms local subsidiary,
Shell Petroleum Development
Company of Nigeria Limited,
or SPDC, has been plagued by
frequent spills that environmental groups and nongovernmental organizations say have
destroyed Niger Delta fishing
grounds and polluted water
systems.
According to figures published by Shell, oil spills from
its operations in Nigeria
amounted to about 48,000
tons between 2008 and 2014.
Shell says the spills primarily are caused by oil thieves
who sabotage pipelines. The
company says it cleans up any
environmental damage regardless of the cause.
A representative for SPDC
said in an email Wednesday
that the cases should be tried
in Nigeria and that it would
challenge the jurisdiction of

GEORGE OSODI/BLOOMBERG NEWS

A
Alibaba Group.............B3
Alpha Bank..................B5
Amazon.com ............... B3
Andurand Capital
Management ............ A2
Anheuser-Busch InBev
............................. B9,B10
Apple...........A7,B1,B3,B9

The Agbada 2 oil-flow station operated by Shell in Port Harcourt, Nigeria, last year.
English courts. We believe
that allegations concerning Nigerian plaintiffs in dispute
with a Nigerian company, over
issues which took place within
Nigeria, should be heard in Nigeria, the email said.
The communities lawyers
said they are suing in the U.K.
because the oil spills have persisted for decades in Nigeria
without being addressed.
The Nigerian courts cant
deal with these cases, said
Daniel Leader, a partner at law
firm Leigh Day, which is representing the communities. This
would clearly be a very important precedent because it
would mean that Shell could
be held to account, not only in
Nigeria, but also in the jurisdiction of the parent company
for its environmental record.
This isnt the first time African communities have looked
to international courts in envi-

ronmental cases. In the Netherlands, a Dutch appeals court

ruled in December that four
Nigerian farmers and Friends
of the Earth Netherlands could
sue Shell there in relation to
separate oil spills.
Shell has operated in Nigeria for nearly 80 years and
SPDC produces about 39% of
Nigerias oil, pumping it
through a web of pipelines in
the oil-rich Niger Delta.
The new cases against Shell
in London relate to the Ogale
and Bille communities in the
Niger Delta.
The Ogale community alleges that it has been subject
to repeated oil spills since at
least 1989 that have destroyed
farming and fishing in the area
and left the community without clean drinking water. The
community is located in an
area known as Ogoniland
where Shell was forced to

abandon production in 1993

because of community protests, but a 2011 U.N. investigation found the area remained
seriously polluted.
We hope at last this case
will force Shell clean up,
Ogales ruler Emere Godwin
Bebe Okpabi said in a news release issued by Leigh Day.
In Bille, the communitys
lawyers say oil leaks from a
Shell pipeline have damaged
thousands of hectares of mangrove and destroyed the fishing
grounds. The SPDC statement
said both Bille and Ogale are in
areas heavily affected by oil
theft and pipeline sabotage and
that its access to Ogale has
been limited by violence. The
company said it also is working to address recommendations made in the 2011 U.N. report.
Benoit Faucon
contributed to this article.

Rolls-RoyceAddsActivistFund toBoard
BY ROBERT WALL
L O N D O N R o l l s - R o yc e
Holdings PLC named the representative of U.S. activist
shareholder ValueAct Capital
Management LP to its board
on Wednesday, though the
British engine maker vowed to
stick to its current strategy.
The group, one of the main
suppliers of aircraft engines
for plane makers Airbus
Group SE and Boeing Co., said
Bradley Singer, ValueActs
chief operating officer, will
join the board as a director effective immediately.
ValueAct last year became
Rolls-Royces largest shareholder and now holds a 10.8%
stake in the company. An activist investor gaining a board
seat remains a rarity in the
U.K., even as it has become a
more regular occurrence in the
U.S. and Europe. ValueAct already sits on the board of Microsoft Corp.
Rolls-Royce Chairman Ian
Davis said the presence of an
activist investment fund in the
boardroom wont trigger an-

other review of group strategy. Rolls-Royce is committed

to being a diversified engine
and power-systems business,
Mr. Davis said.
There will be no fundamental change in direction.
There is no question of a
large-scale breakup, he said.
The ValueAct representative would serve on the board
as long as ValueAct remained
a major shareholder in the
company, he said.
The appointment comes as
Rolls-Royce Chief Executive
Warren East is set to complete
a strategic review midsummer,
Mr. Davis said. It could lead to
some disposals, though Mr.
East has signaled there was no
plan for a thorough reshaping
of Rolls-Royces portfolio.
As well as jet engines, the
group makes engines and
power turbines for the marine,
defense and energy sectors.
Mr. East recently completed
an operational review that has
led to a streamlining of the organization and job cuts to restore competitiveness.
Rolls-Royce has struggled

under a series of profit warnings and last month announced the companys first
dividend cut in more than 20
years. Demand has weakened
for some of the companys
most profitable products.
The sharp drop in oil prices
also has hit earnings at its marine and power-systems operations.

mergers or changes to company strategy, or to publicly

criticize the company.
The agreement is similar to
one ValueAct has with 21st
Century Fox, which nominated
ValueAct CEO Jeffrey Ubben to
the media and entertainment
groups board last year. 21st
Century Fox and News Corp,
owner of The Wall Street
Journal, were until mid-2013
part of the same company.
ValueAct has also agreed to
vote its shares in support of
the board at Rolls-Royces
shareholder meetings this year
and next, as well as maintaining at least a 7.5% stake to retain its board representation.
The appointment comes after months of talks between
Rolls-Royce and ValueAct that
Mr. Davis characterized as
constructive, though ValueAct hasnt made specific recommendations on the overhaul under way at Rolls-Royce.
Mr.
Singer
would
strengthen the companys ability to deal with U.S. investors
and bolster its financial knowhow, Mr. Davis said.

An activist investor
gaining a board seat
remains a rarity
in the U.K.
This is not going to be a
quick fix, Mr. Davis said,
echoing Rolls-Royces CEO.
Rolls-Royce said that ValueAct has committed not to raise
its stake beyond 12.5% and has
signed up to a standstill
agreement that will run until
the 2018 annual shareholder
meeting.
Under the pact, ValueAct
has agreed not to call for
shareholder meetings, propose

Monsanto Lowers Outlook as Crop Prices Sag

BY JACOB BUNGE
AND JOSHUA JAMERSON
Monsanto Co. on Wednesday
issued a profit warning though
it said there were signs of stabilization in a farm economy hampered by low global crop prices
and a strong U.S. dollar.
The worlds biggest seller of
corn and soybean seeds and
the maker of Roundup weed
killer cut the midpoint of its
fiscal 2016 profit forecast by
11%, but doesnt plan any further job cuts after announcing
plans in recent months to lay
off 3,600 employees, about 16%
of its global workforce.
There are no signs of improvement, but not much indication of further deterioration, Chief Executive Hugh
Grant said in an interview.
Monsanto shares, which
were down 7.8% at $85.28 in
late-afternoon trading, have
shed 29% during the past year.
The company said ahead of
an investor meeting it expects
adjusted earnings for 2016 in a
range of $4.40 to $5.10 per
share, down from a prior forecast of $5.10 to $5.60.
Monsanto, along with rivals
in the seed business and suppliers of fertilizer and tractors, is
grappling with a severe downturn in the U.S. farm economy
and pressures in overseas markets. Farmers incomes have
been pinched as grain and oil-

DANIEL ACKER/BLOOMBERG NEWS

These indexes cite notable references to most parent companies and businesspeople
in todays edition. Articles on regional page inserts arent cited in these indexes.

BUSINESS NEWS

Monsantos agricultural products include DeKalb brand seed corn.

seed prices have sagged for
three straight years following a
string of bumper harvests. The
strength of the U.S. dollar also
has made Monsantos products
more costly overseas.
The U.S. Department of Agriculture last week forecast another big U.S. crop, helping
send corn stockpiles to a projected 12-year high and wheat
to the highest levels in nearly
three decades. That extended
the pressure on farmers income, which the agency expects this year will fall to the
lowest level since 2002.
The St. Louis-based company
said Wednesday it faces pricing
pressure from generic versions
of glyphosate, the main ingredient of its Roundup herbicide.

It is still awaiting regulatory

approval for a new version of
the dicamba herbicide, which
Monsanto aims to pair with a
new line of soybean seeds that
have been approved.
The company is hopeful the
U.S. Environmental Protection
Agency will approve the chemical in the next several
months, Chief Technology Officer Robert Fraley said in the
interview.
Consolidation in the agricultural seed and chemical
business is likely to continue,
Monsanto executives said,
though the company favors
striking partnerships with rivals rather than acquiring
them outright, Mr. Grant said,
adding that any deal has to

make economic sense, especially in these times.

The sector in the last three
months has been reshaped as
DuPont Co. and Dow Chemical
Co. in December unveiled a
merger plan that will lead to a
separation into three separate
companies, including one focused on agriculture.
In February the Swiss pesticide giant Syngenta AG, which
Monsanto pursued unsuccessfully last year, agreed to sell itself to China National Chemical Corp. Regarding Syngenta,
Mr. Grant said that while it is
difficult to predict how regulators would consider the deal,
from all our planning, that
ship has sailed.
For the second quarter, the
company forecast earnings of
$2.35 to $2.45 a share, a decline
versus the prior year, on glyphosate pricing declines and
the devaluation of the Argentine peso. Analysts surveyed
by Thomson Reuters had expected $2.84 a share.
Monsanto said currency
headwinds would shave about
25 cents to 30 cents off its fullyear per-share earnings results. It also anticipates results
in its seeds and genomics business to bite into its bottom
line by an additional 30 cents,
which the company blamed on
industry discounting and a delay in the U.S. approval of dicamba for in-crop use.

THE WALL STREET JOURNAL.

Thursday, March 3, 2016 | B3

TECHNOLOGY

@wsjd | wsjd.com

Cuts to Flipkart Valuations Worry Investors

Three funds with tiny
stakes in the Indian
startup reduce value
they assign holdings

Reality Check
India's population of online
shoppers remains small,
prompting startup investors to
reassess their bets.
Internet penetration as a
percentage of population, 2014

BY SEAN MCLAIN

Internet users

Online shoppers

U.K.
NOAH SEELAM/AGENCE FRANCE-PRESSE/GETTY IMAGES

NEW DELHISome investors in Indias largest e-commerce company Flipkart Ltd.

have lowered their valuations
of the company, exacerbating
concerns the easy money for
technology startups could be
drying up.
In recent mutual-fund filings with the U.S. Securities
and Exchange Commission,
three funds with small stakes
in Flipkart have slashed as
much as 23% off the value
they give their holdings.
The
Bangalore-based
startup was valued at $15 billion by investors when it
raised money last summer.
Venture capitalists say the
reduction could slow the gold
rush in Indias high-tech
startup sector that created
eight so-called unicorns, or
unlisted companies valued at
more than $1 billion.
The markdowns will have a
domino effect on other billion-dollar Indian startups,
said Rehan Yar Khan of Orios
Venture Partners, a Mumbai
venture-capital firm.
Orios has a stake in Uber
Technologies Inc.s Indian
ride-hailing rival Ola, which
is valued at $5 billion.
Mr. Khan said Flipkart and
other startups will now find
it harder to justify higher
valuations in future fundraising rounds and public offerings.
There will be reverbera-

Germany
U.S.
Japan
Russia
Brazil
China
India
0% 20

40

60

80 100

Source: Morgan Stanley

Workers prepared for the opening of a Flipkart distribution center in Hyderabad, India, last year.

THE WALL STREET JOURNAL.

tions in the ecosystem, he

said. A big stone has fallen
in the pond.
Around the world, startups
once valued at billions of dollars are now considered less
attractive as the global economy slows and market appetite for tech companies cools
down.
In the U.S., financing for
U.S. startups in the fourth
quarter fell 6.6% to $17.13 billion, the lowest in five quarters, according to an analysis
by The Wall Street Journal.
In India, investors pumped
$959 million into tech startups in the last quarter of
2015, less than a third of the
$3.2 billion invested in the
previous quarter and roughly
half of what they invested a

mates on the value of many

of its holdings without disclosing a reason. It cut the
value of its share of datamining software startup Palantir Technologies Inc. by
32%, and online storage
startup Dropbox Inc. by 23%
over the same period as its
Flipkart cut. Both Palantir
and Dropbox are based in the
U.S.
Despite the cut in the valuation of Morgan Stanleys Flipkart stake, the
shares are still worth more
than four times what the
fund paid for them in 2013.
Much of the excitement
surrounding Flipkart and
other Indian startups came
from the expectation that Indias Internet economy will

year ago, according to data

firm Tracxn.
That is leading investors
to take a hard look at the
math behind startup valuations.
The SEC filings showed
that the Morgan Stanley Institutional Fund Trust Mid
Cap Growth Portfolio fund
wrote down the value of its
0.58% stake in Flipkart by
23% in the quarter ended December to $59 million from
$77 million in the quarter
ended September.
Separately, the Fidelity
Rutland Square Trust Strategic Advisers Growth Fund
lowered the value of its 0.05%
stake in Flipkart by 23% to
$5.4 million between August
and November last year.

Variable Annuity Life Insurance Co.s Valic Company I

Mid Cap Strategic Growth
Fund reduced the value of its
0.01% stake in Flipkart by 11%
to $1.7 million from $1.9 million during the same period.
Spokesmen for Fidelity
and Morgan Stanley declined
to comment on the revaluations. A Flipkart spokeswoman also declined to comment on the markdowns by
its investors.
A spokeswoman for Valic
didnt respond to a request
for comment.
Flipkart isnt the only tech
startup that recently has
been marked down by investors.
The Morgan Stanley fund
has been lowering its esti-

eventually follow in the footsteps of Chinas.

The problem is that while
Indians are accessing the Internet at a record rate, only a
small percentage of them
shop online. Analysts estimate that the number of people who regularly shop online
is around 50 million, or about
12% of Internet users in India. That compares to close
to 400 million in China.
Chinas largest e-commerce company Alibaba
Group Holding Ltd. posts billions of dollars in quarterly
profit, while Flipkart is still
burning through millions of
dollars in cash, according to
people familiar with Flipkarts finances.
In a Morgan Stanley research report last month, the
firm estimated that Flipkart sold more than $6 billion
of goods last year, meaning it
controls close to half of the
Indian e-commerce market.
However, it is also spending cash as it tries to stay
ahead of a host of competitors, including Amazon.com
Inc.
Flipkart, meanwhile, is still
several years away from going public as it works on becoming profitable, according
to sources familiar with the
companys plans.
Kashyap Deorah, a New
Delhi-based entrepreneur and
author of The Golden Tap, a
book about the history of Indian tech startups, said Flipkarts valuation could fall if it
continues to lose money.
I think the valuation will
become the same as invested
capital, or around $3 billion
unless Flipkart stops losing
so much money, he said.

BY DEVLIN BARRETT
Apple Inc. has formally objected to a judges order directing the company to help
government agents unlock a
terrorists iPhone, one of a
number of filings expected in
the high-profile case in coming days.
The new Apple filing is
largely a procedural move in
the high-stakes court fight
about privacy, security and encrypted data, but it underscores the companys determination to fight a court order it
says would jeopardize the privacy of all its customers.
In the brief filing Tuesday
night, Apples lawyers said
they formally were objecting
to a previous court order out
of an abundance of caution. In
the order, issued last month,
Magistrate Judge Sheri Pym
ordered Apple to help the Federal Bureau of Investigation

YUAN
Continued from page B1
rity Law, under review, would
require Internet network operators to provide authorities
with technological support
and assistance for national security and criminal investigationswhich Amnesty International, a rights group, says
could make it easier to involve
companies in censorship and
surveillance.
Since China emphasizes
national security more than
personal-data protection, tech
companies may well be required to follow the authorities orders, says Yun Zhao, a
law professor at the University
of Hong Kong.
Edward Snowdens revelations that the U.S. government
tapped into electronics gear
overseas to spy on other governments have fed fears about
foreign technology in China.
As a result, many U.S. tech
companies have lost market
share in a critical market.
Apples business has been a
rare bright spot among multinational tech companies in
China. In fiscal 2015, its revenue in China soared 84% to
$58.7 billion. In the rest of the
world, it grew 16%.
But Apple, like others, faces
increasing scrutiny and pressure from Chinas government
and state-run media. In 2014,
after state television called the
iPhone a national security
risk, Apple moved Chinese
customers data from overseas

bypass the passcode security

features on the work iPhone of
Syed Rizwan Farook, who
along with his wife killed 14
people in San Bernardino, Calif., last December.
Apple already was challenging Judge Pyms order, but the
new filing could preserve the
companys options if she upholds it and the company
chooses to appeal.
On Wednesday, the company
also filed to Judge Pym a copy
of another judges ruling in a
similar case. James Orenstein,
a federal magistrate judge in
Brooklyn, N.Y., ruled this week
that the Justice Department
doesnt have legal authority to
force Apple to help open an
iPhone seized as part of a drug
investigation. The 50-page ruling is the first of its kind, and
the Justice Department is expected to appeal.
In the California case, Apple
isnt the only one trying to

sway the judge.

The American Civil Liberties Union said it would file a
friend-of-the-court brief to
Judge Pym on Wednesday,
urging her to reject the government effort and citing
Judge Orensteins ruling.
The ACLU lawyers argue the
governments push to force Apple to unlock the iPhone
amounts to an unprecedented
law-enforcement effort to conscript an American technology
company into creating software
designed to weaken the security of its own devicesan effort that, if successful, would
set precedent implicating the
security and privacy of hundreds of millions of Americans.
Major technology firms also
are expected to file friend-ofthe-court briefs siding with
Apple, while law-enforcement
organizations are planning to
submit briefs agreeing with
the FBI.

into a domestic facility operated by state-run China Telecom. Some critics said the
move could make Apple products less secure.
At the time, Apple said the
move would improve performance for its Chinese customers, adding that the data are
encrypted and not accessible
by China Telecom. Jonathan
Zdziarski, who researches Apples software security, posted
on Twitter that Apple stores
iCloud data on China Telecom
with the encryption keys outside the country. This makes
sense and reduces risk of data
breach, he wrote.

security testing in China, as in

other countries, says a person
close to Apple.
Apple already fields many
requests for information from
authorities in Chinaas in
other countries. Its latest
transparency report says it received 1,129 device requests in
China in the first half of 2015,
providing data for 74% of
those. In the U.S., it provided
data in response to 81% of
3,824 such requests.
Apple doesnt specify the
nature of the requests in either
country, but says the vast majority globally are from agencies working to retrieve stolen
devices. When it comes to law
enforcement asking for account informationgenerally
related to iCloudApple provided data on 29% of 24 requests in China, compared with
81% of 971 requests in the U.S.
Any U.S. tech company
must fear being put in the position Yahoo was with the Shi
Tao case. In 2004, at the request of the Chinese government, the company provided
information from Mr. Shis Yahoo email account that Chinese authorities used to convict the Chinese journalist of
disclosing a secret government
order to an overseas website.
Mr. Shi was sentenced to 10
years in prison.
At a 2007 congressional
hearing on the case, one representative castigated Yahoo
executives as moral pygmies.
Yahoo officials apologized.
Follow Li Yuan on Twitter
@LiYuan6 or write to
li.yuan@wsj.com.

Chinese authorities
have appeared eager
to make Apple
seem cooperative.
Still, Chinese authorities
have appeared eager to make
Apple seem cooperative.
In an English-language
post on its Twitter account in
January 2015, Peoples Daily,
the Communist Party newspaper, wrote #Apple has agreed
to accept Chinas security
checks, 1st foreign firm to
agree to rules of Cyberspace
Admin of China. The post was
accompanied by a photo of
Apple Chief Executive Tim
Cook shaking hands with Lu
Wei, head of the State Internet
Information Office.
All
telecommunications
manufacturers need to submit
their products for government

MICHAEL NAGLE/BLOOMBERG NEWS

New Filings in Apple Phone Case

Abercrombie & Fitch reported its profit soared 33% in the most recent quarter.

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ANHEUSER-BUSCH INBEV

SABMillers Chinese
Beer to Be Sold Off

Anheuser-Busch InBev NV
said it has agreed to sell SABMiller PLCs Chinese beer business to China Resources Beer
Holdings Co., as the Belgian
brewer seeks Chinese regulatory
approval for its pending acquisition of its biggest rival.
Chinas government-controlled
brewer has agreed to acquire
SABMillers 49% interest in the
joint venture known as CR Snow
in a $1.6 billion deal that would
give it full ownership over Snow,
the worlds No. 1-selling beer by
volume. China Resources and
SABMiller have been partners in
the joint venture since 1994.
The deal is subject to regulatory approval and contingent
upon AB InBev closing its
roughly $108 billion acquisition
of SABMiller. The Belgian brewer
said it expects to do that in the
second half of this year.
Tripp Mickle
and Laurie Burkitt
ABERCROMBIE & FITCH

Same-Store Sales
Get Back in Style

Abercrombie & Fitch Co. reported its first same-store sales

gain in more than three years as
profit soared 33% in the most recent quarter, signs that its turnaround is taking hold.
Total sales gained 2% to $1.11

billion for the three months

ended Jan. 30, excluding currency
fluctuations. Sales excluding
newly opened or closed stores
rose 1%, the first gain since the
quarter ended in April 2012.
Profit increased to $58.9 million, or 85 cents a share, from
$44.4 million, or 63 cents a
share, a year ago.
The initiatives weve been
working on are getting positive
traction, Arthur Martinez, the
companys executive chairman,
told The Wall Street Journal.
The company has been updating its merchandise and making
its stores easier to shop in after
former CEO Mike Jeffries alienated shoppers by trying to make
the brands too exclusive. Gone
are shirtless models and overtly
sexy advertising. Instead, store
employees are encouraged to interact with customers and have
more flexibility on where to
place products depending on
what is selling well.
Suzanne Kapner
BROWN-FORMAN

Outlook Downbeat
On Slip in Sales

Brown-Forman Corp. cut its

earnings outlook for the year after the maker of Jack Daniels
whiskey said sales slipped in its
latest quarter, pinched by slowing emerging markets and the
strong U.S. dollar.
In updating its guidance for
its fiscal year ending in April, the
company cited significant uncertainty around the global economic environment and said its
revised forecast assumes no further deterioration in the global
economy, particularly in the
emerging markets.
Brown-Forman now sees pershare earnings between $3.32 and

$3.42, down from its earlier view

of $3.40 to $3.60 and short of the
$3.44 analysts have expected.
Overall, for the quarter ended
Jan. 31, the company reported a
profit of $190 million, or 94
cents a share, up from $186 million, or 87 cents, a year earlier.
Revenue edged 0.9% lower to
$1.08 billion.
Lisa Beilfuss
EXXON MOBIL

Oil Giant to Slash

Capital Spending

Exxon Mobil Corp. reaffirmed

plans to cut capital spending
25% this year, as the oil giant
met with analysts Wednesday in
New York.
The companys annual analyst
meeting comes a month after
Exxon Mobil posted its weakest
annual results in more than a
decade, making it one of several
global oil giants to get smacked
by a prolonged commodities
rout. Exxons annual earnings
were cut in half to $16.2 billion,
forcing the Irving, Texas, company to put its share-buyback
plan on hold to preserve cash.
Exxon Mobil on Wednesday
reiterated that it plans capital
expenditures of roughly $23 billion this year, down from a reduced $31.1 billion in 2015. About
a year ago, Exxon had projected
its 2015 capital spending budget
at $34 billion, a decline of 12%
from 2014, but reined in spending as the year progressed.
In prepared remarks Wednesday, Exxon Mobil Chairman and
Chief Executive Rex W. Tillerson
said, We have the financial flexibility to pursue attractive opportunities and can adjust our investment program based on
market demand fundamentals.
Tess Stynes

For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com

THE WALL STREET JOURNAL.

B4 | Thursday, March 3, 2016

BUSINESS NEWS

Chinese TV Maker Builds Up Base in Mexico Italian

BY LORETTA CHAO

SCHOOL

TV market share in North America, by manufacturer

28.7%

Samsung
Vizio
LGE
TongFang*
Funai
Sony
Hisense
TCL
Sharp
RCA

18.0%

BY LIAM MOLONEY

9.6%
8.7%
8.2%

ROMEFiat Chrysler Automobiles NV and CIR SpA

said Wednesday they signed a
memorandum of understanding to merge some of Italys
biggest newspaper groups in a
deal between two of the countrys leading business families.
In separate statements, the
companies said they would
combine CIRs Gruppo Editoriale LEspresso, which includes
the popular la Repubblica daily,
and Fiat Chrysler-majority controlled Itedi, which publishes
the Turin-based La Stampa and
Genoa-based Il Secolo XIX.
Fiat Chrysler is controlled by
the Agnelli family, and CIR is
controlled by the De Benedettis.
In a country where control
of media businesses is considered a powerful tool to advance the owners interests,
Wednesdays announcements
represent a jolt for the industrywhich has been hit by
lower advertising and a drop
in newspaper readership.
Despite the structural difficulties of publishingI have
confidence in the prospects
for the group, said Rodolfo
De Benedetti, CIR chairman, in
the companys statement.
Car maker Fiat Chrysler reiterated it aims to increase focus on its core business. CIR
said it would be the controlling shareholder with a 43%
stake of the new combined
group, which had total revenue of about 750 million
($817.5 million) last year. Itedi
will be incorporated into
Gruppo Editoriale LEspresso.
Fiat Chrysler, which will own
about 16% of the group, said it
would distribute its stake to
holders of its common shares.
The merger, which is subject to
regulatory approvals, is expected to close in first quarter
of 2017, the companies said.

5.2%
2.8%
2.5%
2.1%
1.8%

Hisense is adding to its investment in a Mexican plant as it seeks

increased TV sales in North America.

*Includes Element, Seiki and Westinghouse licensed brands Includes Funai, Emerson, Sanyo,
Philips and Magnavox licensed brands
Source: IHS
THE WALL STREET JOURNAL.

Amazon.com Inc. and others.

The expansion comes as
manufacturing in China is getting more expensive, and slower
economic growth is reducing
domestic demand. That is pushing manufacturers from China to
look to other emerging markets,
as well as to the U.S. and Europe, for growth. Chinese companies completed a record $61
billion in acquisitions abroad in
2015, according to research firm
Rhodium Group.
Labor costs are rising, and
other factors are becoming
more expensive, toothe cost
of land, environmental compliance. They are facing a new
reality and they need to adjust
to stay in business, said Thilo
Hanemann, an economist with
Rhodium. Chinese manufactur-

ers are being pushed out by a

changing economic reality in
the Chinese marketplace.
Chinese television makers
are expanding overseas at a
time when shrinking margins
have forced established brands
to exit the market. Companies
like Hisense have proven willing to accept lower profits to
gain market share, said Paul
Gagnon, director of TV sets research at IHS Inc.
Their strategic goal overseas is to grow market share
so there is a willingness at the
corporate level to accept lower
returns, he said.
Hisense surpassed Sony
Corp. to become the worlds
third-largest TV maker by unit
shipments last year, but sold
just 2.8% of televisions pur-

chased in North America, according to IHS. This is set to

grow in 2016, as the company
has been licensing Sharps
brand name since January, analysts say. Sharp sold 2.1% of
TV sets in the region in 2015.
Samsung Electronics Co. is the
market leader in the region,
with a 28.7% share.
Hisense has said in the past
that one of the challenges of
expanding abroad is finding
enough workers with the right
skill set. But Mr. Liu said
wages for line workers in
China have risen to roughly
equal to those in Mexico. And
with advances in automation,
the company, which has 13 factories world-wide, including
nine in China, employs around
500 workers in Mexico who

produce 200,000 units a

month. Previously, it took 800
workers to produce less than
half that amount, Mr. Liu said.
Shipping a finished television from Mexico to the U.S.
cuts up to a month of travel
time compared with moving
that same unit from a Chinese
factory, Mr. Liu said. Speedy
delivery is becoming more important as major U.S. retailers
hold less inventory, requiring
more frequent orders with
manufacturers.
Companies with the capability to deliver products
quickly will have a real advantage, Mr. Liu said. And in
the U.S. market for the longterm, retailers cannot continue
doing business with too much
inventory; its too risky.

als to reinforce its responsiveness to the job market

and involve business people
more with students will be
presented to the schools
board, Polytechniques Mr.
Biot said.
The plan calls for courses
on big data and the Internet of
Things to be taught in Englisha radical departure in a
country that regards the use
of foreign language in advertisements and public spaces as
a threat to the national
tongue.
Polytechnique has also begun to invest in companies
founded by young entrepre-

neurs, often its own students.

So far the school has taken
stakes in five companies.
Starting this year, every
student enrolled at Polytechnique is required to take business classes in the schools recently launched Department of
Innovation, Management and
Entrepreneurship.
Overall, the changes aim to
give students what they want:
a path to the private sector.
I asked everybody to consider students as customers,
as clients, said Mr. Biot, Polytechniques president. The
client is now the king.
The business-friendly focus

is helping Mr. Biot draw donors and sponsors from Polytechniques well-heeled alumni
network.
Zodiac Aerospace SA, BNP
Paribas SA, AXA SA and Cisco
Systems Inc. have recently
pledged money to fund research. Fabrice Brgier, president of Airbus Group SEs airliner division and a former
member of Polytechniques
board, recently donated 2
million ($2.2 million) to the
school.
Mr. Drahithe maverick investor who took over Frances
second-biggest telecom company SFR and through Altice

NV is now finalizing a deal to

buy Cablevision Systems Corp.
in the U.S.donated 5 million to help fund entrepreneurship and innovation. In
exchange, the billionaire has
become the first individual donor to have his name carved
on a Polytechnique building
that isnt a rugby stadium.
Rather than give money
without knowing where it was
going I spoke to [Mr. Biot],
and we came up with a project, over several years, that
had a real entrepreneurial angle, Mr. Drahi said.
Jason Chow
contributed to this article.

2016 Dow Jones & Co. Inc. All rights reserved. 6DJ3308

Continued from page B1

ple like Mr. Arnault were consulted for the review.
Polytechnique has a number of challenges: Its too
small, it needs to be more
open to international students,
more socially diverse, and too
many of the students seem to
be risk-averse, said Bernard
Attali, a former Air France
CEO hired by the French government to recommend overhauls for the school.
In March, sweeping propos-

Chinese television manufacturer Hisense, which also sells TVs under

the Sharp brand, hopes to gain market share in the U.S.

STEVE MARCUS/REUTERS

Chinese electronics manufacturer Hisense Co. is doubling

down on an investment in a
Mexican factory as it grabs for
a bigger slice of North Americas television market.
The Qingdao-based company, which also has operations in Africa and Central Europe, is part of a wave of
Chinese
companiesfrom
electronics and auto makers to
shoemakers and textile producersthat are increasingly
looking
to
manufacture
abroad. Rising costs in China
have made factories in other
markets more competitive.
Chinese brands expanding
globally are also opening regional manufacturing hubs to
cut the time it takes to get
goods onto store shelves.
Hisense will put an additional $30 million toward a
plant in Rosarito, Mexico, it
bought from Sharp Corp. last
year, said Jerry Liu, the companys Americas CEO, who also
led its effort to set manufacturing up in Africa. The company plans to enhance automation and increase production
capacity, with a goal of shipping as many as four million
televisions throughout North
America a year, up from 1.5
million today. Hisense sells
televisions including under the
Sharp brand, through WalMart Stores Inc., Best Buy Co.,

Newspaper
Merger in
The Works

Screen Grab

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nd six more
B

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WEDNESDAYS MARKETS B6 | FINANCE WATCH B6 | MARKETS DIGEST B8 | HEARD ON THE STREET B10

U.K. Plans to Auction

Green Investment Bank

BLOOMBERG NEWS

Investors Get Finicky

On Corporate Debt

INVESTING | B10

BOND MARKETS | B9

As of 4 p.m. ET

EUR/GBP 0.7721 g 0.91%

Thursday, March 3, 2016 | B5

THE WALL STREET JOURNAL.

2016 Dow Jones & Company. All Rights Reserved.

YEN/DLR 113.85 g 0.12% GOLD 1241.10 0.88%

OIL 34.66 0.76%

3-MONTH LIBOR 0.63485%

10-YR TREAS g 4/32 yield 1.848%

Hedge Funds Turn to Hong Kong

Managers in China
feel hamstrung by
rules imposed after
stock-market plunge
BY MIA LAMAR
HONG KONGHamstrung
by Beijings crackdown on investment activities in the aftermath of last years stockmarket
plunge,
growing
numbers of Chinese hedgefund managers are seeking to

set up new funds in Hong

Kong.
These investors, many of
whom trained at Western financial institutions before returning home to China as its
financial markets grew, say
they are looking for better
trading conditions.
The regulation is constantly changing, and we are
looking for markets with
more-stable trading regulations, said Zhiyu Qin, chief
executive of Beijing-based
Hantak Investment Advisors,

which oversees about 850 million yuan, or about $130 million.

As with several other firms
planning new funds in
Hong
Kong,
Hantak uses mathematical models
to identify market patterns,
and so was struck particularly
by one of the more-drastic
moves by Chinese regulators.
Stiff rules put in place last
September
effectively
halted trading in stock-index
futures, a key derivative for
these funds.

The result: a 99% drop in

the number of stock-index futures contracts changing
hands on the Shanghai-based
China Financial Futures Exchangeonce the worlds biggest market for these derivativesto less than one million
in January from 61 million last
June, according to the World
Federation of Exchanges.
Mr. Qin and his investing
partner, former quantitative
traders for the $34 billion U.S.
hedge-fund manager Millennium Management LLC, are

Deal Talks Put Trading Platforms in Spotlight

Mergers of selected major global exchanges
ACQUIRED COMPANY

MARKET VALUE

$30.95
BILLION

New York Mercantile Exchange

Chicago Mercantile Exchange (now CME Group)

Chicago Board of Trade

$28.32

ICE
IPE
New York Board of Trade
Winnipeg Commodity Exchange
American Stock Exchange
Archipelago Holdings

Euronext
$2.69
(stock markets)

New York Stock Exchange

Lisbon and Oporto

Euronext

LIFFE
Amsterdam
Brussels

CME and ICE are considering bids

for the London Stock Exchange.
Deutsche Brse has been in talks
with LSE to merge.

Paris

Eurex

$15.97

Deutsche Brse
Borsa Italiana

$13.00

London Stock Exchange

Philadelphia Stock Exchange

INET
Brut

$10.37

Nasdaq
OMX
Boston Stock Exchange
Borsa Istanbul

National Stock Exchange

National Stock Exchange

$5.11

CBOE Holdings
2000

01

02

03

04

05

06

07

08

09

10

11

12

13

Sources: Capital IQ; Dealogic; WSJ Market Data Group; the exchanges

14

15

16

THE WALL STREET JOURNAL.

Hong Kong Exchanges & Clearing is keeping an eye on the potential battle for London Stock Exchange and its prized clearinghouse. B7

On Greek Banks, Once Bitten...

BY MIKE BIRD
Some analysts are starting
to see value in Greeces battered banking sector, but investors have been there before and didnt enjoy the
experience.
MONEYBEAT
Greek
banks are reporting earnings this week, and on
Wednesday HSBC gave the
sector a boost with a round
of buy ratings.
The British lender reiterated its buy rating on Alpha
Bank, bumped Piraeus Bank
to buy from hold and initiated coverage of Eurobank
and National Bank of
Greece with buy ratings.
But this isnt the first time
that the sector has been
given the nod by analysts, or
that investors have dipped
their toes back in. On
Wednesday the sector closed
nearly 10% higher, and it has
gained around 75% since Feb.
11.
But each time Greek banking stocks appear set to
climb, Greece gets in the
way. The countrys economic
depression has been extreme,
starting back in 2009 and
2010 when the governments
huge debts caused investors

Burnt Fingers
Greek banks have spiked in value before,
beneting investors who got out at the right time.
FTSE/Athex Banks index
5000
4000
3000
2000
1000
0
2012

13

Source: FactSet

to flee and business and consumer confidence to collapse.

This week, Athens and its
European creditors are meeting for the first review of the
countrys latest bailout,
which needs to be completed
before the government can
negotiate with its creditors
for debt relief. Investors are
watching closely.
In the past, Greeces banks
have closely followed the
countrys tumultuous political cycle. They suffer during
the frequent rounds of bailout negotiations, and spike

14

15

16

THE WALL STREET JOURNAL.

higher when these periodic

crises appear to have been
resolved.
Considerable money has
been made, and lost, in
Greek bank stocks. Buyers
who got in during January
Please see BANKS page B6

MONEYBEAT
Read the
continuously
updated look
.COM
inside the
markets, free
online at wsj.com/moneybeat

WSJ

emblematic of a wave of ambitious Chinese investors who

returned to set up investment
businesses in recent years after working at prominent
firms overseas.
They returned to join an industry that has grown quickly
but works in an unpredictable
environment. Chinese authorities were swift to blame last
years stock-market crash on
hedge funds, which werent legally recognized in the country until 2013. They quickly
Please see FUNDS page B6

Hard Hedges
Stock-index futures contracts
traded on China Financial
Futures Exchange
60 million
50
40
30
20
10
0
2014

15

16

Source: World Federation of Exchanges

THE WALL STREET JOURNAL.

A Winding Road
At Porsche Trial
BY EYK HENNING
STUTTGART, GermanyIn
Germany Inc. versus a group
of American hedge funds, the
hedge funds just got a leg up.
The German judge overseeing the latest turn in an eightyear legal battle between
Porsche SE and hedge funds
including Elliott Management
Corp. and D.E. Shaw has made
the unexpected decision to
step back into the case after
prosecutors
had
already
wrapped up their arguments.
The judge will bring back two
witnesses and begin questioning them Thursday morning.
The move was seen as a

boost for prosecutors who are

trying to prove two former
Porsche executives concealed
their companys intention to
buy Volkswagen AG for
months in 2008 and then manipulated the stock market to
avert insolvency.
The hedge funds, which had
been betting against Volkswagens stock, claim the alleged scheme cost them more
than $5 billion. They have
turned over material, including an analysis of the financial
situation, that prosecutors
have used to try to make their
case. A conviction could put
them in a better position to
Please see PORSCHE page B6

Economic Woes Show

In Ranks of Superrich
BY ART PATNAUDE

The ranks of the global superrich shrank last year for

the first time since 2008, a
fresh signal that slower economic growth, stock-market
shocks and weak commodity
prices have taken their toll.
The number of individuals
with $30 million or more in
assets fell 3% in 2015 to about
187,000, according to a report
from real-estate broker Knight
Frank.
The dip follows years of
surging private wealth. The
global population of high-networth individuals grew 61% in
the past 10 years, according to
data from New World Wealth
cited in the report.

Stock-market losses were a

big driver of depreciating
wealth, the report said. A collapse in oil prices hit the super wealthy in the Mideast
and Africa, while currency
fluctuations also played a role.
Brazil saw a 12% drop in ultrahigh-net-worth individuals,
the data show. In Saudi Arabia, the population of these individuals dropped 8%, in Russia by 5%, in the U.S. 2% and
in China 1%.
However, the retreat is expected to be temporary. The
number of superrich will rise
41% by 2025, although the
pace will be significantly
slower than the previous 10
years, the report said.
Please see RICH page B6

THE WALL STREET JOURNAL.

B6 | Thursday, March 3, 2016

MONEY & INVESTING

Energy Lifts U.S. Stocks

U.S. stocks rose slightly
Wednesday, as higher oil
prices fueled a rally in energy
shares.
The Stoxx Europe 600 rose
0.7%, extending its rally to five
consecutive sessions.
U.S. stocks have rebounded
since mid-February, as investors reasWEDNESDAYS sessed the
MARKETS
health
of
the
U.S.
economy
and a bounce in oil prices alleviated pressures on junk
bonds and commodity-sensitive companies.
Whats less clear is whether
the recovery is a signal of a
sustained move higher.
Underscoring the uncertainty, much of the rally has
been driven by short-term investors covering bearish bets
rather than by longer-term asset managers stepping in and
buying stocks, traders say. The
materials, industrials and energy sectors have gained the
most over the past month,
though earnings expectations
for those sectors remain
gloomy amid low oil prices.
And even though stocks have
fallen sharply from record
highs, valuations remain elevated compared with long-run
averages.
The overall sentiment on
this bounce seems very weak,

FUNDS
Continued from page B5
put curbs on betting against
single stocksor shortinga
practice that was already prohibitively expensive.
Chinese hedge-fund managers say they arent yet closing
up shop at home. Setting up
new funds outside the country,
though, will vastly expand
the available markets and
trading tools, such as the popular Singapore-traded FTSE
China A50 futures contract.

DAVID PAUL MORRIS/BLOOMBERG NEWS

BY SAUMYA VAISHAMPAYAN

Mobile-game maker Zynga named a new CEO. Its shares rose.

said Nathan Thooft, head of
asset allocation at John Hancock Asset Management, adding that he doesnt expect
stocks to advance much further. The market has moved
from a buy-the-dip mentalityto more of a sell-thebounce mentality, he said.
On Wednesday, the Dow
Jones Industrial Average
gained 34.24 points, or 0.2%,
to 16899.32. The S&P 500
added 0.4% to 1986.45, while
the Nasdaq Composite rose
0.3% to 4703.42.
U.S. crude-oil prices gyrated after data showed a
surge in domestic crude stockpiles, gaining 0.8% to $34.66 a
barrel. Energy shares rose the
most in price in the S&P 500,
gaining 2.5%.
Recent economic reports,

including a better-than-expected reading on fourth-quarter economic growth, have

added to optimism on the
economy.
Some investors say they are
encouraged by the bounce in
the Dow Jones Transportation
Average, which tracks airlines,
railroads and trucking companies in the U.S. The 20-stock
index has recovered all of its
losses this year, now up 0.1%.
You cant hide economic
activity
from
transport
stocks, said Art Hogan, chief
market strategist at Wunderlich Securities. If youre
making goods and services,
you have to get them somewhere.
Data showing continued
strength in the labor market
attracted
attention
on

We have built a successful

working strategy in China and
can use similar ideas for trading other markets, Mr. Qin
said.
Deutsche Bank AG, which
has made a strong bid to cater
to Chinese hedge-fund clients,
said that last year it met with
more than 75 managers
in China looking to set up new
funds outside the country.
Chinese funds setting up
offshore are likely to rely
heavily on Chinese investors
who have diversified their
cash holdings overseas, consultants and managers say. At-

tracting money held inside

China is expected to be more
challenging as Beijing fights
heavy capital outflows from
the mainland.
What may throw a spanner
in the works is the degree of
capital-control restrictions we
are now seeing, said Effie
Vasilopoulos, co-leader of law
firm Sidley Austin LLPs investment-funds practice in
Asia. This year is not going to
be great for any business that
is relying on Chinese capital
for investment purposes.
Bin Hu, who runs Coefficient Investment in Shang-

THE NEW KING OF LATE NIGHT

Wednesday, especially as investors search for clues about

when the Federal Reserve will
make its next interest-rate
move. The Fed considers employment and inflation data as
it makes monetary-policy decisions.
Private payrolls in the U.S.
rose by 214,000 in February,
according to payroll processor
Automatic Data Processing
Inc. and forecasting firm
Moodys Analytics. Economists surveyed by The Wall
Street Journal had expected
an increase of 185,000.
The Labor Departments
February jobs report, set for
release Friday, is forecast to
show
employers
added
200,000 jobs last month.
In corporate news, mobilegame maker Zynga on Tuesday said Chief Executive Mark
Pincus is passing the reins to
Frank Gibeau, who joined the
board in August after more
than two decades at Electronic
Arts Inc. Shares of Zynga were
up 4.4% in late trading.
Stocks in Japan and Shanghai rose by more than 4%,
while shares in Australia
gained 2%.
In other markets, the dollar
fell 0.6% against the yen by
late afternoon. The yield on
the 10-year Treasury note rose
to 1.848% from 1.835% on
Tuesday.
Riva Gold
contributed to this article.
haiand was formerly chief
executive of Bank of New York
Mellon Corp.s fund-management joint venture in China
plans to inaugurate the firms
first offshore hedge fund this
month, according to people familiar with the matter. The
fund has close to $100 million
committed to begin trading
with, according to one of the
people.
Coefficient also uses mathematical models to bet on rising and falling stock prices,
a trading strategy that was
growing in popularity in China
until being stalled by last
years trading restrictions.
Many such funds in China are
hedge-like without the core
tools, said Michael McCormack, an executive director for
investment consultancy Z-Ben
Advisors.
For most of their lives
even the simplest hedging
tools werent available, he
said. Hong Kong is a big upgrade on the breadth of the
tool kit and the speed at which
they can execute.
Mr. McCormack said such
funds have burnished their appeal among investors by performing strongly in Chinas
difficult stock market.
Mr. Qins Hantak fund
posted increases, after fees,
that exceeded 4% in both June
and July last year, as the
Shanghai Composite dropped
7% and 14%, respectively, according to an investor presentation. It returned 0.5% in January as the index slid 22%.
Chao Deng in Hong Kong
and Yifan Xie in Shanghai
contributed to this article.

PORSCHE

Continued from page B5

win related civil cases against
Porsche, where they are hoping to recover their losses.
The
executivesformer
Chief Executive Wendelin Wiedeking and ex-Chief Financial
Officer Holger Hrterdeny
the allegations and testified
that prosecutors misinterpreted their words and actions. Prosecutors are seeking
800 million ($869.5 million)
in fines from Porsche and jail
time for the two executives.
Outside observers handicapping the trial had given
prosecutors low odds of proving their case. But they say
prosecutors final arguments
presented last month appeared to have tilted things
back in their favor, and the decision by Judge Frank Maurer
to rehear two witnesses underscored that perception.
The working alliance of
German prosecutors and
American hedge fundswidely
reviled as predatory speculators in the countryis an unexpected turn of events. Lead
prosecutor Heiko Wagenpfeil
was almost apologetic for relying on their testimony. Just
because hedge funds have a
bad image in Germany, he said
during closing remarks in February, that doesnt mean
theyre wrong.
The hedge funds declined to
comment. A spokesman for
Porsche welcomed the courts
decision to again hear two
witnesses. A spokesman for
Mr. Wiedeking said the move
could help quickly end the
trial and dispel suspicions.
In the middle of the last decade, Porsche spent years
building a big stake in Volkswagen stock and had secretly
purchased options allowing it
to buy even more.
The hedge funds, meanwhile, had been betting that
Volkswagens shares would
fall. In just a couple of weeks
in October, the global financial
crisis and the short selling had
sliced 50% off the value of
Volkswagens shares.
To that point, Porsche officials had repeatedly denied
that they wanted to control
more than 75% of Volkswagens shares, a key threshold under German law. Then,
on Sunday, Oct. 26, Porsche
stunned investors by disclosing the scale of its position

RICH
Continued from page B5
The rise of the superrich
over recent years has been a
boon for real-estate markets,
which have become a popular
destination for investment.
Since 2009, a quarter of global
commercial-property investment came from ultra-highnet-worth individuals, the
Knight Frank report said.
Private wealth investors
have become far more sophisticated and considered, and
are not just hunting for trophy
assets, a Knight Frank statement said. They view commercial property as tangible,
controllable, not subject to

and saying it intended to own

more than 75%.
Porsches announcement
created what investors call a
short squeeze. Funds that had
shorted Volkswagen stock
needed to buy shares to cover
their positions. But the revelation made clear to them
Porsche had cornered the market in Volkswagen shares. That
meant fewer shares were
available for purchase than
had been shorted.
When Volkswagens stock
opened for trading the next
morning, scarcity and strong
demand from hedge funds sent
its share price soaring. Volkswagen briefly became the
worlds most valuable company.
Porsche over the following
days sold some of its options,
reaping as much as 5 billion
in cash that saved it from insolvency, prosecutors allege.
Prosecutors say Porsches
disclosure of its stock and options was aimed more at
squeezing the hedge funds
than actually controlling
Volkswagen. They claim the
drop in Volkswagens stock left
Porsche sitting on billions of
euros in liabilities and running
low on cash. Police investigators testified that Porsche had
only 326 million in cash left.
Mr. Wiedeking, the former
CEO, has called the allegations
an absurd conspiracy theory
and testified Porsches financial situation was much stronger than prosecutors alleged.
According to a prosecution
document, Porsche legal adviser Freshfields had encouraged the company to publicly
stress its intention to control
Volkswagen, which the adviser
wrote would cover up the indirect message to hedge
funds, while still having the
desired effect. Prosecutors
concluded that effect was forcing short sellers to close their
positions by buying Volkswagen shares.
A spokesman for Freshfields declined to comment.
Public attention has focused
on the trial, because Porsche
is owned by one of Germanys
richest families, the descendants of VW Beetle creator
Ferdinand Porsche. The family
isnt accused of wrongdoing,
and the trial wont directly affect Volkswagen. But Porsche,
which ended up relinquishing
its sports-car operation to
Volkswagen, is now Volkswagens largest shareholder.
daily pricing and giving real
performance relative to other
asset classes.
Last year, the superrich
pumped $178 billion into real
estate. Hotels were the most
popular investment. North
America had the highest concentration of private investment.
The increase of inbound
capital from Chinese and Middle Eastern investors has been
a noticeable, contributing factor, Knight Frank said.
North America has the most
ultrawealthy individuals, with
around 69,300, followed by
Europe with 46,200 and Asia
with 41,100. However, over the
next decade, the balance is expected to shift, with Asia moving into second place.

JASON REED/REUTERS

BANKS

ANZ is aligning wealth management better with other areas.

MARKED
MAN

Finance
Watch

the zany, brainy

james corden

INDIA
ANZ

WITH THE WALL STREET JOURNAL

TOMORROW.

2016 Dow Jones & Company, Inc. All rights reserved. 3DJ3591

while in New Zealand the wealth

operations will become part of an
expanded retail, business banking
and wealth team. The Asian wealth
business will join the Asian retail
operation.
Robb M. Stewart

Bank Overhauls
Wealth Business
Australia & New Zealand
Banking Group Ltd. has shaken up
its wealth-management business,
aligning sales more closely with the
banks retail and commercial operations in an effort to improve returns and capital efficiency.
From March 12, ANZs private
bank business will report to Fred
Ohlsson, the executive for Australia,

Capital Rules Eased

The Reserve Bank of India relaxed capital rules for banks, allowing lenders to include a broader
range of items as core capital.
Banks may now include items
such as reserves built up by revaluing real estate, the central bank
said. Indian banks are stretched for
capital, said Clayton Fernandes, an
analyst with Emkay Global in
Mumbai. The RBI is offering some
relief.
Gabriele Parussini

Continued from page B5

2012, July 2012 or April 2013
could have doubled their
money, or more, in just a few
months, if they timed their
exit right.
But even as the sector has
sometimes spiked, the overall
direction has been relentlessly
lower. Shares in Alpha Bank,
the sectors current highflier,
are down 99.7% since peaking
in late 2007.
So Greek banks are coming
off a low base. HSBC expects
share prices for the main four
banks to at least double in
value.
But for Piraeus Bank that
means an increase from only
12 European cents to 27 European cents. That would take
the bank back to where it was
at the beginning of this year.
And it would still be less than
1% of what the shares were
worth at the turn of 2015, let
alone what they were worth
before the financial crisis began in 2008.
HSBC also has a caveat. It
lists the No. 1 threat to its projection as further political
turmoil.
Investors
have
learned from experience:
Theres no reason shares cant
fall further from their already
low levels.

Thursday, March 3, 2016 | B7

THE WALL STREET JOURNAL.

MONEY & INVESTING

HKEx Keeps Eye on London Deal Talks

Hong Kong-based
owner of LME says it
isnt actively looking
for big acquisitions

The operator of Hong

Kongs stock exchange said
Wednesday it is keeping a
close eye on advanced merger
discussions between London
Stock Exchange Group PLC
and Deutsche Brse AG that
could create Europes largest
exchange.
Hong Kong Exchanges &
Clearing Ltd. Chief Executive
Charles Li told reporters the
potential transaction puts the
prospect of a pan-European
exchange powerhouse on the
horizon, but declined to comment on whether the Hong
Kong exchange operator would
consider making a potential
competing bid. HKEx already
owns the London Metal Exchange in the U.K.
Mr. Li said HKEx isnt currently looking at any LMEtype acquisitions, referring to
the exchanges 2012 acquisi-

PHILIPPE LOPEZ/AGENCE FRANCE-PRESSE/GETTY IMAGES

BY GREGOR STUART HUNTER

AND JOANNE CHIU

Statues outside Hong Kongs stock exchange, where average daily trading volume surged last year.
tion of the London Metal Exchange, when the Hong Kong
exchange operator took control of one of the worlds biggest commodities-trading venues.
Unlike many other companies, we actually have a lot of

things thatll continue to sustain our growth into the future, Mr. Li said Wednesday.
Whenever opportunities arise
that complement that growth,
well be looking at it, but
were not actively looking for
something just to add onto

our portfolio.
The comments came as
HKEx reported that its fullyear net profit rose 54% to
7.96 billion Hong Kong dollars
(US$1.02 billion) in 2015, up
from HK$5.17 billion a year
earlier. The companys rising

Clearinghouse
Is the Real Prize
In LSE Pursuit
BY BRADLEY HOPE

Stock Exchange, said Tuesday

it was studying a bid for LSE,
but had yet to make a decision
and hadnt approached the
company. CME, the operator of
the Chicago Mercantile Exchange, is also considering an
approach for LSE, according to
a person familiar with the
matter.

Strong earnings
lifted shares of Hong
Kong Exchanges by
3.5% on Wednesday.
This would be at least the
third attempt by the London
and Frankfurt exchanges to
merge.
The talks are being driven
not by stocks but mainly by
derivatives, instruments such
as futures and options that
command higher margins and
are harder for rivals to replicate. European exchanges have
been facing intense competition from their U.S. counterparts in those markets. A combination of the two European
companies could help fend off
that pressure.

RESULTS
2015

Sales

39.62bn
Operating income

2.64bn
+4.5 %

Saint-Gobain delivered improved

earnings in 2015 in a sharply contrasted
economic climate. The improvement
was dampened by continued weak
trading in France, hurt in particular
by the sharp contraction in Pipe in
the second half of the year, despite
the first signs of an upturn in construction
indicators.
The Group completed a key stage in
the reorganization of its business portfolio,
with the sale of Verallia on very favorable
terms, and continues to pursue its plan
to acquire a controlling interest in Sika
after obtaining all antitrust approvals
prior to closing the deal.
In a still very volatile macroeconomic
environment, we will continue to adapt
in 2016 and are targeting a further
like-for-like improvement in operating
income.

Pierre-Andr de Chalendar
Chairman and Chief Executive Officer

Net income*

1.30bn
+35.9 %

UPCOMING EVENTS

April 27
Publications
of sales for the first quarter of 2016

Delivering news and insight

on finance and markets
from London
Download on the App Store

KEITH BEDFORD FOR THE WALL STREET JOURNAL

In the modern world of exchanges, profits are more

likely to come from behindthe-scenes entities that take
on the risks of trades, not
from the trading itself.
That helps explain why Atlanta-based Intercontinental
Exchange Inc. is considering a
bid for London Stock Exchange Group PLC less than a
week after LSE and Deutsche
Brse AG announced they
were in merger talks.
Analysts and industry executives say that among the attractive features of LSE, the
real prize for ICE and
Deutsche Brse is its majority
stake in a company called
LCH.Clearnet Group Ltd., a
so-called clearinghouse in the
market for interest-rate swaps
and other instruments.
ICE in particular has made
the business of clearing a pillar of its global constellation
of futures and stock exchanges. There are a lot of
synergies for ICE, but the real
attraction is LCH, said Neal
Wolkoff, former chief operating officer of the New York
Mercantile Exchange.
ICEs pursuit of LSE for its
clearing business is in some
ways similar to its $8.2 billion
acquisition of the owner of the
New York Stock Exchange in
2013. In that deal, ICEs primary target was the London
International Financial Futures
and Options Exchange, known
as Liffe.
ICE declined to comment
beyond a statement confirming it is considering a bid.
Clearinghouses are increasingly an important source of
profits for exchanges.
This is how they work billions of times a day: When two
parties execute a trade, they
hand the deal over to a clearinghouse that then takes on
the risk that one of the parties
wont hold up its end of the
bargain.
When the deal is finalized,
the clearinghouse delivers
cash to the seller and the financial asset to the buyer.
Both sides are charged.
Before the 2008 financial
crisis, clearinghouses played a
smaller role than they do in
2016. Regulators have been
pushing for more contracts to

become centrally cleared,

meaning that they use clearinghouses, to reduce the risks
taken on by institutions.
Banks traditionally increased profits in some types
of trading by taking the risk of
transactions onto their own
balance sheet rather than
handing it to a clearing firm.
ICEs interest in LSEs clearing business could also be a
strategic advantage in a possible bidding war because it has
a historically good relationship with banks over clearing,
said Diego Perfumo, an analyst
with Equity Research Desk.
For instance, LCH.Clearnets
agreement with banks over its
clearing for swaps and foreign
currencies has a provision that
allows banks to terminate
their contract if either
LCH.Clearnet or LSE changes
owners. ICE could use its relationship with banks, he said.
The question comes down
to who is going to have the
largest clearinghouse, Mr.
Perfumo said. If ICE bids and
loses, it could face greater
competition.
Deutsche Brse has its own
clearing business that it would
like
to
combine
with
LCH.Clearnet. That prospect is
another major incentive for
ICE to get into the mix.
It isnt the most convenient
time for ICE to be planning
what would be the biggest acquisition since Jeffrey Sprecher, a former chemical engineer, started the company as
an online marketplace in 2000.
ICE completed a major acquisition in December, paying
$5.2 billion for the financialdata provider Interactive Data
Corp. Executives are still in
the process of incorporating
the company into ICE. To finance the acquisition, ICE issued $2.5 billion of debt.
Acquiring LSE would cost
considerably more: over $14
billion, which would be paid in
a mix of stock and cash, analysts say.

profitability came as average

daily trading volume rose 52%.
It also booked a gain from the
sale of a property in the third
quarter.
The strong earnings lifted
shares of Hong Kong Exchanges by 3.5% Wednesday,
giving it a market value of
more than $27 billion.
News of the advanced discussions between London
Stock Exchange and Deutsche
Brsea merger that would
create a combined company
with a value of about $28 billionhas rippled through the
clubby world of stock-exchange operators.
Exchanges, once monopolies and a focus of national
pride, have spent the past decade doing deals and cutting
costs under pressure from
fast-expanding upstarts. A
Deutsche Brse-LSE deal
would leave three giant global
exchange companies: U.S. market leaders CME Group Inc.
and Intercontinental Exchange
Inc. or ICE, along with the
merged LSE-Deutsche Brse,
which would be the biggest exchange operator in Europe by
the value of shares traded.
ICE, owner of the New York

Jeffrey Sprecher, left, is founder, chairman and CEO of ICE.

Dividend**

1.24
per share

June 2
AGM,
Palais des Congrs, Paris

For more information,

www.saint-gobain.com
* Consolidated net income attributable
to the Group.
** Amount to be put to the vote
of the AGM, to be paid wholly in cash.

Toll-free no. (France only)

For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com

THE WALL STREET JOURNAL.

B8 | Thursday, March 3, 2016

MARKETS DIGEST
Nikkei 225 Index

STOXX 600 Index

S&P 500 Index

Year-to-date
16746.55 s 661.04, or 4.11%
t 12.02% 340.97 s 2.25, or 0.66%
52-wk high/low20868.03 14952.61 High, low, open and close for each
High, low, open and close for each
trading day of the past three months. All-time high 38915.87 12/29/89 trading day of the past three months.

400

19000

380

Last

1986.45 s 8.10, or 0.41%

High, low, open and close for each
trading day of the past three months.

Year-to-date
t 6.79%
52-wk high/low 414.06 303.58
All-time high
414.06 4/15/15

20000

Data as of 4 p.m. New York time

Year ago

Trailing P/E ratio * 22.44 18.95

P/E estimate *
16.15 17.75
Dividend yield
2.30
1.95
All-time high: 2130.82, 05/21/15

2100

65-day moving average

65-day moving average

2050

65-day moving average

Session high
UP
Close

DOWN
Session open

360

2000

17000

340

1950

16000

320

1900

15000

300

1850

Open

Close

18000

Session low
Bars measure the point change from session's open

14000
Nov.

Dec.

Jan.

280

Feb.

Dec.

International Stock Indexes

Region/Country Index

World

The Global Dow

MSCI EAFE
MSCI EM USD

Data as of 4 p.m. New York time

Close

Latest
NetChg

2222.17
1601.12
770.13

28.19
28.75
17.21

% chg

Low

2033.03
1471.88
691.21

1.28
1.83
2.29

Americas
Brazil
Canada
Mexico
Chile

DJ Americas
Sao Paulo Bovespa
S&P/TSX Comp
IPC All-Share
Santiago IPSA

474.06
2.50
44776.29 654.50
13022.30 40.20
44614.87 400.37
3004.55 17.68

0.53
1.48
0.31
0.91
0.59

433.38
37046.07
11531.22
39256.58
2730.24

U.S.

DJIA
Nasdaq Composite
S&P 500
CBOE Volatility

16899.32
4703.42
1986.45
17.04

0.20
0.29
0.41

15370.33
4209.76
1810.10
10.88

0.66
1.18
0.69

303.58
2556.96
1929.73
3117.61
3892.46
8699.29
420.82
17737.52
1383.34
15773.00
378.53
41747.01
607.14
7746.30
432.78
7425.05
45975.78
68230.47
5499.51

34.24
13.83
8.10
0.66 3.73

Stoxx Europe 600

Stoxx Europe 50
Austria
ATX
Belgium
Bel-20
France
CAC 40
Germany
DAX
Greece
ATG
Hungary
BUX
Israel
Tel Aviv
Italy
FTSE MIB
Netherlands AEX
Poland
WIG
Russia
RTS Index
Spain
IBEX 35
Sweden
SX All Share
Switzerland Swiss Market
South Africa Johannesburg All Share
Turkey
BIST 100
U.K.
FTSE 100

340.97
2868.16
2206.99
3427.43
4424.89
9776.62
535.78
24094.22
1447.89
18206.41
436.31
45371.99
780.16
8764.50
481.49
8039.89
50966.93
76787.95
6147.06

2.25
33.31
15.07
0.92
18.05
59.46
15.70
423.27
5.35
194.50
0.50
27.45
6.20
153.50
3.12
77.67
651.84
832.52
5.82

Asia-Pacific
Australia
China
Hong Kong
India
Japan
Singapore
South Korea
Taiwan

1304.27
5021.20
2849.68
20003.49
24242.98
16746.55
2726.96
1947.42
8544.05

39.35
98.90
116.51
596.03
463.63
661.04
44.57
30.76
58.36

EMEA

DJ Asia-Pacific TSM
S&P/ASX 200
Shanghai Composite
Hang Seng
S&P BSE Sensex
Nikkei Stock Avg
Straits Times
Kospi
Weighted

Jan.

0.03
0.41
0.61
3.02
1.79
0.37
1.08
0.11
0.06
0.79
1.78
0.64
0.98
1.30
1.10
0.09

1188.42
3.11
4765.30
2.01
4.26 2655.66
3.07 18319.58
22951.83
1.95
4.11 14952.61
2532.70
1.66
1829.81
1.60
7410.34
0.69

52-Week Range
Close

High

YTD
% chg

18351.36
5231.94
2134.72
53.29

Coupon

Commodities

8%
6
4
2
0
2
4
6
8
10

US$vs,
YTDchg
Wed
in US$ per US$ (%)

Europe

WSJ Dollar index

s

Yen

s Euro

2015

2016
US$vs,
YTDchg
Wed
in US$ per US$ (%)

Country/currency

Americas
Argentina peso-a
0.0640 15.6320 20.8
Brazil real
0.2568 3.8937 1.7
Canada dollar
0.7423 1.3472 2.7
Chile peso
0.001455 687.30 3.0
Colombia peso
0.0003123 3202.24 0.9
Ecuador US dollar-f
1
1 unch
Mexico peso-a
0.0560 17.8446 3.7
Peru sol
0.2849 3.5095 2.8
Uruguay peso-e
0.0309 32.350 8.2
Venezuela bolivar 0.158603
6.31 unch

Asia-Pacific
0.7264 1.3767
0.1526 6.5510

Australia dollar
China yuan

0.3
0.9

Key Rates

Country/currency
Hong Kong dollar
India rupee
Indonesia rupiah
Japan yen
Kazakhstan tenge
Macau pataca
Malaysia ringgit-c
New Zealand dollar
Pakistan rupee
Philippines peso
Singapore dollar
South Korea won
Sri Lanka rupee
Taiwan dollar
Thailand baht

Cur Stock
0.43760%
0.63485
0.88900
1.19550

0.17500%
0.26360
0.39560
0.68860

Euro Libor
One month
Three month
Six month
One year

-0.28000%
-0.22700
-0.13429
-0.02443

-0.00429%
0.02643
0.08214
0.21000

Euribor
One month
Three month
Six month
One year

-0.27300%
-0.20800
-0.13400
-0.02400

-0.00600%
0.03800
0.11000
0.22700

0.24643%
0.57886
0.90663
1.27929
Offer

0.23571%
0.38571
0.54000
0.84071

0.4500%
0.6500
0.9000
1.2500
Latest

0.3500%
0.5500
0.8000
1.1500
52 wks ago

3.50%
2.70
1.475
5.00

3.25%
2.85
1.475
5.00

0.05%
0.50
0.50
2.00
1.00
0.25
2.25

0.05%
0.50
0.50
2.25
0.75
0.00
2.00

Overnight repurchase rates

U.S.
0.44%
Euro zone
n.a.

0.16%
n.a.

Prime rates
U.S.
Canada
Japan
Hong Kong
Policy rates
ECB
Britain
Switzerland
Australia
U.S. discount
Fed-funds target
Call money

7.7738
67.3950
13285
113.85
348.55
8.0077
4.1456
1.5085
104.800
47.151
1.4009
1229.33
144.61
33.102
35.550

52 wks ago

Libor
One month
Three month
Six month
One year

Eurodollars
One month
Three month
Six month
One year

0.1286
0.0148
0.0000753
0.008783
0.002869
0.1249
0.2412
0.6629
0.0095
0.0212
0.7138
0.0008135
0.0069152
0.03021
0.02813

0.3
1.8
4.0
5.4
2.9
0.05
3.7
3.1
0.1
0.6
1.2
4.5
0.3
0.6
1.3

2.6528
0.1278
0.2570
3.3241
2.5970
0.2745
0.2667
0.0639

0.3770 0.04
7.8267 0.04
3.8913 0.0
0.3008 0.9
0.3851 0.03
3.643 0.003
3.7502 0.1
15.6375 1.0

Close Net Chg % Chg YTD % Chg

WSJ Dollar Index

89.81 0.12 0.13 0.40

100.3
62.3
-125.9
-130.3
-126.9
-127.9
-138.7
-163.8
-86.5
-39.7
-107.2
-188.1
-135.3
-149.3
-70.8
104.1
-88.6
-30.1
-146.1
-131.4
-46.8
-38.2
...
...

CBOT
CBOT
CBOT
CME
ICE-US
ICE-US
ICE-US
ICE-US
ICE-EU
COMEX
COMEX
COMEX
LME
LME
LME
LME
LME
LME
TCE

Palm oil (MYR/mt) MDEX

NYMEX
Crude oil ($/bbl.)
NY Harbor ULSD ($/gal.) NYMEX
RBOB gasoline ($/gal.) NYMEX
Natural gas ($/mmBtu) NYMEX
Brent crude ($/bbl.) ICE-EU
ICE-EU
Gas oil ($/ton)

114.9
72.2
-112.2
-123.9
-113.3
-120.0
-121.0
-154.3
-74.1
-35.5
-89.3
-177.3
-118.7
-141.0
-65.1
93.1
-74.7
-26.0
-128.9
-126.6
-36.0
-30.7
...
...

89.8
53.7
-128.8
-134.4
-128.7
-131.4
-139.1
-167.8
-88.2
-42.5
-107.7
-189.3
-135.2
-153.2
-69.1
105.3
-88.5
-31.7
-145.0
-135.2
-48.6
-42.6
...
...

Previous

Yield
Month ago

1.747
2.363
-0.439
0.482
-0.438
0.512
-0.542
0.148
-0.033
1.401
-0.228
-0.067
-0.503
0.294
0.158
2.879
-0.036
1.509
-0.601
0.474
0.363
1.400
0.849
1.826

1.887
2.574
-0.383
0.613
-0.395
0.652
-0.472
0.309
-0.003
1.497
-0.154
0.078
-0.449
0.442
0.087
2.782
-0.009
1.592
-0.551
0.586
0.378
1.545
0.738
1.852

115.5
42.0
-80.7
-161.3
-77.6
-144.5
-86.9
-177.2
-46.4
-73.6
-64.6
-174.0
-80.9
-167.3
-46.8
-23.3
-50.1
-81.6
-79.9
-137.2
-24.9
-27.2
...
...

Sources: WSJ Market Data Group, SIX

Financial Information, Tullett

Sym

Close

AIAGroup
AstellasPharma
AustNZBk
BHP
BankofChina
CKHutchison
CNOOC
Canon
CentralJapanRwy
ChinaConstructnBk
ChinaLifeInsurance
ChinaMobile
CmwlthBkAust
EastJapanRailway
Fanuc
Hitachi
Hon Hai Precisn
HondaMotor
HyundaiMtr
Ind&Comml
JapanTobacco
KDDI
Mitsubishi
MitsuUFJFin
Mitsui
Mizuho Fin
NTTDoCoMo
NatAustBnk
NipponStl&SmtmoMtl
NipponTeleg
NissanMotor
NomuraHldgs
Panasonic
PetroChina
PingAnInsofChina
RelianceIndsGDR
RioTinto
SamsungElectronics
Seven&I Hldgs
SoftBankGroup
Sumitomo Mitsui
SunHngKaiPrp
TaiwanSemiMfg

1299
4503
ANZ
BHP
3988
0001
0883
7751
9022
0939
2628
0941
CBA
9020
6954
6501
2317
7267
005380
1398
2914
9433
8058
8306
8031
8411
9437
NAB
5401
9432
7201
8604
6752
0857
2318
RIGD
RIO
005930
3382
9984
8316
0016
2330

41.95
1657.50
24.10
16.73
3.07
97.70
8.52
3285.00
20750
4.76
17.38
85.25
73.94
10275
17385
492.40
79.50
3086.00
150000
4.04
4738.00
2993.50
1912.50
510.90
1360.50
174.20
2724.00
25.55
2093.50
4882.00
1050.50
501.60
1024.50
5.34
34.50
29.60
43.30
1197000
4603.00
5728.00
3320.00
91.85
153.00

4.09
3.56
4.46
4.37
3.72
3.06
2.77
3.46
1.89
3.25
3.45
1.91
3.54
0.93
5.72
6.05
2.32
6.29
1.69
3.32
2.44
3.56
5.81
5.78
4.57
3.75
3.22
3.53
6.73
1.50
3.86
4.17
6.89
3.49
3.92
2.07
4.72
1.61
2.29
1.90
4.73
2.86
0.66

1.821
2.505
-0.141
0.473
-0.110
0.641
-0.203
0.313
0.202
1.349
0.020
0.346
-0.143
0.412
0.198
1.853
0.165
1.269
-0.133
0.714
0.417
1.813
0.666
2.086

3:30 p.m. New York time

355.75
862.00
449.75
136.375
2,952
115.50
14.65
56.08
1383.00

unch.
4.00
3.75
-0.725
19
0.75
0.26
-0.03
6.00

2.1915
1241.10
15.000
1,577.00
15,905.00
4,716.50
1,778.00
1,776.00
8,565.00
162.20

0.0460
10.30
0.244
-8.50
-70.00
25.50
8.00
-5.00
110.00
1.20

2488.00
34.67
1.1073
1.3053
1.668
36.91
332.00

-47.00
0.27
0.0078
0.0018
-0.074
0.10
3.50

378.25
890.50
493.50
138.550
3,215
128.25
14.90
64.30
1,568.00

354.25
856.00
442.25
127.150
2,738
113.35
12.61
54.53
1,342.00

2.2000
1,263.90
16.005
1,585.50
16,100.00
4,716.50
1,852.00
1,786.00
8,765.00
164.50

1.9440
1,061.90
13.760
1,451.50
13,225.00
4,320.50
1,598.00
1,467.00
7,750.00
146.10

2,653.00
40.50
1.2182
1.5695
2.5120
40.94
369.50

2,425.00
28.74
0.8750
1.1253
1.6570
28.58
260.25

unch.

0.47%
0.84
-0.53%
0.65
0.65
1.81
-0.05
0.44
2.14
0.84
1.65
-0.54
-0.44
0.54
0.45
-0.28
1.30
0.75

Year
low

-1.85
0.78
0.71
0.14
-4.25
0.27
1.07

Cross rates

London close on Mar 2

Australia

USD
1.3767

GBP
1.9342

CHF
1.3795

JPY
0.0121

HKD
0.1771

EUR
1.4931

CDN
1.0218

AUD
...

Canada

1.3472

1.8928

1.3504

0.0118

0.1733

Euro

0.9220

1.2954

0.9241

0.0081

0.1186

1.4612

...

0.9787

...

0.6844

Hong Kong

7.7738

10.9229

7.7909

0.0683

0.6696

...

8.4330

5.7706

5.6469
82.6900

113.8530

159.9600

114.1200

...

14.6460

123.5000

84.5147

Switzerland

0.9977

1.4018

...

0.0088

0.1284

1.0822

0.7405

0.7247

U.K.

0.7117

...

0.7134

0.0063

0.0916

0.7721

0.5284

0.5170

U.S.

...

1.4050

1.0023

0.0088

0.1286

1.0847

0.7423

0.7264

Japan

Source: Tullett Prebon

Sources: Tullett Prebon, WSJ Market Data Group

4 p.m. New York time

% YTD%
Chg Chg

Asia Titans
HK$

AU$
AU$
HK$
HK$
HK$

HK$
HK$
HK$
AU$

TW$

KRW
HK$

AU$

HK$
HK$
$
AU$
KRW

HK$
TW$

Year ago

Sources: SIX Financial Information; WSJ Market Data Group

Middle East/Africa
Bahrain dinar
Egypt pound-a
Israel shekel
Kuwait dinar
Oman sul rial
Qatar rial
Saudi Arabia riyal
South Africa rand

1.860
2.469
-0.402
0.543
-0.412
0.567
-0.530
0.208
-0.008
1.449
-0.215
-0.035
-0.496
0.353
0.149
2.887
-0.029
1.545
-0.604
0.532
0.389
1.464
0.857
1.846

Spread Over Treasurys, in basis points

Previous
Month Ago
Year ago

Top Stock Listings

Latest

Yen Libor
One month
Three month
Six month
One year

US$vs,
YTDchg
Wed
in US$ per US$ (%)

Bulgaria lev
0.5540 1.8050 0.3
Croatia kuna
0.1426 7.010 0.003
Euro zone euro
1.0847 0.9220 0.1
Czech Rep. koruna-b 0.0401 24.939 0.2
Denmark krone
0.1454 6.8758 0.1
Hungary forint
0.003491 286.41 1.4
Iceland krona
0.007690 130.04 0.1
Norway krone
0.1149 8.7018 1.6
Poland zloty
0.2507 3.9895 1.7
Russia ruble-d
0.01366 73.211 1.8
Sweden krona
0.1158 8.6379 2.3
Switzerland franc
1.0023 0.9977 0.4
Turkey lira
0.3406 2.9357 0.6
Ukraine hryvnia
0.0368 27.1605 13.2
U.K. pound
1.4050 0.7117 4.9

Latest

Prices of futures contracts with the most open interest

Copper ($/lb.)
Gold ($/troy oz.)
Silver ($/troy oz.)
Aluminum ($/mt)*
Tin ($/mt)*
Copper ($/mt)*
Lead ($/mt)*
Zinc ($/mt)*
Nickel ($/mt)*
Rubber (Y.01/ton)

London close on March 2

Country/currency

Yield

Corn (cents/bu.)
Soybeans (cents/bu.)
Wheat (cents/bu.)
Live cattle (cents/lb.)
Cocoa ($/ton)
Coffee (cents/lb.)
Sugar (cents/lb.)
Cotton (cents/lb.)
Robusta coffee ($/ton)

1621.10 6.2
5982.70 5.2
5166.35 19.5
28442.75 8.7
29448.95 7.2
20868.03 12.0
3539.95 5.4
2173.41 0.7
9973.12 2.5

Yen, euro vs. dollar; dollar vs. major U.S. trading partners

Feb.

EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.; MDEX: Bursa Malaysia
Derivatives Berhad; TCE: Tokyo Commodity Exchange; COMEX: Commodity Exchange; LME: London Metal Exchange;
NYMEX: New York Mercantile Exchange; ICE-EU: ICE Futures Europe. *Data as of 3/1/2016
Year
One-Day Change
Commodity
Exchange Last price
Net
Percentage
high

Source: SIX Financial Information;WSJ Market Data Group

Currencies

Country/
Maturity, in years

5.500
Australia 2
4.250
10
3.500
Belgium 2
0.800
10
4.250
France 2
1.000
10
0.500
Germany 2
0.500
10
4.500
Italy 2
2.000
10
0.100
Japan 2
0.100
10
0.500 Netherlands 2
0.250
10
4.350
Portugal 2
2.875
10
0.500
Spain 2
2.150
10
3.750
Sweden 2
2.500
10
1.000
U.K. 2
2.000
10
0.750
U.S. 2
1.625
10

3.0
6.1
2.8
6.4

414.06 6.8
3602.76 7.5
2695.57 7.9
3910.33 7.4
5283.71 4.6
12390.75 9.0
867.45 15.1
24532.71 0.7
1728.89 5.3
24157.39 15.0
510.55 1.2
57460.44 2.4
1092.52 3.1
11884.60 8.2
564.90 4.7
9537.90 8.8
55355.12 0.5
88651.88 7.1
7122.74 1.5

Jan.

Latest, month-ago and year-ago yields and spreads over or under U.S. Treasurys on benchmark two-year
and 10-year government bonds around the world. Data as of 3 p.m. ET

525.25 2.7
58574.79 3.3
15524.75 0.1
46078.07 3.8
3361.36 2.1

Dec.

Global government bonds

2643.78 4.9
1956.39 6.7
1067.74 3.0

1800
Nov.

Feb.

-9.98
-4.27
-13.71
-6.33
-11.27
-6.42
5.58
-10.61
-3.94
-10.36
-30.76
-2.57
-13.55
-10.26
-17.53
-28.79
-1.61
-21.07
0.67
-13.68
5.97
-5.09
-5.70
-32.52
-5.88
-28.46
9.66
-15.40
-13.35
0.95
-17.90
-26.14
-17.41
4.91
-19.58
-3.27
-3.15
-5.00
-17.06
-6.69
-27.92
-2.03
6.99

Cur Stock

Sym

Close

HK$

AU$
AU$
AU$

4502
0700
8766
7203
WES
WBC
WOW

5564.00
148.30
4112.00
6097.00
40.07
30.69
22.30

TakedaPharm
TencentHoldings
TokioMarineHldg
ToyotaMtr
Wesfarmers
WestpacBanking
Woolworths

Stoxx 50
CHF

CHF
CHF

CHF
CHF
DKK

ABB
AXA
Allianz
Anheuser Busch
AstraZeneca
BASF
BNP Paribas
BT Group
BancoBilVizAr
BancoSantander
Barclays
Bayer
BP
BritishAmTob
FinRichemont
CreditSuisse
Daimler
Deutsche Bank
DeutscheTelekom
Diageo
ENI
GlaxoSmithKline
HSBC Hldgs
INGGroep
ImperialBrands
IntesaSanpaolo
L'AirLiquide
LVMHMoetHennessy
LloydsBankingGroup
LOreal
NationalGrid
Nestle
Novartis
NovoNordiskB
Prudential
ReckittBenckiser

ABBN
CS
ALV
ABI
AZN
BAS
BNP
BT.A
BBVA
SAN
BARC
BAYN
BP.
BATS
CFR
CSGN
DAI
DBK
DTE
DGE
ENI
GSK
HSBA
INGA
IMB
ISP
AI
MC
LLOY
OR
NG.
NESN
NOVN
NOVO-B
PRU
RB.

18.15
21.43
142.25
104.30
4073.00
62.25
45.48
481.80
6.19
4.05
162.40
98.84
352.90
3968.50
65.50
14.81
66.39
17.18
15.71
1862.50
13.45
1396.00
471.60
11.49
3774.50
2.48
96.83
155.00
73.27
155.75
952.30
71.40
73.15
365.90
1329.50
6503.00

% YTD%
Chg Chg Cur Stock
3.40 -8.26
2.63 -2.88 CHF
6.09 -12.73
3.46 -18.58
2.61 -3.70
4.14 -8.55
0.63 -8.98

0.39
1.06 CHF
2.95 -15.04
1.79 -13.02
-0.29 -8.83
-0.49 -11.77 CHF
0.29 -11.98
3.34 -12.92
-2.86
2.14 $
4.42 -8.19 $
5.64 -11.21 $
2.72 -25.81 $
0.79 -14.65 $
0.64 -0.31 $
-0.79
5.24 $
0.92 -9.15 $
6.70 -31.72 $
2.63 -14.42 $
5.14 -23.73 $
-0.91 -5.90 $
-0.98
0.32 $
0.75 -2.54 $
-1.34
1.68 $
2.31 -12.05 $
2.77 -7.67 $
-1.04
5.24 $
$
3.77 -19.82
$
-0.45 -6.58
$
0.19
6.97
$
0.27
0.27
$
-2.01
0.29
$
-1.32
1.58
$
-0.21 -4.23
$
1.18 -15.73
$
1.02 -8.50
$
1.72 -13.16
$
-2.59
3.53
$

RioTinto
RocheHldgctf
RoyDtchShell A
SAP
Sanofi
SchneiderElectric
Siemens
Telefonica
Total
UBSGroup
Unilever
Unilever
VodafoneGroup
ZurichInsurance

Sym

Close

RIO
ROG
RDSA
SAP
SAN
SU
SIE
TEF
FP
UBSG
UNA
ULVR
VOD
ZURN

2007.50
262.00
1657.00
71.17
73.65
54.95
87.32
9.81
42.21
16.21
39.77
3073.50
221.70
220.40

DJIA
AmericanExpress
Apple
Boeing
Caterpillar
Chevron
CiscoSystems
CocaCola
Disney
DuPont
ExxonMobil
GenElec
GoldmanSachs
HomeDepot
Intel
IBM
JPMorganChase
JohnsJohns
McDonalds
Merck
Microsoft
NikeClB
Pfizer
Procter&Gamble
3M
TravelersCos
UnitedTech
UnitedHealthGroup
VISAClA
Verizon
WalMart

AXP
AAPL
BA
CAT
CVX
CSCO
KO
DIS
DD
XOM
GE
GS
HD
INTC
IBM
JPM
JNJ
MCD
MRK
MSFT
NKE
PFE
PG
MMM
TRV
UTX
UNH
V
VZ
WMT

57.10
100.75
119.59
69.38
87.12
26.91
43.76
97.06
62.15
82.71
30.18
154.20
125.59
30.54
136.28
59.76
107.05
118.47
52.27
52.95
62.20
29.98
82.52
159.36
110.17
95.50
121.27
74.26
52.10
66.18

% YTD%
Chg Chg
3.48
1.41
0.92 -5.21
0.70
8.58
0.06 -3.01
0.19 -6.30
0.13
4.55
0.18 -2.85
3.20 -4.16
1.59
2.29
3.18 -16.96
-1.84 -0.85
-2.38
5.02
-0.40
0.32
1.66 -14.71
0.53
0.22
-0.31
0.42
1.15
0.28
0.16
-0.60
-1.26
1.76
1.00
-0.29
-0.09
0.56
1.42
0.95
-0.16
-0.32
1.00
0.70
-1.14
-0.20
1.59
-0.14
0.04
0.47
-0.33
-0.51
1.24
-0.42

-17.90
-4.28
-17.29
2.09
-3.16
-0.92
1.86
-7.63
-6.68
6.11
-3.11
-14.44
-5.04
-11.35
-0.97
-9.50
4.22
0.28
-1.04
-4.56
-0.48
-7.13
3.92
5.79
-2.38
-0.59
3.09
-4.24
12.72
7.96

Asia Titans 50
Last: 123.98 s 4.17, or 3.48%

YTD t 9.0%
150
140
130
120
110
100

50day
moving average
t
High
Close
Low
4
11
Dec.

18

25 31

Jan.

15

22

29
5
Feb.

12

19

26

Stoxx 50
Last: 2868.16 s 33.31, or 1.18%

YTD t 7.5%
3400
3200
3000
2800
2600
2400

4
11
Dec.

18 24 31

Jan.

15

22

29
5
Feb.

12

19

26

Dow Jones Industrial Average

P/E: 17

Last: 16899.32 s 34.24, or 0.20%

YTD t 3.0%
18000
17400
16800
16200
15600
15000

4
Dec.

11

18

24

31

Jan.

15

22

29
5
Feb.

Note: Price-to-earnings ratios are for trailing 12 months

Sources: WSJ Market Data Group; Birinyi Associates

12

19

26

THE WALL STREET JOURNAL.

Thursday, March 3, 2016 | B9

MONEY & INVESTING

Investors Get Finicky on Corporate Debt

Highly rated U.S. firms
cash in, but junk-rated
borrowers have a slow
start to the year

Breaking Ranks
U.S. junk-bond issuance has slowed amid a retreat from risk,
while highly rated rms keep selling bonds at a record clip.

BY BEN EISEN

U.S. investment-grade issuance

Year to date*

$250 billion

$250 billion

200

200

150

150

100

100

50

$15.3B

0
2009 10 11 12 13 14 15 16
*Through Feb. 29

CHRISTIAN GOODEN/TNS/ZUMA PRESS

Bond-market turbulence in
2016 is widening the gap between corporate haves and
have-nots, a dynamic that
threatens to weaken the U.S.
economic recovery by raising
financing costs for lower-rated
firms.
The wealthiest companies
have hardly missed a beat even
as investors have retreated
from risk and economic numbers have softened. Investors
bought $12 billion in bonds
Monday from triple-A-rated
Exxon Mobil Corp., and Anheuser-Busch InBev NV and
Apple Inc. also have completed
blockbuster deals this year.
High-grade corporate issuance during the first two
months of the year was up
from the same period a year
ago, when highly rated firms
sold the most new bonds on record for the fourth year in a
row, according to Securities Industry and Financial Markets
Association data.
But for lower-rated firms, it
has been a different story. U.S.
junk-bond issuance had its
slowest start to the year since
2009, according to Dealogic,
and firms that have managed to
sell bonds are paying a hefty
price.
Software firm Solera Holdings Inc. on Monday sold $1.7
billion of junk bonds to finance
its buyout, after reducing the
sale from a planned $2 billion.
The firm also increased its interest rate and made several investor-friendly
covenant
changes, according to S&P
Global Market Intelligence.
The shift shows bond investors are getting pickier, focusing on low-risk bonds that are
easy to trade. Whats in: highly
rated debt from the safest issuers and bonds from companies
expected to be resilient in a

U.S. high-yield issuance

Year to date*

Anheuser-Busch InBev completed a big bond deal this year. Above, an Anheuser-Busch brewery.
slower economy. Whats out:
the energy sector, bonds from
companies seen as needing a
growing economy to thrive and
bonds with longer maturities.
Were a long ways from the
market being really hot, said
Ryan Preclaw, a credit strategist at Barclays PLC. The more
difficult deals are still going to
be extremely difficult.
Access to credit plays a key
role in measures of financial
conditions, which the Federal
Reserve looks at when deciding
whether to adjust its monetary

policies. William Dudley, president of the Federal Reserve

Bank of New York, said Monday
that a continued tightening in
financial conditions could
prompt him to lower his outlook for economic growth, a
shift analysts said could affect
Fed plans to raise interest rates
this year.
Those concerns have been
most evident in high-yield bond
trading. The iShares iBoxx
USD High Yield Corporate
Bond exchange-traded fund,
the largest junk-bond ETF, has

rallied in recent weeks, pushing

its total return for the year to
0.4% on Tuesday, its first showing in the black all year.
But the ETF dropped as
much as 6.2% earlier this year,
underscoring the depth of investor risk aversion at midwinter. Even following the recent
rally, many bond classes within
the junk category continue to
trade lower, reflecting concerns
about economic and market
volatility.
Theres not a lot thats actually performing at the aver-

50
0
2009 10 11 12 13 14 15 16
THE WALL STREET JOURNAL.

Source: Dealogic

ages, said David Schawel, a

portfolio manager at New River
Investments.
One example: Some investors are buying high-yield debt
that matures in shorter
amounts of time, helping lift its
recent performance over comparable bonds with longer maturities. Debt maturing in one
to three years had risen 0.6%
this year as of Tuesday, while
bonds maturing in three to five
years were down 0.8%, according to index data maintained by
Markit.
Others are differentiating
between companies that are
seen as depending more on a
strong economy boosting earnings and cash flow. During the
first eight weeks of the year,
$51 billion worth of bonds were
downgraded to the speculative
category from investment
grade, the most since 2009, according to Barclays PLC.
James Keenan, global head
of fundamental credit at BlackRock Inc., said he is wary of
companies that could be
squeezed if a weak economy
pushes up their cost of capital
too much.
In each sector we are seeing companies that are probably too levered toward economic growth and will be
stressed in this economic environment, he said. Still, he sees

$233.6B

some attractive opportunities

in the current market environment, he said.
In some ways, the broader
market is affecting most companies in the same manner,
particularly in the cost of borrowing. For example, the yield
premium demanded by investors has risen even for Exxon
Mobil. A 10-year bond issued
by the company Monday paid
1.3 percentage points more
than comparable Treasurys,
versus 0.58 percentage point
on a 10-year bond sold last
year, according to S&P Global
Market Intelligence.
For Apple, even though it
had to pay a higher premium
over Treasurys, its all-in borrowing costs were lower because of a rally in government
debt.
Jeffery Elswick, a portfolio
manager at Frost Investment
Advisors, said he has been purchasing some low-rated bonds,
but only short-term debt, such
as paper issued by Sprint Corp.
that matures around the turn of
the year. His reasoning: If you
dont know where the market is
headed, why lock yourself in for
a long period of time during
which the economic cycle could
turn or rates could rise?
Our level of certainty about
the prospects of the markets is
lower, he said.

No Rush on Postbank Sale

BY MADELEINE NISSEN

control, he said.
Deutsche Bank, Germanys
largest lender, is undergoing a
broad restructuring program,
which includes spinning off
Postbank.
The bank has been hit
harder than some of its peers
by concern among investors
over its capital buffers, litigation costs and the extent of its
ability to make a profit amid
the market turmoil.
As part of a larger transaction aimed at shoring up investor confidence in its finances, Deutsche Bank in midFebruary offered to buy back
up to $5.4 billion in corporate
bonds.

KRISZTIAN BOCSI/BLOOMBERG NEWS

FRANKFURTDeutsche
Bank AG isnt under pressure
to sell or float its retail unit
Postbank until the market environment improves, the
banks co-Chief Executive John
Cryan said Wednesday.
Why should we sell now if
we can achieve a better price
with a little bit of patience?
Mr. Cryan said at a financial
conference in Frankfurt.
Deutsche Bank plans to
break off Postbank by the end
of 2017 at the latest, the bank
said in January. A person familiar with the matter said the
bank was trying to push ahead

with an initial public offering

in 2016, but this would depend
on market conditions.
Stock markets have been
under pressure since the beginning of the year as global
economic uncertainty has
caused concern among investors.
Banking stocks in particular
have suffered because of expectations of further reductions in interest rates and
other worries.
Ensuring profitability is a
formidable challenge for
Deutsche Bank, Mr. Cryan said.
Still, recent steep share losses
are exaggerated and nervousness in the market is out of

Deutsche Bank plans to sell or float Postbank, its retail unit, as part of a larger restructuring.

BY JULIE WERNAU
Hedge funds that made big
bets on Argentine debt more
than a decade ago will rake in
gains of 900% of their original
principal investment on some
bonds, according to a court filing from Argentinas undersecretary of finance.
Argentina announced on
Monday it had reached a deal
to pay $4.65 billion to four
hedge funds to settle their
claims on sovereign debt from
a 2001 default on more than
$80 billion. The agreement
ends a 15-year saga that has
kept the country from borrowing in the global bond market.

Paul Singers Elliott Management Corp. is poised to

make a 392% return on principal from Argentina bonds it
purchased, according to the
filing, in federal court in New
York.
Bracebridge Capital in Boston had the best returns of the
four hedge funds, with a 952%
gain on principal, according to
the court filing, or $1.1 billion
on $120 million in principal.
Santiago Bausili, the undersecretary of finance for Argentina, said that Elliott and
Bracebridge acquired a large
number of bonds in 1998 that
had floating-rate accrual
notes, which enabled the funds

to reap larger profits than

most other bondholders.
The bonds were designed
to offer low price volatility by
paying a floating-rate coupon
that was periodically reset to
match market rates, he said
in the court filing.
When Argentinas economy
began to struggle and the government defaulted on its debt
in 2001, those rates increased
rapidly.
When the [bonds] came
due, in 2005, the interest rate
froze at 101.5% per year, Mr.
Bausili said.
Elliott and Bracebridge
didnt immediately respond to
requests for comment.

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MARCH 17 24, 2016

B10 | Thursday, March 3, 2016

Email: heard@wsj.com

Brewer Gets
A HappyHour Price
China Resources Beer
Holdings got a bargain as
Anheuser-Busch InBev tries
to speed through its megamerger with SABMiller. Now
the state-owned beer maker
has to show it can fight
alone.
The company said
Wednesday it would buy the
49% stake it doesnt already
own in CR Snow, Chinas
largest brewer by volume,
for $1.6 billion from SABMiller. The transaction will
give China Resources Beer
full ownership of CR Snow,
which commands around
30% of Chinas market. The
deal is vastly cheaper than
what the market expected
analysts put valuations north
of $3 billion. AB InBev may
wish to get the deal done
quickly to clear regulatory
hurdles for its $108 billion
merger with SABMiller.
For getting such a cheap
deal, CR Beer stock closed
up 18% Wednesday. Assuming the deal is fully financed
by borrowings, Jefferies says
it could vault CR Beers earnings to HK$0.96 ($0.12) a
share for next year, nearly
90% higher than previous
consensus estimates on FactSet.
After picking up Snow so
cheaply, CR Beer still faces
challenges. Chinas beer market suffers from flat growth
and meager profits.
CR Snows push to sell
more premium variants of its
brand to boost margins has
seen limited success. AB InBevs Budweiser brand has
the lions share of that market, while Chinas 113-year
old Tsingtao Brewery also
has a significant presence.
The cheap price tag to
unify its brand gives CR Beer
a head start, but there is a
tough battle ahead.
Jacky Wong

THE WALL STREET JOURNAL.

HEARD ON THE STREET

FINANCIAL ANALYSIS & COMMENTARY

WSJ.com/Heard

Banks Fear a U.K. Exit From EU

Simple and focused is better in bankingat least for
now.
Virgin Money, one of the
U.K.s smaller so-called challenger banks, pleased investors on Wednesday as it reported a big leap in profits
and a bigger dividend than
expected.
It follows Lloyds Banking
Group in giving investors
good-looking cash flow and
payouts from a simpler business model, which at Virgin
Money is focused on mortgage lending and credit
cards.
This is just what investors
want. Take note Barclays,
whose stock was hard hit
this week by promises to cut
future dividends so it can
maintain a global investment
bank alongside a U.K.-focused retail and commercial
bank.
But there are dangers
ahead for U.K. lenders: the
overheated housing market
and the risk of a British exit
from the European Union,
with a vote now set for June.
In mortgages, buy-to-let

Hey Big Lender

U.K. buy-to-let gross new lending
50 billion
40
30
20
10
0
2000

10

Sources: Council of Mortgage Lenders;

Reuters (photo)

THE WALL STREET JOURNAL.

Homes for sale in London

lending is the worry. Lloyds

restricted its growth in 2015
saying mortgage demand
was mostly from landlords,
who are taking a growing
share of the market. This
concerns the Bank of England because as financial investors these borrowers are
more sensitive to interest
rates and house prices.
At Virgin Money, those
kinds of loans grew by 40%
in 2015, outpacing the

broader market and adding

1.3 billion ($1.8 billion) in
net new loans.
Lloyds only had 4%
growth in its buy-to-let
mortgage book. However, its
greater size means it added
2.3 billion in net new loans,
a bigger market share without trying. Both now have a
similar proportion of buy-tolet loans in their books: 17%
at Virgin Money, 18% at
Lloyds.

OVERHEARD

Incoming tax changes

could help cool the market,
though Virgin Money expects
demand to be unaffected.
But these mortgagesand to
a degree owner-occupier
loans tooface risks from a
potential Brexit.
As BlackRock has warned,
this could severely weaken
the British pound and harm
the U.K.s ability to fund its
current-account deficit and
sell government bonds
abroad. That could mean
sharply higher interest rates
even as the economy slows
which would hit over-indebted landlords and homeowners hard.
Fundamentally, Virgin
Money with its ability to
gain market share and pay
growing dividends deserves
its valuation premium of 1.2
times forward book value.
But Brexit holds risks for
Britain and its banksa
sting in the tail of the referendum. Shares in Virgin
Money and others will suffer
as nerves about the vote
mount.
Paul J. Davies

If they wont take iron ore,

give them an education and a
vacation. That is the nimble
Australian economy in a nutshell. The countrys reliance
on Chinese demand to fuel
growth has quickly adjusted
to new realities.
Australia reported surprisingly strong fourth-quarter
gross domestic product
Wednesday, rising 3% from a
year earlier. That is despite a
colossal collapse in the prices
of the countrys key exports.
Or what used to be its key
exports. The last two months
of 2015 were the first time in
nearly six years that Australias services exportswhich
include inbound tourism and
educationoutstripped exports of metal ores and minerals in value terms.
And it isnt just because
the price of iron ore has
fallen. Services exports have
grown strongly, the main ingredient being a weak Australian dollar. Chinese parents
surely notice that a seat at
the University of Melbourne
is suddenly a bargain compared with the U.S. alternative. Data out Monday from
the Australian government
showed foreign enrollment at
the countrys educational institutions hit 645,000 in
2015, up 25% from 2012.
Tourism is also booming.
Chinese visitors were up 20%
last year, exceeding one million for the first time.
This should mean a tailwind for Australian services
companies. Scentre Group is
Australias major shopping
mall owner and would do well
to cater to Chinese shoppers.
Navitas provides educational
services, with its English-language segment among its
strongest performers last
quarter. Mantra Group is a
hotel operator.
For a country that was
dismissed as a mining one-hit
wonder, Australia has
changed the tune.

Can Activist Really Jump-Start Rolls-Royce?

ValueAct is known for

taking the long-term view.
But the secretive San Francisco-based activist,
which Wednesday succeeded
in placing one of its partners on the board of RollsRoyce, may need the patience of Job to see its 10.8%
stake in the U.K. aerospace
group turn much of a profit.
On the face of it, the past
month has offered respite
for Rolls. Its annual results reassured investors it
wouldnt need a rights issue. Key client Airbus said it
would increase production of
its A330 widebody jet, to
which Rolls supplies its
Trent 700 engine. The shares
have bounced by almost 30%

Long-Haul Story
Share-price, index performance
25%

FTSE 100
Rolls Royce

0
25
50
2015

16

Source: WSJ Market Data Group

THE WALL STREET JOURNAL.

from a six-year low in early

February.
But the problems in the
groups civil aerospace division, which contributed more
than half of profits last year,
will get worse before they

get better.
Airbuss decision to upgrade its long-haul stalwart
the A330 to a new model
called the A330neo forced
Rolls-Royce to invest heavily
in a new engine, the Trent
7000.
But sales of these are
lower margin than their predecessor, because upfront
sales arent linked to lucrative service contracts as they
have been in Rollss accounting in the past. The same applies to the engine the company has designed for
Airbuss A350 model, the
Trent XWB.
Recovery stories typically
depend on cash flows. This
is where Rolls falls down: Jet

engines are sold at a cash

loss in expectation of big
profits on repairsthe razor
model of business lore. Management expects a free-cash
outflow of 100 million to
300 million ($139.5 million$418.5 million) at best this
year, as output ramps up.
Neil Woodford, perhaps
Britains most famous fund
manager, sold his RollsRoyce stake in December after losing his long-term
confidence in the business
modeland in particular
the cash flow dynamics of
the opaque civil aerospace
division. These are problems
a seat on the board is unlikely, in the near term, to
resolve. Stephen Wilmot

MONEY & INVESTING

Moodys Lowers China Outlook

DANIEL LEAL-OLIVAS/I-IMAGES/ZUMA PRESS

Moodys Investors Service

cut its outlook for the Chinese
governments credit rating,
due to concerns about a slowing economy, shrinking foreign reserves and a weakening
currency.

LAM YIK FEI/GETTY IMAGES

By Shen Hong
in Shanghai and
Anjani Trivedi
in Hong Kong

Sajid Javid said 100% state funding was no longer required.

U.K. Plans to Auction

Green Investment Bank
BY MARGOT PATRICK

LONDONThe U.K. government said it would sell Green

Investment Bank PLC, a vehicle set up by the government
in 2012 to fund environmentally friendly infrastructure
projects.
In a dinner speech to business leaders Wednesday, Business Secretary Sajid Javid announced the sale process,
saying there was strong market interest in the company
and that 100% state funding
was no longer required. Details of a planned auction will
be announced Thursday.
The Green Investment
Bankessentially a fund
rather than a licensed bank
has made 2.6 billion ($3.63
billion) in investments and
commitments to green projects. These range from installing new light fixtures across a
U.K. banks branch network to
funding a plant that turns
chicken droppings and other
waste into fuel.
Green Investment Bank is
expected to be valued at
roughly what the government
has invested, or 1.8 billion. The new owners would
be required to commit about
2.1 billion in fresh capital,
making the total potential
transaction valued at about 4
billion. The new shareholders
also would have to uphold the
green principles behind the
company. These include making a positive contribution to
a recognized green purpose

and looking at a projects enduring green impact.

The Green Investment
Bank was a world first, and it
is a sign of its success that the
idea is being copied across the
world. Having proven the business model works, we now
want to make an even greater
impact, Mr. Javid said in prepared remarks before his
speech.
Shaun Kingsbury, chief executive of Green Investment
Bank, said bringing in private
owners would let the company
invest in a greater range of
projects and borrow money
for further investment. Interest in the bank is expected to
come from sovereign-wealth
funds, pension funds and
other institutions interested in
the long-dated yields of infrastructure investments. The
bank said in its 2015 annual
report that it was close to its
expected long-term investment run rate of 800 million
to 1 billion a year.
Following
commitments
made by 190 countries at Decembers United Nations climate summit in Paris, there
is a real theme here of the
world building out the clean,
green infrastructure it needs
for the next century, Mr.
Kingsbury said.
Banks and investment funds
have touted green finance as a
new asset class, but critics
have said green bonds and
other types of financing are
being held back by a lack of
global standards.

The U.S. ratings firm said it

lowered its outlook on Chinas
credit rating to negative from
stable, while affirming the
still-respectable Aa3 grade on
its sovereign debt.
Moodys cited Chinas rising
debt, the continuing depletion
of its foreign reserves and
doubts about Beijings ability
to carry out economic overhauls as reasons for its move.
The negative outlook is a
result of [the fact that], on
balance over the last few
months, the trends have become more pronounced, said
Marie Diron, a sovereign analyst at Moodys.
Ms. Diron said that while
leverage has increased, stateowned companies ability to
service debt has deteriorated,
and that could weigh on the
sovereign balance sheet.
Meanwhile, tangible economic
overhauls have been rare.
What weve seen are announcements towards reform
but also step-backs, she said,
adding that backtracking raises
questions about authorities
ability to press for revamps.
A negative outlook typically
indicates a higher chance of a
rating change over the medium term. On average, a rating change follows within a
year. About half of the time,
issuers are downgraded or put
on review for downgrade.
After assigning China an A1
investment-grade rating in
2007, Moodys upgraded it by
one notch to Aa3 in November
2010, putting it on par with
Belgium and Saudi Arabia.
Moodys latest move came
after weak manufacturing data
released Tuesday showed that
the worlds second-largest
economy kicked off the new
year on a disappointing note.

People looked at job postings in Dongguan, China, in January.

It also followed a weekend
gathering of Group of 20 finance chiefs, which focused on
global concerns about Chinas
outlook.
Moodys said it expects
Chinas already-weakening fiscal strength to diminish further because of high debt that
was taken on by local governments, policy banks and stateowned enterprises.
Chinas central-government
debt rose to 40.6% of gross
domestic product at the end of
last year, up from 32.5% in
2012, according to Moodys estimates. The ratings firm said
it expects the ratio to reach
43% by 2017.
According to UBS, Chinas
total debt reached 260% of its
GDP in January, up from less
than 160% in 2007.
While not our base case
scenario, the governments fiscal strength would be exposed
to additional weakening if underlying growth, excluding
policy-supported economic activity,
remained
weak,

Advertisement

Moodys said.
A rapid erosion of Chinas
foreign reserves and a surge of
capital outflows in recent
months also could make it
harder for the government to
repay its debt. Foreign reserves have fallen sharply over
the past 18 months, to $3.2
trillion in January, which was
$762 billion lower than their
peak hit in June 2014, according to Moodys.
Moodys said it could raise
Chinas rating outlook back to
stable if it concludes that the
government has found success
in prioritizing economic overhauls and arrested the deterioration of fiscal conditions.
Conversely, Moodys could
downgrade the rating if we
observed a slowing pace in the
adoption of reforms needed to
support sustainable growth
and to protect the governments balance sheet, it said.
Standard & Poors Ratings
Services last affirmed its sovereign rating on China at AAminus and kept its outlook at

stable in November 2015.

The rapid depletion of
Chinas reserves, especially
since Beijings decision to devalue its currency by 2% in
August, mostly reflects authorities effort to intervene in
the foreign-exchange market
to prevent a sharp yuan depreciation by buying the Chinese
currency with dollars.
As foreign reserves dwindled and capital flight intensified, Beijing has been forced to
take countermeasures to preempt a cash crunch in the financial system and create
more demand among investors
to purchase domestic debt.
Chinas central bank on
Monday lowered the amount
of deposits banks must hold in
reserve by half a percentage
point, freeing up an estimated
700 billion yuan ($107 billion)
for banks to lend.
At its annual legislative
meetings later this month,
Beijing is also expected to approve a plan to widen the
countrys fiscal deficit to
about 3% of GDP this year
from the current 2.3%.
Late last month, Chinas
central bank said it would
make it easier for foreign institutional investors, ranging
from global insurers to pension funds, to buy bonds issued in its once highly restricted domestic market.
The move came as Beijing
struggles to find new investors for a further expansion of
a 3.2-trillion-yuan program
launched last yearto swap
short-dated, high-interest local government bonds into
long-dated, low-interest debt.
Carol Chan in Hong Kong
contributed to this article.

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