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THURSDAY, MARCH 9, 2017 ~ VOL. XXXV NO. 28 WSJ.com EUROPE EDITION

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On the Front Lines on International Women’s Day

FBI Is
What’s
Probing
News
Business & Finance
Release
I ranian banks that were Of CIA
Files
removed from sanctions
remain frozen out of the
world financial system by
big lenders wary of risks. A1
 Big oil firms are shift- BY SHANE HARRIS
ing from extravagant proj-
ects and investing in WASHINGTON—The Federal
cheaper ventures in Texas, Bureau of Investigation is look-
the Mideast and Brazil. B1 ing into the leak of a huge
trove of hacking tools appar-
 Merkel said she had no
ently used by the Central Intel-
prior knowledge of VW’s
ligence Agency, and the initial
diesel-emissions cheating
focus is likely to fall on con-
before the scandal broke. B2
tractors that the spy agency
 Renovate America has hired, according to people fa-
BULLIT MARQUEZ/ASSOCIATED PRESS

masked problems with some miliar with the matter.

borrowers by paying off On Tuesday, WikiLeaks pub-
their debts but hasn’t told lished more than 8,000 pages
the lender’s investors. B5 of documents detailing how
the spy agency breaks into
 A GE executive who
computers, smartphones, mes-
was a leading contender
saging applications and even
for the Fed’s top regula-
television sets, in what may
tory job has opted out. B5
constitute the largest breach of
 Trump’s pick to head the UNITED: Women around the globe—including outside the U.S. Embassy in Manila, above—took part in rallies to mark International Women’s Day. classified information in the
SEC faces possible conflicts agency’s history.
due to the long list of banks The leak, which experts
and public firms he has said appears to be authentic,
represented as a lawyer. B5 has shaken President Donald
 SoftBank is in talks to
shift a stake in U.K. chip de-
NEW FORCE ON WALL STREET: Trump’s administration, which
had not commented directly
on the WikiLeaks release or its
signer ARM to its proposed
$100 billion tech fund. B7
 Microsoft will unveil a
THE ‘FAMILY OFFICE’ authenticity. The revelation
also carries a potent political
charge, given that WikiLeaks
version of its server run- is the organization that re-
ning on ARM chips. B4 leased thousands of emails
stolen from the Democratic
 BankMobile is being Wealthy families are increasingly investing through unregulated firms, impinging on investment banking National Committee and Dem-
sold for $175 million to
ocrat Hillary Clinton’s cam-
Flagship Community Bank,
BY ANUPREETA DAS deals together, including acquisitions. hosted the Dallas get-together. paign during the 2016 presi-
a Florida-based lender. B7
AND JULIET CHUNG Such transactions traditionally were Wealthy families have always found dential election.
 China’s bitcoin exchanges the province of big companies or pri- ways to protect and build their money, A mix of contractors and
said a halt on withdrawals On a warm October day in 2014, en- vate-equity firms. But a disruptive and the savvier among them have pur- CIA employees build and de-
would continue until they are voys from 15 of America’s wealthiest force has emerged on Wall Street: the sued their own business deals, from velop the hacking tools that
cleared by regulators. B7 families gathered at Circle T, Ross family office. These entities, set up to acquiring farmland to seeding hedge are the subject of the leak,
Perot Jr.’s 2,500-acre ranch outside manage the fortunes of the wealthy, funds to buying companies. Today but the agency is particularly
 Adidas’s new CEO vowed
Dallas. Skeet-shooting was on the and able to operate under the radar, their ranks are ballooning, and many, dependent upon outside ex-
to boost the athletic-gear
agenda, but the real purpose of the are making their presence felt with put off by the high fees and sometimes perts and other intelligence
firm’s sales and profit faster
two-day retreat was for the families to their growing numbers, fat wallets and weak performances of Wall Street agencies, said current and
than his predecessor. B3
get acquainted and eventually team up hunger for deals. money managers, are shifting to in- former intelligence officials
to pursue investments. “We’re all just starting to recognize vestments they can pursue directly who have knowledge of the
World-Wide From that exclusive gathering, at- that we should be a more important through family offices. agency’s work.
tended by people investing the for- part of the investment world than we The offices are alternately linking up One person familiar with
tunes of Michael Bloomberg, George historically have been as a group,” said with buyout firms and competing the matter said that dozens of
 The FBI is looking into the Soros and other billionaires, sprang a Kenny Springfield, an executive at against those firms to do acquisitions. companies work for the CIA
leak of a huge trove of hack- broader network of 150 families that Perot Investments, which handles the They are providing financing to start- formulating and testing hack-
ing tools apparently used by have since participated in more than 10 multibillion-dollar Perot fortune and Please see FAMILY page A8 Please see CIA page A6
the CIA, with the initial focus

Jittery China Urges U.S.

likely to fall on contractors
hired by the spy agency. A1
Savers Still Squeezed by Low Rates
 China proposed that
The current low-return environment means savers have to put away more
North Korea suspend nuclear

To Talk to North Korea

if they want to maintain their standard of living through retirement. B1
and missile tests in exchange
for a halt in U.S.-South Ko- Annual savings rates Low-return Medium Historical
rean military exercises. A1 environment return return

 North Korean missile 14.2% 14.9%

tests have fueled a push by BY JEREMY PAGE vious offers from Pyongyang be used to track Chinese nu-
Japanese hawks for possible 11.3% 11.2% 11.4% AND CHUN HAN WONG that were rejected by the clear missiles.
pre-emptive strikes in case Obama administration. After banning coal imports
of an imminent threat. A5 9.0% BEIJING—China is trying to Even so, China hopes the from North Korea last month,
8.1% 8.2%
nudge the U.S. back into talks idea will gain fresh traction China is reluctant to apply fur-
 Three North Korean banks 6.8%
with North Korea as the with President Donald Trump ther economic pressure that
were banned by financial- Trump White House reviews as he reviews policy options could cause the regime to col-
messaging service Swift. A4 Washington’s approach toward following North Korea’s most lapse and potentially bring
 Kim Jong Nam’s son ap- Pyongyang—a process Beijing recent missile tests and the U.S. troops closer to the Chi-
peared in a video posted by a fears may lead to military es- killing in Malaysia of a half- nese border, analysts and dip-
group that said it rescued $25,000 $50,000 $100,000 calation or more diplomatic brother of North Korean leader lomats say.
the family of the North Ko- pressure on China. Kim Jong Un. Instead, the Chinese leader-
rean leader’s half brother. A4 Saver’s annual income China’s proposal on The revival of the idea re- ship is presenting itself as an
Note: Returns are modeled on the moderate risk category of the Morningstar Lifetime Allocation Wednesday for North Korea to flects China’s growing concern intermediary while trying to
 U.S. House panels began Index, which increases exposure to bonds as investors approach retirement. The low-return
suspend its nuclear and missile about the deployment in South place the burden of responsi-
to review a GOP health-care environment is based on current returns, moderate assumes current returns will increase toward
the historical average, and historical is based on average annual returns dating back to 1926. tests in exchange for a halt in Korea this week of the first bility on the U.S. for making
plan amid resistance from Source: Research from “Planning for a More Expensive U.S.-South Korean military ex- parts of a U.S. missile-defense the next move.
hospitals, insurers and con- Retirement” in the Journal of Financial Planning THE WALL STREET JOURNAL. ercises closely resembles pre- system that Beijing says could Please see CHINA page A4
servative lawmakers. A2
 Republicans are split over
whether a planned tax over-
haul should pay for itself, Iranian What’s Worse Than Waiting for
College Letters? Talking About It
Oracle #1
with GOP leaders favoring a
revenue-neutral approach. A6
 Islamic State fighters
disguised as doctors fought
Banks Still i i i

As anxious students await admissions

government forces inside an
Afghan military hospital,
leaving at least 30 dead. A3
Frozen Out letters, they face questions from adults SaaS Enterprise
 Britain’s economy is set
to grow strongly in 2017 be-
In Britain BY SUE SHELLENBARGER currently a sophomore at
Harvard University.
Applications Revenue
fore slowing next year, the BY BRADLEY HOPE Allie Dreier, a 17-year-old Ms. Wishnow, a sopho- 1,000+ Employees Segment, 2015
U.K. Treasury chief said. A3 from Glen Ridge, N.J., at- more at Syracuse University,
Just after the European tended a friend’s family gath- says a few sidled up and said
 Two front-runners have Union lifted sanctions on sev- ering recently when the ques- quietly, “I know you don’t
emerged to be Trump’s next eral of Iran’s biggest banks tion came up. A relative want to talk about it with

#1
Navy secretary after the pre- last year, Bank Sepah Interna- asked her friend, “What’s other people, but will you tell
vious nominee withdrew. A6 tional PLC creaked back to life. your SAT score?” just me?”
The Iranian-owned, British- Her friend fired back, Anxiety over college ad-
CONTENTS
Business News.......... B3
Capital Account.... A2
Markets...................... B8
Middle Seat............ A9
Opinion.............. A10-11
licensed bank was all but
mothballed for nearly a de-
“How much do you get paid?” missions is reaching a fever
Ms. Dreier says. Em- pitch as high-school #2
Crossword.............. A12 Technology............... B4 cade due to sanctions de- barrassed, the rela- seniors await deci-
Finance & Mkts... B5,7 U.S. News............. A6-7 signed to force Iran to aban- tive backed off. sions from colleges
Heard on Street.... B8 Weather................... A12 don its nuclear program. Then At a family gath- for next fall. Making Oracle Salesforce
Life & Arts......... A9,12 World News........ A2-5
in 2015, Iran reached a land- ering two years ago, it worse, students Cloud Cloud
€3.20; CHF5.50; £2.00; mark agreement on the pro- Ms. Dreier’s sister and parents say, is a 14.5% 12.4%
U.S. Military (Eur.) $2.20
gram with the U.S. and other Missy and her cousin barrage of unwel-
world powers, paving the way Emma Wishnow An acceptance come and inappro-
for Iranian banks to reconnect grew so weary of in- letter priate questions
to the global financial system. trusive questions from prying adults.
Bank Sepah was eager to get that they made signs reading, Sales of T-shirts reading,
back to business. “I don’t want to talk about “Don’t ask me about college. oracle.com/applications
Yet, more than a year after college” and held them up for Thanks,” are rising on Red- Source: IDC “Worldwide SaaS Enterprise Applications Market Shares, 2015: The Top 15 by Buyer Size,”
s Copyright 2017 Dow Jones & the nuclear deal, Bank Sepah all to see. Their relatives bubble, says Martin Hosking, doc #US41913816, Dec. 2016; Table 4. For the purposes of this report, SaaS enterprise applications include
the following application markets: CRM, engineering, ERP, operations and manufacturing, and SCM.
Company. All Rights Reserved
still hasn’t processed a single laughed and mostly kept their chief executive of the online Copyright © 2017, Oracle and/or its affiliates. All rights reserved.
Please see BANKS page A2 distance, says Missy Dreier, Please see SCHOOL page A8
 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
A2 | Thursday, March 9, 2017
A Plan B for the GOP on Overhauling Taxes
T
his week’s drama over
replacing Obamacare is
prelude to a battle with
even higher stakes for Repub-
licans: overhauling taxes.
The prospect of lower
rates and a simpler tax code
is one of the main reasons
Donald Trump’s election last
fall buoyed business confi-
dence and stocks. Without it,
Mr. Trump will be hard-
pressed to deliver the eco-
nomic growth he promised.
Yet as with health care,
Republicans have been un-
able to co-
alesce around a
single tax plan.
During his
campaign Mr.
Trump pro-
CAPITAL posed cutting
ACCOUNT the corporate
GREG IP rate, at 35%
the highest in
the developed
world (once state taxes are
included), to 15%. But that
could blow a multitrillion
dollar hole in the budget.
Paul Ryan, the Republican
speaker of the House of Rep-
resentatives, is championing a
20% rate combined with “bor-
der adjustment,” which taxes
imports and exempts exports.
Because the U.S. imports
more than it exports, that
would raise money to pay for
Grief in Guatemala After Deadly Fire in Children’s Shelter
SAUL MARTINEZ/REUTERS
Fire swept through a
crowded children’s shelter near
Guatemala City early Wednes-
day and officials said at least
19 people died and dozens
were injured.
The spokesman for Guate-
mala’s volunteer fire depart-
ments, Mario Cruz, told the Emi-
soras Unidas radio station that
firefighters were still extinguish-
ing parts of the morning blaze.
But he said that so far 19 bodies
have been found and about two
BANKS
Continued from Page One
commercial transaction, other
than paying 28 employees and
some vendors, because it is
still effectively frozen out, es-
pecially in the U.K., by big
banks unwilling to risk dealing
with Iranian entities.
“They’ve all just said it’s
not in their risk appetite at
this current time,” said Gary
Bishop, chief operating officer
of the bank who joined last
April to help bring it up to
speed.
Those problems are ex-
pected to worsen under Presi-
dent Donald Trump, whose ad-
ministration has taken an
antagonistic position against
Iran, including the nuclear
deal. The predicament of Bank
Sepah, and other Iranian
banks, shows the lasting im-
pacts of sanctions on foreign
financial institutions and how
uncertain political environ-
ments can create a kind of ex-
tended limbo for companies.
The U.S. still maintains
sanctions on dozens of Iranian
financial institutions, compa-
nies and individuals believed
to be connected to the coun-
try’s nuclear program and its
Revolutionary Guard, the elite
Iranian military unit that re-
ports directly to Supreme
Leader Ayatollah Ali Khame-
the corporate rate cut.
But border adjustment,
which no country has used
with a corporate tax, has
raised alarms. Other countries
could claim it violates trade
laws and retaliate against U.S.
exports. It’s supposed to push
the dollar up, which might de-
stabilize investors and compa-
nies with significant foreign-
currency assets or debts. It
has met stiff resistance from
import-intensive industries
such as retailers. The problem
is if Mr. Trump’s and Mr.
Ryan’s plans crash, Republi-
cans don’t have a Plan B.
S
o here’s one: Cut taxes
on corporations while
raising them on share-
holders. Both are ways to tax
capital, but corporations find
taxes easier to elude because
they are more mobile than
their owners. Raise taxes on
Apple Inc. or Berkshire Hatha-
way Inc., and they will try to
shift income or operations
abroad. Raise taxes on Tim
Cook or Warren Buffett and
neither will leave America.
Ron Johnson, a Republican
senator from Wisconsin, is
pushing the idea. Citing stud-
ies that find corporate taxes
are partly borne by a com-
pany’s workers, he says in an
interview: “Rather than make
dozen people were being treated
for injuries.
The national police depart-
ment said 38 people had been
injured and the country’s
Health Ministry said that 14
were in serious condition with
severe burns.
Dr. Carlos Soto, the director
of the Roosevelt Hospital where
some were being treated, said
the most severe cases, all appar-
ently girls, had suffered life-
threatening burns.
nei. But the U.S. State Depart-
ment encouraged non-Ameri-
can banks to fill the gap and
help Iran reintegrate into the
system. John Kerry, while still
Secretary of State, traveled to
London last year to push the
issue with bankers. The en-
treaties have been rejected.
One risk big the U.K. banks
have cited in public documents
is that Iranian banks aren't up
to the same anti-money-laun-
dering and financial fraud
standards. In recent years,
some of those banks paid bil-
lions of dollars in fines to U.S.
authorities for sanctions and
money-laundering violations
involving Iran.
Bank Sepah’s situation is
similar to several other Ira-
nian-owned banks in the U.K.,
including Persia International
Bank PLC and Melli Bank PLC.,
most of which specialize in
trade finance to facilitate im-
ports and exports to Iran from
abroad They are technically
free to do business but unable
to actually do so because big
U.K. banks refuse to process
their transactions.
The problems are worse
for banks owned by the Ira-
nian government, but private
banks are still unable to do
business with big European
banks, said Parviz Aghili, the
managing director of Middle
East Bank.
That could affect trade be-
cause the smaller European
WORLD NEWS
How the Profit Pie Gets Sliced
The U.S. corporate tax rate is the developed world's highest but its tax
on dividends is middle of the pack.
Corporate tax as % of profit paid at:
France
Ireland 12.5
U.S.
Canada 26.8
Australia 30.0
Germany 30.2
Italy 27.5
U.K. 20.0
Japan 30.0
Netherlands 25.0
Switzerland 21.1
Note: Data is for 2016; combined federal and state taxes
Source: OECD
the employees pay the tax, let
the owners pay the tax.”
Mr. Johnson would like
corporate shareholders to be
taxed at the same rate as
“pass-throughs,” entities such
as limited-liability corpora-
tions, whose profits are taxed
in the hands of the owners at
individual rates. The corpora-
tion itself wouldn’t owe tax.
Instead, it would notify each
shareholder of its share of an-
nual profits and then forward
The shelter has been criti-
cized for overcrowding, alleged
abuse and escapes in the past.
The prosecutor for chil-
dren’s rights, Abner Paredes,
told Emisoras Unidas that at
least 15 people had died but
that information was still be-
ing collected.
He said initial reports sug-
gested the fire started when
some started setting fire to
mattresses in the shelter,
known as the Virgin of the As-
banks willing to do business
with Iranian bank don’t have
space on their balance sheets
to finance big trade deals.
Sitting in Bank Sepah’s of-
fice, where a 1970s-era décor
is accented with Persian car-
pets in the hallways and a pic-
ture of Mr. Khamenei in the
entryway, Mr. Bishop de-
scribed a quandary for the Ira-
nian-owned banks in Britain:
Their parent banks have suc-
ceeded in restarting financial
transactions through branches
in Europe and Asia, but they
can’t use the traditional pay-
ment systems in the U.K. be-
Freed of sanctions,
the U.K.’s Iranian-
owned banks now
face trust barriers.
cause larger banks like HSBC
Holdings PLC and Citigroup
Inc. have refused to clear the
Iranian-owned bank transac-
tions. Those banks declined to
comment.
Another potential option
for Bank Sepah was to use an
account at the Bank of Eng-
land to gain access to the U.K.
payment system. But the bank
couldn’t open an account with-
out opening a reserve account
where they would deposit
Corporate level Personal level
36.4% 28.0%
44.6
38.9 17.4
28.7
19.0
18.4
18.9
24.4
14.2
18.8
16.7
THE WALL STREET JOURNAL.
that shareholder’s estimated
tax to the Treasury.
A less radical approach has
been developed by Alan Viard
of the right-of-center Ameri-
can Enterprise Institute and
Eric Toder of the left-of-cen-
ter Urban Institute. They
would cut the corporate rate
to 15%, and pay for it by tax-
ing dividends and capital
gains at the same rate as ordi-
nary individual income. For
the richest households, that is
sumption Safe Home.
There were reports of escape
attempts Tuesday at the shelter,
which was created to house chil-
dren who were victims of abuse,
homelessness or who had com-
pleted sentences at youth de-
tention centers and had no-
where else to go.
While the shelter was built to
house 500 children and adoles-
cents, it held an estimated 800
at the time of the fire.
—Associated Press
funds in the form of British
government bonds, and no big
bank would help them obtain
them, Mr. Bishop said.
The only European institu-
tion that agreed to let the
Bank Sepah clear transactions
is the Bundesbank, Germany’s
central bank. So far, Bank
Sepah hasn't made any com-
mercial transactions through
the arrangement.
“They’re in an invidious po-
sition because they are a U.K.
regulated and authorized
bank, but they can only access
the European clearing system
through Germany,” said Sue
Millar, Bank Sepah’s attorney
in London with the firm Ste-
phenson Harwood.
Bank Sepah has tried to re-
spond to concerns about the
Iranian banks’ financial fraud
standards. It agreed last year
to license a software package
from Swift, the global pay-
ment intermediary, to screen
staff communications for key
risk words and political
names. The deal, however, has
been delayed because Swift re-
alized a portion of the pro-
gram was American and re-
quired it to obtain a license
from the U.S. government.
Swift declined to comment.
“It’s almost like there is a
will out there to stop Iran
gaining access to what was
promised,” Mr. Bishop said.
—Asa Fitch in Tehran
contributed this article.
THE WALL STREET JOURNAL.
currently 39.6%, whereas divi-
dends and capital gains are
currently taxed at up to
23.8%. This helps rectify many
flaws in the current tax code:
It reduces the double-taxation
of corporate profits, the bias
for companies to issue debt
rather than equity and wide-
spread special breaks that dis-
tort the allocation of capital.
Like Mr. Ryan’s plan it
largely eliminates the incen-
tive to move operations or
profits abroad in search of
lower rates. Moreover, by
raising the tax American in-
vestors pay on foreign divi-
dends, it effectively shifts
some of the U.S. tax burden
away from American compa-
nies and workers and toward
foreign competitors that tap
American capital, without
the threat of being labeled
an illegal subsidy or tariff.
Some countries have al-
ready done it: Ireland com-
bines the rich world’s lowest
tax on corporations with its
second highest on dividends.
Britain recently lowered its
corporate rate while raising
the rate on dividends.
Inevitably, some provisions
in this plan will be controver-
sial. Raising the capital-gains
tax discourages shareholders
from selling shares. Rather
than waiting to tax shares
Lawmakers Begin
Review of Health Bill
WASHINGTON—Two House
committees launched into a
review on Wednesday of a Re-
publican proposal to overhaul
the Affordable Care Act, legis-
lation that is facing stiff resis-
tance from health-care indus-
try groups and a set of
conservative GOP lawmakers.
By Stephanie
Armour, Michelle
Hackman
and Richard Rubin
Lawmakers in the House
Energy and Commerce Com-
mittee and Ways and Means
Committee began parsing the
bill, which was crafted with
White House support. Republi-
can leaders are aiming to move
it through both chambers of
Congress by early April.
Early discussion in the com-
mittees showed no signs of
significant dissent among GOP
lawmakers.
But opposition is coming
from hospital groups—two of
which sent letters of concern
to lawmakers—and from some
insurers and other industry
groups, as well as from a
number of Republican gover-
nors in states that used the
existing law to expand Medic-
aid coverage for low-income
residents. Among the con-
cerns are that the bill would
reduce insurance coverage
and in some cases, cut indus-
try profits.
Other signs of the turbulent
road ahead for the legislation
are coming from conservative
lawmakers, who say the bill
falls short of a more sweeping
repeal of Affordable Care Act
provisions that they promised
voters. They are also con-
cerned that tax credits created
by the bill, aimed at helping
people buy insurance, amount
to a new federal entitlement
program.
House Speaker Paul Ryan,
an architect of the legisla-
tion, on Wednesday sought to
quash the controversy and to
rally support.
“This is what good, conser-
vative health-care reform
looks like,” Mr. Ryan said.
White House press secre-
tary Sean Spicer on Tuesday
played down conservative op-
position to the House plan by
saying “we’re on day two.”
He said the president, as
well as other officials in his
administration, planned to be
“in full sell mode” on the plan,
though he indicated the presi-
dent was open to hearing new
ideas about how to proceed.
The ability of House Repub-
lican leaders and the White
House to satisfy various fac-
tions will be critical in moving
CORRECTIONS 
AMPLIFICATIONS
Readers can alert The Wall Street
Journal to any errors in news
articles by emailing
wsjcontact@wsj.com.
when they are sold, Messrs.
Toder and Viard would tax
them annually based on their
market value, using a formula
to smooth market gyrations.
Tax-exempt investors such
as pension funds would enjoy
a windfall from higher share
prices which the authors
would claw back by taxing
their bond income at 15%.
Messrs. Toder and Viard
estimate their plan is
roughly revenue neutral. In
its eighth year it would raise
roughly $11 billion less than
the status quo. If corpora-
tions respond by booking
more profit in the U.S., it
would raise $50 billion more.
H
owever it’s done, shift-
ing the corporate tax
burden to shareholders
may meet the toughest test of
all: politics. Some reformers
have proposed combining cor-
porate rate cuts with a value-
added tax or carbon tax,
which are nonstarters with
most Republicans. Democrats
recoil at corporate tax cuts as
a giveaway to the rich.
Every tax reform has oppo-
nents, and one that shifts the
tax burden to shareholders is
no different. Yet without some
viable sort of Plan B, Republi-
cans could end up with Plan
C, which is no reform at all.
the proposal forward.
The American Hospital As-
sociation on Tuesday said it
wouldn’t support the House
GOP proposal in its current
form. The industry group pres-
ents more than 5,000 member
hospitals, according to a letter
to House Republicans.
America’s Essential Hospi-
tals, whose members serve
large numbers of uninsured
patients, sent a letter on
Wednesday to House leaders
saying it was ill advised to
consider the legislation with-
out an estimate of the costs
and coverage implications.
Those assessments won’t ar-
rive for several days from
Congress’s independent ana-
lysts. The hospital group also
said some provisions would
hurt patients.
Hospitals carry consider-
able influence since they’re of-
ten among the largest employ-
ers in lawmakers’ home
districts.
At the same time, Republi-
cans remain locked in a
pitched battle over Medicaid,
the federal-state program for
low-income people and the
disabled.
Republican governors intent
on maintaining Medicaid ex-
pansion in their states had
largely focused their lobbying
efforts on the House but are
regrouping to shift gears. They
now are targeting Senate Re-
publicans in hopes of slowing
or stalling the legislation once
it reaches that chamber, ac-
cording to people familiar with
the situation.
THE WALL STREET JOURNAL.
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THE WALL STREET JOURNAL. Thursday, March 9, 2017 | A3

WORLD NEWS
Militants Storm Kabul Hospital Rwanda
Head Urges
Islamic State affiliate
claims deadly attack on
Afghanistan’s largest
Africa to
military hospital Find Its
BY EHSANULLAH AMIRI
AND MARGHERITA STANCATI Own Way
KABUL—Islamic State fight- BY GERARD BAKER
ers disguised as doctors fought AND MATINA STEVIS
elite government forces inside
Afghanistan’s largest military LONDON—Rwandan Presi-
hospital on Wednesday in a dent Paul Kagame said the po-
seven-hour battle that left at litical tumult in the U.S. and Eu-
least 30 people dead and 50 rope should spur African
others wounded, Afghan offi- nations to carve out a path in-
cials said. dependent of Western trade, aid
Islamic State’s regional affil- or influence.
iate, Khorasan Province, said it “I want to see Africa get its
carried out the attack, which act together,” Mr. Kagame, a vo-
began when a suicide bomber cal critic of Western interven-
detonated a car bomb at the tion on the continent, told an
RAHMAT GUL/ASSOCIATED PRESS

entrance of the heavily guarded audience on Tuesday at The

medical facility in the Afghan Wall Street Journal’s “Investing
capital. In a statement, Khora- in Africa” conference here.
san Province said four of its The former guerrilla fighter
fighters armed with suicide turned president—in power for
vests then entered the com- more than two decades—said it
pound. was pointless for African lead-
As the gunmen and security ers to try to divine what Donald
forces exchanged fire inside the Afghans cried after gunmen stormed a Kabul military hospital Wednesday, triggering a gunbattle that left at least 30 people dead. Trump’s Africa policy would be
complex, hospital personnel at a time when the U.S. presi-
scurried to protect patients and to Afghanistan. two groups was responsible. Last month, an Islamic State by the fighting. dent “is still being figured out
evacuate them to safety. Among In testimony to the U.S. Con- “They are both enemies of fighter detonated his suicide The United Nations said in by those who elected him.”
those killed were an unknown gress last month, Army Gen. the people and of this country,” vest at the gates of Afghani- February that more than 11,400
number of doctors, the Afghan John Nicholson, commander of the spokesman said. “We will stan’s Supreme Court, killing 21 civilians were either killed or
Defense Ministry said. U.S. and international troops in eliminate them.” people and wounding 41. The injured last year, the highest
A photo distributed by Is- Afghanistan, said more coali- The assault reflects the group said that attack was number since the organization
‘I want to see Africa
lamic State’s official Amaq tion troops were needed to end growing strength of Khorasan aimed at judges and their staff, began gathering data eight get its act together’
news agency purportedly taken what he described as a stale- Province, Islamic State’s re- according to a statement car- years ago.
inside the besieged hospital mate in the 16-year-old war. gional branch. Aided by their ried by SITE Intelligence Group, The U.S.-led international
without Western help,
showed what it said was a mili- Wednesday’s attack wasn’t disguises, the attackers suc- which monitors global jihadist military coalition condemned Paul Kagame said.
tant posing next to an auto- the first on Dawood National ceeded in penetrating the thick activity. Wednesday’s attack on the hos-
matic rifle, wearing a surgical Hospital. The facility, which is security cordon around the Islamic State also frequently pital, which was the focus of a
mask and holding a dagger. An- operated by the Afghan army highly fortified compound in targets minority Shiites, whom U.S. congressional investigation
other photo showed the bodies and treats only members of the the heart of Kabul near embas- it considers apostates. In the following allegations in 2011 of Mr. Trump and his advisers
of unidentified victims. All the security forces and their rela- sies and military installations. most recent attack, a suicide corruption and patient neglect. haven’t spelled out their strat-
gunmen died in the fighting, tives, was hit in 2011 by the Since emerging in 2014, bomber killed about 30 wor- “Once again insurgents show egy for U.S. engagement with
Afghan officials said. Taliban, Afghanistan’s largest Khorasan Province has oper- shipers in a Shiite mosque in complete disrespect for human- Africa, giving rise to specula-
The assault on the U.S.- insurgency, an assault that left ated mainly in eastern Afghani- Kabul. ity by attacking a hospital. We tion that the new administra-
funded Dawood National Hospi- six people dead. stan and in small areas of west- The Taliban carried out at- stand with Afghan people tion could roll back favorable
tal, along with the expected The Taliban denied involve- ern Pakistan. Recently, it has tacks against two Afghan secu- against terrorism,” the coali- trade agreements with African
start soon of the Taliban’s ment in the latest attack on the shifted its focus and carried out rity compounds last week, kill- tion said on Twitter. nations and slash aid and devel-
spring offensive, could increase hospital. Dawlat Waziri, a De- high-profile attacks in Kabul, ing 21 people. Among the dead —Habib Khan Totakhil and opment funding.
pressure on the Trump admin- fense Ministry spokesman, said adopting tactics long used by were civilians, who have be- Nour Alakraa contributed to Mr. Kagame defended his
istration to deploy more troops it didn’t matter which of the the Taliban. come increasingly victimized this article. record of economic overhauls,
which the International Mone-
tary Fund and others have

U.K. Sounds Cautious Note on Public Finances

hailed as pro-business. He re-
jected claims that his party,
the Rwandan Patriotic Front,
has used companies it controls
BY JASON DOUGLAS changes to the U.K.’s sprawling sibility, the U.K.’s independent billion ($29 billion) less than to favor some foreign investors
AND PAUL HANNON tax system aimed at raising fiscal watchdog, raised pro- thought in November, at over others, creating an un-
modest additional revenue in jected annual growth in 2017 £209.6 billion. The ruling Con- even playing field for private-
LONDON—U.K. Treasury future years and announcing to 2%, from 1.4% previously. servative Party’s long-cher- sector actors.
chief Philip Hammond on plans to beef up training for The OBR said the revision re- ished goal of eliminating Brit- Rwanda’s economy, while
MATT DUNHAM/ASSOCIATED PRESS

Wednesday presented fresh workers. flects the extra momentum the ain’s budget deficit altogether small, is one of Africa’s best
forecasts showing the British He made few references to economy has carried into this remains distant, however, the performers. It grew 6% last
economy is set to grow Brexit, beyond saying the year from robust growth in OBR said, and may not be year, according to the IMF, sev-
strongly in 2017 before slow- economy needs to build “resil- 2016, when the U.K. expanded reached until 2025. eral times the average growth
ing next year. ience.” 1.8%, defying expectations of a Britain’s more-relaxed atti- rate in sub-Saharan Africa. The
In his first annual budget The Chancellor of the Ex- referendum-induced slump. tude to public spending after landlocked, mountainous coun-
speech since taking office in chequer’s dry and technocratic The agency said it expects years of belt-tightening echoes try of about 12 million people is
July, Mr. Hammond sounded a budget speech struck a con- the economy to slow in 2018, similar moves in other ad- trying to transform itself into a
cautious note on the U.K.’s trast to the high political the- though, reflecting weaker con- vanced economies to give tax- finance- and service-sector hub
public finances despite a ros- ater his predecessors often Treasury chief Philip Hammond sumer spending and the and-spending policy more of a for the region.
ier outlook for government brought to the occasion. It called for economic ‘resilience’ damping effect of uncertainty role in powering growth. Still, the World Bank and
borrowing, saying that Brit- comes as Prime Minister The- surrounding Brexit on busi- In the U.S., President Don- others have pointed to a failure
ain’s stronger-than-expected resa May prepares to kick off Tuesday when Parliament’s ness investment. ald Trump has pledged to to capitalize on overhauls to ex-
growth since voters chose to high-stakes divorce talks with upper chamber voted to give Growth is forecast to pick boost defense and infrastruc- pand industry and attract more
leave the European Union in a the EU. lawmakers greater say over up again in 2019, when the ture spending to help drive big-ticket foreign investment.
referendum in June was no Mrs. May has said she’ll the U.K.’s withdrawal from the U.K. is expected to finally annual growth toward 3% to Mr. Kagame, once lauded by
reason for complacency. formally notify Brussels of the bloc, but officials say they still leave the EU, and recover to 4%. Western leaders as Africa’s
“As we prepare for our fu- U.K.’s intention to withdraw expect to meet their self-im- an annual 2% by 2021. Mr. Hammond broadly re- most reformist leader, also re-
ture outside the EU, we cannot before the end of this month, posed deadline. The OBR said it anticipates sisted extra public spending, jected mounting Western criti-
rest on our past achieve- opening negotiations that are Forecasts presented by Mr. government borrowing over though he set aside an extra cism of his grip on power, ac-
ments,” he said, before diving expected to last two years. Her Hammond Wednesday from the fiscal years through to £2 billion to spend on elderly cusing the U.S. and Europe of
into a series of technical government suffered a setback the Office for Budget Respon- end-March 2022 will be £23.9 care over the next three years. hypocrisy and double standards.

Giant Bribery Case Spawns Probes Across Latin America

CURITIBA, Brazil—Investi- worked closely with Swiss and
gations into Brazil’s embattled U.S. officials in reaching the
construction giant Odebrecht initial settlement to resolve
SA are exposing a larger net- criminal charges, say they be-
work of graft in Latin America lieve the number of people in-
than was already revealed in a vestigated could more than
massive anticorruption settle- double. In the December deal,
ment, according to prosecu- the largest ever of its kind,
tors in several countries. Odebrecht agreed to pay be-
tween $2.6 billion to $4.5 bil-
By Ryan Dube, lion in fines. Separate claims
Luciana Magalhaes from other countries could
and Rogerio Jelmayer add to that, the Brazilian pros-
ecutors say. Odebrecht says it
Since the firm admitted in is cooperating with prosecu-
December to paying nearly tors in other Latin American
$800 million in bribes, author- countries “to clarify acts prac-
ities across Latin America ticed by the company.”
have launched new investiga- “This [investigation] has
tions that are beginning to en- the potential to spread, no
snare former high-ranking of- doubt,” said Orlando Martello
ficials and other companies Junior, a Brazilian prosecutor.
beyond Odebrecht. Colombia’s Attorney Gen-
In Peru, a judge issued an eral Nestor Martínez said re-
arrest warrant for a former cently his investigators found
president suspected of taking a web of bribery in the coun-
a kickback. In Argentina, a try extending beyond the $11
tion or be barred from doing Toledo, who governed from idents allegedly worked out a On Monday, Katherine Am-
business outside Brazil. The 2001 to 2006, denied charges bribe in exchange for giving puero, an attorney represent-
firm’s 2025 bonds are trading that he took $20 million in Odebrecht lucrative contracts ing the state of Peru in the
at 39.9 cents on the dollar, bribes prosecutors say were to build two stretches of a Odebrecht case, asked the at-
down nearly 30% so far this wired to offshore accounts of highway project. He has de- torney general’s office to open
year, according to FactSet. businesses owned by a friend. nied the charge. an investigation into yet an-
In January, the attorney Last month, a court ordered Another ex-president, Ol- other ex-president, Alan
general’s office of Peru said the arrest of Mr. Toledo, lanta Humala, who governed García, who was in power
prosecutors signed a deal with whom prosecutors are trying until last year, has denied ac- from 2006 to 2011, over cor-
Odebrecht to provide informa- to extradite from the U.S., af- cusations from a former Ode- ruption allegations tied to
tion on bribes, an action ter prosecutors laid out allega- brecht director that his wife Lima’s subway. Mr. García has
whose consequences continue tions that he secretly met with took $3 million in cash from denied taking bribes.
to ricochet through the coun- an Odebrecht executive in the firm for his campaign. His Ms. Ampuero also asked
try’s establishment. 2004 in Rio de Janeiro. There, wife, Nadine Heredia, has said prosecutors to open a prelimi-
Former President Alejandro prosecutors say, the then-pres- she didn’t receive the money. nary investigation into sitting
President Pedro Pablo Kuczyn-
ski over claims that Odebrecht
made payments to a company
with ties to him. Mr. Kuczyn-
ski has in the past denied
wrongdoing.
Mr. Kuczynski, who was Mr.
Toledo’s finance minister, said
his government would triple
the budget allocated to anti-
corruption prosecutors, create
a system to protect and com-
ERNESTO ARIAS/EUROPEAN PRESSPHOTO AGENCY

prosecutor opened a probe million in corrupt payments pensate whistleblowers, and

into alleged payments to the Odebrecht acknowledged. prohibit corrupt companies
country’s intelligence chief, In Peru, Attorney General from transferring funds
while Colombian authorities Pablo Sánchez said prosecu- abroad before paying fines.
seized property of a former tors have launched over 30 in- “We need a radical change,”
senator. Brazil’s former Presi- vestigations involving Ode- said Mr. Kuczynski, whose ap-
dent Luiz Inácio Lula da Silva brecht and other Brazilian proval rating has fallen in re-
has been charged with arrang- construction firms. cent months to a low of 29%
ing loans to help Odebrecht As new details emerge from on concerns about corruption.
win projects abroad in ex- countries across the region, “This crisis of confidence be-
change for personal benefits. investors are selling off Ode- gan in Brazil and has now ex-
All have denied wrongdoing. brecht debt on fears the com- tended to all of Latin Amer-
Brazilian prosecutors, who pany will face further legal ac- Peruvians protested last month against politicians allegedly involved in the Odebrecht corruption case. ica’s countries.”
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A4 | Thursday, March 9, 2017 HK JP KO ML SI IN UK FR MN PR THE WALL STREET JOURNAL.

WORLD NEWS

Messaging
System Bars Family of Kim’s Sibling in Hiding
North Korean BY JAKE MAXWELL WATTS haven’t received any DNA sam-
ples to help in his identifica-

State Banks
BY JAY SOLOMON
WASHINGTON—Three North
Korean state banks have been
banned by the world’s most im-
portant financial-messaging
KUALA LUMPUR, Malaysia— tion. Mr. Kim was carrying a
The son of Kim Jong Nam, the passport in the name Kim Chol.
estranged half brother of North Malaysia’s police chief, Kha-
Korea’s ruler who was killed in lid Abu Bakar, said by text mes-
Malaysia last month, has ap- sage on Wednesday that police
peared in an online video had not managed to contact Mr.
posted by a group that says it Kim’s surviving family mem-
rescued his family with the as- bers and couldn’t comment on
sistance of four governments. the accuracy of the video.

JUNG YEON-JE/AGENCE FRANCE-PRESSE/GETTY IMAGES

service, amid growing calls in
Washington and Europe for the
complete isolation of Pyong-
yang from the international fi-
nancial system.
The Society for Worldwide
Interbank Financial Telecom-
munication, known as Swift,
banned the North Korean
banks in recent weeks, the Bel-
gian company told The Wall
Street Journal. The move came
as United Nations investigators
uncovered evidence that the
banks had continued to use
Swift’s global services despite
being on U.N. sanctions lists,
according to a U.N. report pub-
lished this week.
The U.N. named the banks
as: Bank of East Land, Korea
Daesong Bank and Korea
Kwangson Banking Corp. Ef-
forts to reach the banks in
Pyongyang were unsuccessful.
Swift said it stopped pro-
viding services to all U.N.-
sanctioned North Korean
banks this year.
Speaking English, he identi-
fies himself as Kim Han Sol,
shows his redacted passport,
and says he is speaking a few
days after the Feb. 13 killing
and is safely with his mother
and sister. The YouTube video
is dated March 7.
“The individual who appears
on the video clip is indeed Kim
Han Sol,” said a spokesman for
South Korea’s main spy agency,
the National Intelligence Ser-
vice, which had initially de-
clined to comment. He declined
to give further details, includ-
ing the family’s whereabouts.
The video links to a website
that says it belongs to Cheol-
lima Civil Defense, which says
on the site that in response to
an emergency request from the
family, it had taken them to an
unnamed safe location. The
group says it specializes in “ur-
gent needs for protection.”
Kim Jong Nam was living in
Macau, China, before his death,
and his family is believed to
People in Seoul watched footage of Kim Han Sol, the son of Kim Jong Nam, on Wednesday.
have been living there with
him, though their exact where-
abouts when he died are un-
known. Malaysian and South
Korean authorities believe
North Korea orchestrated his
killing.
The statement thanks the
governments of the Nether-
lands, China, the U.S. and an
unnamed fourth country, sin-
gling out the Dutch ambassador
in Seoul, AJA Embrechts, “for
his timely and strong response
to our sudden request for assis-
tance.”
A representative of Mr. Em-
brechts didn’t respond to re-
quests for comment. Ruth Em-
merink, the embassy’s deputy
head of mission, declined to
comment, as did the U.S. Em-
bassy.
South Korea’s unification
ministry, which handles issues
regarding North Korea, said it
In the video, the younger Mr.
Kim says he and his family are
very grateful and he hopes
their situation gets better soon.
A mention of whomever he is
grateful to is muted out and his
mouth is blacked out while he
says it.
Cheollima said its statement
is the only one it will make on
the matter and that the loca-
tion of the family won’t be re-
vealed. It didn’t respond to
emailed questions.
A number of groups work at
extracting North Korean defec-
has no knowledge of Cheollima. tors. South Koreans, including
China’s embassy in Seoul Christian pastors, rights activ-
couldn’t immediately be ists and former defectors have
reached for comment. secretly engaged in such work,
Kim Jong Nam died shortly though several told The Wall
after being assaulted by two Street Journal they don’t know
women at Kuala Lumpur’s main of a group called Cheollima.
airport, and an autopsy found The name appears to derive
the cause of death was the from a Korean word for a myth-
toxic nerve agent VX. Malaysian ical winged horse.
police say they are still waiting —Alastair Gale in Tokyo and
for members of his family to Kwanwoo Jun in Seoul
identify and claim the body and contributed to this article.

CHINA now is to flash the red light and

Continued from Page One
The proposal for a resump-
tion of negotiations came from
China’s foreign minister, Wang
Yi, at a news conference
Wednesday during a meeting of
China’s National People’s Con-
gress, its parliament.
“Talks deserve another
chance, and peace is still within
our grasp,” he said, comparing
Pyongyang and Washington to
two trains accelerating toward
each other, both refusing to
give way.
“The question is: Are the two
sides really ready for a head-on
collision?” he said. “Our priority
apply brakes on both trains.”
North Korea didn’t comment
through its state media, and
U.S. and South Korean officials
didn’t respond to requests for
comment. The Trump adminis-
tration is unlikely to accept the
idea as it stands, according to
several analysts and diplomats.
Still, the continuing White
House strategy review encom-
passes all options ranging from
recognition of North Korea as a
nuclear state to military action
against Pyongyang.
The U.S. has suspended joint
military exercises with the
South before—under President
George H.W. Bush in 1992—in
line with North Korea’s an-
nounced intention to sign a nu-
clear safeguards accord and ac-
cept international inspections.
The drills resumed in 1993 as
that agreement fell apart.
China most likely doesn’t ex-
pect the U.S. to embrace the
proposal unconditionally, but
was hoping that it could feed
into the policy discussion in
Washington and talks on the
subject between the U.S. and
China, regional experts said.
“We know the Obama ad-
ministration did not agree but
the timing is still interesting
because no one wants to see
escalation right now,” said Zhu
Feng, an international security
expert at Nanjing University.
“The most important thing
is how the Trump administra-
tion responds,” he said. “If the
U.S. side says yes, we’ll take
this into account, then the
[North Korean] response will
be positive.”
By making the proposal be-
fore U.S. Secretary of State Rex
Tillerson begins a visit to
Japan, South Korea and China
this month, Beijing is hoping to
forestall U.S. calls for Beijing to
do more to rein in North Korea.
“I think this proposal is
partly China’s way of dealing
with American criticism,” said
Yang Xiyu, a Korean affairs ex-
pert and senior fellow at the
China Institute of International
Studies, a Chinese Foreign Min-
istry-affiliated think tank.
“If the U.S. says no, then I
believe China will say: What
about a counterproposal?”
Mr. Tillerson is expected to
discuss the North Korean issue
as well as plans for a meeting
between Mr. Trump and Chi-
pert on China and North Korea
at Seoul’s Yonsei University.
“The question is whether the
Trump administration is inter-
nese President Xi Jinping that ested in a preliminary deal like
could come as soon as April, that,” he said. “I think what
diplomats and analysts say. Wang Yi is trying to do is to
While criticizing North Ko- come up with short-term diplo-
rea over its recent missile tests, matic measures that can lower
Mr. Wang reaffirmed China’s tensions. I think the Chinese
commitment to a relationship are concerned—like everyone—
as close as “lips and teeth” about the unpredictability of
with the country it fought the Trump administration.”
alongside against the South in Mr. Wang also emphasized
the 1950-53 Korean War. China’s objection to a U.S. anti-
Reviving Pyongyang’s pro- missile system—called Termi-
posal for resuming negotiations nal High-Altitude Area Defense,
also “shows that for all the ten- or Thaad—the first components
sion in the relationship, China of which arrived in South Korea
is still demonstrating a diplo- on Tuesday, a day after North
matic alignment with North Ko- Korea fired four ballistic mis-
rea,” said John Delury, an ex- siles into the sea.

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 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
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THE WALL STREET JOURNAL.
North Korea Test Stirs Hawks in Japan
Panel seeks approval
for a pre-emptive strike
in the event of an
imminent threat
BY ALASTAIR GALE
AND CHIEKO TSUNEOKA
TOKYO—North Korea’s ad-
vancing nuclear-missile pro-
gram is fueling a new push by
hawkish Japanese politicians
to enable Tokyo to pre-emp-
tively attack North Korean
launch sites if Japan appears
under imminent threat.
A security panel in Japan’s
ruling party plans to make
policy proposals by midyear
that may include guidelines
for such attacks on foreign
military bases, Hiroshi Imazu,
the head of the panel, told The
Wall Street Journal in an in-
terview.
While the idea has been
raised and dropped in the
past, North Korea’s claim that
its multiple missile launch on
Monday was a trial for an at-
tack on U.S. bases in Japan
has amplified calls here for
Tokyo to look at offensive mil-
itary capabilities.
“We have to face reality. If
we do nothing and let them
strike us, it’s irresponsible,”
said Akihisa Nagashima, a for-
mer vice defense minister and
lawmaker in Japan’s opposi-
tion Democratic Party.
The possible shift is one ex-
ample of how North Korea’s
push to develop an advanced
nuclear-weapons program is
U.K. Faces $2 Billion China Reports a Rare Trade Deficit
EU Penalty Over
Chinese Import Fraud
BY JULIAN E. BARNES
AND LAURENCE NORMAN
BRUSSELS—British officials
said they would contest a
claim by the European Union’s
antitrust watchdog that the
country owed more than $2
billion after failing to charge
enough customs on Chinese
goods.
The EU’s antifraud office
said British officials haven’t
taken sufficient steps to stop a
“major pattern of customs
fraud” between 2013 and 2016
in which Chinese imports of
textiles and shoes were under-
valued in customs declara-
tions.
The EU antifraud
agency said the U.K.
had been warned to
tighten customs efforts.
The disagreement comes as
Prime Minister Theresa May
prepares to formally launch
negotiations over the U.K.’s di-
vorce from the EU, expected
some time before the end of
the month.
The agency, called OLAF,
said there have been repeated
warnings to the U.K. to tighten
its customs efforts. Because of
its inaction compared with
other EU member states, the
agency said, “the fraud hub in
the U.K. has continued to
grow.”
In the EU, customs duties
on goods are collected on be-
half of the bloc at the point of
entry, while value added taxes
are levied by the government
of the country in which the
goods are sold.
OLAF said it recommended
to the European Commission,
the EU’s executive arm, that
the U.K. be required to repay
€2 billion ($2.11 billion) in lost
CHRIS RATCLIFFE/BLOOMBERG NEWS
Containers and cranes at Tilbury, U.K. The EU antitrust watchdog
said the country failed to charge enough customs on Chinese goods.
An undated photo released by North Korea’s state news agency KCNA shows the launch of four missiles from an undisclosed location.
darkening the security envi-
ronment in Northeast Asia.
Pyongyang is working to
achieve the ability to threaten
the mainland U.S. with a long-
range nuclear device and
many experts believe it al-
ready has that capability with
neighboring countries.
On Tuesday, South Korea
took delivery of the first com-
ponents of a new missile-de-
fense battery to defend
against North Korean attack.
The deployment of the system,
called Terminal High-Altitude
Area Defense, has drawn
threats of retaliation by China,
which says it damages its own
security interests.
Japan’s development of the
ability to attack North Korean
bases would also likely anger
revenue. The Commission, not-
ing OLAF’s independence, de-
clined to comment on the in-
vestigation.
The Commission always fol-
lows up on OLAF recommen-
dations but sometimes reaches
a different conclusion about
the amount of money owed.
The Commission decision usu-
ally takes a few months.
The potential repayment
was first reported by Politico’s
European edition.
A spokesman for the Her
Majesty’s Revenue and Cus-
toms said the U.K. would chal-
lenge the OLAF estimate of
how much duty was evaded.
The agency also took issue
with OLAF’s contention that
its enforcement had been lax,
noting it is investigating some
550 cases of import fraud.
“HMRC has a very strong
track record for tackling fraud
and rule breaking of all kinds,
securing more than £26.6 bil-
lion last year alone and no one
should be in any doubt that
we are responding to the
threat of fraud,” the spokes-
man said.
The OLAF investigators also
said they discovered an effort
by Chinese exporters to avoid
paying value-added tax in var-
ious European countries. As a
result of using British ports,
OLAF said other EU countries
had lost out on €3.2 billion of
tax revenue they would have
otherwise have earned from
VAT between 2013 and 2016.
OLAF faulted the British
government for not investigat-
ing the fraud networks or
adopting reforms recom-
mended by the agency.
The investigation’s findings
come at a contentious time, not
just because of the U.K.’s im-
pending exit from the EU, but
also due to renewed debate
over global trade and what
measures governments should
take to protect their manufac-
turers and raise barriers to
low-cost goods from China.
WORLD NEWS
rival China since some of its
own military facilities would
be in range. It could also exac-
erbate distrust with South Ko-
rea, where fears of Japan’s re-
armament linger after Korea
was colonized by Japan in the
early 20th century.
The U.S. has in the past ex-
pressed concerns about re-
gional instability from Japan’s
development of attack capabil-
ities, but it is unclear how
President Donald Trump’s ad-
ministration would view such
a move.
The U.S. Embassy in Tokyo
referred questions to the ad-
ministration. On a recent visit
to Tokyo, Defense Secretary
Jim Mattis said that both
Japan and the U.S. need to
beef up their defense capabili-
BY MARK MAGNIER
BEIJING—China recorded
its first trade deficit in three
years last month, driven by
higher commodity prices, an
unexpected drop in exports
and the effect of the Lunar
New Year holiday.
February’s $9.15 billion def-
icit surprised analysts and
market watchers, many of
whom had expected China’s
usual run of trade surpluses to
continue. The country’s previ-
ous monthly trade gap was in
February 2014, totaling nearly
$23 billion.
Imports surged 38.1% last
month in dollar terms from a
year earlier, compared with
16.7% growth in January,
China’s customs administra-
tion reported Wednesday.
Economists attributed the
February increase to rising
prices for oil, ores and other
commodities.
Exports fell 1.3% from a
year earlier, compared with
growth of 7.9% in January.
Economists said much of that
decline was because of a fall in
overseas shipments after a
January rush to fill orders be-
fore the Lunar New Year holi-
day.
Economic data during the
first two months of the year
tend to be volatile because the
holiday’s timing shifts slightly
from year to year. To compen-
sate, economists tend to look
at overall performance for
those two months.
“During January and Febru-
ary, growth averaged around
4.2%, which is reasonable,”
said BBVA Research economist
Xia Le. “This is mainly a sea-
GREECE
Farmers Clash With
Police During Protest
Greek farmers armed with
shepherd’s crooks and stones
clashed with riot police outside
the agriculture ministry in cen-
tral Athens.
More than 1,000 farmers,
most of whom had traveled
from the island of Crete, took
part in the demonstration.
Protesters are angry at in-
creases in their tax and social
security contributions, part of
the income and spending cuts
and tax hikes Greece has imple-
mented to meet bailout creditor-
demanded budget targets.
—Associated Press
PANAMA
Ex-Dictator in Critical
Care After Surgery
Former Panamanian dictator
Manuel Noriega was in critical
condition and sedated in a hos-
ties.
Before his election, Mr.
Trump said Japan should rely
less on the U.S. for defense.
But since his inauguration he
and other American adminis-
tration officials have stated
their commitment to the U.S.-
Japan alliance. The U.S. has
around 54,000 troops based in
Japan across 85 facilities, its
largest foreign deployment in
Asia.
Any shift by Japan to de-
velop pre-emptive strike capa-
bilities could also be contro-
versial domestically because
of strong support for the
country’s pacifist constitution,
which bars the use of military
force to settle disputes. Back-
ers of the initiative say their
use can be defensive and thus
Travelers ride during the Lunar New Year holiday, after which China’s shipments overseas wobbled.
sonal effect.”
The Shanghai Composite In-
dex fell after the release of the
data before recovering to end
the day flat. Adding to the
confusing signals was that a
day earlier China reported its
foreign-exchange reserves rose
back above $3 trillion after
having fallen for more than
half a year.
Also, trade data in the past
have been skewed by Chinese
companies inflating declared
import values on shipping
documents to circumvent tight
controls on moving capital off-
shore. Nordea Bank analyst
Amy Yuan Zhuang said any
signs of large-scale over-in-
voicing were likely to be more
apparent after the coming re-
WORLD WATCH
Greek farmers protesting increases in taxes and social security
contributions confronted riot police Wednesday in Athens.
pital’s intensive care unit
Wednesday after undergoing
two brain surgeries.
Mr. Noriega, 83 years old, un-
derwent the first procedure Tues-
day morning to remove a benign
Thursday, March 9, 2017 | A5
and property of the Japanese
people,” Mr. Abe said in a par-
liamentary committee meeting
in January.
Senior figures in Mr. Abe’s
ruling Liberal Democratic
Party have proposed pre-emp-
tive strike ability on several
occasions in recent years, of-
ten following North Korean
missile tests. Pyongyang typi-
cally fires missiles toward
KCNA/EUROPEAN PRESSPHOTO AGENCY
Japan but none have hit the
country.
The LDP currently has a
strong majority in parliament,
and Mr. Abe, who retains pub-
lic-approval ratings of around
60%, isn’t required to call a
general election until the end
of 2018. The Democratic
Party’s leadership is cautious
but not opposed to the idea of
pre-emptive attack ability.
not violate the constitution. Mr. Imazu said the LDP
While no major recent opin- panel would hear testimony
ion polls have been conducted from experts and debate the
on the issue, a survey in 2006 issue, alongside possible new
by Jiji Press showed around missile defense hardware, be-
half of the public either sup- fore submitting a proposal to
ported Japan’s ability to stage the party before the end of the
pre-emptive strikes or said it current parliamentary session
should be considered. About in June. The proposal would
35% said there was no need be aimed at becoming part of
for Japan to have the option. a new five-year defense plan
Other hurdles include cost, to be introduced in 2019.
but Japanese Prime Minister Any pre-emptive attack
Shinzo Abe, a proponent of a plan would likely include the
more-robust military, has en- use of F-35 stealth jet fighters.
couraged debate on the issue Japan took delivery of its first
of pre-emptive strike capabili- F-35 in an order of 42 aircraft
ties. He also has proposed late last year. Possible other
amending the constitution to acquisitions could include
allow the military to take a cruise missiles, as well as po-
more active role overseas. tentially new satellites to
“We need to consider how monitor North Korea’s missile
we should protect the lives deployments.
FRED DUFOUR/AGENCE FRANCE-PRESSE/GETTY IMAGES
lease of trade data from driver for the Asian giant,
China’s trading partners Hong economists said. Net exports
Kong and Singapore. accounted for around 4% of
In the near term, China is the Chinese economy last year,
expected to increase exports compared with a peak of 7.5%
and return to a trade surplus in 2007, according to IHS
as it rides a gradual improve- Markit Ltd.
ment in global trade since Taiwanese net exports
mid-2016, economists said. gained 27% in February from a
Global trade volumes rose 1.1% year earlier, while South Korea
sequentially in the fourth posted a 20% rise in exports.
quarter of 2016, compared Behind February’s surge in
with a 0.5% increase in the Chinese imports was a combi-
third quarter, according to the nation of higher commodity
CPB Netherlands Bureau for prices and stronger domestic
Economic Policy Analysis. demand, economists said.
China isn’t likely to benefit China is in the midst of an in-
as much from rising global de- frastructure-building spree
mand as some of its more ex- and prices of oil, copper, steel
port-dependent neighbors, as and other raw materials have
overseas shipments become shot up in recent months.
less of an important economic —Liyan Qi and Grace Zhu
said doctors succeeded in stop-
ping the bleeding during the sec-
ond procedure, and he was re-
turned to intensive care.
“His condition has not im-
proved, nor has it worsened,” Mr.
LOUISA GOULIAMAKI/AGENCE FRANCE-PRESSE/GETTY IMAGES
Angel said Wednesday.
—Associated Press
GERMANY
Industrial Production
Beats Forecasts
German industrial production
rose sharply in January from the
month before, beating forecasts,
led by a spurt in capital-goods
output.
The Destatis statistics body
forecast a further revival in in-
dustrial activity in light of im-
proving business sentiment, de-
spite a drop in manufacturing
orders at the start of the year.
tumor from his brain. But after Industrial output rose 2.8%,
that surgery, doctors discovered a adjusted for seasonal swings
hemorrhage that forced them to and calendar effects. Economists
go back in that afternoon, his polled by The Wall Street Jour-
daughters and lawyer said. nal predicted a rise of 2.5%.
Noriega attorney Ezra Angel —Nina Adam
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A6 | Thursday, March 9, 2017
Tax-Overhaul Plans Divide Republicans
GOP leaders support
revenue-neutral
approach; others mull
scrapping that goal
BY RICHARD RUBIN
WASHINGTON—A fight is
brewing among congressional
Republicans over whether a
planned tax overhaul should
pay for itself.
The plan favored by House
Speaker Paul Ryan (R., Wis.)
and Senate Majority Leader
Mitch McConnell (R., Ky.) aims
to be revenue-neutral: Lower-
ing taxes without increasing
the deficit—though their math
comes with some caveats.
But President Donald
Trump, a Republican, hasn’t
signed onto that budgetary
straitjacket, and some law-
makers are sympathetic to the
idea of dumping the revenue-
neutral goal.
“Revenue neutrality
shouldn’t necessarily be a
constraint,” said Sen. Pat
Toomey (R., Pa.). “The pri-
mary goal should be maximiz-
ing growth and thereby in-
creasing the income for
Pennsylvania families.”
Other GOP lawmakers, such
as Sens. Rob Portman of Ohio
and Chuck Grassley of Iowa,
back the revenue-neutral tar-
get, which gives Republicans a
counterargument to Democratic
complaints that they stop car-
ing about budget deficits when
they want to cut taxes.
“To build a coalition here in
Congress to get this done,
we’re really going to have to do
it in a fiscally responsible man-
ner,” said Rep. Carlos Curbelo
(R., Fla.). “As a 37-year-old
member of Congress I don’t
support adding endless
amounts of debt to my genera-
tion and younger generations.”
Rohit Kumar, a former
aide to Mr. McConnell who is
Tensions Grow as Solar Projects Encroach on Farmland
BY JOSEPH DE AVILA
The boom in solar energy is
forcing states and farming
communities to grapple with
where large renewable-energy
projects should be built.
In Connecticut, a state sen-
ator has proposed a bill that
would discourage the use of
farmland for solar projects.
Counties in North Carolina
and Washington have already
imposed temporary restric-
tions on large solar projects,
citing concerns about loss of
farmland and the impact on
rural character. Massachu-
setts, meanwhile, is putting in
place incentives to try to steer
solar projects to rooftops and
brownfields, which are con-
taminated sites that were pre-
viously developed.
“We’ve seen a real spike in
pressure on agricultural areas
to become solar farms,” said
Michael Sanderson, executive
director of Maryland Associa-
tion of Counties.
The pressure in rural areas
stems, in part, from simple
economics. Some farmers are
installing solar panels on a
patch of their land to help off-
set energy costs. Other farm-
ers are renting out entire
fields to solar companies that
can afford to pay premium
prices for access to clear fields
that don’t require much work
or money to prepare for a so-
lar project.
In Maryland, lawmakers are
CIA
Continued from page A1
ing tools, and that the bulk of
that work is conducted at a fa-
cility in Dulles, Va., not at the
CIA’s headquarters in Langley.
The agency became aware
last year that information
about its hacking operations
had been taken, but officials
didn’t know that it was being
published on WikiLeaks until
Tuesday, this person added. It
wasn’t known whether the FBI
investigation began last year.
The possibility that a con-
tractor may have been to
blame for such a potentially
damaging leak is sure to renew
scrutiny of the use of outside
experts to conduct highly clas-
sified work. Contractors are
vetted like government em-
ployees, and often are former
House Speaker Paul Ryan, left, and Senate Majority Leader Mitch McConnell are championing a revenue-neutral tax overhaul.
now at PricewaterhouseCoo-
pers LLP, said revenue neu-
trality is a useful organizing
principle, but “requires some
hard policy choices, and it
may be that those hard policy
choices are harder than un-
doing the constraint.”
The Ryan-McConnell ap-
proach would make it easier for
Republicans to pass their plan
on a party-line vote—and make
it last. If a tax plan leaves a
budget hole more than 10 years
after it becomes law, it requires
a 60-vote supermajority in the
Senate. Without that, lawmak-
ers may need to set an expira-
tion date at the end of that 10-
year window, something that
Energy from solar panels powers Benjamin Freund’s dairy farm and home in East Canaan, Conn.
weighing legislation that
would give counties more con-
trol over where solar projects
are built. The bill follows a
proposed 360-acre project in
the state’s Kent County that a
developer sought to build de-
spite county opposition. The
case ended up before a public
utility law judge who ruled in
favor of the county, though
the judge also said the Mary-
land Public Service Commis-
sion has the authority to pre-
empt local zoning laws.
“Of course, there can be lo-
government workers or mili-
tary veterans. But they have
also been responsible for two
major breaches of secrets in
the past four years.
In 2013, Edward Snowden,
then a contractor for the Na-
tional Security Agency, dis-
closed classified information
about surveillance programs.
And this year, Harold “Hal”
Martin III, a former NSA con-
tractor, was indicted on
charges of removing a huge
amount of classified material
from the agency’s headquarters
at Fort Meade, Md. Mr. Martin
has pleaded not guilty.
The leaked CIA documents
also show that the agency uses
tools acquired by the NSA,
which is the main center of
computer hacking expertise in
the U.S. government. Some of
the tools were developed by
the NSA and then repurposed
by the CIA, according to two
U.S. NEWS
happened to 2001 and 2003 tax
cuts under then-President
George W. Bush, a Republican.
Most of those cuts became per-
manent law but some did lapse
in 2013.
Republicans are starting the
tax-overhaul effort with the
outline Mr. Ryan and House Re-
publicans released last year,
and plan to use so-called dy-
namic scoring—the assumption
that tax cuts can generate more
economic growth and thus ad-
ditional revenue.
They also assume some tax
breaks already scheduled to
lapse will remain in place, so
they don’t have to offset the
fiscal cost of extending them.
cal tension in terms of what
people are used to on the
farmland, what people like to
see in a rural environment,”
said Amit Ronen, director of
the George Washington Uni-
versity Solar Institute. “But I
don’t see it as a long-term
constraint on continuing to ex-
pand solar fairly dramatically.”
U.S. solar-power genera-
tion has grown quickly,
thanks to shrinking equip-
ment costs, federal tax credits
and aggressive goals set by
states to use renewable en-
former intelligence officers fa-
miliar with those tools.
One document released by
WikiLeaks shows that the CIA
has access to software that
was acquired by the NSA to
attack the operating system
on the Apple iPhone. The
The matter is sure to
renew scrutiny of the
use of outsiders on
highly classified work.
NSA’s British counterpart,
the Government Communica-
tions Headquarters, or GCHQ,
also discovered characteris-
tics of the operating system
that the CIA could use, the
document shows.
One of the former intelli-
THE WALL STREET JOURNAL.
tions in the tax rates paid by
businesses and individuals.
They could also pair such a
plan with expiration dates or
budget gimmicks that make it
easier to pass a bill with a sim-
ple majority vote in the Senate.
“It’s not binary,” PwC’s Mr.
Kumar said. “There are as
many iterations of this as there
are stars in the universe.”
If Republicans choose tax
cuts that lose revenue in the
long run, they will face the
Senate’s Byrd Rule, which
prevents deficits outside the
budget scoring window with-
out 60 votes.
To comply with that rule,
they could keep structural
changes as permanent law
but set some tax-rate cuts to
expire or snap back to higher
levels. They could lengthen
PABLO MARTINEZ MONSIVAIS/ASSOCIATED PRESS
the budget window to 15 or
20 years and see if that
changes the estimates or lets
them delay expiration dates
further. They could also pair
tax cuts with spending cuts.
Chucking the revenue con-
straint would make it even
harder to get votes from
Democrats.
“We’re going to have
mounting fiscal challenges,”
said Lily Batchelder, a for-
mer aide to Senate Finance
And they plan to pass about enue, while exports and other Democrats and President Ba-
$600 billion in tax cuts as foreign sales would be made rack Obama who now teaches
part of their health plan first, free of U.S. taxes. The pro- at New York University. “A
though those estimates are posal would operate like a tax lot of that has to do with the
incomplete. on the trade deficit and raise aging of the population.
The House’s blueprint, re- about $1 trillion over a de- We’re going to need some-
leased last year, suggested that cade, but divides lawmakers what higher revenues than
the tax plan could increase eco- and corporations. we’ve had historically.”
nomic growth to 3% annually. Rep. Dave Brat (R., Va.) said Sen. Tim Scott (R., S.C.) said
The House hasn’t shown yet he would consider border ad- he was willing to take the “cal-
how its plan actually adds up, justment only if it is absolutely culated risk” of cutting taxes
and lawmakers are having trou- required. without fully offsetting the rev-
ble building political consensus “I want to cut taxes,” he enue loss and setting a 10-year
around the border-adjustment said. expiration date.
proposal, one of the biggest One possible outcome is a “There’s no question in my
changes to produce revenue revenue-losing rewrite of the mind that the growth in the
and offset the rate cuts. tax system, where Republicans economy will wipe away all
Under that plan, companies end some deductions or make fears and concerns,” he said.
wouldn’t be able to deduct the structural changes, but not “But I’m not sure we have 51
cost of imports from their rev- enough to fully offset reduc- votes for that approach.”
But large solar installa- He said he doesn’t like com-
tions don’t always sit well peting with solar companies
with local communities where when he needs access to other
they are planned. farmland, but the second-gen-
Currituck County, N.C., en- eration farmer also doesn’t
acted a prohibition on new like being told what he can
commercial solar develop- build on his property.
ment in February after devel- “From a property rights
opers came forward with sev- standpoint, this is a heavy-
eral proposals for large handed way to say that my
projects, said Dan Scanlon, property no longer has this
county manager. development potential simply
One proposal sought to because of the fact that it’s
RICHARD BEAVEN FOR THE WALL STREET JOURNAL
build a commercial solar proj- arable land,” Mr. Freund said.
ect near a residential neigh- “I have internal conflict
borhood and faced “over- about it.”
whelming opposition,” said Connecticut aims to have
Mr. Scanlon. The county de- 20% of all of its energy come
nied the application. from solar, wind and other
“We had very little to no renewable energy sources by
regulations that addressed 2020. Last year, 106.1 mega-
this type of land use,” Mr. watts of solar energy capac-
Scanlon said. County officials ity was added in the state, up
want to develop a compre- 16% from 91.3 in 2015, ac-
hensive plan for commercial cording to the Solar Energy
solar developments before Industries Association.
they consider any additional Robin Chesmer, managing
applications. member of the Farmer’s Cow,
ergy. Some 36,755 thousand- In Connecticut, where law- a dairy farm in Lebanon,
megawatt hours of solar en- makers are seeking to dis- Conn., said he thinks good
ergy was generated in the U.S. courage solar development on soil should be used only for
in 2016, up 48% from the farmlands, the proposal is food production.
prior year, according to the eliciting mixed response “As a society, we have al-
U.S. Energy Department. Solar among farmers. ready messed up a lot of our
production still represents Benjamin Freund, who has landscape,” Mr. Chesmer said.
only about 1% of total power a 650-acre dairy farm in East “Let’s not mess up what we
generation in the U.S. Canaan, Conn., in recent have left.”
Twenty-nine states have years installed more than The state’s solar industry
put in place requirements to 1,200 solar panels on a patch has argued that restrictions on
use more renewable energy, of his land and on top of his solar development risk driving
and eight other states have dairy barn. The power gener- up costs and pushing projects
clean-energy goals, according ated by the solar array offset out of the state.
to the North Carolina Clean his entire $6,000 monthly en- —Cassandra Sweet
Energy Technology Center. ergy bill. contributed to this article.
gence officers added that
there are references in the
leaked cache to regular meet-
Favorites Surface for
ings of British and U.S. intel-
ligence personnel at which
new hacking techniques are
Next Navy Secretary
developed. That underscores BY GORDON LUBOLD itary buildup. He has favored
the extent to which the CIA is people with business acumen,
collaborating with outside WASHINGTON—Two front- and is expected to give a nod
parties and not solely relying runners have emerged to be to one of the two men in the
on its own in-house talent, President Donald Trump’s next coming days.
the former officer said. Navy secretary after the previ- Mr. Spencer is expected to
The document also shows ous nominee, a private-equity get the nomination, according
that the CIA and the NSA are investor, pulled out due to in- to two U.S. officials.
connected via a “high-speed vestment conflicts, according The new candidate would
link,” called Falcon, to share to U.S. officials. replace Philip Bilden, who was
information about hacking The White House is consid- nominated to be Navy secre-
tools. ering Richard V. Spencer, an in- tary but bowed out after grap-
It isn’t clear whether the vestment banker with extensive pling with the intricacies of di-
NSA is participating in the business experience and ties to vesting his assets to comply
investigation of the leak or if the Pentagon, and Randy with ethics guidelines. His
the agency’s contractors Forbes, a former Virginia con- withdrawal followed that of
could be questioned. gressman and onetime chair- Vincent Viola, another busi-
NSA and CIA officials de- man of an important naval sub- nessman, who had been nomi-
clined to comment. committee, the officials said. nated to be Army secretary but
—Aruna Viswanatha Mr. Trump wants to expand pulled out for similar reasons,
contributed to this article. the U.S. fleet as part of his mil- according to the Pentagon.
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 9, 2017 | A7

U.S. WATCH U.S. NEWS

How a Rapport Crumbled

IMMIGRATION plagued by long-term ailments
despite recent momentum.
Judge Agrees to Productivity, or how many
Hearing on Travel Ban goods and services U.S. workers
produced per hour, grew 0.2%
A federal judge in Hawaii last year, compared with the
agreed Wednesday to fast-track prior year, the Labor Department
consideration of the state’s law- said Wednesday. It expanded
suit challenging President Don- 0.9% in 2015 and 0.8% in 2014.
ald Trump’s revised executive or- Productivity picked up at the
der on immigration, setting the end of last year, growing at an an-
stage for a quick initial ruling on nual rate of 1.3% in the fourth
the administration’s new effort quarter, compared with the prior
to restrict U.S. travel from six three months. That figure, the
Muslim-majority nations. agency’s second estimate of
U.S. District Judge Derrick fourth-quarter productivity growth,
Watson agreed to hear oral ar- matched the initial estimate.
guments March 15 on Hawaii’s The report also showed that
BY CAROL E. LEE
AND PETER NICHOLAS
The rapport between Ba-
rack Obama and Donald
Trump is unraveling, with the
president convinced that Mr.
Obama is undermining his na-
scent administration and the
former president furious over
Trump tweets accusing him of
illegal wiretapping, people
close to the two men said.

J. SCOTT APPLEWHITE/PRESS POOL/REUTERS

request for a temporary restrain- unit labor costs—a measure of The budding feud between
ing order barring enforcement of wages and benefits for Ameri- two men who share the unique
the travel restrictions, which are can workers—grew at a 1.7% bond of being commander in
slated to go into effect a day rate in the fourth quarter, com- chief is a fresh distraction in a
later. Both the state and the pared with the prior three Trump presidency that has
Justice Department, which is de- months. been struggling to enact its
fending the executive order, had Economists surveyed by The agenda.
signed onto the timeline. Wall Street Journal expected the The rift also is distancing
Mr. Trump’s order, signed fourth-quarter revisions to show Mr. Trump from a former two-
Monday, temporarily bars the is- 1.5% growth in productivity and term president who had of-
suance of new visas to people a 1.6% gain in unit labor costs. fered to give private advice
from Iran, Libya, Somalia, Sudan, —Josh Mitchell and counsel as the onetime President-elect Donald Trump and President Barack Obama at the inauguration ceremony on Jan. 20.
Syria and Yemen. It also tempo- and Jeffrey Sparshott businessman settles into his
rarily suspends the admission of first job in public office. versies stemming from leaked Mr. Trump and other White urday changed the subject
refugees to the U.S. TEXAS Mr. Trump clasped Mr. information about contacts House officials believe that with a stunning tweet. “How
The president says the mea- Obama’s shoulder and shook they had with the Russian gov- Obama loyalists sprinkled low has President Obama gone
sures are needed to protect the Transgender Bathroom hands before the two parted ernment during the presiden- throughout the federal bureau- to tapp my phones during the
country from terrorist threats. Bill Passed by Panel ways and the former president tial campaign and afterward. cracy are behind leaks that are very sacred election process.
Critics say the measures are the boarded a helicopter outside His first national-security damaging his personnel, White This is Nixon/Watergate. Bad
latest dressed-up attempt by Mr. After a marathon hearing, a the U.S. Capitol on Jan. 20. adviser, Michael Flynn, was House officials said. A spokes- (or sick) guy!”
Trump to fulfill a campaign pledge Texas bill that would limit public They haven’t spoken since, forced to resign after mislead- man for Mr. Obama wouldn’t Through a spokesman, he then
to implement a “Muslim ban.” bathroom access for transgender although Mr. Trump tried to ing Vice President Mike Pence comment on the claim. requested that congressional in-
The revised order is signifi- people passed a legislative com- call Mr. Obama to thank him about private discussions he Christopher Ruddy, a friend telligence committees investigate
cantly scaled back from Mr. mittee early Wednesday. The 8-1 for the traditional letter that had with Russian officials on of Mr. Trump who sees him on his claims, without providing a
Trump’s first attempt to restrict vote means the bill now goes to one president leaves for his the day the Obama adminis- weekends at the president’s source for them or evidence.
U.S. entry, which he signed on the full Senate for a vote, con- successor in the Oval Office. tration levied new sanctions Mar-a-Lago club in Palm Keeping a low profile in
Jan. 27. Federal courts put that tinuing the battle in Texas over Mr. Obama was traveling at on Moscow in retaliation for Beach, Fla., said in an inter- postpresidency, Mr. Obama
original executive order on hold an issue that has already the time and the two never its alleged interference in the view: “From what I’m hearing, had decided he wouldn’t re-
after judges found it was likely prompted political upheaval else- connected, people familiar 2016 presidential election. Trump’s people think Obama spond to every intemperate
unconstitutional, and the case in where in the country. with the matter said. U.S. intelligence agencies is at war with them.” Trump tweet, an aide said.
Hawaii could provide an early The proposed Texas legisla- Douglas Brinkley, a presi- have blamed the Russians for “This president has been But he was livid over the
test of whether the revised ver- tion would require people to use dential historian, said the the hacking of the Democratic under siege since day one from accusation that he bugged the
sion will be more successful in the bathrooms of their birth sex open friction has upended tra- National Committee’s email both the press and Obama loy- Republican campaign offices,
passing legal muster. in public schools, and in state dition, an “almost unwritten system, which led to embar- alists, and he’s reacting to it,” believing that Mr. Trump was
A Justice Department and local government facilities. rule that you treat your prede- rassing stories for nominee Mr. Ruddy said. “I don’t think questioning both the integrity
spokeswoman didn’t immedi- During the hearing on the bill, cessor with a degree of grace Hillary Clinton and her team. there’s any doubt that Obama of the office of the president
ately respond to a request for which began Tuesday morning and decorum.” Russia denies the allegations. loyalists inside the administra- and Mr. Obama himself, people
comment. A spokesman for Ha- and lasted until nearly 5 a.m. on “There are these kinds of Mr. Trump was angry that tion and outside are giving familiar with his thinking said.
waii Attorney General Doug Chin Wednesday, social conservatives things that have happened in Attorney General Jeff Sessions Donald Trump a lot of grief “A cardinal rule of the
had no immediate comment. argued the bill is a matter of the past, but nothing to the decided to recuse himself last and a lot of problems.” Obama administration was that
—Brent Kendall public safety, and gay and trans- degree where a sitting presi- week from any potential inves- All new presidents face no White House official ever
gender rights advocates said the dent would charge his prede- tigations related to the 2016 struggles in their first months interfered with any indepen-
ECONOMY measure is discriminatory. cessor with a felony,” Mr. election after revelations that as they adjust to their posi- dent investigation led by the
The legislative fight here Brinkley said. “It creates a he was less than transparent tion, yet Mr. Trump’s adminis- Department of Justice,” Kevin
Productivity Growth comes after the U.S. Supreme feeling of instability in the about his Russian meetings. tration has encountered a Lewis, an Obama spokesman,
Slowest Since 2011 Court on Monday ordered a fed- United States.” Mr. Trump said such a step number of setbacks, some said. “As part of that practice,
eral appeals panel to reconsider its Inside the White House, Mr. wasn’t necessary, senior White brought on by haste. neither President Obama nor
The productivity of U.S. work- 2016 ruling requiring a Virginia Trump’s frustrations have House officials said. The presi- As the news headlines and any White House official ever
ers increased last year at the school board to allow a transgen- been mounting, aides to the dent was traveling in Virginia cable shows brimmed with Mr. ordered surveillance on any
slowest pace since 2011, a sign der boy to use the boy’s bathroom. president said, as officials when Mr. Sessions made the Sessions’s recusal and the Rus- U.S. citizen. Any suggestion
the economy continues to be —Dan Frosch have been caught up in contro- announcement. sia probe, Mr. Trump on Sat- otherwise is simply false.”

Ivanka Trump’s Landlord’s Firm Is Suing U.S. Scientists

BY MARK MAREMONT
AND JAMES V. GRIMALDI
U.S. government in September
in federal court in Minnesota
Discover
Ivanka Trump and Jared
over a preliminary move by
the Interior Department to ‘Time
SHAWN THEW/EUROPEAN PRESSPHOTO AGENCY; MARK WILSON/GETTY IMAGES

Kushner are renting a Wash- deny renewal of two key min-

ington, D.C., home from a Chil-
ean billionaire who bought it
after the November election
eral leases. Nonetheless, the
department in December de-
nied the leases, citing the risk
Crystals’
and whose company is em- of “serious and irreplaceable BY DANIELA HERNANDEZ
broiled in a dispute with the harm to this unique, iconic
U.S. government over a mine and irreplaceable wilderness Scientists say they have
potentially worth billions of area.” discovered a new state of mat-
dollars. The area of the disputed ter, dubbed a time crystal, a
The six-bedroom house in leases contains “one of the find that opens new avenues
the capital’s Kalorama neigh- largest untapped copper and of research and potentially
borhood was bought for $5.5 nickel resources in the world,” paves the way for the eventual
million in late December by a Twin Metals said in a Febru- development of quantum com-
company controlled by An- ary court filing, “conserva- puters and quantum sensors.
drónico Luksic, according to tively estimated at more than Companies including Micro-
public records and interviews. $40 billion of in-ground min- soft Corp., Alphabet Inc.’s
Mr. Luksic’s family is the eral value.” Google and International
wealthiest in Chile, by some Twin Metals spent Business Machines Corp. are
accounts, and controls a min- $160,000 lobbying Congress developing quantum comput-
ing, banking and industrial on the issue in the second half ers, which they say will have
empire that Forbes estimates Ivanka Trump, the president’s elder daughter, and Jared Kushner, her husband, are renting a home of 2016, federal records show. future applications in artificial
is valued at $13.1 billion. in the Kalorama neighborhood in Washington, D.C., that is owned by a Chilean billionaire. A Twin Metals spokesman intelligence and cybersecurity.
Ms. Trump is President said the company has asked Two different teams of sci-
Donald Trump’s elder daugh- was paying “fair market Mr. Trump’s administration to entists reported the discovery
ter, and Mr. Kushner is her value,” that the mining issue reverse the mineral-lease de- in the journal Nature on
husband. The couple moved has never come up and that cision. Wednesday. They are the first
into the house with their fam- Ms. Trump and Mr. Kushner The proposed mine is op- to directly create and observe
ily around the time of the haven’t met or spoken to the posed by environmental time crystals, the long-theo-
president’s Jan. 20 inaugura- home’s owner. Neither Ms. groups and by Minnesota Gov. rized quantum systems that
tion. Mr. Kushner is a top Trump nor Mr. Kushner was Mark Dayton, a Democrat. It is spin at their own pace inde-
White House adviser. aware of Mr. Luksic’s U.S. busi- supported by Minnesota offi- pendent of their environment,
Former President Barack ness interests at the time they cials of both parties who cite seemingly breaking the rules
Obama’s administration, in its agreed to rent the house, she potential job creation. of normal timekeeping.
waning days, blocked a Luksic- said. U.S. Rep. Rick Nolan, a One team, led by the Univer-
company plan to build a giant There is no other apparent Democrat who represents the sity of Maryland, used 10 levi-
copper-and-nickel mine adja- connection between the Trump area, in a news release at- tating charged atoms, or ions,
cent to a Minnesota wilderness family and Mr. Luksic. tacked the lease decision as to create time crystals with the
area, citing environmental Rob Walker, an ethics law- “anti-mining, anti-jobs” and in help of a complicated network
concerns. The company and yer who has advised Republi- January urged Mr. Trump’s ad- of lasers and mirrors. Another
some Minnesota politicians are cans and Democrats, said there ministration to overturn a re- team, led by Harvard Univer-
urging Mr. Trump’s adminis- might not be an ethics prob- lated move by Mr. Obama’s ad- sity, used lasers, microwaves
tration to reverse the decision. lem if the family is paying a ministration to place a 20-year and black diamonds, which
Requests for comment from market rent. real-estate agent to tell other cial. The law firm representing moratorium on mining in the have special impurities the re-
Mr. Luksic were referred to On the other hand, “it is a agents that the house would the Luksic company said it area. searchers were able to exploit
Rodrigo Terré, a relative of Mr. political-appearance question,” be available for rent. plans to file the paperwork The Justice Department has to build the time crystals.
Luksic’s who manages the bil- he said, because “deservedly Ms. Trump and Mr. Kushner shortly. asked the court for a 60-day Both experiments arrived at
lionaire’s personal invest- or not, critics may still ques- were shopping for a house late Mr. Luksic’s companies own delay in the case to allow very similar results despite us-
ments. Mr. Terré said that a tion the propriety of entering last year and looked at the Ka- other U.S. investment proper- “time to brief incoming admin- ing different approaches.
Luksic company, Tracy DC Real into any significant transac- lorama mansion. They weren’t ties, but none in Washington istration officials” about the “That’s really encouraging,”
Estate Inc., bought the Wash- tion with an individual with interested in buying it and in- until recently, Mr. Terré said. matter. “It is something we are said Frank Wilczek, a physicist
ington house as an investment these apparent interests be- stead wanted to rent it, the A U.S. unit of the Luksic actively reviewing,” an Interior at the Massachusetts Institute
and that the rental to the cou- fore the administration.” White House spokeswoman family’s mining company, Department spokeswoman of Technology, who wasn’t in-
ple was coincidental. He said Trevor Potter, a Republican said. Their broker said he rep- Antofagasta PLC, is battling said. volved in either study and
the family was paying “abso- lawyer and a former chairman resented someone who had a the federal government and The 62-year-old Mr. Luksic writes a column for The Wall
lute market value” in rent, de- of the Federal Election Com- bid on the house and helped environmental groups over its is chairman of a family-con- Street Journal. It shows that
clining to disclose the amount. mission, said: “To me, the fa- facilitate the match. proposed Minnesota mine. trolled conglomerate and sits engineering time crystals in
Mr. Terré said “categori- vor is having a house made “The broker put it all to- Part of the project would sit on the board of Antofagasta, the lab might not be as diffi-
cally” there was no relation- available to them on short no- gether,” the spokeswoman said. on U.S. Forest Service land ad- the family’s mining concern. cult as once thought, he added.
ship between the house rental tice.” To collect rent on the jacent to the Boundary Waters The family fortune was started In the long term, time-crystal
and the Minnesota mining dis- The house was not listed for house, Mr. Luksic’s company Canoe Area Wilderness, a 1.1 in the 1950s with a mining in- enthusiasts say the underlying
pute, adding that he and Mr. rent on the Metropolitan Re- must obtain a business license million-acre tract of lakes and vestment by his father, the son physics—and the technology used
Luksic had not met their fa- gional Information System, and permits under Washing- forest first protected by the of a Croatian immigrant. to probe such quantum systems—
mous tenants. used to advertise listings. Mr. ton, D.C., law. It had yet to do government in 1926. —Alan Cullison could have applications in quan-
A White House spokes- Terré said that, before closing so by early this week, accord- The Luksic unit, Twin Met- and Ryan Dube tum computing, plus in building
woman said that the family on the house, he instructed his ing to filings and a city offi- als Minnesota LLC, sued the contributed to this article. more sensitive quantum sensors.
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A8 | Thursday, March 9, 2017 THE WALL STREET JOURNAL.

IN DEPTH

FAMILY billion fortune comes partly

from a stake in General Dy-
namics Corp.
In another deal, Hillspire
Continued from Page One LLC, a family office that man-
ups. They are buying dis- ages more than $5 billion for
tressed debt, real estate and Eric Schmidt, the chairman of
esoteric insurance products. Google parent Alphabet Inc.,
They are lending to companies bought a fifth of hedge fund
and occasionally going into D.E. Shaw Group in 2014 for
battle with companies as ac- about $500 million.
tivist shareholders. Family-backed investors
To do so, family offices are own all or part of luxury
poaching talent from Wall brands such as Jimmy Choo
Street. Among such hires, and Four Seasons Holdings
Thomas Pritzker, the billion- Inc. and trendy consumer
aire chairman of Hyatt Hotels ones such as the parent of
Corp., in 2015 recruited Jo- packaged coconut-water com-
seph Gleberman, a senior pany Vita Coco.
banker in Goldman Sachs Revealing their ownership
Group Inc.’s private-equity is rare, but some family of-
division, to help run his fam- fices have drawn attention to
ily office. themselves by launching ac-
On Tuesday, Mr. Pritzker’s tivist campaigns.
family office and two other In May, the family office of
wealthy investors agreed to David Bonderman, a founding
buy Hargray Communications partner of private equity firm
Group Inc., a Hilton Head Is- TPG Capital, criticized the
land, S.C.-based cable opera- management of Sorrento
tor, from private equity firm Therapeutics Inc., a cancer-
Quadrangle Capital Partners. drug company in which the
The group, which includes the family office owned a stake.
family firms of Arkansas Wildcat Capital Management

banker Warren Stephens and
Jim Davis, a co-founder of
staffing company Allegis
Group Inc., will pay $700 mil-
lion in cash, according to peo-
ple familiar with the matter.
“Family offices are becom-
ing more institutional in their
approach,” said Chuck
HILLWOOD
LLC urged Sorrento’s board to
make a variety of changes
Ross Perot Jr.’s Circle T Ranch outside Dallas. Family-office networks such as one set up by Perot Investments are springing up to help that included firing the CEO.
families strike private-equity-style deals. Below, Thomas Pritzker, who hired a former Goldman Sachs banker to help run his family office. Soon after, Sorrento hired ad-
visers to explore “strategic
family offices hold assets of “Where can we capture out- as you possibly could find, and alternatives.”
more than $4 trillion. That ap- size returns and protect our they’re writing extremely Goldman Sachs bankers last
proaches the cumulative $5.7 capital? The only way to do large checks,” said Ward Mc- year started paying more at-
trillion of private-equity firms that is in the private world,” Nally, a great-great grandson tention to family offices after
JENNIFER S. ALTMAN FOR THE WALL STREET JOURNAL

Stutenroth of U.S. Bank’s As-
cent Private Capital Manage-
ment unit, which works with
family offices. He calls them
“insti-viduals.”
For clans with at least $250
million in assets to invest,
family offices have become
the preferred vehicle through
which to put their money to
work, because they afford
complete control and near-se-
crecy. They don’t have to reg-
ister with federal regulators
as long as they limit their in-
vestment advice to descen-
dants of a common ancestor
within 10 generations, plus
others such as key employees,
adopted children and former
spouses. Names of most fam-
ily offices don’t include the
family’s name.
Hedge-fund manager Wil-
liam Ackman and Google co-
founder Sergey Brin have fam-
ily offices. Billionaire brothers
Charles and David Koch last
year started one, named 1888
Management LLC, to manage a
small portion of their esti-
mated $86 billion in combined
net worth. Oprah Winfrey has
OW Management LLC.
“Everybody wealthy seems
to want to have their family
office,” said David Ruben-
stein, co-founder of private-
equity giant Carlyle Group LP,
on an investor call last year.
Mr. Rubenstein, who once
paid $21 million for a copy of
the Magna Carta, is consider-
ing one for his own family,
people familiar with the mat-
ter said.
The wealthiest families are
commanding fresh attention
from investment banks such as
Morgan Stanley and J.P. Mor-
gan Chase & Co., which in re-
cent years have appointed se-
nior bankers to cover family
offices. Families’ appetite for
investing directly into compa-
nies rather than through funds
has pushed private-equity
and hedge funds, as estimated
by data provider Preqin,
though there is overlap be-
cause family offices some-
times invest in private-equity
and hedge funds.
Carol Bernick’s family
wealth stems from hair-care
company Alberto Culver Co.,
built by her father. Ms. Ber-
nick said her family created
an office in 2002 to manage
assets outside of their stake
in Alberto Culver. It had no
formal name and just one
firms to invite them to be mi- employee.
nority deal partners. Family Four years later, Alberto
offices have also been among Culver spun off a beauty-sup-
those pushing hedge funds, in ply business, adding to the
which they are big investors, family’s cash hoard, and then
to reduce fees. in 2011 Alberto Culver was
Tracking the number of sold to Unilever PLC for $3.7
family offices isn’t easy, since billion. Assets of the family of-
they don’t have to register. A fice, given the name of Pol-
study by accounting firm EY ished Nickel Capital Manage-
said there are more than ment LLC, swelled. It now has
10,000 globally, about half set 14 employees and invests in
up in the past 15 years. Robert companies alongside other
Casey, senior managing direc-
tor of research at Chicago-
families and private-equity
firms. Ms. Bernick is its CEO.
based consultancy Family Since 2011, roughly three
Wealth Alliance LLC, has esti- dozen hedge funds have con-
mated the U.S. has 3,000 fam- verted into family offices after
ily offices with more than $1.2 returning their clients’ money,
trillion in assets. according to a Wall Street
The offices proliferate Journal tally. Soros Fund Man-
partly because of a surge in agement was among them. Mr.
global wealth in recent de- Soros cited increasing regula-
cades, traceable in part to tion as one reason. U.S. regu-
high levels of merger activity lators require hedge-fund
and initial public offerings. firms with more than $150
The number of billionaires in million in assets to disclose
the world rose 6.4% in 2015 to their strategies and how much
a record 2,473, according to they manage.
data provider Wealth-X. It Energy trader John Arnold
says their collective wealth turned his focus to his family
reached nearly $7.7 trillion. office and to philanthropy in
“It used to take 100 years 2012 after closing his hedge
to make $100 million, but that fund, Centaurus Energy Mas-
process has been sped up” by ter Fund. Six months ago, his
entrepreneurs in Wall Street, family office invested along-
Silicon Valley and elsewhere, side a Goldman Sachs unit
said Dominic Samuelson, chief and some pension funds in
executive of Campden Wealth Bass Pro Shops’ $4.5 billion
Ltd., which connects wealthy buyout of outdoor-sports gear
families with one another. seller Cabela’s Inc. The deal is
Campden’s research shows yet to close.
said Allen Gibson, who over- of Andrew McNally, who co- realizing they were losing out
sees investments for Mr. Ar- founded atlas publisher Rand on merger deals involving
nold’s family office. Mr. Gibson McNally in 1856. such offices. Starting with a
said he invests most of the The McNallys set up a fam- list of 750 potential targets,
multibillion-dollar fortune in ily office after Rand McNally they whittled the number to
direct deals designed not to was sold in 1997 to private eq- 27 families they thought had
perform in lockstep with the uity. In 2008, Mr. McNally es- the interest and wherewithal
stock market. tablished a new firm, McNally to buy companies outright.
Family-office networks such Capital LLC, that uses funds
as the one set up by Perot In- from his family and from a
vestments are springing up to network of roughly 800 fami-
help families strike private-eq- lies globally to invest in com-
‘Everybody wealthy
uity-style “club deals” and dis- panies together. Mr. McNally seems to want to
cuss investing strategies. The says he met with about 300
Perot group consists mostly of families last year, and every
have their family
families with at least $1 bil- single one was interested in office.’
lion, including the family of- doing direct deals.
fices of Messrs. Bloomberg When private-equity firm
and Soros, people familiar BC Partners closed a $2 billion
with the matter said. Perot deal in November to buy sev- “We treat these family of-
family office executives said eral dozen data centers from fices the same way we treat
they hatched the idea after CenturyLink Inc., its partners [buyout firms such as] Bain or
having to pass on a deal that included Longview Asset Man- Advent,” said Alison Mass, co-
needed more cash than they agement. Longview is a family head of an investment-banking
were willing to put up. office for Chicago’s Crown group at Goldman Sachs.
Family offices are “as quiet family, whose estimated $7 Among families Wall Street
is eyeing are Quadrant Capital
Advisors, a $14 billion New
Model Portfolio York firm that invests on be-
half of Colombia’s Santo Do-
What the average global family office portfolio looks like. mingo family and Fremont
Group, which invests the con-
Stocks and bonds Direct investments in Cash or Hedge struction-related wealth of the
private equity, venture equivalent funds Bechtel family, bankers say.
capital and real estate* Buyout firms Blackstone
Group LP and KKR & Co. have
executives who woo families
with specialized investing op-
portunities. Some private-eq-
uity shops offer funds that in-
29% 8% 8% vest for longer than the usual
private-equity time frame, and
37% co-investing options.
KKR co-CEOs Henry Kravis
and George Roberts asked ev-
ery employee to come up with
five wealthy families the firm
7% 4% 4% 2% could tap for business as the
firm looked to kick-start its
effort. KKR now counts sev-
eral hundred wealthy families
Private equity funds Agriculture and ETFs, Valuables as clients, up from virtually
commodities REITs, etc. (art,etc.)
none in 2010, said Jim Burns,
who leads its individual-inves-
Note: Due to rounding, totals may not add up to 100%. *Includes co-investments. tor business.
Source: UBS/Campden Wealth Global Family “It’s an ocean of wealth,”
Office Report 2016 THE WALL STREET JOURNAL.
Mr. Burns said.

SCHOOL applying to more schools on

Continued from Page One
marketplace based in Mel-
bourne, Australia. Some par-
ents make their homes a col-
lege-free zone and ban all talk
on the topic.
Spencer Neville, 17, has
started dreading social en-
counters with adults.
Ms. Neville, a senior at
Derryfield School, a Manches-
ter, N.H., preparatory school,
is awaiting word from col-
leges about whether her ap-
plications have been ac-
cepted. Although she won’t
know for several weeks where
she’s going next fall, she gets
grilled every time she leads
visitor tours on her high-
school campus or attends
family gatherings.
“Every adult you meet, all
they want to talk to you about
is, ‘Where are you going to
college? What do you want to
study?’ ” she says. She wants
to be polite, but “talking
about college is the last thing
I want to do.” Ms. Neville
says. “They ask, ‘What’s your
top school?’ and I say, ‘Oh, I
don’t have a top school’”—and
changes the subject.
average.
Applications rose 6% in the
fall 2015 season compared
called Naviance used by many
high schools enables students
to compare their grades and
test scores to others from
cational consultant and au-
thor. In some affluent suburbs,
“it’s in the water,” he says.
The ability to mine data is
at CollegeConfidential.com, a
forum on college admis-
sions and selection.
The speculation peaks just
about that, but I’m really look-
ing forward to being on the
East Coast somewhere.”
“It certainly felt like an in-
with the 2014 season, accord- their high school who have ap- turning more adults into odds- as students most need a terrogation every time I
ing to an annual survey by the plied to a college in the past makers. “Some parents will break. Many have spent two crossed paths with a family
National Association for Col- and been admitted or rejected. parse to death the statistics years or more making college member” at the gathering,
lege Admission Counseling, an “Parents start talking about and achievements of competi- lists and visiting campuses. Corey says, adding that he
Arlington, Va., professional the data and they talk to their tor candidates already ac- By the time applications are didn’t mind answering some of
group. “That makes everything neighbors and their kids about cepted or rejected by their in, “a lot of seniors feel like, the questions and can under-
feel a lot more competitive,” it until it permeates the child’s target schools, trying to wow, I can finally be a high- stand why people are curious.
says David Hawkins, a senior town,” says Steven Roy Good- predict outcomes,” says Sally school student,” says Derry- A good rule of thumb for
executive for the association. man, a Washington, D.C., edu- Rubenstone, a senior adviser field’s Mr. Barnard. adults is to avoid all acro-
The admissions process is One mother kept quiet on nyms, says J.D. Rothman, a
dragging on longer for more Facebook when her son was Santa Monica, Calif., TV writer
students. Some 10% more stu- admitted early to his No. 1 and author of “The Neurotic
dents applied early for a Dec. school, in an effort to be con- Parent’s Guide to College Ad-
15 decision in 2015 compared siderate, says Jane Shrop- missions.” “Don’t ask about
with 2014, NACAC says. And shire, a Lexington, Ky., col- ACTs, SATs, GPAs, UCLA,
16% more students were of- lege consultant. She later UNC—anything with initials.”
fered wait-list positions in learned that because she After all the applications
2015 than 2014, leaving some hadn’t trumpeted the news, are in, Ms. Shropshire advises
in limbo as late as August. other parents assumed her students to tune out the noise
It isn’t uncommon for stu- son had been rejected. from peers and adults and im-
dents aiming for competitive Many students try not to merse themselves in arts,
schools to apply to as many as reveal their No. 1 choice. Ask- sports, academic or commu-
10 colleges these days. Har- ing teens their dream school is nity activities they enjoy.
vard says it received 39,041 like making them announce Encourage teens to have
applicants for its Class of that they have a secret, unre- fun, Ms. Rothman says. Rather
2020 and accepted 5.4%. quited crush, says Shannon than asking, “What are you
Also, admissions data fly so McGinley, a Bedford, N.H., par- going to do if you don’t get
fast and freely on social me- ent. “What if they don’t get into Wesleyan?” she suggests,
dia that some adults treat it in? Then people are saying, “What are you going to do if
as common knowledge. “Peo- ‘Oh, I’m so sorry, you didn’t you don’t get into Coachella or
ple aren’t going to walk up to get into your No. 1 choice. And Bonnaroo”—popular music
someone at a cocktail party it’s #Loser.” festivals happening soon in
and ask, ‘How much do you En route to a family gather- California and Tennessee.
weigh?’ But they’ll ask a stu- ing over the holidays, Ms. And to adults who ap-
SHARI DREIER

All the talk is driven
partly by growth in college
applications overall. More
high-school students are go-
ing on to college, and each is
dent, ‘How did you do on the McGinley warned her son proach with questions, Mr.
SATs?’ ” says Brennan Bar- Corey, a high-school senior, Goodman suggests a friendly
nard, Derryfield’s director of about such queries and sug- rejoinder: “Uncle Joe, if you
college counseling. Missy Dreier, left, and her cousin Emma Wishnow held up these signs gested he “divert the question don’t mind, I’m taking a
A college-selection tool at a family gathering in 2014, when both were high-school seniors. like a politician: ‘I don’t know month off from this.”
 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 9, 2017 | A9

LIFE&ARTS
THE MIDDLE SEAT | Scott McCartney

The JetBlue Effect on Business Class

The airline’s Mint service is gaining fans and forcing American and Delta to lower business fares between New York and L.A.
A LIE-FLAT BED on a long flight
used to be the ultimate perk,
something fliers would pay up for.
Now it’s a discount luxury.
A new kind of business class
has been pioneered by JetBlue’s
Mint cabin on transcontinental
routes and is now a popular option
on long-haul discount carriers like
Condor, Icelandair and AirAsia.
The affordable upgrade has been
so popular, formerly all-coach Jet-
Blue is now flying Mint seats from
Boston and New York to the Carib-
bean as well as Los Angeles and
San Francisco. It’s also announced
expansion to San Diego, Seattle,
Las Vegas and Fort Lauderdale.
This is not aviation’s version of
a knockoff handbag. With Mint,
the prices are lower but the re-
cline remains fully flat, the pillows
and duvets still soft. Service may
lack some frills, but the airline still
offers amenity kits with eyeshades
and lemon towelettes. And it has a
real following with experienced fli-
ers. A few celebrities have raved
about it on social media.
The roomy cabin at the front is
made possible by new single-aisle
planes that are bigger and can fly
long distances. JetBlue began buy-
ing the Airbus A321, 23 feet longer
than its regular A320. The A321s
with Mint have almost as many

coach seats as JetBlue’s standard
A320, but 16 extra business-class
seats.
Entertainment-industry execu-
tive Reece Pearson flies more than
100,000 miles a year with Ameri-
can Airlines, but when he travels
from Los Angeles to New York ev-
ery two to three weeks, he flies
JetBlue Mint. “The [business-class
seat] on American is probably a
little more comfortable, but Amer-
ican does not have DirecTV,” he
says.
The main difference is price. He
routinely books business class on
JetBlue for about $1,500 round
trip, compared with $2,300 to
$2,400 on American. “Now most of
our company flies Mint,” says Mr.
Pearson, chief operating officer of
a music talent management firm.
The transcon market went lie-
flat in 2013 when Delta Air Lines
brought international widebody
aircraft onto the New York-Los An-
geles route and began selling busi-
ness-class tickets with seats that
folded out into beds. American
rolled out an Airbus A321 with just
102 seats, including 10 first-class
suites and 20 business-class lie-
flat beds.
The luxury on five-hour flights
was a hit, leading prices to soar.
JetBlue, realizing
that many of its cus-
tomers were willing to
pay extra for luxury on
long flights, too, un-
veiled Mint in summer
2014.
American and Delta
tried to hang on to
their higher prices for a
time, but in the past
year prices have started
to fall, fare-tracker Bob
Harrell says. His firm
studied the discounted
and full-fare business-
class prices offered by
airlines for the same
period in February the past four
years and found dramatic cuts
were made once JetBlue started to
catch on.
Discounted business-class prices
offered by Delta and American av-
eraged about $2,200 one-way in
the 2014 snapshot, but this year
averaged about $1,300 for the
same period. Full-fare business-
class tickets averaged $2,900 one-
way before Mint. Delta’s full-fare
prices were about 25% lower than
the same time last year.
“There’s definitely a JetBlue im-
pact here,” Mr. Harrell says.
JetBlue’s Mint prices have gone
up since its launch, Mr. Harrell
notes and JetBlue confirms, as the
cabin has filled up faster.
American tailored its transcon
service for high-end customers to
be similar to long-haul interna-
tional service, says Fern Fernan-
dez, vice president of global mar-
keting. Improvements such as
JETBLUE (2)
JetBlue’s Mint business-class seats fold out into a flat bed and
have been a hit with travelers.
fancier lounges with mint. Seats have lumbar massag-
sit-down restaurant ers, reading lights, electric plugs
dining are under con- and a “wake me” light you can
struction in New York press to notify flight attendants
and L.A. And discount you want to be awakened for food
competitors don’t offer service.
American’s direct One annoyance: All bags have to
plane-to-plane connec- be in overhead bins for takeoff and
tions in Cadillacs. landing, so you can’t keep a brief-
The airline thinks case at your feet.
it’s staying a step What’s most prized among
ahead of Mint and oth- savvy fliers are the Mint suites. On
ers on the New York- each side of the A321, JetBlue puts
Los Angeles route, the two seats in a row, then a row be-
busiest long-distance hind with just a single seat on
domestic route. JetBlue doesn’t each side. When seats fold down,
disclose financial results on Mint the legs of the single passenger
but says the cabin is more profit- are tucked between the two pas-
able, per square foot, than coach. sengers in front. The single pas-
Despite its parsimonious roots, senger has a sliding door, creating
JetBlue tries to mimic many of the an enclosed suite. The four suites
front-cabin luxuries to which pre- cost the same as the 12 other busi-
mium fliers are accustomed. Flight ness-class seats and usually get
attendants who work in the Mint booked first. “The biggest com-
cabin get special training in hospi- plaint is the single seat sells so
tality. Drinks are offered before fast,” says Marty St. George, Jet-
takeoff, including a special lemon- Blue executive vice president, com-
ade blend with, you guessed it, mercial and planning

DOCUMENTARY

FINDING THE FUNNY IN A NOSE JOB

Comedians Emily Askin, left, and Jackie
Hoffman, below, discuss whether plastic
surgery is worth it in the documentary ‘Take
My Nose...Please!’ directed by Joan Kron.
mented some of her experiences in the book
“Lift: Wanting, Fearing, and Having a Face-
Lift,” which was published in 1998.
While writing about celebrities’ under-
the-radar rejuvenations, Ms. Kron realized
that plastic surgery and other appear-
ance-enhancing efforts seldom
were discussed publicly. “It be-
came apparent to me that
there was one small group
that did talk about it,” she
says. “And guess what? It
was all funny women.”
Comedian Joan Rivers
was unapologetic about her
touchups, from Botox to
facelifts. “If it’s all about
PARVENU VENTURES (2)
and efforts to improve their looks—became
fodder for their comedy.
Actor and comedian Julie Halston, filmed
during her stand-up routine, says she had a
facelift after looking in the mirror and won-
dering, “When did my face become Paul Gia-
matti” playing John Adams? But the movie’s
fundamental questions—such as why looks
matter, the ethics of altering one’s appearance
and why such tweaking is meant to be noticed
but seldom admitted to—are serious ones.
“Nobody wants to say it but the
fact of the matter is, beauty is
still the thing that people want
from women,” Ms. Halston
says.
Ms. Askin, who started
an all-female improv group
after working with the Up-
right Citizens Brigade, had
wanted to smooth out her
nose well before her career

beauty—and [show] business began. When friends heard she

BY BRENDA CRONIN
IN A NEW DOCUMENTARY, actor and comic
Jackie Hoffman asks a plastic surgeon about
tweaking her “bulbous…Jimmy Durante” nose
and “Fred Flintstone mask” of a face.
For most women, coming to terms with
their looks—while staving off time and grav-
ity—is a private preoccupation. But the docu-
mentary “Take My Nose…Please!” punctures
that taboo by asking women to publicly dis-
cuss plastic surgery. Female comedians were
the only performers whom the director and
producer, Joan Kron, could persuade to speak
on camera about facelifts, nose jobs and
other procedures such as Botox to freeze
frown lines and fillers to soften wrinkles.
The movie, which takes its title from
Henny Youngman’s rueful one-liner, “Take
my wife…please,” is slated to screen at a
number of film festivals, starting this month
in Miami.
Ms. Kron, an 89-year-old first-time film-
maker has had a long career as an author
and journalist, including stints during the
‘70s and ‘80s at the New York Times and
The Wall Street Journal, respectively. More
recently, she spent 25 years covering plastic
surgery for Allure magazine. She docu-
is all about beauty—of course
you keep refining yourself,” she
says to Ms. Kron in a 2004 interview in
the film. Videoclips of Ms. Rivers, who died
in 2014, also appear in “Take My
Nose...Please!” In one from the television
drama “Nip/Tuck,” a computer renders a ver-
sion of Ms. Rivers’s face without any proce-
dures. An aghast Ms. Rivers studies the im-
age and exclaims: “That hag looks like E.T.!”
The documentary’s two main figures are
Emily Askin, a comedian considering a nose
job, and Ms. Hoffman, a Broadway, film and
stand-up star who is on the fence about hav-
ing a nose job and a facelift. In addition to
capturing both women’s doubts, fears and
hopes about the procedures, the documen-
tary breezes through the history of plastic
surgery. It also recognizes performers such
as Phyllis Diller and Roseanne Barr, whose
withering assessment of their appearances—
was considering plastic surgery,
“I believe the phrase ‘you’re crazy’
was uttered a number of times,” she
says. Comedians tend to discuss plastic sur-
gery more openly than other actors because
“we laugh at what is true,” Ms. Askin says.
“The notion that we can take something—in
particular, our own bodies—and take control
of them and change them,” she says, “may
be too uncomfortable for some people to
even admit, because it feels like you’re go-
ing against society.”
Ms. Hoffman starts out considering a
nose job, hoping to tame a feature she de-
scribes as “just too much.” She entertains
the notion of a facelift as well, despite mis-
givings that she might end up with “that
done look.” Surgery would mean taking the
risk that her appearance “could, God forbid,
be worse,” she says, “although I was think-
ing, ‘Well, it couldn’t get much worse.’ ”
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A10 | Thursday, March 9, 2017 THE WALL STREET JOURNAL.

OPINION
REVIEW & OUTLOOK ObamaCare 2.0
WikiLeaks’s New Damage House Republicans
have finally rolled out
their new health-care
against extreme costs that might force
you to mortgage your house.
You are aware of the gaping irony. To

T
uesday’s WikiLeaks dump of a major control panels of cars and trucks. Another tool proposal, and it’s re- pay for all these subsidies, ObamaCare
chunk of what it claims is the CIA’s exposed by the leaks turned Samsung Smart ceiving heated criti- policies incorporate deductibles and co-
cism from both left pays so high that, for routine illness or
“hacking arsenal” ought to be an eye- TVs into microphones that could then relay con-
and right—and not injury, having ObamaCare is the equiva-
opener for anyone still labor- versations back to the CIA BUSINESS
because it’s so good. lent of being uninsured—except your
ing under the delusion that Its latest leaks expose even when the owner believed WORLD
Yet it does represent teenage daughter gets her birth control
WikiLeaks’s Julian Assange or By Holman W.
former National Security
U.S. cyber tools against theThe set was off.
losses from this expo- Jenkins, Jr.
a better dog’s break- for “free.”
fast than the incoher- This is why practically the only people
Agency contractor Edward terror networks. sure are incalculable. These ent Obama scheme it who buy ObamaCare policies nowadays
Snowden are not out to weaken tools represent millions of would replace. are those poor enough to qualify for hefty
the United States. This leak of dollars of investment and Let’s start from the top. “Repeal” is a subsidies and/or sick enough that Obama-
CIA documents appears to disclose for America’s man-hours. Many will now be rendered moot meaningless political gesture: New laws Care is still a bargain in relation to all the
enemies a key advantage against the asymmetric as terrorists or foreign agents abandon trace- supersede or amend existing laws, so if health care they plan to consume.
threats of this new century: better technology able habits. Merely because America’s enemies Republicans have a health-care plan, Some of these people, when their pet
they could just enact it. coverage mandate is withdrawn, will
that provides better intelligence. are barbaric—think al Qaeda or Islamic State—
In doing so, the GOP will inevitably find the decision retilted in the direc-
WikiLeaks says the 8,761 documents and files does not mean they are stupid. One reason it keep certain ObamaCare elements. A tion of going uninsured again. Can the
were ripped off “from an isolated, high-security took so long to hunt down Osama bin Laden is feature they apparently intend to pre- GOP withstand the withering press on
network situated inside the CIA’s Center for Cy- because he took pains to establish a sophisti- serve is the provision that lets children their behalf? We’ll see.
ber Intelligence” in Virginia. It further says cated communications system to evade U.S. in- up to age 26 stay on their parents’
these documents were “circulated among for- telligence tracking. plans. Never mind that this is a typically
mer U.S. government hackers and contrac- The costs will also include the time and ef- illusory mandated “benefit.” In effect, The GOP plan has big
tors”—and that one of them shared the info fort U.S. intelligence agencies will now have to it’s a benefit customers no longer can
with WikiLeaks. So far former government offi- expend investigating how the information was opt not to pay for. subsidies but is still a better
cials quoted in news reports say the leaked in- lost. This includes retracing any missed com- The individual mandate is philosoph- dog’s breakfast than the
formation looks genuine, and the WikiLeaks puter hacks and trying to find out who stole and ically in disrepute among the GOP and
has to go, but the real problem was status quo.
press release promised more to come. released the secrets. how ObamaCare twisted its purpose.
Much of this WikiLeaks dump deals with Some on the political left and right want to Instead of requiring grown-ups to
ways the CIA has found to get into electronic treat Messrs. Snowden and Assange as heroes shoulder their own health risks, it It’s important to note something else.
devices such as iPhones and Android phones. of transparency and privacy. But there is no ev- forced certain customers to buy over- Even if we grant sincerity to Mr. Obama’s
These methods include—as Edward Snowden idence that U.S. spooks are engaging in illegal priced policies so other customers dream of an egalitarian health-care sys-
clarified in a tweet—end runs around the en- spying on Americans. The CIA’s spying tools could receive underpriced ones. The tem, ObamaCare is a fair representation
cryption of such popular apps as Signal or are for targeting suspected terrorists and for- GOP says it will maintain a requirement of what political reality would deliver: a
WhatsApp without having to crack the apps eign agents. As for WikiLeaks, note how it that insurers accept patients with pre- system in which elected politicians con-
themselves. never seems to disclose Chinese or Russian se- existing conditions, but now would sub- stantly try to woo specific voter blocs by
The leaks also expose other areas of CIA in- crets. The country they loathe and want to sidize these customers directly—in shifting their costs to other health-care
other words, more honestly. payers or to the general taxpayer.
terest such as an agency effort to hack into the bring low is America.
One of ObamaCare’s best features Happily, paring back coverage man-
was that it reserved its visible subsidies dates and the implicit subsidies they

A Historic Health-Care Moment for the needy, unlike, say, Medicare or

the regressive tax benefit for employer-
generate is easy enough to do in princi-
ple. Though Mr. Trump has rightly dis-

T
provided insurance. covered that health-care politics is
he do-or-die moment for the Trump incomes. The House credits are also “refund- The GOP plan maintains this princi- complicated, health-care reform isn’t.
Administration and the GOP Congress able,” meaning they become a straight cash ple but will revert to refundable tax The problem can be solved in a couple
arrived on Monday, as House Republi- payment to those with no income-tax liability. credits scaled to age and income. These of tweets.
cans rolled out their Obama- This is costly, but then only credits presumably won’t be—and won’t 1) The only people who should re-
Care repeal-and-replace bill. The House plan isn’t about 7% of the population is need to be—as generous as the subsi- ceive subsidies are the poor and those
The question now is whether dies required to induce people to buy whose chronic or congenital conditions
they can deliver on their re-
perfect, but it’s the only eligible. The tax credits are also
grossly overpriced ObamaCare policies. make them uninsurable.
Still, look for liberals to hunt up many a 2) This incentive should not be con-
form promises and govern to reform opportunity means-tested, phasing out af- sad example of an existing ObamaCare structed so as to encourage people to
improve the lives of Ameri- ter $75,000 for individuals
can voters.
Republicans will get. and $150,000 for couples, or
customer who would rationally choose remain uninsured until they’re sick. If I
to go uninsured under GOP care. choose to remain uninsured and then
The American Health Care for roughly the top 10% of That’s because many hidden subsi- throw myself on the taxpayer, my assets
Act would be the most conse- earners. Increasing inframar- dies are also programmed into Obama- and earnings should be at risk. Period.
quential GOP social-policy reform since the wel- ginal tax rates with benefit cliffs is a problem, Care. The young subsidize the old, sin- But try unraveling today’s tangle of
fare overhaul of 1996. Not only does the bill re- but the income caps are set high enough that gles subsidies families, men subsidize direct and indirect subsidies, even when
pair the failures of the Affordable Care Act, it effects on incentives to work won’t be espe- women, those who go to the doctor only the net result would be a huge improve-
starts to correct many of the government- cially strong. when sick subsidize those who consume ment in welfare from a less distorted,
created dysfunctions that have bedeviled U.S. Far from a “Republican entitlement” or lots of elective or preventive care. less inflation-prone health-care system.
We can do President Obama the ser- Even under a GOP plan, health care will
health care for decades. “ObamaCare Lite,” the new tax credits start to vice of stating his position more fairly remain a heavily subsidized industry in
Opening this critical legislative campaign is fix a core bias of U.S. health care, which is that than he did his opponents’. He favors a relation to everything else Americans
a test of how well Republicans can manage po- individuals buying insurance for themselves vision of health insurance which is not might rationally prefer to spend their
litical and economic reality. The House bill is don’t receive the same tax subsidy that flow to insurance, i.e., not pooling against ma- money on.
a center-right compromise that works off a sta- workers at businesses. A draft bill would have jor risk. Insurance should cover routine A highly reliable prediction: The fail-
tus quo that has accumulated for years, and its partially equalized the tax treatment of health care, preventive care, even elective ure of ObamaCare is a crisis, but it would
architects know they can’t design a health-care insurance by capping this employer exclusion care—a woman’s birth control should be take many, many more crises to move
system de novo. The bill has flaws that come but the provision got left on the editing floor covered. Anything less, he said, is the U.S. toward something resembling a
from accommodating what the votes in Con- amid GOP and business opposition. “house insurance”—it covers you only rational, efficient health-care system.
gress will allow. Still, if this passes, it will be This is a bad policy blunder. The final bill re-
a major achievement, and real progress. tains ObamaCare’s “Cadillac” tax on high-cost LETTERS TO THE EDITOR
i i i health plans but delays it until 2025. Maybe one
Though the individual insurance market day Congress will muster the political courage
dominates the debate, the House’s Medicaid re- to take on the business lobby and limit this inef- Sweden and Immigrants Mostly Get On Well
form might be more important. This safety-net ficient and regressive tax preference. Jimmie Akesson and Mattias tion. The phenomenon of individuals
program originally meant for poor women, chil- Confusion abounds over the bill’s handling of Karlsson of the Sweden Democrats traveling to the Middle East to fight
dren and the disabled has morphed into general pre-existing conditions. ObamaCare limits how inaccurately paint a picture of Swe- for Daesh has more or less ceased
insurance for working-age, able-bodied adults far premiums can vary among people with differ- den as a country with a particularly completely.
above the poverty level, despite its low-quality ent health risks. The House would allow premi- high rate of violent crime, which they Sweden has given protection to
care and price controls. ums to differ closer to the true cost of care while claim is due to the number of asylum 143,000 Syrian men, women and chil-
The House would convert Medicaid’s funding repealing the individual mandate to buy cover- seekers that Sweden has taken in dren since 2011. We are proud of that
(“Trump Is Right: Sweden’s Embrace because many of these people might
formula from an open-ended entitlement into age or else pay a penalty. To encourage continu-
of Refugees Isn’t Working,” op-ed, otherwise have perished in Homs or
block grants to states. The amount would be de- ous coverage, insurers could assess a 30% pen- Feb. 24). The Sweden Democrats are Aleppo. Now these people must get a
termined by per capita enrollment and grow alty for those who wait to sign up. an extreme right-wing, racist party good start in Sweden. The number of
with medical inflation. States would thus have Critics claim this change will tank the insur- with Nazi roots. jobs has increased by more than
a reason to set priorities and retarget Medicaid ance markets, but the GOP bet is that if insurers Like all countries, Sweden has 150,000 since 2014. Unemployment
on the truly needy. are allowed to sell lower-cost products that problems with violent crime. The gov- has fallen, growth is high and our
The GOP envisions giving Governors more people want to buy, people will buy them with- ernment is taking measures to fight public finances are sound.
regulatory power to run their own programs, out a mandate. By loosening rules that stan- such crime and its causes. But the idea Members of Muslim faith communi-
and this flexibility would be accompanied by dardize coverage and extending financial help that the situation is worse in our ties make up approximately 1.5% of
a new $100 billion “stability fund” for use in to consumers, the goal is to stand up a more vi- country is entirely erroneous. The risk the Swedish population. Laying the
of falling victim to lethal violence in blame for every problem with this
the post-ObamaCare transition. We’ll have a brant market with more choices than Obama-
Sweden is very low by international small minority is absurd and danger-
fuller treatment of the Medicaid overhaul in Care permits. standards and has declined overall in ous. Baseless accusations against eth-
the coming days, but this is the most meaning- i i i the past 20 years, despite our high nic and religious minorities must not
ful modernization of the program since it was President Trump said Tuesday he is “proud” levels of asylum immigration. be allowed to dominate the political
created in 1965. to support the House bill and hopes it passes The claim that Sweden welcomes conversation.
The House transition lasts three years, until quickly. His leadership will be critical, espe- terrorists “with open arms” is com- MORGAN JOHANSSON
2020, which underscores one of the downsides cially as strife grows on the right about the al- pletely false. On the contrary, we have Minister for Justice and Migration
of using the budget “reconciliation” process. legedly insufficient conservative purity of the tightened our antiterrorism legisla- Stockholm
This procedure allows legislation to pass with House plan.
merely 51 Senate votes but it comes with arcane These critics say they want outright repeal
rules and limitations such as reducing the defi- first, and then maybe Congress can pass a re- Zimmermann Telegram’s Lessons for Today
cit. Delaying some reforms is one side effect, placement someday. But Mr. Trump ran on “re-
In “Decoding the Zimmermann Tele- The encrypted German diplomatic
and the GOP Governors who could take the peal and replace” and House Republicans united gram, 100 Years Later” (op-ed, Feb. 27), note to Mexico was tapped by the Brit-
most advantage of more flexibility might not around the “Better Way” plan. They promised Arthur Herman contends that before ish and decoded. Despite the exposure
be around in 2020. real solutions to ObamaCare’s problems. entering the war in 1917 Woodrow Wil- of their code-breaking victory, the Brit-
Another unfortunate artifact of reconcilia- Repeal-only can’t pass the Senate in any son had been scrupulously neutral. That ish decided to pass the deciphered
tion is delaying the repeal of ObamaCare’s tax case, because Senate Republicans—with good isn’t even remotely true. The U.S. was telegram to the U.S.
hikes until 2018. The bill gets rid of nearly all reason—don’t want to accelerate ObamaCare’s selling massive quantities of arms and This history should teach the Trump
of them, from the medical-device tax to the collapse or throw millions off the Medicaid agricultural products to the Allies, and administration about the crucial im-
health-insurance tax to the 3.8-percentage rolls. Voters tend to punish parties that disrupt when they ran out of money to pay, U.S. portance of communications security
point Medicare payroll tax on “unearned in- their insurance. Just ask Democrats. banks lent it to them. Wilson objected and signals intelligence, as well as
come.” But better to backdate the action In other words, the House bill is the only to German submarine warfare while ig- about mutual cooperation with allies
noring the British blockade of Germany. and neighbors.
through this year. That would avoid capital heath-care show in town. If conservatives join
The Germans reinstituted submarine The affair also highlights the criti-
lock-in and boost growth in 2017, because inves- Democrats to defeat the measure, the result will warfare because they felt America was cal role of U.S. liaison with Mexico and
tors will otherwise await lower rates. be to preserve ObamaCare as is—and probably already an Allied belligerent de facto. Canada. When an administration
i i i torpedo the rest of the GOP agenda including Had Wilson actually been neutral, alienates border countries on its door-
In the individual market, the bill discards tax reform. Good luck running for re-election there would most likely have been a ne- step, it puts its national security at
ObamaCare’s web of mandates and regula- in 2018 with a record of failure. gotiated peace in 1918. Instead, the Al- risk. Remember the Cuban Missile Cri-
tions in favor of incentives to buy health in- The House proposal can be improved with lies, abetted by Wilson, were empow- sis of 1962?
surance on a deregulated market. Obama- amendments—and more work will be necessary ered to destroy the German, Austro- JON PAUL
Care’s subsidies are as much about income in future years to make medicine more afford- Hungarian and Turkish empires, leading Paris
redistribution as access to care. For people able, promote innovation, protect the most vul- to World War II and consequences in
who lack employer-sponsored insurance and nerable and give patients more control of their the Middle East that are evident even Letters intended for publication should
today. Mr. Herman is wrong: American be addressed to: The Editor, 1211 Avenue
aren’t eligible for Medicaid or Medicare, the health-care dollars. But the bill is a major down intervention was a disaster. Staying of the Americas, New York, NY 10036,
House substitutes flat, age-adjusted tax cred- payment on a brighter health-care future. Re- scrupulously neutral was the best thing or emailed to wsj.ltrs@wsj.com. Please
its that float from $2,000 to $14,000 a year publicans have a limited window for repeal and America could have done, but Wilson’s include your city and state. All letters
as people get older. replace, and this is a once-in-a-generation op- megalomania wouldn’t allow it. are subject to editing, and unpublished
A tax deduction is better economic policy portunity. Democrats understand this, even if TERENCE ZUBER letters can be neither acknowledged nor
returned.
but would offer less help to those with lower some conservatives don’t. New Martinsville, W.Va.
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.
Trump, Trade and American Sovereignty
By John Bolton
P
resident Trump’s trade
rhetoric until now has
been simple and effec-
tive: America is getting
ripped off, he says, and
things need to change. Simplicity
works on the campaign trail, but
how does it translate into actual
governance?
Earlier this month the adminis-
tration submitted the annual Na-
tional Trade Policy Agenda to Con-
gress. The submission takes
particular aim at the World Trade
Organization’s “Dispute Settlement
Understanding,” which provides a
quasijudicial process for resolving
international trade disagreements.
Although technical, even arcane,
The WTO’s process for
settling disputes fails
to deter violators and
leaches national power.
the DSU is dear to the hearts of
global-governance advocates. The
Trump administration is right to
criticize its performance.
Agreed to during the Uruguay
Round of world trade talks in 1994,
the DSU has had some successes.
But it is often criticized for failing
to deter violations of the WTO’s
substantive trade provisions and
for too often exceeding its mandate
by imposing new obligations on
one or more parties, particularly
against American interests.
This alarming trend extends be-
yond trade. A rising number of in-
ternational agreements create “ju-
dicial” or “legislative” bodies that
interpret and expand obligations
well beyond what is laid out in un-
The populist surge
throughout the
West has fueled
fears that liberal
democracy is
threatened, and it
POLITICS isn’t hard to see
why. A trail-blazing
& IDEAS
populist leader,
By William
Hungary’s Viktor
A. Galston
Orbán, unabashedly
advocates what he
calls “illiberal democracy”—ma-
joritarian government without
checks and balances. Populism and
nativism often go together, threat-
ening the security of minority
groups.
But we shouldn’t be too quick to
see populism as the enemy of lib-
eral democracy. Britain’s vote to
leave the European Union raised
constitutional issues that the coun-
try’s highest court has resolved,
and Prime Minister Theresa May’s
government has accepted its judg-
ment. Many rank-and-file voters
justified their support for Brexit,
plausibly enough, as an effort to
reclaim democratic self-government
from distant, unresponsive bureau-
cracies. Many supporters of the EU
acknowledge that it suffers from a
“democracy deficit.”
By Richard Fontaine
T
he Trump administration’s
defense-budget increase
should come as welcome
news to Asian countries worried
about mounting threats to regional
order. A $54 billion boost this year
would improve U.S. military readi-
ness and pay for investments in
new platforms and innovative
technologies.
The Pentagon is now at work on
the details, and the precise con-
tours of its submission to Congress
remain a work in progress. As the
process unfolds, the administration
should use the opportunity to re-
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derlying treaties, placing them be-
yond the effective control of do-
mestic democratic institutions.
This trend raises legitimate fears
among states that they will lose
sovereign authority. This fear is
particularly acute in America,
where the Constitution unmistak-
ably fixes sovereignty in “We the
People.”
The U.S. has in the past rejected
or renounced international agree-
ments that were not conducive to
its interests. In 1986 the Reagan ad-
ministration withdrew from the
compulsory jurisdiction of the Inter-
national Court of Justice. In 2002
the Bush administration unsigned
the Rome Statute, which created the
International Criminal Court. The
U.S., thankfully, still has not ratified
the Law of the Sea Treaty, thereby
avoiding the jurisdiction of the tri-
bunal it creates.
Washington has also blocked
declarations by periodic “treaty-re-
view conferences,” which have a
similar tendency to expand mem-
ber-state obligations beyond those
contained in the original agree-
ments. Likewise, the Trump admin-
istration is considering withdraw-
ing from the United Nations Human
Rights Council, whose creation the
Bush administration voted against
in 2006, and which the U.S. did not
join until President Obama took of-
fice in 2009. The American people
are often the last to learn of their
new and purportedly legally bind-
ing commitments.
That isn’t to say that these in-
ternational decision-making bodies
are established exclusively to
evade the burdens of America’s
Constitution, only that evasion is
their clear consequence. The un-
spoken objective is to constrain
the U.S., and to transfer authority
from national governments to in-
ternational bodies.
Populism Need Not Be Undemocratic
Populism often rises when an
elite consensus excludes large
groups of ordinary citizens. In the
U.S., Andrew Jackson’s presidency
followed the “Era of Good Feeling,”
in which party competition had
virtually ceased. After the elec-
tions of 1888 and 1892, which pit-
ted a conservative Democrat (Gro-
ver Cleveland) against a tact, and so does the independence
Republican (Benjamin Harrison),
William Jennings Bryan’s agrarian
populism broke the duopoly and
sparked a realignment of the
American party system.
We see the same process today
across the Atlantic. The Brexit vote
succeeded against the declared op-
position of both major political
parties in the U.K. Throughout Eu-
rope, populist national movements
are pitted against established cen-
ter-left and center-right parties
that back the EU, globalization and
social liberalism.
Some manifestations of popu-
lism, in short, represent an ex-
pansion of democratic voices and
choices, not a challenge to the re-
gime. This forces us to distin-
guish more carefully between pol-
icy disputes within democracy
and broader disagreements about
democracy.
Europe’s Lesson for Reassuring Asia
assure key Asian nations.
Security challenges in the Asia-
Pacific are rising. North Korea
continues to make advances in
ballistic missiles and nuclear war-
heads, and the day is nearing
when Pyongyang can deliver a nu-
clear payload to the continental
U.S. China’s two-decade program
of military modernization contin-
ues, and Beijing has made major
investments in anti-access and
area-denial capabilities aimed at
backing U.S. forces away from the
western Pacific. Russia has be-
come more regionally active, con-
ducting joint exercises with
China’s navy in the South China
Robert Thomson
Chief Executive Officer, News Corp
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OPINION
Meeting with manufacturing executives at the White House on Feb. 23.
The specifics of each case differ,
but the common theme is dimin-
ished American sovereignty, sub-
mitting the U.S. to authorities that
ignore, outvote or frustrate its pri-
orities. Nothing in the Constitution
contemplates such submission to
international treaties or bodies.
While many European Union
governments seem predisposed to
relinquish sovereignty, there is
scant hint of similar enthusiasm in
America. Moreover, the United
Kingdom just dealt a stunning
blow to the notion of Europe’s
“ever closer union.” By reasserting
their sovereignty, the British are in
the process of escaping, among
other things, the European Court
of Justice and the European Court
of Human Rights.
That brings us back to trade.
The DSU is not, as some say, analo-
gous to U.S. courts, which preserve
the Constitution’s nationwide free-
trade area through the “dormant
Donald Trump’s candidacy repre-
sented, in part, a frontal assault on
pro-immigration, pro-trade, pro-
globalization policies long advo-
cated by elites in both parties, in
the name of regions and economic
sectors whose members Mr. Trump
labeled, with some justice, the “for-
gotten Americans.” His challenge
Differences on policy
aren’t the same thing
as assaults on basic
institutions.
raises legitimate policy issues, as
does his pledge to repeal and re-
place the Affordable Care Act. So
does his critique of regulatory pro-
liferation as an impediment to
faster economic growth. All these
issues are well within the demo-
cratic pale.
More troubling are Mr. Trump’s
repeated assaults on the legitimacy
of basic liberal democratic institu-
tions, including the judiciary, the
bureaucracy and the press. Still,
there is considerable daylight be-
tween this criticism and the use of
Sea and reportedly establishing a
strategic bomber division for Pa-
cific patrols.
In the meantime, Washington’s
sequestration-era budgets have un-
dermined military readiness, pro-
duced shortfalls in key capabilities
and constrained America’s ability
to project power in Asia. The re-
sult is a shift in the military bal-
ance away from the U.S. and its re-
gional allies.
The new budgetary era offers
the chance to start tipping it back.
A concrete step would be to estab-
lish an Asian Reassurance Initia-
tive, akin to the European Reassur-
ance Initiative (ERI) that took
shape in the latter years of the
Obama administration.
First proposed in 2014 at
NATO’s Warsaw summit, ERI aims
to assure American allies of Wash-
ington’s commitment to their secu-
rity amid an increasing Russian
threat. Funding for the program
has risen to $3.5 billion this year,
permitting the U.S. to increase
force rotations through Europe,
add allied exercises and training,
improve infrastructure and en-
hance the military capacity of
NATO members.
An Asian analogue should have
similar aims. Sen. John McCain
has called for one such variant,
proposing a five-year, $7.5 billion
Asia-Pacific Stability Initiative.
Backed by a bipartisan group of
U.S. House and Senate members,
the effort would increase U.S. mu-
nitions stocks in the Pacific, build
new infrastructure, expand mili-
tary exercises and enhance the ca-
ASSOCIATED PRESS
Commerce Clause” doctrine. Amer-
ica is a real civil society where real
courts have real enforcement capa-
bilities—a far cry from the “global
community” fantasyland. If Ameri-
cans feel increasingly unable to re-
strain the exercise of judicial and
legislative power at home, why
should anyone be surprised to
learn that international bodies are
even worse?
Limiting an aggrieved country’s
ability to resort to the DSU is not
a rejection of free trade. To the
contrary, it is a rejection of the
unaccountable, legalistic morass
into which free trade can all but
disappear. In reality, ignoring DSU
outcomes has always been an op-
tion for those prepared to face the
consequences.
What is the World Trade Organi-
zation’s central objective? Is it to
promote actual free trade, or is it
merely to reify the DSU? If, in fact,
this faltering dispute-resolution
government power to suppress
checks on the executive branch.
Although the president vehe-
mently disagreed with the Ninth
Circuit on his initial immigration
and refugee executive order, he
didn’t disregard the court’s ruling
but chose instead to draft a new
order. The rule of law remains in-
of the judiciary.
If Mr. Trump were to use the In-
ternal Revenue Service or the Fed-
eral Communications Commission
to suppress media organizations
whose views he dislikes, we would
face a threat to democracy. This
hasn’t happened, and there is little
evidence that it will.
The threat to liberal democracy
becomes real when large numbers
of citizens cease to believe in it.
There is some evidence that Ameri-
cans’ attachment to liberal democ-
racy is weakening, especially among
young adults. There is overwhelm-
ing evidence that Americans’ confi-
dence in institutions of all kinds has
plummeted in recent decades.
Still, a Pew Research Center sur-
vey released at the beginning of
this month suggests that support
for the building blocks of liberal
democracy remains strong. Accord-
pacity of key allies and partners.
The overarching goal would be to
enhance credible combat power
and strengthen the ability of allies
to work and, if necessary, fight
together.
At a moment when Australia,
Japan and other regional partners
are increasing their own defense
President Trump could
bolster security in the
Asia-Pacific through an
initiative akin to the ERI.
budgets, the time is right for such
an American step. It would signal
commitment to a region rattled
by China’s rise and North Korea’s
threats, and it would strengthen
the bonds among countries com-
mitted to preserving a rules-
based order.
While the new Trump defense
budget may help make this possi-
ble, an Asian Reassurance Initia-
tive must include U.S. State De-
partment efforts as well. Here
there is reason for worry, since
initial reports suggest the adminis-
tration is seeking to cut the de-
partment’s budget by nearly 40%.
Whether this represents a final an-
swer or merely the opening of a
negotiation remains to be seen;
what’s clear is that diplomatic pro-
grams can play a critical role in
reassuring Asian partners.
State’s foreign-military financ-
ing program provides grants and
Thursday, March 9, 2017 | A11
mechanism is the WTO’s central pil-
lar, without which global free trade
is doomed to collapse, we can legit-
imately conclude there is something
gravely wrong with the direction of
the basic enterprise.
Some countries cause more
global trade problems than others.
China is doing tangible harm to
the regime of liberal international
trade by striking first, and some-
times repeatedly, in violation of
substantive WTO obligations in
fields like intellectual property
protection. Such countries—not
those that retaliate rather than
submit to the DSU—deserve the
world’s ire.
If the DSU fails to deter re-
peated acts of trade aggression
because of its cumbersome nature
and faulty decisions, then the
problem is likely the DSU, not its
critics. Ironically, many global-
governance advocates play down
the DSU’s significance since it in-
volves only trade, not existential
political questions. Such modesty
might seem becoming, but prece-
dents established in one aspect of
international affairs inevitably
bleed into others.
The burden properly lies with
the White House to specify how it
will confront the DSU’s failings,
many of which seem embedded in
its design. Whatever steps Presi-
dent Trump recommends should be
understood and measured against
the larger dangers of global gover-
nance. The shadows cast by other
flawed multilateral “authorities”
make clear that U.S. sovereignty is
at stake.
Mr. Bolton is a senior fellow at
the American Enterprise Institute
and author of “Surrender Is Not an
Option: Defending America at the
United Nations and Abroad” (Si-
mon & Schuster, 2007).
ing to the Pew survey, 89% of
Americans regard open and fair na-
tional elections as “very impor-
tant” to maintaining a strong de-
mocracy. Eighty-three percent see
their system of checks and bal-
ances in this light.
Support for the importance of
the right to nonviolent protest
stands at 79%; for protecting indi-
viduals with unpopular views, 74%;
for press freedom to criticize polit-
ical leaders, 64%. Only 17% believe
that Americans would deal with
their problems more effectively if
presidents didn’t have to worry so
much about Congress or the courts;
77% said concentrating more power
in the president’s hands would be
too risky.
Eternal vigilance is the price of
liberty, of course. Now and in the
future, Americans of all persuasions
should police the boundary be-
tween legitimate if unwelcome sen-
timents—from the president, the
press or anyone else—and the use
of public power to suppress them.
We should unite to defend basic
democratic norms of civil discourse
and respect for evidence. But we
should not confuse policy disputes,
however heated, with real threats
to liberal democracy.
loans to countries like Indonesia,
the Philippines and Vietnam to en-
hance their military capacity. The
department’s International Military
Education and Training program
exposes foreign officers to the U.S.
and fosters lifelong relationships
with American personnel. Then
there’s the raft of soft-power pro-
grams that project influence in
Asia. There is a strong case for
stepping up these efforts instead
of cutting them back.
Spending more in Asia is no ex-
ercise in charity. Rather it is a rec-
ognition that in any test of wills,
measuring relative strength
doesn’t imply simply comparing an
adversary’s power with that of the
U.S.
What matters more is American
strength added to that of its treaty
allies and partner nations. In this
measure, both strengthening secu-
rity ties with Pacific nations and
helping them resist coercion ac-
crues to U.S. benefit.
The Obama administration’s ef-
fort to rebalance U.S. foreign pol-
icy to the Asia-Pacific won a rare
measure of bipartisan support. The
new budgetary era offers the
chance to give greater meaning to
the rebalance by resourcing it at a
level commensurate with its stra-
tegic importance.
An Asian Reassurance Initiative
would help seize this opportunity.
The Trump administration should
not let it pass by.
Mr. Fontaine is president of the
Center for a New American Secu-
rity in Washington.
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A12 | Thursday, March 9, 2017 THE WALL STREET JOURNAL.

LIFE & ARTS

ART REVIEW

Photographing the Wild, Wild East

BY RICHARD B. WOODWARD

Washington
ACCORDING TO the National Gal-
lery of Art, “East of the Mississippi:
Nineteenth-Century American Land-
scape Photography” is the first in-
depth exhibition based on these
geographic-temporal coordinates.
True or not—and curator Diane
Waggoner fudges the claim by
wanting to omit numberless shows
of Civil War photography—histo-
ries of 19th-century landscape art
FROM LEFT: NELSON-ATKINS MUSEUM OF ART; COLLECTION OF WILLIAM L. SCHAEFFER

in the Eastern U.S. have clearly fa-

vored painting, above all by the
Hudson River School.
Landscape photography surveys
from the 1840s through the 1890s
have, in turn, tended to skip over
the low-lying Northeast or Mid-
west to hurry us toward the more
pristine, rousing and familiar vis-
tas of forests, deserts, canyons and Left: George Barker’s ‘Niagara Falls’ (1886); above: James F. Ryder’s ‘Atlantic &
mountains in the Western U.S. Great Western Railway’ (1862)
The more than 175 items col-
lected by Ms. Waggoner and her draped on bulwarks and trees by Carleton Watkins for the Cen-
colleagues should elicit plenty of stand severed in half, testify to the tral Pacific Railroad but have a
oohs and ahs. Even the first three savage beating inflicted on nature similar rigorous grandeur.
rooms, dominated by daguerreo- as well as man during these years. One of several curious figures
types and stereographs of Niagara The railroad was, as historian rescued from obscurity by this mar-
Falls and the White Mountains, Leo Marx once called it, “the ma- velous show is Thomas M. Easterly.
contain surprises. A small 1860s al- chine in the garden.” James F. Committed to the mirrored magic
bumen print of blackberry bushes Ryder and others were enlisted to of the daguerreotype into the 1870s,
by John Moran (brother of the solicit funding for expansion of long after most artists had dis-
painter, Thomas) has the assurance these businesses during the 1860s, missed the process as obsolete, he
of a Paul Strand. George Kendall their sharp prints highlighting the is represented here by his work in
Warren photographed boats sailing More common were photographs popularized the area as a tourist quality of the workmanship on the the 1860s around St. Louis.
on the Hudson River near West taken to aid commercial and other destination by the 1870s and ’80s. lines as well as the scenery. The Among his sharply observed
Point in the 1860s with an offhand enterprises. The central room of the show is 1859 discovery of oil in Pennsylva- views, of sewer dredging, steam-
elegance that suggests he deserves To make a living, you had to dedicated to the Civil War. nia was another epic disturbance. boat traffic, and men standing atop
to be known as more than the in- build up a customer base by stak- Thoughts about the healing power For almost five decades, John A. a mysterious earthen mound, is one
ventor of the college yearbook. ing out territories and selling of solitude were secondary in these Mather’s photographs charted the (c. 1854) of brindled cattle drinking
The tenor of the show is none- prints in every format. Platt D. pictures of fortifications and camp evolution of the region from coun- from a pond in front of a factory
theless postlapsarian. The catalog Babbitt and Charles Bierstadt life. Timothy H. O’Sullivan and An- tryside to industrial. belching smoke. It cogently summa-
takes pains to mention the socio- (brother of the painter, Albert) be- drew J. Russell practiced their By the 1890s, many photogra- rizes the changes that the show
economic factors that shaped the came renowned for their views of craft on the Eastern battlefields phers sought to play down their wants to chronicle. America’s land-
genre East of the Mississippi while Niagara Falls, which by the 1850s before leaving on government-fi- role in making work for hire. scapes would never be the same af-
singling out its finest examples. was already overrun with sightse- nanced missions to the West after Henry Peter Bosse disguised his ter these years, and photographers
Landscape photography in the ers, thanks in part to the many the war ended. utilitarian photographs of dams, were among the first to realize it.
U.S. was riskier than portraiture as photographers with studios there. The conflict’s transformative ef- quarries and pontoon bridges
a business. Gentleman artists with Seneca Ray Stoddard com- fects on the Eastern and Southern along the upper Mississippi by East of the Mississippi:
family fortunes were scarce, and manded the Adirondacks. Urban- states—from indiscriminate logging printing them as oval cyanotypes. Nineteenth-Century American
government subsidies harder to se- ites bought his guidebooks and to widespread construction of rail- William H. Rau’s large-scale al- Landscape Photography
cure. As Russell Lord writes in his wealthy clients decorated their road bridges—are hard to miss. bumen prints of the riverbeds and National Gallery of Art, March 12-July
catalog essay, “personal expression summer “cottages” with his prints. Without displaying corpses, George gorges traveled by the Pennsylva- 16
and artistic endeavor were the ex- Henry Hamilton Bennett’s stereo- N. Barnard’s postwar scenes of nia Rail Road in the 1890s, fea-
ception” in American photography graphs of the unique sandstone ge- Georgia scrubland, where the tured in the next to last room, Mr. Woodward is an arts critic in
from the 1840s through the 1860s. ology in the Wisconsin Dells had muddy clothing of soldiers lies were done decades later than those New York.

Weather The WSJ Daily Crossword | Edited by Mike Shenk

Shown are today’s noon positions of weather systems and precipitation. Temperature bands are highs for the day.
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Detroit 7 -3 pc 1 -10 pc New Delhi 27 13 pc 23 11 t Tokyo 12 5 s 12 4 s 21 Y wearer 46 Modernize, say N A T I V E A L A S K A N
71 You can bank O T B C U E S I S
Dubai 28 20 s 30 20 s New Orleans 24 17 pc 24 16 t Toronto 3 -5 pc -3 -14 sn F I F T H AM E N D M E N T
Dublin 11 8 c 12 7 c New York City 13 2 s 5 -7 sn Vancouver 6 3 r 8 1 c 23 Ersatz 47 ___ Lama on it M E R L E T A D A A N D I
Edinburgh 11 2 pc 11 7 r Omaha 14 -5 pc 4 -6 pc Washington, D.C. 21 8 s 10 -4 r S T A I R T R I M I S I N
Solve this puzzle online and discuss it at WSJ.com/Puzzles.
s

Frankfurt 14 3 sh 12 2 c Orlando 29 17 pc 30 16 pc Zurich 10 5 r 13 0 sh G A S P S A S T I M E A T

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TECHNOLOGY: HOSPITAL STUMBLES IN BID TO TEACH A COMPUTER TO TREAT CANCER B4
BUSINESS & FINANCE
© 2017 Dow Jones & Company. All Rights Reserved.
Euro vs. Dollar 1.0539 g 0.27%
Barclays Shift: Seeking More Risk
New investment-bank
chief aims to ride
market volatility
to boost returns
BY MAX COLCHESTER
Barclays PLC’s new corpo-
rate- and investment-banking
chief, Tim Throsby, recently
toured his unit spreading a
message that staff haven’t
heard for years: Don’t be
afraid to take more risk.
Since his arrival in January,
Mr. Throsby has told staff at
meetings to reawaken their
“commercial instincts” and use
more of the bank’s risk appe-
tite, these people say.
On Tuesday, he promoted
Art Mbanefo, a lieutenant who
will be charged with helping
U.K. Bucks
Brexit, but
Don’t Tell
The Pound
In the brave new world
where fiscal policy trumps
monetary policy, the U.K. is
treading warily.
U.K. Chancellor Philip
Hammond is still building
in flexibility for a future
made uncertain by the pros-
pect of Brexit.
Mr. Hammond had some
welcome news to share
Wednesday:
a brighter
near-term
growth pic-
ture and
public fi-
HEARD ON nances that
THE STREET are perform-
RICHARD ing better
BARLEY than ex-
pected.
The Office
for Budget Responsibility,
the U.K.’s budget watchdog,
upgraded its 2017 growth
forecast to 2% from 1.4% and
said the deficit for the fiscal
year that is about to end will
be smaller, at £51.7 billion
($63.2 billion) versus £68.2
billion forecast in November.
Mr. Hammond’s budget
measures were broadly neu-
tral fiscally. If policy is to
swing into action, it will
have to happen another day.
Better growth now is off-
set by downgrades for
growth in the following
three years; the deficit is
set to rise again in the com-
ing fiscal year before de-
clining slowly, the budget
office thinks.
The current strength in
the economy is open to
question, too, with the
budget watchdog noting
that consumer-spending
growth has significantly
outpaced growth in in-
comes, which can’t be sus-
tained indefinitely.
The assumption that
wages will continue to
climb faster than inflation,
which is rising swiftly in
part due to the sharp drop
in the pound caused by the
Brexit vote, could prove to
be too optimistic.
Moreover, the range of
economic outcomes possible
from Brexit is large and
could throw things off track.
So far, the U.K. economy
has been buoyed by a stron-
ger global economy. With
the government yet to trig-
ger the process for exiting
the European Union, its pol-
icy aspirations for the U.K.
to be a great trading na-
tion, but outside the EU, re-
main untested.
All the relief that Brexit
didn’t cause a near-term eco-
nomic catastrophe has done
little for the pound, however.
It gained a little against the
dollar as Mr. Hammond
spoke, but is close to its low
for the year.
Despite the better growth
and budget outcomes of the
recent past, uncertainty
about Brexit still weighs
heavily indeed.
FTSE 100 7334.61 g 0.06%
manage Barclays Interna-
tional’s balance sheet, accord-
ing to a memo sent to staff.
Mr. Mbanefo’s job is to
squeeze capital out of the unit
that can be redeployed to juice
up returns. He will work
across Barclays’s biggest reve-
nue generator, encompassing
the lender’s investment bank,
big corporate clients and its
U.S. credit-card business.
The move to reinvigorate the
unit marks a turning point for
the bank. European lenders have
spent years shrinking their in-
vestment-banking businesses
amid increased regulatory pres-
sure to limit risk-taking. In
2008, Barclays acquired a chunk
of the old Lehman Brothers
franchise in a bid to build a
global investment bank. But af-
ter a wave of scandals, manage-
ment put the emphasis back on
An Exxon Mobil refinery in Baytown, Texas. The company announced that it would make U.S. drilling operations central to its future.
Big Oil Firms Take to Thrifty Bets
BY SARAH KENT
AND BRADLEY OLSON
The world’s biggest oil
companies are getting thrifty.
Oil prices have made a
modest comeback from the
lows hit a little over a year
ago, but energy companies
such as Exxon Mobil Corp.
and BP PLC aren’t pursuing
the extravagant bets they
made at $100 a barrel—like
commissioning multibillion-
dollar projects in Arctic wa-
ters and Kazakhstan’s Cas-
pian Sea.
These companies, including
Exxon, BP, Royal Dutch Shell
PLC and Chevron Corp., are
putting their money into
cheaper, quicker ventures in
Texas shale country, the Mid-
dle East and Brazil and
squeezing more from existing
projects world-wide.
Exxon last week unveiled an
ambitious plan to put its U.S.
drilling opportunities in Texas,
New Mexico and North Dakota
at the heart of its future. By
2025, the company said, its
Picture for Yuan Is Worse Than It Looks
BY JON SINDREU
Beijing is resorting to a
capitalist trick to keep its for-
eign-exchange reserves from
falling: The People’s Bank of
China has been using deriva-
tives to prop up
ANALYSIS the yuan without
spending its
stash of dollars.
The PBOC’s use of currency
forward contracts and futures
may help resolve a puzzle:
Why did Chinese foreign-ex-
change reserves rise in Febru-
ary after falling for months?
The economy has been slow-
ing, so investors have been
selling the yuan, or renminbi.
Because China wants to keep
the yuan high, it has to sell its
dollars to buy yuan. That
should make its reserves fall.
China has been stepping up
capital controls to restrict how
many renminbi can be sold,
THE WALL STREET JOURNAL.
Gold 1208.50 g 0.54%
the U.K. lender’s retail franchise.
Now, under Barclays Chief
Executive Jes Staley the pendu-
lum is swinging back. While ri-
vals Deutsche Bank AG and
Credit Suisse Group AG con-
tinue to reshape their invest-
ment-banking franchises, Bar-
Last year, Barclays
largely pulled out of
Asia and refocused on
the U.S. and U.K.
clays says it is approaching the
end of that process. Last year it
largely pulled out of Asia and
refocused on the U.S. and U.K.
Like other diversified banks,
Barclays’s share price has risen
Lowering the Stakes
Big energy companies are holding off on new, expensive projects,
despite the start of an oil-price recovery.
Capital expenditures, in billions
$35
30
25
20
15
10
5 porate analysis at Wood Mack-
0
2010 2011 2012
Source: S&P Capital IQ
production from these areas
could more than triple to the
equivalent of 750,000 barrels a
day. Together with other shale
production, that would
amount to about a third of
Exxon’s current output.
It is a shift away from the
business model long-employed
by the world’s largest oil com-
panies, favoring technologi-
cally challenging projects that
had huge upfront costs that
The level of the Chinese currency is vital for financial markets.
which alleviates the need to
spend dollars. But the use of
derivatives, which it has
stepped up in recent months,
is also a factor.
The level of the yuan is vital
for financial markets, and
China’s foreign-reserve picture
gives essential clues to inves-
tors’ views on the health of the
Chinese economy. Because the
WTI crude 50.28 g 5.38%
nearly a third over the last 12
months thanks to the prospect
of rising rates in the U.S. Invest-
ment-bank executives hope they
can ride a wave of market vola-
tility to generate more returns.
Some bankers, scarred by the
years of cuts and restructuring,
have held back from taking deci-
sions that are still within the
bank’s risk parameters. Mr.
Throsby wants that mentality to
change, according to people fa-
miliar with the matter.
Nevertheless, investors con-
tinue to question whether Bar-
clays’s investment bank can
generate solid returns. The
unit had a return on equity—a
key measure of profitability—
of 6% in 2016. Investors want
it to generate double-digit re-
turn on equity. Key to that will
be Mr. Throsby’s ability to do
more business without asking
Shell
Chevron
BP
Exxon
2013 2014 2015 2016
THE WALL STREET JOURNAL.
would be paid off over 20 or
30 years.
To drive down costs, big oil
companies are abandoning
such developments in favor of
standardization and bolt-on
models that take advantage of
existing infrastructure. They
are returning to old basins to
see what they can extract with
new technologies and focusing
on the lowest-cost prospects.
The appeal of cheaper proj-
central bank manages the level
of the currency, when investors
are pulling out, it is typically
buying, thus spending re-
serves. When they are confi-
dent, it doesn’t have to buy.
February data showed a
nearly $7 billion increase in
currency reserves, ending a
seven-month streak of losses.
The derivatives, however,
Thursday, March 9, 2017 | B1
German Bund yield 0.370% 10-Year Treasury yield 2.552%
Unyielding
Rates on certificates of deposit
have tumbled since the
financial crisis.
his boss for extra capital.
4%
Unlike at its major U.S. ri-
vals, capital remains tight at Yield on one-year CD,
Barclays. The bank slashed
3
weekly average
dividends to pay for a cleanup
of its balance sheet, which is
expected to be completed by
the end of June this year. 2
Mr. Mbanefo’s job will be to
ensure Barclays International’s
balance sheet is run effi- 1
ciently. This should free up
capital that can then be
plowed back into the franchise 0
to increase returns. 2007 ’10 ’15 ’17
So far potential growth ar- Note: Data through March 1
eas that have been identified by Source: Bankrate.com
Mr. Throsby include the bank’s THE WALL STREET JOURNAL.
U.S. credit-card business, these
people say. The executive also
is planning to review its U.K.
corporate business to focus on
clients that generate what the
Retirees
bank considers appropriate re-
turns, these people say. Punished
By Low
Rates
BY CORRIE DRIEBUSCH
AND AARON KURILOFF
MELVILLE, N.Y.—Stocks are
hitting record after record as
investors bet the U.S. economy
will soon be booming. But that
hasn’t changed the woeful en-
vironment for some retirees.
The Dow Jones Industrial
MICHAEL STRAVATO FOR THE WALL STREET JOURNAL
Average has tripled since it
bottomed out during the finan-
cial crisis eight years ago.
Meanwhile, men and women
who expected to live off income
from certificates of deposit or
municipal bonds have gotten no
relief as interest rates remain
low. To compensate, many have
turned to riskier assets.
Retired dentist Steve Stein
says his nest egg of roughly
half a million dollars is 95% in-
vested in stocks—more risk
than he would like at age 82.
As a rule of thumb, financial
planners suggest subtracting
an investor’s age from 100 to
determine what proportion of
ects that can bring oil or gas savings to allocate to stocks.
to market within a few years Shares have been soaring
is that it allows big companies since Election Day on Nov. 8,
to avoid being locked in to but Dr. Stein says that is just
multibillion investments over “one more thing to worry
as much as a decade, said about” because it might mean
Ryan Lance, the chief execu- stocks are due for another fall.
tive of ConocoPhillips, at the “My dad used to put his money
annual CERAWeek conference in CDs, getting 15%,” said Dr.
in Houston on Tuesday. Stein, whose father, a dental-
“They’re not just paying lip technician, encouraged him to
service to this,” said Luke become a dentist as a way to
Parker, vice president of cor- build a stable, successful life.
“If interest rates were high,
enzie, a Scottish energy con- I would’ve invested in fixed in-
sultancy. “They want to be in a come,” he said. The average
position to future proof them- one-year CD hasn’t paid more
selves against peak oil demand than 1% since 2009, according
when it comes.” to Bankrate.com.
The challenge of the strategy The fall in interest rates
is that many of the big Western since the financial crisis cost
companies have yet to prove U.S. savers almost $1 trillion in
that they can consistently turn a lost income from savings ac-
profit in a time of lower prices, counts, CDs and bonds from
especially in U.S. shale fields. In- the start of 2008 through 2015,
creasing production may prove taking into account money
even more daunting since the saved on debt costs, according
companies have to spend bil- to April 2016 research by the
lions just to replace the barrels insurer Swiss Re.
they pump every year. There are few signs of im-
Last week, BP announced minent improvement. Rates
Please see PRICES page B2 have risen since the election,
but the yield on the 10-year
Treasury note stands at 2.55%,
still below the 2.9% it yielded
when U.S. stocks hit their low
on March 9, 2009. The Federal
Reserve is signaling it will
make the picture look rosier raise short-term rates more ag-
than it really is. gressively this year. Over more
“The intervention in the FX than a decade, the central bank
forward indicates that the has approved two increases in
pressure on the renminbi the federal-funds rate.
should have been underesti- Please see RATES page B2
SERVAIS MONT/GETTY IMAGES
mated if we only look at the
headline FX reserve numbers,”
said Commerzbank AG analyst
Hao Zhou.
Here’s how it works. The
INSIDE
yuan trades in the spot market
at 6.89 to the dollar. If traders
believe the yuan will fall, they
can take a short position—
borrowing yuan now, selling it
and pledging to repay yuan
later. That trade works if yuan
are cheaper in the future.
But the central bank can
also play this game, and it has
been doing so heavily since
SOFTBANK IN
February of last year. Through TALKS TO SHIFT
derivatives, it is pledging to
buy yuan in the future at a
ARMS STAKE
better price than the market,
Please see YUAN page B2 FINANCE & MARKETS, B7
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
B2 | Thursday, March 9, 2017
INDEX TO BUSINESSES
These indexes cite notable references to most parent companies and businesspeople
in today’s edition. Articles on regional page inserts aren’t cited in these indexes.
A
Adidas....................B3,B8
Advanced Micro Devices
.....................................B4
Air Berlin.....................B3
Air Products &
Chemicals..................B8
Allegis Group..............A8
Alphabet......................A7
Altera .......................... B4
Amazon.com ............... B2
Antofagasta................A7
ARM Holdings.............B4
B Machines.............A7,B4
BankMobile.................B7
Barclays.......................B1
BASF............................B3
Blue Origin..................B2
Boeing ......................... B4
BP................................B1
Bristol-Myers Squibb . B3
Broadcom .................... B4
C Morgan Stanley..........A8
Campden Wealth........A8
Cavium.........................B4
Chevron ....................... B1
Customers Bancorp....B7
D Odebrecht....................A3
Deutsche Lufthansa...B3
Dick's Sporting GoodsB3
DoubleLine Capital ..... B5
E PAG..............................B8
ENI...............................B2
INDEX TO PEOPLE
A H
Anderson, Mike...........B5
B L
Bezos, Jeff..................B2
Burrill, Peter...............B5
C three days after the news
Caforio, Giovanni........B3
Calabria, Mark.............B5
Cuss, Francis...............B3
D Watson, John..............B2
Dudley, Bob.................B2
G Parker, Luke................B1
Garnadt, Karl Ulrich ... B3
RATES
Continued from page B1
Politicians have criticized
the Fed’s low-rate policy as
harmful to savers. Sen. Bob
Corker (R., Tenn.) in 2013 said
it amounted to “throwing se-
niors under the bus.”
Some financial advisers
have said worries about de-
clining income are overblown.
While investment income has
fallen, inflation has been low,
meaning investors are better
off now than they may feel.
Dr. Stein opened his first
solo dental practice in 1963. In
2007, he sold the practice and
settled into retirement. That
didn’t last long. Interest rates
fell to near zero during the fi-
nancial crisis as the Fed un-
leashed unprecedented stimulus
to shore up lending and revive a
moribund economy. Dr. Stein
turned to a temporary staffing
agency to find part-time work.
Now fully retired since
2013, Dr. Stein is increasingly
nervous about making his sav-
ings last—not only for himself,
but also for his wife, who is 16
years his junior. They receive
Social Security, and it covers
most basic needs, but he still
fears running out of money be-
cause health issues would keep
him from working to make up
the difference. “If I don’t take
risks, I won’t have the money,
and I need the money,” he said.
Nearly all of Dr. Stein’s sav-
ings is in exchange-traded funds,
stock-tracking products he
mostly uses to invest in health-
care companies. He doesn’t hold
bonds, which he views as pro-
viding too little yield. Instead,
he has bought biotechnology
stocks, which he has watched
climb in the past decade.
He says he checks his portfo-
lio’s performance every day and
worries about big swings. He
has seen some. One of his hold-
ings, the SPDR S&P Biotech ETF,
lost 16% last year. It was up 18%
this year through Tuesday.
The only way to realize these
ADVERTISEMENT
The Mart
BUSINESS FOR SALE
 
THE WALL STREET JOURNAL.
BUSINESS & FINANCE
Eurowings ................... B3
Exxon Mobil................B1
G
Gartner........................B4
General Electric .......... B5
Preqin..........................A8
PricewaterhouseCoopers
.....................................B4
Quadrangle Capital
Q
Merkel Testifies on Scandal
H Partners....................A8 Germany’s chancellor
Quadrant Capital
Hargray Advisors....................A8 says she didn’t know
Communications.......A8
Hyatt Hotels...............A8
Qualcomm...................B4 of VW diesel practices
R
I Reebok.........................B8 before U.S. disclosures
Intel.............................B4 Renovate America......B5
International Business Royal Dutch Shell.......B1 BY ANDREA THOMAS
S
J Samsung Electronics..B4
BERLIN—German Chancellor
Jimmy Choo................A8 Snap.............................B8
Joy Global ................... B8 SoftBank Group.....B2,B7
Angela Merkel said Wednesday
J.P. Morgan Chase A8,B5 Sovereign Bancorp......B7 she had no prior knowledge of
TOBIAS SCHWARZ/AGENCE FRANCE-PRESSE/GETTY IMAGES
M T Volkswagen AG’s diesel cheat-
ing before the scandal broke in
Mercury Research.......B4 Texas Instruments ..... B4
Microsoft.....................B4 TNT Express................B4 September 2015, and learned
Total ............................ B2 about it in the media.
N U Her comments came during
Nike........................B3,B8 Under Armour.............B3 testimony to a parliamentary
Nintendo......................B8 United Parcel Service.B4 committee investigating Volks-
O V wagen’s diesel cheating and
Vita Coco.....................A8 whether there was any link be-
1888 Management ..... A8 Volkswagen.................B2 tween her close relationship to
OneWeb.......................B2 W the sector and the scandal.
P Wealth-X.....................A8 U.S. regulators disclosed on
Y Sept. 18, 2015, that the German
Praxair.........................B8 Yingde Gases Group...B8 car maker had rigged engines
to cheat on U.S. emissions tests.
Ms. Merkel said she talked
with Germany’s transport min-
ister, Alexander Dobrindt, at
Chancellor Angela Merkel checked notes before testifying at a parliamentary hearing Wednesday.
view during the meeting that In her testimony, Ms. Merkel been an advocate for the Ger-
R the time and urged him to con- diesel cars are helpful in cut- said it is “unfortunate” that man auto industry. In 2008, she
tribute to the full disclosure of ting carbon dioxide, and that Volkswagen cheated. She also thwarted European Union ef-
Hainer, Herbert...........B3 Reynolds, Martin........B4
the scandal. she might have said German highlighted the importance of forts to weaken the state of
Rorsted, Kasper.....B3,B8
She said she spoke to Volks- diesel cars might struggle in the German car sector for Eu- Lower Saxony’s 20% blocking
Lance, Ryan.................B1 S
wagen’s chief at the time, Mar- California’s market given the rope’s largest economy. “It’s minority stake in Volkswagen. In
Luksic, Andrónico.......A7 Sidhu, Jay ................... B7
tin Winterkorn, at his request state’s diesel-emissions limits. one of Germany’s key employ- 2013, she overturned a European
Lynch Jr, Thomas........B3 Sun Zhongguo.............B8
“But this wasn’t intended to ers,” Ms. Merkel said. compromise that would have led
M T broke, and didn’t learn any- be an attack” on California’s Germany has an interest in to tougher limits on new-car
McNeill, JP..................B5 Throsby, Tim...............B1 thing during that phone call be- environmental efforts, Ms. “ambitious” environmentally carbon-dioxide emissions.
Muilenburg, Dennis....B4 yond what was already known. Merkel said. She added that she friendly standards for cars, but
W Since the diesel scandal was
N Ms. Merkel confirmed she couldn’t recall all the details of not to a degree that they disclosed by the California Air
Nason, David...............B5 Wilders, Geert ............ B8 participated in a meeting in the meeting. couldn’t be produced in Ger- Resources Board and the U.S.
P Winterkorn, Martin....B2 April 2010 with Arnold Germany’s parliament many anymore, she said. Environmental Protection
Woods, Darren............B2 Schwarzenegger, then governor formed the committee in July to “All this has its limits,” Ms. Agency, Volkswagen has admit-
Patatoukas, Panos N..B8 Wyler, Greg.................B2 of California, and Mary Nich- determine whether Ms. Merkel Merkel said. It is positive to ted to installing cheating soft-
ols, head of the state’s environ- and her government knew of “want ambitious rules, but not ware on nearly 11 million diesel
mental agency, the California problems with Volkswagen die- as if there was no tomorrow,” vehicles world-wide.
Air Resources Board.
She said she outlined her
sel engines years before the U.S.
regulators’ disclosure.
she said.
Ms. Merkel has frequently
—William Boston
contributed to this article.
MICHAEL BUCHER/THE WALL STREET JOURNAL
Space Startups Advance Together
BY ANDY PASZTOR Financial details weren’t and Eutelsat previously con- Northwest—intends to use its
available. tracted with established New Glenn rocket to compete
Satellite-services startup Blue Origin has been devel- launch providers, making their aggressively for commercial
OneWeb Ltd. has signed mul- oping reusable rockets and high-profile demonstrations of launches. Mr. Bezos also has
tiple contracts for launches manned capsules almost en- confidence in Blue Origin sig- indicated his aim is to develop
early in the next decade with tirely in secret for years. Com- nificant. a bigger, more powerful
Blue Origin LLC, the high-pro- bined with the company’s sep- The massive rocket that is booster eventually capable of
Steve Stein has seen big swings file space company run by arate launch contract for a slated to launch the satellites transporting astronauts deep
in a biotech ETF he owns. Amazon.com Inc. Chief Execu- much larger satellite an- probably won’t fly until the into the solar system.
tive Jeff Bezos. nounced Tuesday with Eutel- end of the decade. Photo- OneWeb, which is 20%-
gains, however, is by selling Wednesday’s announcement sat SA, a legacy operator with graphs of its first fully assem- owned by Japanese telecom-
pieces of the portfolio, some- covers five separate launches a fleet of 39 satellites, the dis- bled primary engine weren’t munications company Soft-
thing Dr. Stein is wary to do for starting in 2021 and compris- closures amount to a carefully released until this week. And Bank Group Corp. and backed
fear of mistiming the market by ing roughly 400 relatively choreographed partial lifting despite his persistence, deep by Airbus Group SE, has an-
selling stocks near their lows or small but powerful satellites, of Blue Origin’s corporate veil. pockets and passion for space, nounced firm plans to launch
buying near their highs. according to Greg Wyler, One- Coinciding with a major Mr. Bezos hasn’t yet blasted some 600 satellites to provide
The mortgage on Dr. Stein’s Web’s executive chairman. In satellite conference in Wash- any booster or spacecraft into faster and cheaper internet
Huntington, N.Y., home is paid an interview, he said the satel- ington, the announcements orbit. connections world-wide. One-
off, but other fixed costs con- lites are projected to provide signal that the company Mr. Still, developments in the Web has suggested it ulti-
tinue to climb. Medical costs internet connections some 10 Bezos founded in 2000 in past two days underscore that mately could launch as many
are taking a bigger chunk of times faster than those offered some ways is joining the main- Blue Origin—now boasting as 2,000 additional satellites,
his budget than he expected. with OneWeb’s initial space- stream of global aerospace some 1,000 employees and fa- after initial commercial opera-
Dr. Stein and some fellow craft designs. competition. Both OneWeb cilities from Florida to the tions begin in 2019.
investors gather most months
in a side room of Bertucci’s, an
Italian restaurant in Melville
on New York’s Long Island, for
seminars sponsored by the
American Association of Indi-
PRICES Cost Control
The world's biggest oil companies have scrambled to reduce the price
they need to break even, as the world of $100 a barrel fades.
Market Intelligence.
Fatih Birol, executive di-
rector of the International
Energy Agency in Paris,
vidual Investors. Continued from page B1 warned Monday that shorter
September’s guest speaker plans to drive down its break- 2017 break-even oil price current price** cycle investment plans could
was Marvin Appel, an anesthe- even oil price to between $35 ConocoPhillips $42.12 create an oil price shock. The
siologist-turned-financial ad- and $40 a barrel by 2021, all IEA estimates oil and gas in-
viser. His pitch: Invest in divi- while increasing production. Shell $43.24 vestment dropped to $450
dend-growth stocks, It is a feat the British oil gi- billion annually during the
emerging-market funds, junk ant says it can pull off by Exxon $47.35 two-year energy downturn,
bonds and mortgage real-es- maintaining strict cash disci- 25% less than it needs to be
tate investment trust pre- pline, driving down costs and Chevron $48.95 to meet future global demand
ferred stocks, vehicles that focusing on projects that gen- growth and offset declines in
can offer higher returns than erate strong returns even at Total SA $51.41 existing fields.
plain-vanilla, fixed-income in- current prices. BP recently Mr. Birol said investments
vestments but typically come abandoned ambitious plans to BP† $69.20 globally need to rise at least
with more risk. explore in the Great Australian 20% to avoid oil price spikes
*Oil price required to generate enough cash from operations to cover capex and dividends
Wayne Roth, a 68-year-old Bight—a potentially huge †Includes Macondo liabilities **Brent crude-oil futures as of Friday's market close. in the coming years.
dentist who lives in Roslyn, N.Y., source of new supply that still Source: Jefferies THE WALL STREET JOURNAL. Another challenge for these
also on Long Island, told his couldn’t compete economically companies will be to prove
tablemates over pizza and salad with other project opportuni- years, Mr. Watson said. that took Exxon, Shell and oth- that they can pivot success-
that he had 65% in stocks, most ties. Instead, it invested $2 Shell is focusing the bulk of ers over a decade and $50 bil- fully. Even as Exxon plans to
of which pay out dividends. He billion for a 10% stake in oil its new investment on deep lion to develop. It will produce boost its U.S. focus—including
said he knew the allocation was fields in the United Arab Emir- water projects offshore Brazil oil for decades but has become with a $20 billion spending
high for his age, but was “com- ates, which has some of the that it says break even at less a cautionary tale, especially plan on American refinery and
fortable psychologically with world’s lowest oil-extraction than $40 a barrel. France’s To- after oil prices began falling in processing operations—the
that. If I bought bonds I costs. Going forward, the com- tal SA says reducing the 2014. company lost $4.2 billion in
wouldn’t be comfortable.” pany is focusing on “long-lived break-even level on its proj- According to Sanford C. its American oil-and-gas drill-
cash bricks” of low cost oil ects is “a top priority.” Bernstein, Europe’s biggest oil ing business last year and
and natural gas, said BP Chief Last week, Italy’s Eni SpA companies have slashed capi- more than $500 million in
Executive Bob Dudley during said new projects out to 2020 tal budgets by $51 billion since 2015. While many of the com-
an interview at CERAWeek.
Others are pursuing a simi-
lar agenda. Chevron CEO John
will have an average break-
even of $30 a barrel.
The focus on frugality is a
their 2013 peak and are ex-
pected to keep spending at
current levels of around $90
panies are moving ahead with
investments on what now ap-
pear to be profitable projects
Watson told analysts Tuesday departure from the 10-year pe- billion a year through to 2020, from South America to Papua
BUSINESS CONNECTIONS
that the company intends to riod from 2005 to 2014, when but production volumes are on New Guinea, they face a major


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tral bank can keep rolling over central bank’s activity in the from locking in a much weaker ever since.
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.
Bristol
Taps New
Head of
Research
BY JONATHAN D. ROCKOFF
Bristol-Myers Squibb Co.
said Wednesday it would re-
place its research-and-develop-
ment chief, naming a Massachu-
setts General Hospital executive
to the key job as the company
seeks to move past a major
drug-development setback.
Thomas Lynch Jr., a Bristol
board member and cancer doc-
tor who has been overseeing
Massachusetts General’s physi-
cians, will take the helm of the
company’s laboratories
on March 16. He will leave the
board and succeed Francis Cuss,
who Bristol said is retiring.
Last year, Bristol said that its
immunotherapy Opdivo failed
to perform significantly better
than chemotherapy in a trial
testing untreated lung-cancer
patients, a big market that the
company had been dominating.
Bristol pioneered the intro-
duction of immunotherapy
drugs, which fight cancer us-
ing the body’s own immune
system. But the unexpected
study results gave rivals an
opening to catch up, and wiped
away tens of billions of dollars
in the company’s market value.
Bristol Chief Executive Gio-
vanni Caforio said in an inter-
view that the management
change was “really about the
future,” not past performance.
Dr. Lynch’s experience in
cancer-drug research, aca-
demic medicine and managing
doctors will help Bristol as it
seeks to get ahead of scientific
advances and cost pressures
that are remaking how drugs
are discovered, reimbursed
and prescribed by physicians,
Dr. Caforio said.
Dr. Lynch said in an interview
that he aims to deepen Bristol’s
efforts to target drugs to the
right patients by using molecu-
lar clues known as biomarkers
that can help indicate whether a
patient is likely to benefit.
CARRY THE
SQUARE MILE
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©2017 Dow Jones & Co. Inc. All rights reserved. 6DJ4795
Adidas Boss Lays Out Game Plan
New chief executive
expects sales, profit
to climb faster than
under his predecessor
BY SARA GERMANO
AND NATASCHA DIVAC
Adidas AG’s new chief exec-
utive promised to increase
sales and boost profit faster
than his predecessor, saying
the German athletic-gear com-
pany could overcome chal-
lenges elsewhere in the sport-
ing-goods industry.
Kasper Rorsted, who suc-
ceeded former CEO Herbert
Hainer in October, said in an
interview Wednesday that the
improved profitability would
come from improvements to
the supply chain, the sale of
more full-priced products, and
foreign-exchange benefits.
Mr. Rorsted said Adidas is
working to bring products to
market in-season to mitigate
inventory losses. He also
pointed to new factories at
production partner BASF SE,
which makes the Boost mate-
rial used in some of Adidas’s
most popular sneakers.
“Boost is one where we left
a lot of money on the table,”
he said of recent results. Mr.
Rorsted added that sneakers
that contain the white,
Eurowings Says Fleet Buildup Going Smoothly
BY ROBERT WALL
BERLIN—Deutsche Luf-
thansa AG’s integration this
year of Air Berlin planes into
its own budget carrier indi-
cates it could successfully par-
ticipate in further airline con-
solidation in Europe, a senior
Lufthansa executive said
Wednesday.
Karl Ulrich Garnadt, chief
executive of Lufthansa’s Eu-
rowings budget unit, said the
carrier had integrated the first
11 of 33 planes rented from
struggling rival Air Berlin PLC.
BUSINESS NEWS
Adidas CEO Kasper Rorsted on Wednesday. The German athletic-gear firm raised its sales forecast.
spongy-looking material, such
as the NMD, Ultra Boost and
others, have been consistently
sold out because of an inabil-
ity to keep up with demand.
Adidas has already established
a new factory in Germany and
is planning to open another in
Atlanta this year to help speed
its own product production.
The company raised its
sales forecast on Wednesday,
calling for an increase at a
currency-neutral rate between
Adding the Air Berlin aircraft
will boost the budget carrier’s
passenger numbers by about 3
million this year. More impor-
tant, he said, the process
shows Eurowings is capable of
handling a potential takeover
of a rival.
Mr. Garnadt said the wave
of consolidation that has taken
place in the U.S. and helped
deliver healthy profit will in-
creasingly spread to Europe.
Markets are saturated and the
region’s capacity growth plans
will outstrip demand, he said,
forcing consolidation.
10% and 12% a year on average
through 2020. Previously, Adi-
das targeted an increase at a
high-single-digit rate. Net in-
come from continuing opera-
tions is projected to rise be-
tween 20% and 22% a year on
average during the period, up
from a previous forecast of
about 15%.
Adidas is in the midst of an
overhaul focused on shedding
underperforming operations
and beefing up results in the
Eurowings is a pivotal
part of the effort at
Lufthansa to become
more profitable.
Eurowings is a pivotal part
of the effort at Lufthansa, Ger-
many’s largest airline group,
to become more profitable and
fend off competition, including
lower-cost long-haul carriers.
Ryanair Holdings PLC, Eu-
Thursday, March 9, 2017 | B3
ries as it expands distribution
of major vendors’ products, in-
cluding those of Adidas.
The sports-apparel and
-footwear industry has grap-
pled with a shift in consumer
taste away from performance
wear toward casual, fashion-
forward looks. Such changes
are evident at Adidas, where
sales of lifestyle-oriented
products rose 45% for the year
and sales of performance
products rose 13%.
Mr. Rorsted cautioned that
the company’s performance
KRISZTIAN BOCSI/BLOOMBERG NEWS
business accounts for about
70% of Adidas brand sales, and
that the division between per-
formance and fashion products
is blurring.
Adidas’s net loss for the
three months ended in Decem-
ber narrowed to €10 million
($10.6 million) from a €44 mil-
lion loss a year earlier. Sales
increased 12% to €4.69 billion
important U.S. market, where from €4.17 billion, boosted by
it competes with Nike Inc. and growth in the company’s run-
Under Armour Inc. The Amer- ning category.
ican sporting-goods industry Adidas said it would
has experienced a broad con- sharpen its focus on the Adi-
traction over the past year, das and Reebok brands and
with bankruptcies and liquida- whittle away at noncore oper-
tions at several retailers as ations.
manufacturers have worked to The company is seeking a
drive more direct sales. buyer for its ice-hockey brand
Dick’s Sporting Goods Inc., CCM Hockey, and said the
one of the largest U.S.-based sales process for the golf
chains, said Tuesday it would brands TaylorMade, Adams
shed 20% of the brands it car- Golf and Ashworth is on track.
rope’s largest airline by pas- gets for absorption aren’t cur-
senger numbers, is growing
aggressively in the region,
rently being pursued, he said.
Eurowings would be opportu-
adding pressure on Lufthansa. nistic as acquisition prospects
Eurowings is already set to
grow further next year after
emerge, he said.
Brussels Airlines will pro-
Lufthansa last year agreed to vide the next boost for Eurow-
buy the stake in Brussels Air- ings’ long-haul operation, Mr.
lines it didn’t already own. The Garnadt said, with details to
acquisition will boost the Eu- be spelled out. Both carriers
rowings network in Europe and use Airbus SE A330 planes for
add long-haul destinations. long-haul flights.
Mr. Garnadt said at a travel Eurowings, which struggled
event here that the focus for with operational disruptions
Eurowings is on integrating early in its long-haul service,
Brussels Airlines, as well as last year stabilized the busi-
Air Berlin planes. Future tar- ness, he said.
 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
B4 | Thursday, March 9, 2017
PAT SULLIVAN/ASSOCIATED PRESS
Houston-based MD Anderson Cancer Center tried to integrate artificial intelligence with its system for treating cancer patients.
Hospital Falters in AI Bid
After five years and
$62 million, project to
harness IBM Watson
has little to show
BY DANIELA HERNANDEZ
In 2012, the University of
Texas MD Anderson Cancer
Center launched an ambitious
project with International
Business Machines Corp.’s
Watson program that promised
to transform cancer care with
the help of artificial intelli-
gence.
Almost five years and more
than $62 million later, the
sprawling Houston-based pub-
lic institution has little to show
for it, according to a special re-
view conducted by the Univer-
sity of Texas System Audit Of-
fice that details a number of
stumbles in the progress and
management of the project.
The audit doesn’t evaluate
IBM Watson’s scientific capabil-
ities or whether the technology
works for this purpose. Instead,
the report details the manage-
ment and technology chal-
lenges at MD Anderson that
make it hard to integrate artifi-
cial-intelligence software into
complicated health-care set-
tings. The Watson-based pro-
gram isn't in clinical use, ac-
cording to the audit.
The plan for a pilot focused
on leukemia was “suspended
mid-project” and the focus
shifted to lung cancer to try to
speed up progress, according to
audit documents. Clinical trial
and drug-protocol data in the
Samsung Looks to Add U.S. Jobs
BY TIMOTHY W. MARTIN
SEOUL—Samsung Elec-
tronics Co. is planning a major
investment to expand its U.S.
production facilities, according
to people familiar with the
matter, with at least five states
in discussions.
The initial capital invest-
ment is expected to be around
$300 million, several of the
people said, with Samsung
shifting some production of
oven ranges to the U.S. from
Mexico. The move could gener-
ate around 500 jobs, those
people said.
Talks are continuing and no
final decisions have been
made, with a start date for
oven-range production still un-
determined, the people said,
so the details may change.
In subsequent years, Sam-
sung could ramp up U.S. manu-
facturing of refrigerators,
washers, dryers and other
home appliances, which could
make the total investment sig-
nificantly larger, according to
people familiar with the dis-
cussions.
But no firm deadline or
commitment is set for those
decisions, they said.
Samsung’s interest in a U.S.
factory was influenced by the
election of U.S. President Don-
ald Trump, according to peo-
ple familiar with the matter.
Mr. Trump campaigned on a
desire to create more manufac-
turing jobs in the country—
and has threatened potential
penalties for companies that
don’t comply.
The South Korean electron-
ics giant, the world’s largest
manufacturer of smartphones,
memory chips and televisions,
has had initial discussions
with Alabama, Georgia, North
Carolina, Ohio and South Caro-
system are outdated, and the
pilot program doesn’t work
with the hospital’s current elec-
tronic health records, according
to the audit. Oncology Expert
Advisor, or OEA, is the Watson-
based intelligent system IBM
was building for MD Anderson.
Watson, the Jeopardy-play-
ing artificial-intelligence soft-
ware, learns patterns from data
and uses that knowledge to
make suggestions. The new sys-
tem was supposed to read and
learn from MD Anderson’s elec-
tronic medical records, the aca-
demic literature, research data
and treatment options to im-
prove cancer care at the re-
nowned cancer center.
An IBM spokeswoman said
the “pilot was a success, and
likely could have been taken
forward had MD Anderson cho-
sen to do so.” The report noted
that the system “is not ready”
for testing on humans or for
“clinical use” because the data
used to run it is “outdated.”
Lynda Chin, the former
chair of genomic medicine at
MD Anderson, approached
IBM about using Watson to
upgrade cancer care at the
hospital, according to the au-
dit. In June 2012, the two or-
ganizations signed their first
contract for $2.4 million.
Since then, the contract has
been renewed a dozen times,
totaling $39 million in fees
paid by MD Anderson, accord-
ing to the audit. The lung-can-
cer system pilot within MD
Anderson achieved an accu-
racy of 90% in its predictions,
according to staff member in-
terviews cited in the audit.
A Samsung Electronics news conference in Las Vegas in January.
lina, according to the people.
Among those, South Carolina
is a strong contender, accord-
ing to a person familiar with
the developments, with Sam-
sung expressing interest in a
site in the proximity of Blythe-
wood, S.C.
Samsung confirmed its U.S.
plans in response to an inquiry
from The Wall Street Journal.
Many of Samsung’s
home appliances are
currently assembled
in Mexico.
In a statement, the company
said “preliminary” discussions
had taken place about a new
home-appliance facility.
“However, this is a complex
process that, like all strategic
business decisions, will not be
made final until it is deter-
mined through proper due dili-
gence and planning that it is
the best option for Samsung,”
the company said.
TECHNOLOGY
The figure refers to the sys- tution needs a new president
tem’s success rate at suggest- who will inspire greater unity
ing the same treatment plan and sharp operational focus,”
as MD Anderson physicians on he said in a video message to
select cases, based on its read- staff.
ing of relevant information in During his five-year tenure
patient charts, said Rob as president, the hospital was
Merkel, general manager for embroiled in several prob-
oncology and genomics at IBM lems—including layoffs, losses
Watson Health, an IBM divi- in productivity due to a transi-
sion focused on health care. tion to a new medical-record
The system was tested in system and internal questions
2015 and supported “treat- over how the OEA contracts
ment recommendations as were procured, which culmi-
well as clinical-trial match- nated in the audit. Dr. DePinho
ing,” according to an IBM is married to Dr. Chin, the for-
spokeswoman. The vision was mer OEA project lead.
also to make the tool widely Mr. Merkel of IBM Watson
available to physicians at part- Health, in response to the con-
ner hospitals outside MD An- cerns raised in the audit, said
derson, according to the audit. the focus was switched from
University of Texas Chan- leukemia because the project at
cellor William McRaven or- the time was in an “evaluation
dered an audit of the project phase.” He also added IBM
after MD Anderson’s audit and “wasn’t responsible” for inte-
compliances offices expressed grating Watson with MD An-
concerns in May last year derson’s new electronic medical
about whether the project was records. MD Anderson didn’t
delivering on contracted ser- specify who was responsible for
vices, such as piloting OEA at the integration.
partner hospitals and whether In addition to the manage-
project leaders followed ap- ment and technology issues,
propriate procurement re- the audit found the program
quirements, according to uni- was never piloted with partner
versity spokeswoman Karen hospitals as stipulated in a con-
Adler and the audit. tract with Pricewater-
MD Anderson hired an exter- houseCoopers, which was also
nal firm to conduct a separate hired to craft a business plan
audit to evaluate the market for for the system. MD Anderson
and value of the artificial intel- paid PwC $23 million in total
ligence system, Ms. Adler said. for various services associated
On Wednesday, MD Ander- with the project.
son’s president, Ronald De- IBM stopped supporting the
Pinho, resigned. The timing of technology in September, ac-
Dr. DePinho’s departure is still cording to the report. IBM de-
being worked out, the hospital clined to comment on the sta-
said. “It became clear to me tus of the project. PwC also
that this great and noble insti- declined to comment.
Masayoshi Son, head of
Japan’s SoftBank Group Corp.,
said after a meeting with Mr.
Trump in December that he
would invest $50 billion in the
U.S., while Taiwan-based elec-
tronics assembler Foxconn
Technology Group has an-
nounced plans for expansion.
Samsung hometown rival
LG Electronics Inc. said last
week that it would build a new
STEVE MARCUS/REUTERS
home-appliance manufacturing
factory in Tennessee, creating
at least 600 jobs and investing
$250 million.
In a sign of Samsung’s stat-
ure in the U.S., Samsung Vice
Chairman Lee Jae-yong was
the only executive from a for-
Samsung started reviewing eign company to be invited to
U.S. options “early last fall,” a mid-December tech industry
the company said, meaning be- meeting with Mr. Trump, then
fore the November election. A the president-elect, according
Samsung spokeswoman de- to people familiar with the
clined to elaborate beyond the matter.
statement. The gathering at Trump
The Suwon, South Korea- Tower in New York drew the
based firm has signaled to the chief executives of Apple Inc.,
states that it prefers to move Amazon.com Inc., Microsoft
into an existing facility rather Corp., Google parent Alphabet
than build a new one, accord- Inc. and others.
ing to people familiar with the Mr. Lee didn’t attend. Ac-
discussions. Many of Sam- cording to a person familiar
sung’s home appliances are with the situation, Mr. Lee has
currently manufactured in been blocked by South Korean
Mexico. prosecutors from leaving the
For decades, Samsung has country in connection with his
spent heavily in the U.S., rank- alleged role in a wide-ranging
ing as one of the country’s corruption scandal that has
largest direct foreign inves- reached the highest ranks of
tors. In November, just days South Korea’s political and
before Mr. Trump’s election, corporate elite.
the technology giant said it A Samsung spokeswoman
would invest more than $1 bil- declined to comment on
lion in its Austin, Texas, semi- whether Mr. Lee was invited to
conductor factory to boost the tech meeting.
production of processor chips Mr. Lee was indicted on
for smartphones and other de- bribery and other charges last
vices. week, and his trial begins
Since Mr. Trump’s election, Thursday. He has denied
some large firms across Asia wrongdoing.
have pledged to expand U.S. —Rolfe Winkler contributed
operations or investments. to this article.
THE WALL STREET JOURNAL.
Microsoft Says Server
To Run on ARM Chips
BY TED GREENWALD
Microsoft Corp. on Wednes-
day was to demonstrate a ver-
sion of its server operating
system running on processors
based on technology from
ARM Holdings PLC, throwing
its weight behind efforts to
crack Intel Corp.’s dominance
in data-center chips.
The move is a marked
change for Microsoft, which
for years has built Windows
Server to run on chips de-
signed around technology from
its once-steady partner Intel.
Microsoft said in a blog
post planned for Wednesday it
collaborated with Qualcomm
Inc., the leading supplier of
chips for smartphones, and
Cavium Inc., a lesser-known
Silicon Valley chip maker, to
adapt Windows Server to run
on their ARM server chips.
It worked with several ARM
suppliers to optimize their
chips for its data-center needs,
it said. The ARM version of
Windows Server, which is be-
ing shown at a Silicon Valley
conference, was developed for
internal use in Microsoft’s
Azure cloud-computing ser-
vice, the blog post said.
Through testing, Microsoft
said it found ARM server chips
“provide the most value” for
certain cloud tasks including
search and machine learning.
“We feel ARM servers rep-
resent a real opportunity and
some Microsoft cloud services
already have future deploy-
ment plans on ARM servers,”
the company said.
At the open-hardware con-
ference, Qualcomm plans to
announce an open-source de-
sign for a server using its
ARM-based Centriq 2400
server chip that is compatible
with Microsoft standards for
cloud-computing systems.
Chips based on ARM tech-
nology are one aspect of an ef-
fort by companies to challenge
Intel in the server market,
where the Silicon Valley giant
generated $17.2 billion in an-
nual revenue last year and
holds nearly 100% share, ac-
cording to Mercury Research.
“We’re not interested in fell-
ing the giant in one fell swoop,”
said Anand Chandrasekher, se-
nior vice president of Qual-
Microsoft’s use of ARM chips for Windows Server is a shift.
BUSINESS WATCH
BOEING
Plane Maker Weighs
Twin-Aisle Design
Boeing Co. favors a twin-aisle
design for a proposed all-new
commercial jetliner that likely
wouldn’t enter service before
2024, a senior U.S. airline execu-
tive said on Tuesday.
The plane maker hasn’t previ-
ously disclosed design details of
what industry executives are al-
ready calling the 797, with a
seating capacity of more than
200 that would rank between
its workhorse 737 jets and the
787 Dreamliner.
New jets can cost more than
$10 billion to develop, and a de-
cision about whether to proceed
with the plane will be a test for
Boeing Chief Executive Dennis
Muilenburg, as previous models
launched during his tenure have
been derivatives of existing air-
craft.
—Doug Cameron
VERA BRADLEY
Handbag Maker Says
Profit, Revenue Fell
Vera Bradley Inc. reported
Wednesday a 12% drop in reve-
nue for the latest quarter.
Chief Executive Robert Wall-
strom said revenue was less
than the handbag retailer ex-
WSJ.com/Tech
comm Data Centers. “We’re go-
ing to be chipping away.”
Other chip makers are taking
different approaches to chal-
lenging Intel. Advanced Micro
Devices Inc. on Tuesday issued
specifications and performance
benchmarks for a server chip,
based on its new Zen architec-
ture, that it said would reach
the market in the next few
months. International Busi-
ness Machines Corp. has said
it would ship new server chips
based on its own designs in the
second half of the year.
Intel said it takes all com-
petitors seriously and that it is
confident in the performance
and total cost of ownership of
its Xeon processors. “We un-
derstand the desire of our cus-
tomers to evaluate other prod-
uct offerings,” a spokesman
said. Intel expects later this
year to launch its own next-
generation chips, and it is mov-
ing aggressively to capitalize
on its acquisitions of Altera
Corp. and Nervana Systems,
makers of technologies for
boosting performance.
ARM technology, while an
overwhelming favorite in smart-
phone chips, has faced a rough
road in the server market.
Several companies including
Advanced Micro Devices Inc.,
Broadcom Co. and Texas In-
struments Inc. have tried to
bring ARM-based chips to the
market with little to show for it.
“This class of product does
not scale well for servers,” said
Martin Reynolds, vice presi-
dent and research fellow with
Gartner Inc. “It is definitely
possible to build an ARM chip
optimized for servers, but it
requires considerable invest-
ment in design techniques,
with limited payoff.”
The biggest hurdle has been
matching the performance per
dollar and per watt of Intel’s
chips, industry watchers say.
Another issue: Software
coded for Intel-style proces-
sors must be reworked to run
on the ARM architecture. That
is likely a deal breaker for cor-
porate customers but less of a
barrier for cloud-computing
providers such as Microsoft
because they build their own
data-center software.
—Jay Greene
contributed to this article.
DAVID RYDER/BLOOMBERG NEWS
pected. “The retail environment
became even more challenging
in the fourth quarter,” he said.
Increased promotional activity
and soft demand have pressured
results at the Fort Wayne, Ind.,
company, known for its brightly
patterned quilted tote bags.
Gross margin fell to 55.68% in
the latest quarter, from 58.17%
in the year-earlier period.
Overall, Vera Bradley posted a
profit of $3.5 million, or nine
cents a share, compared with a
profit of $15.7 million, or 41
cents a share.
Revenue fell 13% to $134.8
million from $154.1 million.
—Joshua Jamerson
UNITED PARCEL SERVICE
EU Official Considers
Appeal for TNT Bid
The European Union’s anti-
trust chief said Wednesday that
he hadn’t decided whether to
appeal a court ruling that over-
turned a previous decision by
the regulator to block United
Parcel Service Inc.’s $7 billion
bid for Dutch parcel-delivery
company TNT Express NV.
The EU’s second-highest
court on Tuesday annulled the
antitrust watchdog’s 2013 deci-
sion to block the UPS-TNT
merger on the basis of proce-
dural missteps by the regulator.
—Natalia Drozdiak
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
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THE WALL STREET JOURNAL. Thursday, March 9, 2017 | B5

FINANCE & MARKETS

Lender Didn’t Disclose Payments Candidate

For a Top
Renovate America
gave help to some
borrowers but failed
Fed Job
to inform investors Opts Out
BY KIRSTEN GRIND BY RYAN TRACY
AND KATE DAVIDSON
Renovate America Inc. is
the biggest player in America’s WASHINGTON—A leading
fastest-growing type of loan. contender for the Federal Re-
The San Diego-based company serve’s top regulatory job has
enjoys the backing of munici- taken himself out of the run-
palities and big-name Wall ning, adding to the mystery of
Street investors, thanks in who will take on the post
part to its record of ultralow overseeing the largest U.S.
customer defaults. banks.
But Renovate America, David Nason, an executive
which finances purchases of at General Electric Co.’s fi-
solar panels and energy-effi- nancing arm, GE Capital, con-
cient appliances, has masked firmed his decision by email
problems with some borrow- Wednesday and declined fur-
ers by paying off their debts if ther comment. A GE spokes-
they struggle to keep up with woman said Mr. Nason has
payments, according to former told the White House “he no
Renovate America employees. longer wished to be consid-
Renovate America hasn’t ered for the position of vice
disclosed that fact to investors chairman at the Federal Re-
RON WALLIS

who buy bonds backed by the serve. He plans to pursue op-

company’s loans, say three portunities at GE.”
former employees in the com- The delay in nominating
pany’s compliance depart- Ron Wallis, a former compliance employee at Renovate America, was one of several employees who say they complained to someone to the Fed post con-
ment. executives about a sales-focused culture at the San Diego company. trasts with statements by ad-
The company’s investors in- ministration officials that fill-
clude mutual funds run by J.P. pants expect more than $2 bil- alize. ing the vice chairman’s job is a
Morgan Chase & Co. and Dou- lion in loans to be made this Lending Boom Mr. McNeill said that tax priority.
bleLine Capital LP, which have year as more states sign on. A snapshot of Renovate America’s fast-growing business in its largest benefits are a relevant data The vacancy is one of many
been told customer default Wall Street’s appetite for local-government partnership, located in Southern California. point for homeowners, who key financial and economic
rates are less than 1%, accord- PACE bond deals is fueling “are happier if they’re in- jobs that remain unfilled by
ing to fund documents and growth. Investors are at- Number of Number of Value of Delin- formed of benefits that exist.” President Donald Trump.
properties delinquent delinquent quency
credit-rating firms. A J.P. Mor- tracted to the bonds’ roughly Contractors who receive A White House spokesman
Tax year in program Value of loans in program properties loans rate
gan spokeswoman declined to 4% return despite maturities customer complaints about didn’t immediately respond to
comment, and a DoubleLine that can stretch more than the quality of their work typi- a request for comment.
spokesman didn’t respond to a two decades. A key selling 2012–13 110 $242,572 0 0 0 cally weren’t penalized if they The Trump administration
request for comment. point is the perceived safety of brought in a high volume of has broadened its search for
JP McNeill, Renovate Amer- the loans backing the bonds, 2013–14 3,178 $6.8 million 8 $12,748 0.26% business, former employees the Fed job in recent weeks,
ica’s chief executive, said the even though credit-rating said. according to people familiar
company made a small num- firms say there is little histori- 2014–15 9,125 $22 million 44 $97,688 1.52% “We’re not here to put con- with the matter. Mr. Trump’s
ber of payments between 2014 cal default data. tractors out of business,” Ren- team has met with departing
and 2016 on behalf of 83 bor- The Wall Street Journal re- 2015–16 21,811 $65 million 110 $282,712 0.43% ovate America’s chief legal of- U.S. Bancorp CEO Richard Da-
rowers. He said the payments ported in January that some ficer, Scott McKinlay, told a vis, who on Feb. 23 declared
weren’t disclosed to investors borrowers in the PACE pro- Source: Western Riverside Council of Governments THE WALL STREET JOURNAL. group of employees last fall, himself “not a candidate for
because the number of recipi- gram said they were misled according to an attendee. the Fed position.”
ents was a fraction of a per- about their loan terms and In late 2014, as some bor- markets division, which man- Mr. McKinlay said in an in- Harvard Law School Profes-
cent of the 90,000 home- can’t afford their debt. Reno- rowers started missing pay- ages the company’s bond terview that his comments sor Hal Scott also has met
owners who got loans from vate America and other PACE ments, Renovate America deals, the spokeswoman said. were meant to encourage em- with Mr. Trump’s team. People
Renovate America and wasn’t lenders told the Journal they launched a program dubbed The former compliance em- ployees to “find ways to im- familiar with the matter say it
considered “material.” are putting more rules in place “first payment assistance,” ac- ployees said Renovate America prove ourselves.” isn’t clear if he is a top candi-
Executives at two asset to protect homeowners. cording to the former compli- made the payments to deal Ron Wallis, a former com- date for the post. Mr. Scott
managers that bought Reno- PACE lenders rely on part- ance employees. The program with problems stemming from pliance manager, said he told has declined to comment.
vate America’s bonds said nerships with state and local paid a homeowner’s first tax a corporate culture that fa- Mr. McNeill about what he de- A Trump administration of-
their firms would have liked to governments. The municipali- assessment or even a full year vored loan production over scribed as predatory lending ficial said Tuesday that the
know about the payments be- ties, eager to offer clean-en- of debt, the former employees homeowner protection. to senior citizens who didn’t White House is still weighing
fore investing. The payments ergy savings to their constitu- said. Mr. McNeill said the com- understand loan terms. candidates to fill two vacan-
make it harder for investors to ents, are responsible for The ad hoc program lacked pany’s culture is focused on Roughly 25% of Renovate cies on the Fed’s seven-mem-
gauge the true default rates of collecting homeowners’ tax formal guidelines. Borrowers helping homeowners. America’s loans go to elderly ber governing board.
the loans. payments. were more likely to receive aid “We need to close as many borrowers, former employees Mark Calabria, the chief
Securities laws require Renovate America was co- if they threatened to go to the projects as possible because said. The Renovate America economist for Vice President
companies to disclose all in- founded in 2008 by Mr. Mc- media with their complaints, that makes the investors spokeswoman confirmed the Mike Pence, told a group of
formation that investors Neill. It is backed by venture- one former employee said. happy,” a former compliance figure, saying the percentage economists the administration
would consider to be material, capital firm DFJ Growth and A Renovate America officer said she was told by is less than the percentage of hopes to announce the nomi-
said Erik Gerding, a professor private-equity firm Silver Lake spokeswoman said that pay- Mike Anderson, the firm’s se- homeowners who are 65 and nees to the Fed and other in-
at the University of Colorado Kraftwerk, among others. Ren- ments weren’t made in a “pro- nior director of compliance older in California, the com- dependent regulatory agencies
law school. In Renovate Amer- ovate America has raised grammatic or formal way” and operations. Mr. Anderson said pany’s largest market. “in short order.”
ica’s case, “the conservative about $175 million in three fi- that homeowners who re- through a spokeswoman that Mr. Wallis—who said he One of those two Fed nomi-
approach would have been to nancing rounds. The most re- ceived payments had misun- he doesn’t recall the conversa- was fired in September for un- nees is expected to be desig-
disclose,” he said. cent, in 2015, valued it at derstood their loan terms or tion. authorized vacation use—said nated vice chairman for super-
Renovate America makes its about $500 million. The com- hadn’t saved enough to pay off Renovate America encour- Renovate never took action in vision.
loans through state-run pro- pany’s lenders, including Bank their tax assessments. aged sales staff to tell borrow- response to his claims. Speaking to reporters be-
grams known as Property As- of America Corp. and Credit Mr. McNeill, the CEO, said ers that the loans would gen- Mr. McNeill said that el- fore those remarks, Mr. Ca-
sessed Clean Energy, or PACE. Suisse Group AG, are helping the payments made on behalf erate tax rebates that would derly borrowers go through labria said administration offi-
The high-interest-rate loans finance a nationwide expan- of the 83 homeowners totaled essentially cancel out the additional vetting before re- cials want to send nominees
are brokered by plumbers and sion. $175,000 between 2014 and loans’ costs, according to for- ceiving loans. “We absolutely, for the two current Fed vacan-
contractors, financed by pri- A spokeswoman for DFJ 2016. mer executives and home- unequivocally do not advocate cies to the Senate at the same
vate lending companies, didn’t return a request for The former compliance em- owners. Some homeowners targeting any protected class,” time, but said they are still
backed by county governments comment, and a spokesman ployees said they believe the said the savings didn’t materi- he said. vetting potential candidates.
and purchased by investors. for Silver Lake Kraftwerk de- sum is higher. One who
Loans, averaging about clined to comment. Bank of worked with people responsi-

SEC Nominee’s Busy Past

$25,000, are placed on a America and Credit Suisse ble for the payments estimates
homeowner’s tax bill as an as- representatives declined to the company paid out about $1
sessment that needs to be comment. million to homeowners in a
paid along with property Last year, Renovate Amer- seven-month period beginning
taxes. In a default, the loans ica originated about $1 billion in fall 2015. The Renovate BY DAVE MICHAELS at him, probing his ties to and could be paid as much as
are given priority over a in loans, up 35% from 2015, America spokeswoman dis- banks such as Goldman Sachs, $1 million more in partner-
homeowner’s mortgage. the company said. It uses puted that number. WASHINGTON—President where his wife, Gretchen But- ship income if the Senate con-
PACE lenders have made about 8,000 contractors to Renovate America stopped Donald Trump’s nominee to ler Clayton, works as a finan- firms him and he leaves the
about $3.4 billion in loans source loans across the coun- the payments late last year at lead the U.S. Securities and cial adviser. Ms. Clayton plans law firm, according to the re-
since 2008. Industry partici- try. the suggestion of its capital- Exchange Commission faces a to resign if her husband is port.
range of possible conflicts of confirmed by the Senate, a Through investment funds

FINANCE WATCH
interest due to the long list of person familiar with the mat- available to Sullivan & Crom-
banks and public companies ter has said. well partners, Mr. Clayton has
he has represented as one of A coalition of liberal exposure to various private-
Wall Street’s top lawyers. groups, including Public Citi- equity funds, including ones
FOXTONS Jay Clayton, a partner at zen and Our Revolution, has managed by Warburg Pincus
Sullivan & Cromwell LLP already launched an effort to LLC, Bain Capital, J.C. Flowers
Property Brokerage’s whose Senate confirmation oppose Mr. Clayton’s confir- & Co. and TPG Capital. He
Profits Are Halved hearing is scheduled for March mation. Our Revolution was plans to redeem his holdings
23, has done legal work for founded by former staffers in those funds, which are val-
London-focused property bro- Ally Financial Inc., Barclays and volunteers for Sen. Bernie ued between $215,001 and
ker Foxtons PLC said that its PLC, Goldman Sachs Group Sanders’s 2016 presidential $550,000, within 90 days of
YUI MOK/PA WIRE/ZUMA PRESS

profits more than halved in 2016 Inc., Deutsche Bank AG, Tudor campaign. his Senate confirmation, the
because of a cooling housing Investment Corp. and Pershing A spokesman for Mr. Clay- report states. Federal financial
market. Square LP, according to a fed- ton declined to comment. disclosure forms only require
Foxtons said its pretax profit eral ethics report made public The report, which all nomi- officeholders to report the
was £18.8 million ($22.9 million) Wednesday. nees for Senate-confirmed value of their assets as a
in 2016, down 54% from the pre- Under SEC ethics rules, Mr. jobs must file with the U.S. range.
vious year. Clayton likely wouldn’t be able Office of Government Ethics, The form doesn’t reveal Mr.
Britain’s decision to leave the to participate in agency busi- also reveals the extent of the Clayton’s wife’s income, but
European Union, as well as Foxton’s gave a gloomy forecast for 2017 property sales. ness—such as enforcement wealth Mr. Clayton has says she owns between
changes to the U.K. tax regime, cases—that directly involves amassed over more than two $100,001 and $250,000 in re-
were largely to blame, the bro- DEUTSCHE BANK who is still at the bank. his former clients. Even so, decades at Sullivan & Crom- stricted stock that was
ker said. His departure date couldn’t some Senate Democrats are well. He earned more than awarded as past compensa-
U.K. house prices surged in the Controller Will Join be discovered, but he plans to likely to aim sharp questions $7.6 million in the past year tion.
years following the 2008 financial Standard Chartered be at Standard Chartered by

INTERNATIONAL INVESTMENT FUNDS

crisis, with London leading the summer, one of the people fa-
boom. But the market has Deutsche Bank AG’s control- miliar with the matter said. A Advertisement
slowed, hurting real-estate agents ler and co-head of group finance, Standard Chartered spokes-
that rely on fees from sales. who reports to the chief finan- woman declined to comment.
“Should current sales activity cial officer, is leaving for rival Mr. Burrill supervises senior- [ Search by company, category or country at europe.WSJ.com/funds ]
continue through the remainder Standard Chartered PLC, accord- level tax and financial reporting
of this year, it is likely that 2017 ing to people familiar with the to the management board, in- NAV —%RETURN—
FUND NAME GF AT LB DATE CR NAV YTD 12-MO 2-YR
sales volumes will be below last matter. vestors and regulators.
n Chartered Asset Management Pte Ltd - Tel No: 65-6835-8866
year,” Foxtons said in a state- The planned move by Peter He is a key contact person Fax No: 65-6835 8865, Website: www.cam.com.sg, Email: cam@cam.com.sg
ment. Burrill, who is based in Frankfurt, for international regulators on CAM-GTF Limited OT OT MUS 03/03 USD 304140.17 0.7 8.6 -4.8
Foxtons said its revenue was hasn’t been announced and a re- securities issuance and the
£132.7 million last year, down placement hasn’t been named. A bank’s application of accounting Data as shown is for information purposes only. No offer is being made by
Morningstar, Ltd. or this publication. Funds shown aren’t registered with the
For information about listing your funds,
from £149.8 million in 2015. Deutsche spokesman declined to standards. U.S. Securities and Exchange Commission and aren’t available for sale to United
States citizens and/or residents except as noted. Prices are in local currencies.
please contact: Freda Fung tel: +852 2831
—Olga Cotaga comment on behalf of Mr. Burrill, —Jenny Strasburg All performance figures are calculated using the most recent prices available. 2504; email: freda.fung@wsj.com
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
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B6 | Thursday, March 9, 2017 THE WALL STREET JOURNAL.

MARKETS DIGEST
Nikkei 225 Index STOXX 600 Index S&P 500 Index Data as of 4 p.m. New York time
Last Year ago
19254.03 t 90.12, or 0.47% Year-to-date s 0.73% 372.58 s 0.31, or 0.08% Year-to-date s 3.09% 2362.98 t 5.41, or 0.23% Trailing P/E ratio * 24.90 23.08
High, low, open and close for each 52-wk high/low 19594.16 14952.02 High, low, open and close for each 52-wk high/low 375.69 308.75 High, low, open and close for each P/E estimate * 18.39 16.55
trading day of the past three months. All-time high 38915.87 12/29/89 trading day of the past three months. All-time high 414.06 4/15/15 trading day of the past three months. Dividend yield 1.98 2.27
All-time high: 2395.96, 03/01/17

* P/E data based on as-reported earnings from Birinyi Associates Inc.

19500 380 2380

19000 370 2340

18500 360 2300

65-day moving average

Session high 18000 350 2260

DOWN UP
t

Session open Close

17500 340 2220
Close Open
t

65-day moving average 65-day moving average

Session low 17000 330 2180

Bars measure the point change from session's open

16500 320 2140
Dec. Jan. Feb. Mar. Dec. Jan. Feb. Mar. Dec. Jan. Feb. Mar.

International Stock Indexes Data as of 4 p.m. New York time Global government bonds
Latest 52-Week Range YTD Latest, month-ago and year-ago yields and spreads over or under U.S. Treasurys on benchmark two-year
Region/Country Index Close NetChg % chg Low Close High % chg and 10-year government bonds around the world. Data as of 3 p.m. ET
World The Global Dow 2660.70 –8.86 –0.33 2193.75 • 2694.43 5.2 Country/ Spread Over Treasurys, in basis points Yield
MSCI EAFE 1746.27 –6.41 –0.37 1471.88 • 1956.39 1.7 Coupon Maturity, in years Yield Latest Previous Month Ago Year ago Previous Month ago Year ago
MSCI EM USD 932.05 –4.45 –0.48 691.21 • 1044.05 17.4 5.250 Australia 2 1.887 54.1 52.9 66.0 109.7 1.859 1.805 1.967
4.750 10 2.872 32.2 31.1 36.3 74.1 2.829 2.702 2.566
Americas DJ Americas 568.45 –2.16 –0.38 476.45 • 577.65 5.2
3.000 Belgium 2 -189.9 -191.3 -170.4 -131.7 -0.583 -0.559 -0.447
-0.553
Brazil Sao Paulo Bovespa 64882.70 –859.62 –1.31 46520.81 • 69487.58 7.7
0.800 10 0.877 -167.4 -170.0 -146.7 -134.5 0.818 0.872 0.481
Canada S&P/TSX Comp 15494.21 –114.57 –0.73 13217.17 • 15943.09 1.4
0.000 France 2 -0.485 -183.2 -187.9 -170.1 -131.2 -0.549 -0.556 -0.442
Mexico IPC All-Share 47567.74 148.58 0.31 43902.25 • 48956.06 4.2
0.250 10 1.030 -152.1 -155.4 -133.5 -133.2 0.964 1.005 0.493
Chile Santiago IPSA 3458.48 –6.14 –0.18 2998.64 • 3490.53 7.3
0.000 Germany 2 -0.863 -221.0 -221.2 -193.3 -139.9 -0.883 -0.788 -0.529
U.S. DJIA 20855.73 –69.03 –0.33 16821.86 • 21169.11 5.5
0.250 10 0.370 -218.1 -219.7 -204.1 -164.1 0.321 0.299 0.185
Nasdaq Composite 5837.55 3.62 0.06 4574.25 • 5911.79 8.4
0.300 Italy 2 -0.021 -136.7 -138.1 -117.3 -92.8 -0.051 -0.028 -0.058
S&P 500 2362.98 –5.41 –0.23 1969.25 • 2400.98 5.5
1.250 10 2.265 -28.6 -33.1 -9.5 -40.5 2.187 2.245 1.420
CBOE Volatility 11.76 0.31 2.71 9.97 • 26.72 –16.2
0.100 Japan 2 -0.284 -163.0 -161.9 -135.5 -109.4 -0.290 -0.210 -0.224
EMEA Stoxx Europe 600 372.58 0.31 0.08 308.75 • 375.69 3.1 0.100 10 0.076 -247.5 -244.8 -224.4 -191.9 0.070 0.095 -0.094
Stoxx Europe 50 3093.18 –0.10 –0.003 2626.52 • 3120.09 2.7 4.000 Netherlands 2 -0.809 -215.5 -218.2 -187.1 -137.1 -0.852 -0.726 -0.501
Austria ATX 2813.73 17.39 0.62 1981.93 • 2824.97 7.5 0.750 10 0.640 -191.0 -192.3 -185.0 -152.0 0.595 0.489 0.305
Belgium Bel-20 3699.47 15.34 0.42 3127.94 • 3711.73 2.6 4.450 Portugal 2 -0.001 -134.7 -136.2 -116.2 -59.5 -0.033 -0.017 0.275
France CAC 40 4960.48 5.48 0.11 3955.98 • 5002.32 2.0 2.875 10 3.972 142.2 143.8 175.2 114.3 3.956 4.092 2.968
Germany DAX 11967.31 1.17 0.01 9214.10 • 12082.59 4.2 2.750 Spain 2 -0.128 -147.4 -148.9 -144.2 -91.9 -0.159 -0.297 -0.049
Greece ATG 649.31 6.15 0.96 517.10 • 670.21 0.9 1.500 10 1.808 -74.3 -79.0 -65.1 -26.6 1.728 1.689 1.560
Hungary BUX 32547.37 105.17 0.32 25126.36 • 34334.92 1.7 4.250 Sweden 2 -0.613 -195.9 -194.9 -171.8 -148.9 -0.620 -0.573 -0.619
Israel Tel Aviv 1438.81 8.84 0.62 1372.23 • 1504.42 –2.2 1.000 10 0.699 -185.2 -186.9 -169.3 -133.7 0.649 0.647 0.488
Italy FTSE MIB 19482.39 27.34 0.14 15017.42 • 19810.77 1.3 1.750 U.K. 2 0.095 -125.2 -122.5 -108.0 -48.7 0.105 0.065 0.383
Netherlands AEX 502.80 –0.15 –0.03 409.23 • 506.04 4.1 4.250 10 1.219 -133.1 -132.4 -102.2 -44.0 1.194 1.317 1.385
Poland WIG 58559.14 29.07 0.05 42812.99 • 60021.25 13.1 1.125 U.S. 2 1.346 ... ... ... ... 1.330 1.145 0.870
Russia RTS Index 1097.44 … Closed 815.11 • 1196.99 –4.8 2.250 10 2.551 ... ... ... ... 2.518 2.339 1.825
Spain IBEX 35 9850.50 48.80 0.50 7579.80 • 9881.30 5.3
Sweden SX All Share 557.94 0.30 0.05 443.66 • 564.93 4.4 Commodities Prices of futures contracts with the most open interest 3:30 p.m. New York time
Switzerland Swiss Market 8626.65 2.68 0.03 7475.54 • 8675.97 4.9 EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.; MDEX: Bursa Malaysia
South Africa Johannesburg All Share 51299.99 –77.79 –0.15 48935.90 • 54704.22 1.3 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 3/7/2017
Turkey BIST 100 89484.90 –1328.71 –1.46 70426.16 • 91437.77 14.5
One-Day Change Year Year
U.K. FTSE 100 7334.61 –4.38 –0.06 5788.74 • 7394.61 2.7 Commodity Exchange Last price Net Percentage high low
372.75 -3.25 -0.86% 387.25 357.50
Asia-Pacific DJ Asia-Pacific TSM 1518.32 –5.65 –0.37 1308.52 • 1540.02 6.7 Corn (cents/bu.) CBOT
Soybeans (cents/bu.) 1021.25 -4.00 -0.39 1,088.25 1,001.25
Australia S&P/ASX 200 5759.70 –1.70 –0.03 4924.40 • 5816.30 1.7
Wheat (cents/bu.)
CBOT
CBOT 447.50 -9.00 -1.97 477.00 416.25
China Shanghai Composite 3240.66 –1.74 –0.05 2804.73 • 3282.92 4.4
Live cattle (cents/lb.) CME 106.150 0.525 0.50% 109.625 103.150
Hong Kong Hang Seng 23782.27 101.20 0.43 19694.33 • 24201.96 8.1
Cocoa ($/ton) ICE-US 1,913 -4 -0.21 2,273 1,869
India S&P BSE Sensex 28901.94 –97.62 –0.34 24551.17 • 29048.19 8.5
Coffee (cents/lb.) ICE-US 141.75 1.05 0.75 159.30 136.70
Japan Nikkei Stock Avg 19254.03 –90.12 –0.47 14952.02 • 19594.16 0.7
Sugar (cents/lb.) ICE-US 18.47 0.07 0.38 21.21 18.14
Singapore Straits Times 3145.29 14.85 0.47 2729.85 • 3145.29 9.2
Cotton (cents/lb.) ICE-US 78.12 0.09 0.12 79.46 71.55
South Korea Kospi 2095.41 1.36 0.06 1925.24 • 2107.63 3.4 Robusta coffee ($/ton) ICE-EU 2187.00 18.00 0.83 2,279.00 2,093.00
Taiwan Weighted 9753.45 15.38 0.16 8053.69 • 9799.76 5.4
Copper ($/lb.) COMEX 2.5950 -0.0235 -0.90 2.8360 2.4800
Source: SIX Financial Information;WSJ Market Data Group Gold ($/troy oz.) COMEX 1209.30 -6.80 -0.56 1,264.90 1,149.70
Silver ($/troy oz.) COMEX 17.280 -0.256 -1.46 18.540 16.000
Currencies London close on March 8 Aluminum ($/mt)* LME 1,867.00 -5.00 -0.27 1,939.00 1,688.50
Tin ($/mt)* LME 19,335.00 55.00 0.29 21,225.00 18,760.00
Yen, euro vs. dollar; dollar vs. major U.S. trading partners US$vs,
Wed YTDchg Copper ($/mt)* LME 5,822.00 -43.50 -0.74 6,156.00 5,518.00
Country/currency in US$ per US$ (%) Lead ($/mt)* LME 2,227.00 2.00 0.09 2,445.00 2,022.00
20%
s Europe Zinc ($/mt)* LME 2,708.00 -29.00 -1.06 2,958.50 2,555.00
Yen Bulgaria lev 0.5394 1.8540 –0.2 Nickel ($/mt)* LME 10,960.00 -10.00 -0.09 11,095.00 9,430.00
10
s Croatia kuna 0.1419 7.048 –1.7 Rubber (Y.01/ton) TCE 258.40 -11.00 -4.08 n.a. n.a.
Euro Euro zone euro 1.0539 0.9489 –0.2
0 Palm oil (MYR/mt) MDEX 2871.00 12.00 0.42 3,123.00 2,723.00
Czech Rep. koruna-b 0.0390 25.640 –0.2
sWSJ Dollar index Denmark krone 0.1418 7.0535 –0.2 Crude oil ($/bbl.) NYMEX 50.30 -2.84 -5.34 56.92 50.05
–10 0.003389 295.09 0.3
Hungary forint NY Harbor ULSD ($/gal.) NYMEX 1.5602 -0.0537 -3.33 1.7752 1.5502
Iceland krona 0.009167 109.09 –3.4 RBOB gasoline ($/gal.) NYMEX 1.6481 -0.0317 -1.89 1.8978 1.6266
–20 Norway krone 0.1173 8.5241 –1.4
0.2450 4.0821 –2.5
Natural gas ($/mmBtu) NYMEX 2.984 0.063 2.16 3.5070 2.7370
2016 2017 Poland zloty
Russia ruble-d 0.01707 58.586 –4.4 Brent crude ($/bbl.) ICE-EU 53.20 -2.72 -4.86 59.53 52.93
US$vs, US$vs,
YTDchg YTDchg Sweden krona 0.1104 9.0540 –0.6 Gas oil ($/ton) ICE-EU 472.50 -18.50 -3.77 523.50 469.75
Wed Wed
Country/currency in US$ per US$ (%) Country/currency in US$ per US$ (%) Switzerland franc 0.9850 1.0152 –0.4
Turkey lira 0.2673 3.7408 6.2 Sources: SIX Financial Information; WSJ Market Data Group
Americas Hong Kong dollar 0.1287 7.7679 0.2
Ukraine hryvnia 0.0371 26.9650 –0.4
Argentina peso-a 0.0639 15.6400 –1.4
India rupee
Indonesia rupiah
0.0150
0.0000747
66.8250
13386
–1.7
–1.0
U.K. pound 1.2147 0.8232 1.6 Cross rates London close on Mar 8
Brazil real 0.3169 3.1551 –3.1 Middle East/Africa
Japan yen 0.008725 114.61 –2.0
Canada dollar 0.7414 1.3489 0.3 USD GBP CHF JPY HKD EUR CDN AUD
Kazakhstan tenge 0.003173 315.20 –5.5 Bahrain dinar 2.6525 0.3770 –0.05
Chile peso 0.001506 663.90 –0.9 Australia 1.3266 1.6113 1.3067 0.0116 0.1708 1.3981 0.9836 ...
Macau pataca 0.1250 7.9993 1.0 Egypt pound-a 0.0565 17.6995 –2.4
Colombia peso 0.0003338 2995.52 –0.2 Canada 1.3489 1.6385 1.3286 0.0118 0.1736 1.4214 ... 1.0167
Malaysia ringgit-c 0.2245 4.4545 –0.7 Israel shekel 0.2709 3.6912 –4.1
Ecuador US dollar-f 1 1 unch
New Zealand dollar 0.6914 1.4463 0.2 Kuwait dinar 3.2708 0.3057 0.04 Euro 0.9489 1.1526 0.9347 0.0083 0.1222 ... 0.7035 0.7153
Mexico peso-a 0.0509 19.6322 –5.3
Pakistan rupee 0.0095 104.725 0.3 Oman sul rial 2.5974 0.3850 0.01 Hong Kong 7.7679 9.4350 7.6524 0.0678 ... 8.1863 5.7589 5.8555
Peru sol 0.3035 3.2944 –1.7
Philippines peso 0.0198 50.429 1.7 Qatar rial 0.2746 3.641 0.03 Japan 114.6140 139.2300 112.9000 ... 14.7540 120.7800 84.9800 86.4000
Uruguay peso-e 0.0353 28.330 –3.5
Singapore dollar 0.7052 1.4181 –2.0 Saudi Arabia riyal 0.2666 3.7505 –0.01 1.0152 1.2332 ... 0.0089 0.1307 1.0699 0.7527 0.7653
Venezuela bolivar 0.100050 10.00 unch Switzerland
South Korea won 0.0008652 1155.75 –4.3 South Africa rand 0.0763 13.1116 –4.2
U.K. 0.8232 ... 0.8109 0.0072 0.1060 0.8676 0.6103 0.6206
Asia-Pacific Sri Lanka rupee 0.0066089 151.31 1.9 Close Net Chg % Chg YTD % Chg
0.7538 1.3266 –4.5 Taiwan dollar 0.03231 30.948 U.S. ... 1.2147 0.9850 0.0087 0.1287 1.0539 0.7414 0.7538
Australia dollar –4.6 WSJ Dollar Index 92.14 0.39 0.43 –0.86
China yuan 0.1447 6.9115 –0.5 Thailand baht 0.02830 35.330 –1.3 Sources: Tullett Prebon, WSJ Market Data Group Source: Tullett Prebon

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

Latest 52 wks ago % YTD% % YTD% % YTD%
Libor Cur Stock Sym Last Chg Chg Cur Stock Sym Last Chg Chg Cur Stock Sym Last Chg Chg Asia Titans 50
One month 0.85778% 0.43800% ¥ TakedaPharm 4502 5222.00 -0.80 8.00 £ RoyDtchShell A RDSA 2126.00 -0.91 -5.20 Last: 150.53 t 0.60, or 0.40% YTD s 6.8%
Three month 1.10900 0.63460 Asia Titans HK$ TencentHoldings 0700 212.20 0.19 11.86 € SAP SAP 89.53 0.41 8.11
Six month 1.42100 0.89840 HK$ AIAGroup 1299 49.70 1.12 13.60 ¥ TokioMarineHldg 8766 4961.00 0.04 3.44 € Sanofi SAN 82.15 0.43 6.83 High 155
One year 1.80122 1.20900 65.22 -0.08 -1.35
¥ AstellasPharma 4503 1533.00 -0.74 -5.57 ¥ ToyotaMtr 7203 6370.00 -0.93 -7.39 € SchneiderElectric SU Close 150
Euro Libor AU$ AustNZBk ANZ 31.60 0.67 3.88 AU$ Wesfarmers WES 43.60 0.69 3.46 € Siemens SIE 124.25 -0.04 6.38 Low 145
One month -0.39643% -0.29000% AU$ BHP BHP 25.23 -1.06 0.68 AU$ WestpacBanking WBC 34.59 0.41 6.10 CHF Syngenta SYNN 441.30 0.80 9.64 t
Three month -0.35714 -0.24214 HK$ BankofChina 3988 3.83 0.26 11.34 AU$ Woolworths WOW 26.06 -0.15 8.13 € Telefonica TEF 10.20 0.59 15.65 140
Six month -0.25014 -0.13729 HK$ CKHutchison 0001 96.40 0.42 9.67 € Total FP 47.16 -1.13 -3.19 50–day 135
One year -0.11400 -0.02329 Stoxx 50 CHF UBSGroup UBSG 15.92 0.13 -0.19
moving average
HK$ CNOOC 0883 9.05 -0.55 -6.70
130
Euribor AU$ CSL CSL 122.49 0.82 21.99 € Unilever UNA 44.80 -0.23 14.52
CHF ABB ABBN 22.94 0.44 6.80
One month -0.37300% -0.29100% ¥ Canon 7751 3392.00 0.12 2.94 £ Unilever ULVR 3901.50 -0.37 18.50 9 16 23 30 6 13 20 27 3 10 17 24 3
€ ASMLHolding ASML 114.35 0.40 7.22
Three month -0.32900 -0.22400 ¥ CentralJapanRwy 9022 18325 -0.08 -4.71 € Vinci DG 70.32 0.37 8.69 Jan. Feb. Mar.
€ AXA CS 23.73 0.61 -1.08
Six month -0.24100 -0.13900 HK$ ChinaConstructnBk 0939 6.19 0.16 3.69 £ VodafoneGroup VOD 203.55 0.57 1.85
€ AirLiquide AI 102.25 0.15 -3.22
One year -0.11100 -0.02300 HK$ ChinaLifeInsurance 2628 23.90 0.84 18.32 CHF ZurichInsurance ZURN 280.80 0.21 0.14
168.35
Yen Libor HK$ ChinaMobile 0941 85.30 0.24 3.77
€
€
Allianz
AB InBev
ALV
ABI 100.45
... 7.23
-1.03 -0.10 DJIA Stoxx 50
One month -0.05986% -0.03443% HK$ ChinaPetro&Chem 0386 6.10 1.33 10.91 £ AstraZeneca AZN 4755.50 0.83 7.17 Last: 3093.18 t 0.10, or 0.003% YTD s 2.7%
Three month -0.00643 -0.00329 AU$ CmwlthBkAust CBA 83.23 -0.37 1.00 € BASF BAS 90.20 -0.31 2.14
$ AmericanExpress AXP 79.04 -0.68 6.70
Six month 0.02429 0.00729 ¥ EastJapanRailway 9020 9938.00 -0.72 -1.60 € BNP Paribas BNP 59.35 0.87 -1.98
$ Apple AAPL 139.06 -0.33 20.07 3100
One year 0.12900 0.10014 ¥ Fanuc 6954 22095 0.14 11.51 £ BT Group BT.A 328.50 -1.20 -10.47
$ Boeing BA 181.74 -0.15 16.74
$ Caterpillar CAT 93.23 -2.81 0.53 3025
Offer Bid ¥ Hitachi 6501 629.20 -0.40 -0.44 € BancoBilVizAr BBVA 6.63 0.61 3.40
TW$ Hon Hai Precisn 2317 90.70 0.22 7.72 $ Chevron CVX 109.62 -1.96 -6.86 2950
Eurodollars € BancoSantander SAN 5.34 1.04 7.72
¥ HondaMotor 7267 3537.00 -0.56 3.57 $ CiscoSystems CSCO 34.01 -0.56 12.54
One month 0.9500% 0.8500% £ Barclays BARC 232.30 2.31 3.96 2875
KRW HyundaiMtr 005380 144500 0.35 -1.03 $ Coca-Cola KO 42.00 0.02 1.30
Three month 1.2000 1.1000 € Bayer BAYN 106.05 -1.03 6.98
2800
HK$ Ind&Comml 1398 5.02 1.01 7.96 $ Disney DIS 110.83 -0.02 6.35
Six month 1.3500 1.2500 £ BP BP. 460.70 -0.50 -9.60
$ DuPont DD 79.75 0.45 8.65
One year 1.7500 1.6500 ¥ JapanTobacco 2914 3766.00 -0.37 -2.03 £ BritishAmTob BATS 5102.00 -0.12 10.40 2725
¥ KDDI 2975.00 -0.40 0.52
$ ExxonMobil XOM 81.03 -1.81 -10.23
Latest 52 wks ago 9433 € Daimler DAI 70.00 -0.14 -1.02 $ GeneralElec GE 29.80 -0.20 -5.70 9 16 23 30 6 13 20 27 3 10 17 24 3
¥ Mitsubishi 8058 2520.00 -0.63 1.20 € DeutscheTelekom DTE 15.96 -0.53 -2.42 $ Jan. Feb. Mar.
Prime rates GoldmanSachs GS 250.24 -0.26 4.51
¥ MitsubishiElectric 6503 1652.00 -0.09 1.38 £ Diageo DGE 2252.50 0.04 6.75 $
U.S. 3.75% 3.50% HomeDepot HD 146.91 0.61 9.57
¥ MitsubishiUFJFin 8306 754.20 -0.13 4.72 € ENI ENI 14.80 -1.66 -4.33 $
Canada 2.70 2.70 Intel INTC 35.62 -0.50 -1.79
1712.50 -0.32 6.57 1671.50
Japan
Hong Kong
1.475
5.00
1.475
5.00
¥
¥
Mitsui
Mizuho Fin
8031
8411 211.30 -0.05 0.71
£
£
GlaxoSmithKline
HSBC Hldgs
GSK
HSBA 667.70
-0.21
0.38
7.01 $
1.64 $
IBM
JPMorganChase
IBM
JPM
179.33
91.22
-0.58
-0.21
8.04
5.71
Dow Jones Industrial Average P/E: 21
¥ NTTDoCoMo 9437 2676.00 -0.69 0.49 € INGGroep INGA 14.03 1.56 4.94 $ J&J JNJ 124.12 0.23 7.73 Last: 20855.73 t 69.03, or 0.33% YTD s 5.5%
Policy rates
ECB 0.00% 0.05%
AU$ NatAustBnk NAB 32.70 0.86 6.62 £ ImperialBrands IMB 3810.00 -0.52 7.55 $ McDonalds MCD 128.13 0.05 5.27
Britain 0.25 0.50
¥ NipponTeleg 9432 4860.00 -0.59 -1.06 € IntesaSanpaolo ISP 2.33 0.17 -3.87 $ Merck MRK 65.79 -0.26 11.75 20900
Switzerland 0.50 0.50
¥ NissanMotor 7201 1147.00 -0.30 -2.42 € LVMHMoetHennessy MC 194.80 0.54 7.39 $ Microsoft MSFT 64.99 0.92 4.59
¥ Panasonic 6752 1251.00 0.28 5.17 £ LloydsBankingGroup LLOY 68.31 1.20 9.28 $ Nike NKE 56.50 -0.09 11.15
20250
Australia 1.50 2.00
HK$ PingAnInsofChina 2318 41.80 0.24 7.73 € LOreal OR 175.10 -0.23 0.98 $ Pfizer PFE 33.91 -0.24 4.40
U.S. discount 1.25 1.00 19600
Fed-funds target 0.50 0.25
$ RelianceIndsGDR RIGD 38.20 -1.42 21.08 £ NationalGrid NG. 975.50 -0.09 2.51 $ Procter&Gamble PG 90.16 -0.14 7.23
Call money 2.50 2.25
KRW SamsungElectronics 005930 2010000 ... 11.54 CHF Nestle NESN 75.00 -0.60 2.67 $ 3M MMM 189.52 0.23 6.13 18950
¥ Seven&I Hldgs 3382 4351.00 -0.89 -2.29 CHF Novartis NOVN 75.30 0.33 1.62 $ Travelers TRV 121.26 -0.17 -0.95
Overnight repurchase rates 18300
U.S. 0.54% 0.41%
¥ SoftBankGroup 9984 8426.00 -0.61 8.51 DKK NovoNordiskB NOVO-B 232.60 -1.02 -8.68 $ UnitedTech UTX 111.76 -0.46 1.95
Euro zone n.a. n.a.
¥ Sony 6758 3513.00 -0.26 7.27 £ Prudential PRU 1636.00 -0.18 0.52 $ UnitedHealth UNH 167.89 0.13 4.91 9 16 23 30 6 13 20 27 3 10 17 24 3
¥ Sumitomo Mitsui 8316 4328.00 0.05 -2.96 £ ReckittBenckiser RB. 7260.00 -0.59 5.43 $ Visa V 88.96 -0.11 14.02 Jan. Feb. Mar.
Sources: WSJ Market Data Group, SIX HK$ SunHngKaiPrp 0016 113.00 ... 15.31 £ RioTinto RIO 3261.00 -0.87 3.25 $ Verizon VZ 49.15 -0.59 -7.92 Note: Price-to-earnings ratios are for trailing 12 months
Financial Information, Tullett TW$ TaiwanSemiMfg 2330 187.00 0.81 3.03 CHF RocheHldgctf ROG 258.60 0.04 11.18 $ Wal-Mart WMT 69.81 0.65 1.00 Sources: WSJ Market Data Group; Birinyi Associates
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.
SoftBank May Shift ARM Stake
BY BEN DUMMETT
AND MAYUMI NEGISHI
Japan’s SoftBank Group
Corp. is in talks to transfer a
roughly 25% stake in U.K.-
based chip designer ARM
Holdings PLC to its proposed
$100 billion technology fund, a
person familiar with the mat-
ter said.
The SoftBank Vision Fund,
which SoftBank’s billionaire
founder Masayoshi Son is hop-
ing to launch in the next few
weeks, is backed by a Saudi
sovereign-wealth fund, as well
as other investors such as Ap-
ple Inc. and Qualcomm Tech-
nologies Inc. Its purpose is to
invest in technologies that Mr.
Son sees as vital to future
trends, such as sensors and ar-
tificial intelligence.
Mr. Son sees ARM—which
SoftBank bought for $32 bil-
lion in September, and whose
Online Bank Sold as Growth Prospects Dim
BY PETER RUDEGEAIR
BankMobile, a two-year-old
digital-banking upstart
founded by a veteran execu-
tive of financial firms, an-
nounced Wednesday that it is
being sold for $175 million af-
ter its parent company said
it wouldn’t be able to operate
the business profitably.
It was the latest move by a
new online bank to reorganize
in a market that has shown
stiff competition from the na-
tion’s largest banks and uncer-
tain growth prospects for
pure-play deposit takers.
Flagship Community Bank,
based in Clearwater, Fla., will
take over all of BankMobile’s
assets and technology, which
includes 1.7 million student
checking accounts and around
$500 million in deposits.
Over 220 staff members, in-
cluding BankMobile Chief Ex-
ecutive Jay Sidhu, who previ-
ously founded and led
Sovereign Bancorp, will join
Flagship. Mr. Sidhu will main-
Tee Off
At Top
Golf
Courses
chip designs are used in the
vast majority of smartphones
and mobile devices—as an im-
portant developer of such
technologies. The talks to
transfer a stake to the Vision
Fund are driven by the desire
of some of the fund’s partners
to have an indirect investment
in ARM, the person familiar
with the matter said.
Negotiations over valuation
for the stake are continuing,
the person said.
Mr. Son is also eager to
transfer a stake in ARM to
help finance debt-strapped
SoftBank’s $25 billion contri-
bution to the Vision Fund, an-
other person familiar with the
matter said. Saudi Arabia’s
Public Investment Fund has
said it would invest up to $45
billion in the fund, with
smaller investments coming
from Apple, Qualcomm, Oracle
Corp. founder Larry Ellison
tain his executive role at Bank-
Mobile’s parent company, Cus-
tomers Bancorp Inc., while
becoming chairman at Flag-
ship, which will be renamed
BankMobile.
BankMobile, which was
launched in 2015 as a division
of Wyomissing, Pa.-based Cus-
tomers, tried to woo young,
smartphone-toting depositors
away from brick-and-mortar
institutions with a promise of
no account fees and straight-
forward terms.
BankMobile, whose deposits
didn’t accrue any interest as
of the end of December, pri-
marily makes money through
fees paid by merchants when
customers used their debit
cards to pay for goods and
services.
That model proved hard to
expand. Bank regulations—
driven by the Durbin Amend-
ment of the 2010 Dodd Frank
law—restrict the income that
firms can earn on interchange
fees once the size of their bal-
ance sheets surpasses $10 bil-
WSJ TALK / E XPERIENCE / OFFE R / GE TAWAY
FINANCE & MARKETS
SoftBank seeks to transfer a 25% stake in ARM to a new tech fund.
and Taiwanese manufacturer
Hon Hai Precision Industry Co.
ARM’s research is likely to
play a key role in guiding Mr.
lion in assets. At the end of
2016, Customers reported total
assets of $9.3 billion.
Because of that thresh-
old, “Customers believes it
will be unable to profitably
operate BankMobile once Cus-
tomers’s consolidated assets
exceed $10 billion,” Mr. Sidhu
Flagship Community
Bank will take over
all of BankMobile’s
assets and technology.
said in a statement released
Wednesday morning. Flagship
Chairman and CEO Frank
Burke said in a statement that
the purchase, expected to
close in the third quarter,
would help expand the bank’s
digital footprint outside of
Florida.
Shares of Customers Ban-
corp were up 0.9% at $34.40
Thursday, March 9, 2017 | B7
sumer and industrial devices
become increasingly con-
nected to one another, said
people close to SoftBank’s
plans. Mr. Son has told ARM it
need not focus on profits, but
instead should accelerate its
research and development, the
people said.
SoftBank, founded in 1981
by Mr. Son, was an early in-
vestor in Yahoo Inc. and Ali-
PAU BARRENA/BLOOMBERG NEWS
baba Group Holding Ltd. He
staged a coup in Japan’s tele-
com market by buying Voda-
fone’s Japan arm in 2006 and
supplying the iPhone exclu-
sively. The three investments
have paid Mr. Son handsomely,
helping him to secure financ-
ing for further deals, including
his 2013 purchase of U.S. mo-
bile carrier Sprint Corp. for
Son’s investments in the Vi- $22 billion.
sion Fund, providing him a The proposed stake transfer
road map on what devices will in ARM was reported earlier
be able to do, when, as con- by the Financial Times.
in afternoon trading Wednes- smaller banks, or those with
day. assets of less than $100 mil-
Large consumer banks such lion.
as Bank of America Corp. and Other, smaller digital-bank-
J.P. Morgan Chase & Co. have ing applications have sold
myriad other sources of reve- themselves after failing to
nue, allowing them to offset achieve scale. Last month, on-
the costs of their size with in- line lender Social Fi-
come from businesses like nance Inc. said it had reached
lending or wealth manage- a deal to buy Zenbanx Holding
ment, as well as to fund digital Ltd., a four-year-old firm that
initiatives. In a presentation at offers online and mobile bank
the LendIt financial-technol- accounts in multiple curren-
ogy conference in New York on cies and performs interna-
Tuesday, Celent senior analyst tional money transfers. The
Bob Meara said that large price tag was an estimated
banks have a huge lead over $100 million.
smaller competitors in mobile But earlier deals in the sec-
and digital banking. tor have recently hit speed
The largest banks, or those bumps, raising the question of
with assets above $100 billion, whether there is any money to
have been offering mobile and be made in digital bank-
digital banking for six years ing. Earlier this year, BBVA
on average, Celent research Compass, the U.S. unit of the
showed, while the smallest large Spanish bank, said it had
banks had only been doing so taken $60 million in goodwill
for about two years. At large impairment related to its 2014
banks, more than one-third of purchase of online bank Sim-
their customers are banking ple. BBVA Compass had also
using mobile, compared with taken a $17 million hit to
only about 9% of customers at goodwill the previous year.
Entertain clients, hit the links with friends or
take colleagues out for a working round. For
the entire month of April, members can enjoy
unlimited access to the exclusive Mint Greens
golf service and their preferential terms at
leading courses in the UK and Ireland.
E XCLUSIVE TO WSJ MEMBER S
UNLOCK ACCESS AT WSJPLUS.COM/GOLF
© 2017 Dow Jones & Co., Inc. All rights reserved. 6DJ5079
China Halt
On Bitcoin
Continues
BY CHAO DENG
BEIJING—China’s three
largest bitcoin exchanges said
their suspensions of with-
drawals would continue indefi-
nitely as they upgrade systems
to meet regulators’ require-
ments.
“Bitcoin withdrawal ser-
vices can resume once regula-
tors give permission,” the OK-
Coin, Huobi and BTCC
exchanges said in separate
statements Wednesday. The
People’s Bank of China last
month warned them to follow
rules on money laundering and
foreign-exchange management.
The February warning in-
cluded the threat of shutdown
if the exchanges skirt regula-
tions. At that time, OKCoin
and Huobi said they would
suspend bitcoin withdrawals
for one month; BTCC didn’t
say how long its bitcoin sus-
pension would last.
The central bank’s investi-
gation of domestic bitcoin ex-
changes continues, according
to a person familiar with the
probe. It was launched in Jan-
uary as Chinese investors’ de-
mand for bitcoin rose, along
with authorities’ worries that
the virtual currency could be
used to surreptitiously move
money outside the country.
The PBOC didn’t respond to
a request for comment.
Bitcoin prices took a leg
down, but have since recov-
ered to hit a record $1,290 on
March 3. Bitcoin was trading
at $1,224 on Wednesday, ac-
cording to CoinDesk.
Prices have been buoyed by
demand from Japan as well as
speculation about a possible
bitcoin exchange-traded fund.
China was once the domi-
nant market for bitcoin trad-
ing, but its share has declined
to about 24% in the past
month as scrutiny has risen,
according to database Bitcoin-
ity. Tokyo-based BitFlyer is
the volume leader, with 17% of
global trading.
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
B8 | Thursday, March 9, 2017
Dutch Vote Could Stir Up Markets
If anti-EU candidate
tops expectations,
fears over France’s
elections may rise
BY CHRISTOPHER WHITTALL
Even as investors fret over
the French election, they
seemed relaxed about another
national poll where a euro-
skeptic candidate could do
well—the Netherlands.
Next week the Dutch go to
the polls in the first of a series
of European elections.
The anti-European Union,
anti-immigration Party for
Freedom, or PVV, led by Geert
Wilders, who has been dubbed
the “Dutch Trump,” has been
doing well in the polls.
Mr. Wilders is famed for his
anti-Islam stance, but he also
wants to pull the Netherlands
out of the EU in what would
be a blow to the euro. But
markets seem calm, so what
gives?
Could Mr. Wilders win
power?
It is unlikely. The PVV led
in the polls for most of last
year, but support has fallen
since peaking in mid-Decem-
ber, according to Peilingwijzer,
a consolidated Dutch polling
indicator.
The latest polls suggest the
PVV will come in second be-
hind the more centrist Peo-
ple’s Party for Freedom and
Democracy, led by the current
prime minister, Mark Rutte.
Even if Mr. Wilders manages
to turn that around, he is still
unlikely to command a major-
ity in Parliament. The main
Dutch parties have said they
won’t enter a coalition with
the PVV, effectively blocking
Mr. Wilders from becoming
prime minister.
“A lot has to do with the
system,” said Jeroen Blokland,
a senior portfolio manager at
Dutch asset-manager Robeco.
“If you look at the possible
[election results] and the pos-
Email: heard@wsj.com
Reaping IPO Riches Isn’t a Snap
Investors wondering
whether Snap is the new
Facebook appear to have
gained a healthy dose of
skepticism. If history is any
guide, that is the right re-
sponse.
Shares of the Snapchat
owner gained 59% from their
$17 initial public offering
price through Friday. Since
then, they had fallen 21% as of
intraday trading Wednesday
amid a handful of new “sell”
ratings from analysts. Snap’s
well-known brand and cachet
among young people have at-
tracted investors. But, statisti-
cally speaking, those who
bought shares on its first day
of trading are more likely to
lose money than make money
over the next five years.
Looking at the 4,331 com-
panies that went public be-
tween 1980 and 2014 with in-
flation-adjusted sales of
more than $50 million, 51%
had negative five-year re-
turns as measured from their
closing price on the first day
of trading, according to Jay
Ritter, a professor of finance
at the University of Florida.
People who invested in the
Gas Deal Shows Why It Is Hard for U.S. to Buy in China
It wouldn’t take much in
price terms to break the re-
cord for the biggest U.S.
takeover of a Chinese com-
pany—but getting such deals
done is hard.
Air Products & Chemicals
is learning that lesson as it
attempts to buy Yingde
Gases, its biggest rival in
China, for up to $1.5 billion.
The nonbinding bid, made
public in January, would rep-
resent the biggest acquisi-
tion of a Chinese company by
a U.S. one, trumping Joy
Global’s $1.4 billion record
takeover of International
Mining Machinery in 2012.
The move by Air Products,
an industrial-gas supplier,
was an opportunistic one. Its
Top Contenders
Dutch consolidated polling for
selected parties
People’s Party for Freedom
and Democracy
Party for Freedom
Christian Democratic Appeal
Democrats 66
Socialist Party
Labour Party
Source: Peilingwijzer, polling indicator
created by Tom Louwerse, assistant political
science professor at Leiden University.
THE WALL STREET JOURNAL.
Calmer in Amsterdam
Gap in 10-year government-bond
yields over German debt
0.8 percentage points
France
0.6 Netherlands
0.4
0.2
0 Chevron fell 2% and Exxon
’16
Source: Tradeweb
THE WALL STREET JOURNAL.
sible coalitions…it’s virtually
impossible for Wilders to [take
the Netherlands] out of the
European Union.”
How have markets re-
acted?
Calmly, so far. The gap in
yield between Dutch govern-
ment bonds and haven German
debt edged higher in Novem-
ber. That coincided with PVV
gains in the polls, which was
also around the time of Donald
Trump’s U.S. election victory.
Yields rise as prices fall.
But the moves have been
muted. That contrasts with the
far heavier investor selling of
French government debt this
HEARD ON THE STREET
Great Expectations
Number of companies ranked by five-year return from their IPO
between 1980 and 2014
RETURN, %
<0%
0.1-100
101-200
201-300
301-400
401-500
501-1,000
>1,000
Note: As measured from first-day close. Excludes companies with inflation-adjusted sales of
less than $50 million.
broader market over the
same period would have
earned returns of 65.3%.
Facebook, whose shares
have climbed 259% since its
May 2012 IPO, looks likely to
fall among the 10.6% of com-
panies whose shares have
earned investors a five-year
total return greater than
200%, Mr. Ritter says.
Google, now part of Alpha-
bet, is among the 6.4% of
IPOs to exceed 300% five-
year returns. Meanwhile, Mi-
Air Share
Latest 12-month* revenue
BILLION
Linde
Air Liquide
Praxair
Air Products
Taiyo Nippon
Yingde
*Ended in June for Yingde, September for
Linde and December for others
Source: S&P Global Market Intelligence
THE WALL STREET JOURNAL.
biggest rivals globally, Linde
and Praxair, are merging,
and this would allow Air
Products to nearly double its
position in China.
When Air Products made
its initial bid, shares of
MARKETS
16.1%
14.7%
12.1%
11.7%
9.0%
7.9%
ROBIN VAN LONKHUIJSEN/AGENCE FRANCE-PRESSE/GETTY IMAGES
’17
Euroskeptic Geert Wilders has been doing well in Netherlands polls, but isn’t expected to win the vote.
year when polls showed far-
right, anti-EU candidate Ma-
rine Le Pen gaining traction
ahead of this spring’s presi-
dential election. Ms. Le Pen
has vowed to pull France out
the euro, potentially bringing
an end to the common-cur-
rency project.
The Netherlands AEX stock
index, meanwhile, has outper-
formed the broader Stoxx Eu-
rope 600 index this year. That
could in part be because of the
international nature of the in-
dex. The U.S. makes up the
largest portion of revenue at
21%, according to FactSet, fol-
lowed by 14.4% from the Neth-
FINANCIAL ANALYSIS & COMMENTARY
COMPANIES
2,207
1,160
500
182
110
48
84
40
crosoft and Cisco Systems
are two of only 40 compa-
nies—0.9% of the total—
whose five-year returns ex-
ceeded 1,000%.
The reason for the share-
price weakness is that just a
few companies live up to in-
flated expectations. For ev-
ery Facebook, there is a
Twitter, whose shares are
down 66% from their first
day of trading. Indeed, com-
panies with high revenue
growth in the year before
Yingde Gases were hovering
near lows amid a boardroom
tussle.
That fight may have
$19.5 reached its climax Wednes-
$19.3 day, when shareholders
$10.5 voted to keep two founders,
$9.5 Sun Zhongguo and Trevor
Strutt, on the board, while
$5.3
ousting another founder,
$1.2
Chairman Zhao Xiangti.
The battle now moves on
to who buys the company.
Messrs. Sun and Strutt, who
own around 30% of Yingde,
have committed to sell their
stakes to PAG, a Hong Kong
private-equity firm, unless
there is a better offer. Mr.
Zhao, who owns around 12%,
has made a similar pledge.
Air Products will find it
erlands and 7.1% from main-
land China.
So aren’t investors paying
attention to the Dutch elec-
tions?
Far from it. Fund managers
are just assigning a low proba-
bility to Mr. Wilders being
able to form a government be-
cause the parliamentary sys-
tem in the Netherlands makes
it hard for him to do so. But
they will still pay close atten-
tion to the result.
If the PVV does better than
the polling currently suggests,
it could lend credence to the
idea that polls don’t reflect
people’s true voting inten-
their IPO tend to revert to
the mean, according to Panos
N. Patatoukas, an accounting
professor at the University of
California, Berkeley. Looking
at IPOs since the mid-1990s,
he found that revenue
growth tends to decelerate
significantly after the IPO,
slowing to roughly the econ-
omy’s rate of growth within
a decade
Applying those historical
trends to Snap, whose reve-
nue shot up 589% in 2016,
suggests growth will be
220% in 2017, falling to 8.4%
by 2021. That would put its
2021 revenue at $3.96 billion,
Mr. Patatoukas estimates. If
the shares don’t move for the
next five years, the company
would still be trading at
nearly eight times sales.
To own these shares, in-
vestors are betting that Snap
will far outperform the aver-
age IPO. “You will miss the
Facebooks but aren’t going
to overpay for the Twitters,”
Mr. Patatoukas said.
Given the odds of a Face-
book, that seems a risk
worth taking with Snap.
—Miriam Gottfried
hard to beat PAG’s offer for
one crucial reason: PAG’s
isn’t conditional on approval
from China’s Ministry of
Commerce. PAG has deep
connections to the mainland,
Air Products could
still prevail, but the
offering price would
have to be higher.
with TPG alumnus and CEO
Shan Weijian, born in
China—making the buy seem
a reasonable risk. Plus, the
company is a financial buyer,
THE WALL STREET JOURNAL.
tions, particularly when it
comes to antiestablishment
candidates. That would have
implications for the coming
vote in France, the eurozone’s
second-largest economy,
where the presidential system
makes it easier for Ms. Le Pen
to win power. “I think the
market would have to put
[Ms.] Le Pen’s odds higher” in
that scenario, said Andrew
Sheets, chief cross-asset strat-
egist at Morgan Stanley.
Similarly, a weak perfor-
mance for the PVV could help
ease investor fears about non-
mainstream parties sweeping
to power in Europe.
OVERHEARD
It is too early to say
whether Nintendo’s Switch
game console, launched Fri-
day, will leave a bitter taste
for fans like its ill-fated pre-
decessor, the Wii U. The
same can’t be said for the
games themselves; they defi-
nitely will.
Gaming reporters, includ-
ing one at IGN, have been
testing the new system along
with the games.
That has extended to a
taste test. They taste awful,
which is quite intentional.
Nintendo has added a bit-
tering agent also used in rat
poison, denatonium benzoate,
to discourage young children
from eating the small car-
tridges.
Don’t worry, the material
isn’t toxic.
Much like earlier itera-
tions of Nintendo’s games,
many appeal to young chil-
dren who sometimes choke
on toys. Unlike the bulkier
cartridges many adults recall
from their game-playing
days, the current ones are
also small enough to swal-
low.
rather than a consolidator,
allaying antitrust concerns.
Air Products could still
prevail with a bid that is
conditional on Ministry of
Commerce approval, but the
price would have to be sub-
stantially higher to convince
shareholders to bear the reg-
ulatory risk.
Yingde has hired Morgan
Stanley to run a sales pro-
cess, and investors seem to
believe another bid—maybe
from a third party—is a pos-
sibility. The stock traded up
2.6% Wednesday—at 6.3%
above PAG’s offer price. So in
the end, investors shouldn’t
hold their breath for a win-
ning bid to blow across the
Pacific. —Jacky Wong
Fall in Oil
Weighs
On Dow
BY RIVA GOLD
The Dow Jones Industrial
Average declined Wednesday
as a drop in oil prices hit en-
ergy companies.
Still, overall stock moves
were muted, as they have been
in recent days, after major in-
dexes climbed to records last
week.
WEDNESDAY’S The Dow
MARKETS Jones In-
dustrial Av-
erage lost
69.03 points, or 0.3%, to
20855.73. The S&P 500 lost
0.2%, and the Nasdaq Compos-
ite climbed less than 0.1%.
The Stoxx Europe 600 rose
less than 0.1% as banks gained.
The energy sector of the
S&P 500 was down 2.3% in
late trading as the price of
U.S. crude oil fell to its lowest
close since December after
federal data showed an in-
crease in inventories and
growth in shale production.
U.S. crude for April delivery
dropped $2.86, or 5.4%, to
$50.28 a barrel.
Mobil dropped 1.8%, weighing
on the Dow industrials.
Many investors were fo-
cused on coming meetings of
the European Central Bank on
Thursday and the Federal Re-
serve on March 14-15, when
the Fed is widely expected to
nudge borrowing costs higher.
Ultraloose monetary policy
has underpinned years of
stock-market gains, but stocks
have been relatively resilient
to recent signals that the Fed
may be moving faster than
previously expected.
The ADP National Employ-
ment Report on Wednesday
pointed to continued strength in
the U.S. labor market ahead of
Friday’s monthly jobs report—
the last major piece of data the
Fed will consider before making
a call on rates next week.
WSJ.com/Heard
Adidas Still
Outrunning
Rival Nike
Sports fans are often em-
bittered by years of disap-
pointment after starting to
support a team just as its
potential peaks. The same
risk faces investors buying
into the extraordinary re-
vival of Adidas.
The company shot the
lights out last year, with
constant-currency sales
growth of 18%. The growth
rate slowed in the final quar-
ter, and the company pub-
lished an updated yearly
growth estimate of 10% to
12% for the period 2015 to
2020. Analysts had been ex-
pecting more cautious tar-
gets, and the shares surged
Wednesday to a high.
They now fetch 29 times
forward earnings, according
to FactSet, compared with
22 times for rival Nike. Ad-
mittedly, this makes Adidas
sound more expensive than
it is. Earnings estimates will
rise in the wake of Wednes-
day’s bullish management
projections, and not just be-
cause of faster top-line
growth: The company has
considerable scope to im-
prove its margins, which are
roughly half those of Nike’s.
Based on his performance at
consumer-products group
Henkel, new Chief Executive
Kasper Rorsted has a reputa-
tion for finding savings.
The U.S. is the key battle-
ground. Adidas said it would
continue to invest dispropor-
tionately in the world’s larg-
est sporting-goods market,
to keep its core label hot and
to rehabilitate its underper-
forming second brand, Ree-
bok. But it shouldn’t count
on unlimited market-share
gains at Nike’s expense.
Adidas’s new fans now
have lofty expectations. Mr.
Rorsted will need good for-
tune in addition to hard
work to keep them in the
stands. —Stephen Wilmot