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TUESDAY, JANUARY 8, 2013 WSJ.com

BofAResolvesMortgageHeadache
BY NICK TIMIRAOS
AND CHRISTIAN BERTHELSEN
Bank of America Corp.
reached an $11.6 billion settle-
ment with mortgage-finance
giant Fannie Mae to settle a
long-running standoff over
soured mortgage loans, its
latest bid to resolve the
bank’s biggest hangover from
the acquisition of Country-
wide Financial Corp.
The settlement includes a
$3.55 billion cash payment
and $6.75 billion in repur-
chases of soured loans.
Bank of America also
agreed to pay $1.3 billion in
fines related to the bank’s in-
adequate processing of loan
payments.
Separately, 10 banks
agreed to a settlement worth
$8.5 billion with federal bank-
ing regulators over improper
processing of foreclosed
loans.
Monday’s settlements il-
lustrate how difficult it has
been for banks to isolate their
legal exposures to the housing
boom and bust.
Bank of America had paid
$1.3 billion to Fannie Mae two
years ago as part of a smaller
settlement, and it was one of
five banks that agreed to a
$25 billion deal with the
Obama administration and 49
state attorneys general last
year over foreclosure prac-
tices.
Bank of America, the sec-
ond-largest U.S. bank by as-
sets, said it would take pretax
charges in the fourth quarter
of $2.7 billion on the Fannie
settlements and $2.5 billion
on other mortgage-related
matters, including Monday’s
foreclosure processing accord.
The Fannie deal resolves than $44 billion in litigation
the biggest piece of outstand- expenses, payouts and re-
ing litigation facing the bank, serves, according to company
which settled class-action figures.
lawsuits over its 2008 acqui- The funds are meant to ab-
sition of Merrill Lynch for sorb a litany of Merrill-re-
$2.4 billion in the third quar- lated lawsuits and claims
ter of 2012. Please turn to page 21
Decisions to buy Country-
wide and Merrill have forced  Citi’s new CEO launches top-
Bank of America, run since level shake-up........................... 17
2010 by Chief Executive Brian  BofA’s long and winding
Moynihan, to set aside more mortgage road.......................... 31

Berlusconi
Is Crafting
A Comeback
BY CHRISTOPHER EMSDEN
AND LIAM MOLONEY

ROME—Silvio Berlusconi
on Monday said he has
forged an alliance with the
Northern League party, a
partnership likely to put the
debate over how much more
austerity Italians should en-
dure to comply with Euro-
pean Union fiscal rules into
sharper focus.
Pledging to abolish a
property tax on primary resi-
dences that helped Italy re-
duce its budget deficit last
year and to cut the size of It-
aly’s Parliament by half, the
former prime minister’s Peo-
ple of Freedom party has
seen its popularity in public-
opinion polls rise to around
20% recently from 15% a few
weeks ago.
European Pressphoto Agency

Mr. Berlusconi and his

right-of-center party won
three previous elections in
alliance with the Northern
League, which advocates giv-
ing Italy’s prosperous north
more power to run its own
Silvio Berlusconi appeared on Radio RTL in Milan on Monday. The former prime minister, whose party is rising in polls, hasn’t said whether he would seek the job again. Please turn to page 4

ProtestsWidenAgainstCensorshipinChina Inside

BY JOSH CHIN
AND BRIAN SPEGELE
BEIJING—Protests by
journalists over alleged
heavy-handed censorship at
one of China’s most daring
newspapers have garnered
high-profile support in the
media and blogosphere, with
prominent academics, blog-
gers and even movie stars
joining in.
The outburst has been
fueled in part by expectations
of change under new Commu-
nist Party General Secretary
Xi Jinping, who has stirred
up hopes since taking office
in November with optimistic
comments about the “great
rejuvenation of the Chinese
nation.”
On Monday, several hun-
dred protesters gathered out-
side the headquarters of the
Southern Weekly newspaper
in Guangzhou, the capital of
Guangdong province, to vent
their anger at the reworking
of a New Year’s editorial that
originally called for greater
legal rights but ended up as a
celebration of the govern-
ment’s achievements.
“Abandon press censor-
ship. Chinese people want
freedom!” read a handwritten
placard attached to a bou-
quet of flowers left in front
of the main gates of the
building.
Demonstrators laid
bunches of chrysanthemums,
a flower associated with fu-
nerals, outside the newspa-
per’s offices, in mock mourn-
ing for the demise of the
newspaper’s hard-hitting
style, photographs posted on
Sina Corp.’s Weibo micro-
blogging service showed.
One image showed a pro-
tester seated on a sidewalk
wrapped head-to-toe in news-
papers like a bandaged burn
victim.
Reports circulating online
said Southern Weekly’s news
Please turn to page 3
Air France cuts frills—
 More state-run media seek and prices—to combat
public listings............................... 3 budget rivals
 China’s two-speed private-
equity market........................... 26
Business ................ 17
2 | Tuesday, January 8, 2013
i i i
Business & Finance
n The holiday period failed to
significantly boost sales in the
U.K.’s struggling retail sector, add-
ing to fears that the economy con-
tracted in the final quarter of
2012. 5
n Japanese executives warned
that yen weakness could go too
far if the currency loses value too
fast or if it leaves the country ex-
posed to soaring fuel costs. 10
n Google’s Schmidt landed in
North Korea, which his delegation
said he is visiting—over objec-
tions from Washington—because
he wants a look at the economy
and social media there. 11
n Two European airlines em-
barked on new initiatives to wrest
back market share as they strug-
gle to run short-haul networks
that can compete with discount
alternatives. 17
n As big law firms grapple with
continued lackluster demand,
some are handing out pink slips to
partners who don’t boost the
firm’s bottom line enough. 18
n Bumi co-founder Rothschild
called for a general shareholder
Reuters
meeting with the aim of replacing
most of the company’s directors,
deepening the battle for control of
the Indonesian coal miner. 19
n Shell’s Kulluk oil rig was pulled
off the Alaskan island where it
was grounded for a week, and was
moving slowly toward Kiliuda Bay,
where damage to the rig can be
more fully assessed. 19
n France is studying ways to
push large Web companies to pay
local Internet providers more for
bandwidth, in a sign of how Euro-
pean countries are trying to wring
revenue out of largely American
businesses such as Google. 20
n LG will boost investment in its
electronics business by nearly a
third this year as it looks to gain
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What’s News—
MARKING ORTHODOX CHRISTMAS: Belarussian Interior Ministry servicemen line up to kiss a cross after a service at a base in Minsk on Monday. Many Orthodox
Christians celebrate the holiday on Jan. 7 based on the Julian calendar, two weeks after most Christian churches in the West that follow the Gregorian calendar.
an edge against Samsung and
struggling rivals in Japan. 20
n Singapore Airlines is offering
unpaid leave to its most senior pi-
lots, as premium Asian carriers
seek to contain costs amid weak
demand for long-haul travel. 22
n Airport workers extinguished
a fire in a parked Boeing 787
Dreamliner that had recently un-
loaded passengers after arriving
at Boston’s Logan International
Airport from Tokyo. 22
n Volvo Car reported a 6% drop
in 2012 vehicle sales on weaker
PAGE TWO
demand in China and Europe and
warned this year’s sales and profit
margins would be pressured. 23
n A change of rules allowing cor-
porate debt to count toward funds
that banks must hold to guard
against potential financial stress
may push bond prices even higher,
analysts say. 25
i i i n Venezuelan authorities contin-
World-Wide
n The opening of Berlin’s new
airport has been put off again for
at least another year, raising the
possibility that the airport con-
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struction’s unending delays and
cost overruns could cost the city’s
mayor his job. 4
n U.K. Prime Minister Cameron
and his deputy outlined plans for
the second half of their term, in-
cluding house-building measures,
investment in transport infra-
structure and pension reform. 5
ued their search for a small char-
ter plane that went missing off
the country’s coast on Friday car-
rying the chief executive of Italy’s
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ONLINE TODAY
U.K. Coalition Statement
europe.wsj.com/uk
‘Our resolve and
sense of shared
purpose have ...
grown over time.’
U.K. Prime Minister David Cameron
and deputy Nick Clegg on the coalition
prospects between the Conservative
and the Liberal Democrat parties.
THE WALL STREET JOURNAL.
n A string of wildfires burned
across Australia’s south and east
following a record run of swelter-
ing heat, while residents of New
South Wales state prepared for a
major heat wave. 9
n An Indian magistrate ruled
that the media won’t be allowed
to attend pretrial hearings or the
trial of the five men accused of
raping and killing a young student
in the Indian capital. 9
n A rising body count from a se-
ries of shootings in the Philip-
pines is reviving calls for leaders
to strengthen gun laws. 11
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THE WALL STREET JOURNAL.
Xinhua’s Internet Arm Seeks an IPO
BY SHEN HONG
SHANGHAI—China’s official news
service plans an initial public offer-
ing for its digital arm, potentially
giving it needed heft in a market
where staid state-run media com-
pete for an audience with attention-
grabbing headlines and slide shows
of attractive women.
If the plan proceeds, China’s
state-run Xinhua News Agency
would become the second of Bei-
jing’s major propaganda organs to
sell stock to the public. In April,
People.cn Co., the website of the
Communist Party’s flagship newspa-
per, the People’s Daily, sold shares
for the first time, underscoring the
government’s efforts to use modern
tools for raising capital to boost the
influence of the propaganda ma-
chines that Beijing has used for de-
cades to deliver its message to the
Chinese people. The government
hopes its propaganda arms can help
it to promote “soft power”—cultural
heft around the world through me-
dia like movies and television
shows—as well as to develop a
thriving domestic media industry.
Beijing has kept a tight grip on
its message through the media, en-
acting new online controls. It also is
Protests Against Chinese Media Censorship Widen
Continued from first page
staff had staged a strike to protest
the rewriting of the editorial, but
the accounts couldn’t be confirmed.
Calls to the news department rang
unanswered on Monday, suggesting
the newsroom was empty. “That
has never happened before,” said a
receptionist who tried to put a call
through.
Mr. Xi, China’s new leader,
hasn’t said he intends to pursue
meaningful political overhauls. But
he has adopted an informal style
and dispensed with wooden Com-
munist Party rhetoric, an approach
that some see as a signal that he
plans to make his administration
more open and responsive to peo-
ple’s concerns.
In the kind of statement that
has fed hopes that Mr. Xi will
soften the edges of an authoritarian
government, China’s official Xinhua
news agency on Monday announced
planned reforms to China’s system
of “re-education through labor.”
The system allows police to sen-
tence people suspected of minor of-
fenses such as petty theft or prosti-
tution, as well as petitioners and
others who create a political nui-
sance for authorities, to up to four
years of forced labor without judi-
cial review.
The forced-labor system came
under fire last summer after it was
revealed that a woman named Tang
Hui had been sentenced to 1½ years
in a labor camp after “disturbing
social order” by protesting for
tougher punishment of seven men
who raped her daughter and forced
her into prostitution.
A group of lawyers issued an
open letter calling for reform of the
system amid public anger over the
treatment of Ms. Tang, who was re-
leased shortly after the details of
her case emerged.
A number of media organiza-
tions have rallied behind journalists
Associated Press
at Southern Weekly by posting
veiled messages of support on so-
cial media and their own websites.
Sina Corp.’s Tianjin news portal, for
example, arranged its front page so
grappling with protests over recent
censorship at an influential newspa-
per in southern China.
Xinhua Network Co.—which op-
erates the 82-year-old news agency’s
main website, Xinhuanet.com—has
applied for approval for a share of-
fering ahead of a listing on the
Shanghai Stock Exchange, according
to a statement posted on the China
Securities Regulatory Commission’s
website Friday.
The regulator, which is reviewing
the proposal, didn’t offer crucial de-
tails such as how much the company
aims to raise and when it expects to
list. Xinhua officials didn’t respond
to requests for comment.
People.cn raised 1.4 billion yuan
($225 million) in its IPO, nearly
three times the amount initially
planned, followed by a strong debut
in which its shares rose as much as
74% on the first day of trading.
Xinhua’s online arm runs one of
China’s most colorful state-run me-
dia websites. Xinhuanet.com offers
everything from predictable news on
senior Chinese leaders’ whereabouts
to photos of “breathtaking models”
and how certain Japanese women
tattoo themselves.
People.cn uses a similar recipe of
attention-grabbing headlines and
that the first character in each
headline spelled out an acrostic
message: “Go Southern Weekly.”
Chinese writer and race-car
driver Han Han described in his
popular blog Monday how Chinese
writers live in constant uncertainty
over what they can and can’t say.
“Even if you want to talk about
the regulations, they won’t clearly
tell you what they are so every per-
son more or less is in violation of
the ‘regulations,’ ” he wrote. He la-
mented what he described as the
anonymity of an invisible Chinese
censor. “He covers your mouth and
tells everyone you’re cheerful,” the
post read.
Southern Weekly’s problems are
also attracting attention from ce-
lebrities who normally avoid politi-
cal commentary. Film actress Yao
A man wore a mask reading ‘Silent.’ His sign reads: ‘Let’s chase our dreams together, go Southern Weekly newspaper.’
NEWS
Communist Capital
Share price of People.cn Co., the
online arm of the People’s Daily.
Monday’s close: 38.16 yuan,
up 2.6%
50
45
40
35
30
2012 '13
Source: SIX Financial Information
The Wall Street Journal
prurient slide shows to stand out. In
November it drew international
headlines when it quoted verbatim
from an article in the satirical news-
paper the Onion that proclaimed
North Korean dictator Kim Jong Eun
the “sexiest man alive for 2012.”
Xinhuanet attracted an average
of 45,770 visitors for every million
people daily during the previous
three months, compared with Peo-
ple.cn’s 43,828 and search engine
Chen, a social-media star with
more than 31 million followers on
Sina Weibo, posted a quote from
Alexander Solzhenitsyn—“One
word of truth outweighs the whole
world”—over the Southern Weekly
logo in a message that had been re-
posted nearly 60,000 times by
Monday evening.
Even the Communist Party’s
flagship People’s Daily appeared to
argue for a softer approach, saying
that how to bring propaganda in
line with the times “has once again
become a hot topic.”
It went on to say that a stable
society “must rest on a healthy
public opinion environment for
support.”
The commentary argued that
challenges facing China’s propa-
ganda officials in China were un-
Baidu Inc.’s 613,726, according to
data from the China Website Rank-
ing, which is overseen by the semi-
official Internet Society of China.
China’s Internet market is grow-
ing quickly. Internet advertising in
China jumped to nearly $6 billion in
2011, up 26% from a year earlier, ac-
cording to Beijing-based advertising
company Charm Communications.
China’s Internet search market was
valued at more than $3 billion last
year, according to research group
Analysys International.
China’s traditional main propa-
ganda organs face intense competi-
tion from other newspapers and
broadcasters as well as a thriving
social-media industry, but touting
the Communist Party line can be
profitable. People.cn recorded a net
profit of 63.42 million yuan in the
three months ended Sept. 30, up
44% from a year earlier as the news
portal took advantage of strong gov-
ernment support and rapidly ex-
panded its information services
business and advertisement sales.
“Given the strong performance of
the first listed official media, Peo-
ple.cn, Xinhua is likely to follow
suit,” said Tebon Securities analyst
Huang Cendong.
Xinhua, which means New China
precedented, and said “blunt
preaching” must be firmly rejected.
The Southern Weekly protests
are an unusually direct challenge to
provincial government and party
leaders in Guangdong province,
China’s export-manufacturing pow-
erhouse and a trailblazer for eco-
nomic overhauls.
An original draft of the appar-
ently censored editorial that
sparked the national furor called on
authorities to respect the country’s
own constitution, which among
other things guarantees the right of
free speech and assembly.
Southern Weekly employees said
Guangdong provincial propaganda
chief Tuo Zhen rewrote the edito-
rial. Employees at the newspaper
are demanding Mr. Tuo’s resigna-
tion. Mr. Tuo couldn’t be reached,
Tuesday, January 8, 2013 | 3
in Chinese, is a pillar of China’s pro-
paganda machine. Propaganda offi-
cials sometimes require local Chi-
nese newspapers to run sanctioned
Xinhua stories on controversial sub-
jects instead of offering their own
coverage.
Publishing news in seven lan-
guages, the Xinhua News Agency has
150 bureaus around the world. Its
businesses include newspapers, mag-
azines, television, databases and on-
line search. Xinhua Network—which
describes itself as “an important in-
formation organ of the central gov-
ernment” that also focuses on “set-
ting a good image of China abroad”—
also has built various government
websites, including the official Web
portal of the central government.
The Chinese Communists
founded the Red China News Agency
at their “revolutionary base” in Rui-
jin in the central-south Jiangxi prov-
ince in 1931, in the midst of a civil
war against the ruling Nationalists.
They renamed it in 1937 after it had
been moved to Yan’an in western
China after the Red Army completed
the historic Long March, where Mao
Zedong consolidated his power over
the party.
—Amy Li and Paul Mozur
contributed to this article.
and local propaganda officials de-
clined to comment.
“Readers should decide whether
content is good or bad. It isn’t for
officials to judge,” said Ah Qiang, a
writer and public-rights activist
who attended Monday’s protest.
“Everyone knows about media cen-
sorship, and for the most part ev-
eryone has learned to deal with it.
But this time they crossed a line
and that caused people to unleash
a lot of pent-up frustration.”
Adding to the public anger was
a message posted to the newspa-
per’s Sina Weibo account late Sun-
day night that denied censorship of
the editorial, saying “the relevant
online rumors aren’t true.” A short
while later, several dozen Southern
Weekly employees released a state-
ment that the account had been
forcibly taken over and that the
message denying the censorship
was untrue.
The protests outside the news-
paper’s offices on Monday were or-
derly, with police intervening to en-
sure the smooth flow of traffic
outside the newspaper’s offices but
otherwise standing aside, demon-
strators said. The crowd included
elderly retirees as well as middle-
school-aged children, according to
the witnesses.
“I was deeply moved,” said Ye
Du, a dissident writer who spent
2½ hours at the protest before be-
ing forcibly taken home by state se-
curity agents. “This wasn’t just
about Southern Weekly. It was
about Chinese peoples’ desire for
more political freedom.”
Some journalists affiliated with
Southern Weekly have portrayed
the protests as targeting Mr. Tuo
rather than the political system as
a whole.
“Tuo set up a prepublication
censorship system that Guangzhou
didn’t have previously. There was
censorship before, but it wasn’t in-
stitutionalized,” said Xiao Shu, a
former senior commentator at the
newspaper. “If Tuo steps down, ev-
eryone wins. Southern Weekly
wins, and so does the party.”
4 | Tuesday, January 8, 2013 THE WALL STREET JOURNAL.

EUROPE NEWS EUROPE WATCH

 GREECE
Government’s Majority
Shrinks Over Tax Scandal
A junior partner in Greece’s three-
party governing coalition kicked two of
its lawmakers out of its parliamentary
group, reducing the government’s
majority, as a result of a scandal over a
list of Greeks with Swiss bank
accounts.
The Democratic Left party expelled
Odysseas Voudouris and Paris
Moutsinas for saying they would
support the opposition Syriza party’s
proposal to impeach former Finance
Minister Evangelos Venizelos, who
heads the coalition’s Socialist party,
over alleged mishandling of the list.
French authorities in 2010 gave the
Greek government the names of 2,000
Greeks who held accounts at HSBC
bank in Switzerland until 2007. The list
was drawn from data on 24,000
customers reportedly stolen from the
bank. Critics accuse successive
governments of failing for more than
two years to use the data to
investigate potential tax evasion.
Agence France-Presse/Getty Images
Associated Press
Mayor Klaus Wowereit speaking at a news conference Monday in Berlin, where he announced another setback for the new Berlin Brandenburg international airport.
 BULGARIA

Airport Delays Hit Berlin Mayor

BY WILLIAM BOSTON
BERLIN—The opening of Berlin’s
new airport has been put off again
for at least another year, causing
headaches for travelers and prob-
lems for some businesses, and rais-
ing the possibility that the unending
delays and cost overruns could cost
the city’s mayor his job.
The latest postponement is an-
other setback for Berlin Mayor
Klaus Wowereit, a leading Social
Democrat who famously dubbed the
city “poor but sexy” and was one of
Germany’s most popular politicians
until the airport debacle dragged
him down in opinion polls and now
threatens his political career.
On Monday, Mr. Wowereit came
under pressure to step down as
head of the Berlin city-state govern-
ment and pave the way for early
elections.
He refused, and instead resigned
his post as chairman of the board of
owners overseeing the construction
of the planned Berlin Brandenburg
international airport.
Mr. Wowereit said the governor
of Brandenburg, Berlin’s partner in
the project, would take over as
chairman and gave no indication
when the city thinks the airport will
open.
“I am going to be careful about
choosing a date now,” he told re-
porters after a meeting of the air-
port owners. Asked whether he
would resign, he grinned, and said:
“No, no.”
The constant rescheduling of the
airport opening has been a head-
ache for travelers, as Berlin’s
smaller airports Tegel and
Schönefeld have become congested
and flights are delayed or canceled.
The uncertainty also has hurt
airlines and other businesses. Air
Berlin PLC, Germany’s second-larg-
est airline after Lufthansa AG, had
to scrap costly preparations to move
its operations to the new airport.
Service providers, including restau-
rants that planned to open in the
new facility, are reported to have
gone bust because of the delays.
“Germany’s international reputa-
tion is at stake,” Frank Steffel, a
Berlin representative in the federal
parliament, said in an interview.
Planning for the airport began in
1989, just after the fall of the Berlin
Wall, when officials in still-divided
East and West Berlin envisaged cre-
ating a major new airport and rail-
way hub to link eastern and western
Europe, and to connect the German
capital with direct flights to Asia
and North America for the first
time.
The project was expected to cost
about €2 billion ($2.6 billion) and be
completed by 2008.
After repeated delays, the air-
port was finally scheduled to open
in June last year—four years over-
due and costing more than €4 bil-
lion—twice the original estimate. In
May, just weeks before thousands of
celebrities and dignitaries, including
Chancellor Angela Merkel, were ex-
pected to attend an extravagant
opening ceremony, Berlin called off
the party.
Problems with the airport termi-
nal’s fire-safety system prevented
the airport from opening. A new
date was set for March this year,
then a few months later abandoned
and rescheduled for October 2013.
Now, the opening has been pushed
back again to sometime next year,
but even that is vague.
Though largely a regional issue,
the permanent state of confusion
and apparent mismanagement of the
city’s flagship project has tarnished
the reputation for efficiency of Eu-
rope’s largest economy and made
Berlin the laughingstock of the
country.
Uncertainty over the opening of
the airport has cast doubt over the
political future of Mr. Wowereit, an
SPD member with influence in the
party well beyond Berlin.
The environmentalist Greens, the
main opposition party in the Berlin
city-state parliament, are calling for
a vote of no-confidence against Mr.
Wowereit, perhaps as early as this
week.
—Susann Kreutzmann
and Harriet Torry
contributed to this article.
Investigator of Bomb Attack
Removed for Giving Interview
Bulgarian officials dismissed the
leader of an investigation into last
year’s bomb attack in the coastal city
of Burgas that killed five Israeli
tourists and a Bulgarian bus driver for
revealing sensitive information about
the probe to the media.
Last week, Stanelia Karadzhova told
Bulgaria’s 24 Chasa daily that one of
three suspected terrorists who carried
out the attack at the airport of the
Black Sea city in July has been
identified and that all the suspects
were foreign nationals.
The office of the District Prosecutor
in Burgas said Monday that Ms.
Karadzhova was removed because “she
spoke to the media without clearing
her statement with the supervising
prosecutor.”
Interior Minister Tsvetan Tsvetanov
refused to comment on the details
provided in the interview, saying “they
are a matter of national security.”
Associated Press
Online>>
For more breaking news, go to
WSJ.com/World and follow
@wsjworld on Twitter

Berlusconi Forms Alliance, Crafts Comeback Election Allies

Continued from first page
affairs. The coalition as a whole
would get about 28% of the vote,
according to polls. Mr. Berlusconi
said on a weekend television show
he is aiming for 40% of the national
vote.
The current front-runner is the
center-left Democratic Party and its
small left-wing ally, SEL, with
about 39% of the public vote, ac-
cording to a weekend poll by ISPO
for the Corriere della Sera newspa-
per.
While Mr. Berlusconi faces long
odds in his quest for a fourth
term—and acknowledged he might
not personally seek what he termed
as the “powerless” job of premier—
he could prevent the Democratic
Party, led by Pier Luigi Bersani,
from gaining absolute majorities in
both legislative chambers, forcing
the center-left to compromise with
other parties.
Reflecting concern about Italy’s
commitment to fiscal austerity, in-
vestors demanded a higher return
on investments in Italian bonds
Monday. Yields on Italian 10-year
benchmark government bonds rose
0.03 percentage point, to 4.25%.
The yield on German bonds, seen as
a haven investment, slipped 0.01
point, to 1.54%.
The Democratic Party says it is
committed to pledges Italy has
made to the EU, but wants to focus
more resources on jobs and would
waive the property tax on most pri-
mary residences.
The third force in Italy’s elec-
tions is led by Mario Monti, the
prime minister of a technocrat gov-
ernment that, since taking the reins
of the nation in late 2011, has
pushed through tax increases and
pension cuts, and loosened labor
laws, to bolster confidence in It-
aly’s public finances.
Mr. Monti is allied with two
small political parties and a list of
his own supporters from outside
politics. The grouping would get
about 12% of the vote, according to
the ISPO poll. Some analysts say it
may win more than that as it
poaches votes from moderates
Mr. Monti has begun campaign-
ing in earnest, engaging in a live
tweeting session over the weekend,
and has suggested he also wants to
modify the property tax he intro-
duced. The tax raised around €20
billion ($26 billion) last year, about
as much as Italy had to contribute
to Europe’s bailout funds.
While the ex-premier
faces long odds, he could
keep the Democratic
Party from absolute
majorities in both
legislative chambers.
To secure a role in a future gov-
ernment, Mr. Monti must prevent
the Democratic Party from winning
an outright majority in both legis-
lative chambers. Over the weekend,
he suggested he wouldn’t accept a
job other than prime minister in a
coalition cabinet.
While on course to win the most
votes, the Democratic Party’s Achil-
Berlusconi’s People of Freedom party
formed a coalition with the Northern
les’ heel is in the Senate, because
Italy’s electoral law offers extra League party, adding volatility to
seats in the upper house to parties Italy’s upcoming election
that do well in each region. Losing Party breakdown:
two of the three largest regions
could put a Senate majority out of Democratic
reach, according to a simulation Party (PD):
done by Barclays. Center- 34.7%
Lombardy, home to Milan—as left Left, Ecology,
coalition 40.3% Freedom (SEL):
well as Messrs. Berlusconi and
4.2%
Monti—is the key battleground, Others
along with neighboring Veneto.
Prosperous and industrious, they
Five-Star
have long been electoral bastions
for Mr. Berlusconi and the North- 16.3% Movement
ern League. Together, they also of- Monti: 6.2%
fer 71 Senate seats, a fifth of the Union of Center
total, to whichever political force
Center 12% (UDC): 4.6%
wins the most votes. Other
A strong performance by Mr. People of
Berlusconi’s new alliance in those Center- Freedom: 19.6%
regions may deprive the Demo- right 26.3% Northern
coalition League: 4.1%
cratic Party of a clear electoral win.
“It is a paradox but if Berlusconi Others
conquers Lombardy, that in fact
would be favorable for Monti,” Re- Note: Figures don’t add to 100; the 5.1% difference
is held by other parties
nato Mannheimer, head of the ISPO Source: Poll conducted by Techné based on a survey
polling institute, wrote while pre- of 600 people on Jan. 3; margin of error: +/-4%
senting his latest findings in Corri- The Wall Street Journal
ere della Sera.
THE WALL STREET JOURNAL. Tuesday, January 8, 2013 | 5

EUROPE NEWS

U.K. Holiday
Sales Were
Lackluster
BY AINSLEY THOMSON
AND KATHY GORDON
LONDON—The holiday trading
period failed to significantly boost
sales in the U.K.’s struggling retail
sector, data from the British Retail
Consortium showed Tuesday, add-
ing to fears that the economy con-
tracted in the final quarter of 2012.
The BRC’s monthly retail-sales
monitor showed same-store sales—
which exclude sales from shops that
opened or closed during the preced-
ing year—edged up 0.3% on an an-
nual basis in December after rising
0.4% in November.
Total sales, which include sales
at stores that have opened in the
Coalition Leaders Pledge Unity
Party Leaders Commit to Serving Out Government’s Five-Year Term, Outline Priorities
BY NICHOLAS WINNING
LONDON—U.K. Prime Minister
David Cameron and his deputy, Nick
Clegg, pledged to put political dif-
ferences between their two parties
to one side as they outlined plans
Monday for the second half of their
parliamentary term, including
house-building measures, invest-
ment in transport infrastructure
and pension reform.
Both said the coalition of Mr.
Cameron’s center-right Conserva-
tives and Mr. Clegg’s smaller cen-
trist Liberal Democrats party would
serve out its full five-year term to
the next general election in 2015.
But Mr. Clegg acknowledged the co-
alition’s central drive to fix the

past 12 months, rose 1.5% in Decem-
ber, compared with an increase of
1.8% in November.
Overall December sales limped
into positive territory on the back of
online sales and a late surge in
shopping on the last weekend be-
fore Christmas, the BRC said, as
shoppers hold out for better bar-
gains and retailers for full-price
sales.
“Against the relentlessly tough
economic backdrop and low expec-
tations, these results are not a cause
for celebration, but not a disaster
either,” said Helen Dickinson, the
new director general of the BRC.
Retail sales were subdued for
most of 2012 as consumers remained
reluctant to spend in the face of stag-
nant wage growth, relatively high in-
flation, and the government’s con-
tinuing austerity measures.
Associated Press
economy and reduce the size of the
budget deficit was taking longer
than expected.
“It does mean that the next Par- Jan. 7, 2013
liament, the next government, will
need to complete the job that we
have initiated,” he said at a joint
news conference with the prime
minister. They used the conference
to present a midterm review of the
coalition’s work since it was formed
in 2010 and announce broad out-
lines for policy areas for the second
half of the term.
Mr. Cameron said that over the
next 2½ years the government
would focus on cutting child-care
costs for working families, support-
ing mortgages for people who can-
not put up a deposit, reforming
pensions and capping the costs of
long-term care for the elderly. It
would also consult on how to get

Some retailers have adapted bet-
ter than others to the challenging
conditions. Wm. Morrison Super-
markets PLC on Monday reported a
2.5% decline in same-store sales
over the Christmas period, while
last week, clothing retailer Next PLC
said its holiday sales gained 3.9%. In
both cases, Internet sales made a
difference: Next’s sales were buoyed
by its popular online business, while
Morrisons cited its lack of an online
grocery presence as one reason for
its disappointing performance.
Overall online sales in December
rose 17.8%, after an average 11% rise
over the course of the year, the BRC
said.
The subdued BRC retail-sales fig-
ures follow a survey of purchasing
managers released Friday that
showed activity in the U.K.’s domi-
nant services sector fell for the first
time in two years in December.
Markit, a data provider that con-
ducts the purchasing managers’ sur-
vey, said the results marked the
weakest performance for 3½ years,
and were consistent with the econ-
omy shrinking about 0.2% on a
quarter-to-quarter basis in the three
months ended in December.
The U.K. economy returned to
growth in the third quarter after
shrinking for the previous nine
months, but that pickup was fueled
by one-time factors like the Olympic
Games, and economists say the
economy could contract again in the
final three months. The Office for
National Statistics will release
fourth-quarter gross domestic prod-
uct figures on Jan. 25.
A survey from the British Cham-
bers of Commerce, also published
Tuesday, provided a slightly more
optimistic view. The survey, which
polled more than 7,500 U.K. busi-
nesses, found the economy made
slight progress in the fourth quarter
compared with the previous period.
private investment into the road
network and extend the high-speed-
rail network northward, he said.
The government remains under
pressure to do more to boost eco-
nomic activity and lending. Al-
though the economy grew 0.9% in
the three months to September—af-
ter shrinking during the previous
three quarters—growth was fueled
by one-off factors such as Olympic
ticket sales. Economists are con-
cerned that in the absence of a sim-
ilar boost, the economy could have
contracted again in the final quarter
of the year.
The government acknowledged
last month that it will take longer
to reduce its budget deficit than it
had expected, and conceded it will
miss its target to have the ratio of
net debt to gross domestic product
falling by 2015-16.
Mr. Cameron said that he and
Mr. Clegg were united on the big
economic issues that formed the
foundation of the coalition, but ac-
knowledged the road ahead
wouldn’t be easy.
“There have always been issues
on which we disagree, and doubt-
less there will be some more in the
months ahead, but the key point is
not whether you have disagree-
ments, it is how you handle them.
Where we disagree we should do so,
and we do do so, respectfully, in a
reasonable and civilized way,” Mr.
Cameron said.
Both party leaders appeared re-
laxed and comfortable in front of
the news media, answering ques-
tions and deferring to each other in
a lighthearted manner. Both said
they remained convinced they were
right to form the coalition after no
party won an outright majority in
the 2010 election.
“At a time when you have had to
make difficult decisions…it has been
a positive benefit that there have
May 12, 2010
U.K. Prime Minister David Cameron, top and bottom right, and Deputy Prime Minister Nick Clegg marked the half-
way point of their coalition government’s term Monday over 2½ years since their first news conference.
Renewing Their Vows
The coalition of the center-right Conservatives and Liberal Democrats set out new priorities for the rest of their term.
 New investment to help working
families reduce the cost of child care
 Help for families who can afford a
mortgage but are unable to put up a
deposit to buy a home
been two parties putting aside
party interests, acting in the na-
tional interest, in order that we try
and take the country with us
through very difficult decisions,”
Mr. Cameron said.
Most European nations have
long experience of being governed
by coalitions. But for the U.K., it is
a rare occurrence and there are
many within each party who are un-
happy with the compromises that
have been made to pursue a com-
mon program.
The coalition parties have a lot
of work to do to boost their support
from the electorate, particularly the
Liberal Democrats, who have suf-
fered the sharpest drop since the
last general election. The latest
YouGov/Sunday Times poll shows
the main opposition center-left La-
bour Party has the support of 43%
of likely voters, with the Conserva-
tives at 32% and the Liberal Demo-
crats at 10%.
In an apparent effort to boost
his standing with voters, Mr.
Clegg—who celebrated his birthday
Monday—has taken the unprece-
 New measures to limit state
powers and extend personal
freedoms
 Clarifying incentives to save for
pensions
dented step of doing a half-hour
live show on London’s LBC radio ev-
ery Thursday to take questions
from the host and listeners starting
this week. The initiative may be a
first for a senior member of govern-
ment, but it could prove risky if Mr.
Clegg becomes a lightning rod for
voters’ complaints about govern-
ment policy.
“I want to try and make myself
available,” he told the radio station
earlier Monday. “I will no doubt en-
counter some pretty tough ques-
tioning, but I will do my best to
give my side of the story.”
In the midterm review titled
“The Coalition: Together in the Na-
tional Interest,” the government re-
affirmed its aim to cut the budget
deficit while acknowledging it
wouldn’t be easy, quick or popular.
The drive was necessary to keep in-
terest rates low, it said.
Michael Dugher, vice chairman
of the Labour Party, dismissed the
midterm review as another coali-
tion relaunch.
Government borrowing was in-
creasing and the sight of Mr. Cam-
Press Association
 Capping the potentially huge costs
of long-term care of the elderly
 Consulting on how to get private
investment in highways and
extending the high-speed-rail network
eron and Mr. Clegg congratulating
themselves would be a surprise to a
public that is still feeling the
squeeze of a weak economy and ris-
ing costs for energy and train
travel, he said.
“The government has strangled
the life out of the economy,” he told
the BBC before the coalition news
conference. “This looks like more
broken promises, more complacency
and a complete failure to listen to
the public.”
The Confederation of British In-
dustry, the country’s main business
group, applauded the government’s
efforts on growth and debt, but said
delivery of growth measures had
been disappointing.
“Growth-boosting measures like
house, road and rail building are
getting too bogged down in the
planning and procurement process,”
CBI Director General John Cridland
said in a statement. “We don’t need
a flurry of new announcements, but
we do need to see the coalition’s
ideas translated into action now.”
—Ainsley Thomson
contributed to this article.
6 | Tuesday, January 8, 2013 THE WALL STREET JOURNAL.

U.S. NEWS

In GOP, All Eyes on Jeb Bush for 2016

BY NEIL KING JR. ington reporters in June that both
his father and President Ronald
As Republicans begin the early Reagan would have had trouble nav-
jockeying for the 2016 presidential igating through today’s GOP, which
race, the intention of one man, for- he said often has “an orthodoxy that
mer Florida Gov. Jeb Bush, domi- doesn’t allow for disagreement.”
nates conversations and informal He may also have to find ways to
strategy sessions. distance himself from his brother,
Within the party, Mr. Bush is the previous president. More than
seen as the one potential candidate half of voters in the November elec-
whose decision on whether to run— tion told pollsters they blamed
yea or nay—has the power to George W. Bush for the country’s
scramble the rest of the field. economic woes.
Close aides and friends say he is Longtime Bush friend Al Carde-
actively weighing a run, something nas is one of many who say they
he didn’t do in the last election cy- were besieged by calls in the weeks
cle. “Gov. Bush has made a decision after the November election from
to make a decision at some point businesspeople and current and for-
about running for president,” said mer GOP elected officials who hope
Sally Bradshaw, a longtime adviser Mr. Bush gives serious thought to a
who talks frequently with Mr. Bush, 2016 race.
who declined to comment for this “I feel confident the governor
article. would dispel any concerns about his
With Republicans lacking a clear conservative bona fides the minute
leader after their loss in November, he entered the race, if he does,” said
conservatives are of two minds Mr. Cardenas, former head of the
Associated Press

about Mr. Bush, who is the brother Florida GOP and chairman of the
and son of the two last GOP presi- American Conservative Union.
dents, George W. Bush and George Still, some Bush allies remain
H.W. Bush, respectively. skeptical he will take the plunge. As
On the one hand, few can rival Former Florida Gov. Jeb Bush, left, is considering a run for president in 2016, aides and friends say. evidence, they cite concerns his wife
his name recognition, his stature and children may not want to face
within the party, his résumé as gov- Bush run have already provoked comprehensive fix to the country’s women, no one has been more ef- the glare of a presidential cam-
ernor, or his clout within GOP groans in some quarters. It is time immigration problems. As governor, fective than Jeb.” paign, financial pressures, and a
money circles. Among Democrats, for conservatives “to move beyond he was a pioneer in pushing for Mr. Bush’s decision could make general wariness of jumping into
only Secretary of State Hillary Clin- picking the next elder white guy in school choice and tougher teacher others revise their own White what has now become a multiyear,
ton might enter the race with simi- line,” said Matt Kibbe, a prominent standards, and he now runs a high- House aspirations. Few insiders ex- $1 billion slog.
lar muscle. tea-party activist and president of profile education think tank. He pect that Mr. Rubio would run Others note that he appears con-
But conservatives worry about FreedomWorks, a conservative cam- trimmed taxes in Florida while leav- against his longtime mentor. Others tent doing what he’s doing now,
leaning on the Bush name yet again paign group. ing the state in the black and with speculate that a Bush candidacy weighing in on education policy as
at a time when the GOP is trying to And yet, the GOP loss in the lat- the jobless rate below the national could dry up the donor base that an advocate of school choice and
reintroduce itself to voters and can est presidential election has led average. other centrist Republicans, such as common testing standards, while
draw on plenty of new talents, in- many other conservative leaders to “Some argue after 60 years of Mr. Christie, would need. A Bush running a consulting business. A
cluding Florida senator and Bush see Mr. Bush as the ideal person to Nixon, Reagan and Bushes, the party run wouldn’t likely preclude a Jin- new book he has written on immi-
protégé Marco Rubio, Louisiana Gov. widen the party’s message while ex- should move on,” said Ralph Reed, dal candidacy. gration will come out this spring.
Bobby Jindal and New Jersey Gov. panding its reach, above all among founder of the Faith and Freedom There is little doubt Mr. Bush “Jeb leads a full and happy life,”
Chris Christie. No Republican not the country’s fast-growing Hispanic Coalition, which advocates for social would face challenges, should he said Florida GOP strategist Ana Na-
named Bush has won the White population. conservatism and limited govern- make a run, with his moderate posi- varro, a friend of the former gover-
House since 1984, an eternity in pol- A Spanish speaker whose wife is ment. “But if the goal is principled tion on immigration and his family nor’s. “It’s not like the burning
itics. Mexican-American, Mr. Bush, 59 conservative leadership that over- name potentially among them. He thought of being president keeps
Murmurings about a possible years old, has long advocated a performs among Hispanics and lamented at a breakfast with Wash- him up at night.”

Virginia Governor’s Race Highlights Republican Rift

BY NEIL KING JR. the race after concluding the odds Northern Virginia, including dozens where we want to be.” pushed to allow college students to
were stacked against him in the of Mitt Romney’s biggest backers in Cuccinelli adviser Chris LaCiv- carry guns on campus. He supported
The Virginia governor’s race long coming state nominating conven- the state last year in his presidential ita rejected suggestions his candi- a controversial bill in the Virginia
has been considered one of the tion. run. Some who plan to attend said date plans to run on social issues. legislature last year that requires
country’s marquee political contests “Instead of becoming a big- tent they worry that Mr. Cuccinelli would “We are going to keep our focus on women seeking an abortion to get
of 2013, pitting a national tea-party party, we are rapidly becoming a steer the party in the wrong direc- jobs and the proper role of govern- an ultrasound first.
hero, Republican Attorney General pup-tent party,” Mr. Bolling said in tion. ment,” he said. Mr. Bolling said his own record
Ken Cuccinelli, against a close friend an interview Friday. “Virginia will be this year’s big Since being elected attorney gen- doesn’t differ markedly from Mr.
of the Clintons, former Democratic A lifelong Republican who spent indicator of where the Republican eral in 2009, Mr. Cuccinelli gained Cuccinelli’s on issues including op-
Party chairman Terry McAuliffe. a decade in the state Senate and is Party is going and whether we can notice by challenging the legality of position to gay marriage and abor-
But the plot has thickened amid in his second term as lieutenant appeal to independents and win President Barack Obama’s health- tion. “We’re both very conservative
a spat among the state’s Republi- governor, Mr. Bolling said he was elections,” said one of the state’s care overhaul and attacking the En- guys,” he said.
cans over the party’s tone and di- “very concerned about the leader- top GOP fundraisers, Bobbie Kilberg, vironmental Protection Agency’s But he and his supporters argue
rection. Some conservatives fear the ship and direction of the Republican who is hosting Monday’s event and right to regulate greenhouse gases. that Mr. Cuccinelli’s confrontational
fight could wound the GOP as it Party in Virginia.” supports Mr. Bolling. “Ken Cuccinelli The former state senator and fa- style threatens to alienate less par-
seeks to broaden its reach among He plans to meet Monday with has put a very strong focus on so- ther of seven has backed crack- tisan voters.
independent voters in a state where around 50 business leaders in cial and culture issues, which is not downs on illegal immigrants and Republican Gov. Bob McDonnell,
Democrats have made big gains. a longtime Bolling ally who prom-
The governor’s race will be ised to support his campaign for
closely watched, in part because governor, has nonetheless thrown
there are few other contests nation- his weight behind Mr. Cuccinelli,
The Register & Bee / Associated Press ( Bolling); Associated Press (2)

ally in an odd-numbered year, but hoping to tamp down an intraparty

also because it follows the Republi- feud. Virginia law bars governors
can party’s loss in last year’s presi- from seeking re-election.
dential election. The current fight has its roots in
The Virginia matchup looked rel- Mr. Cuccinelli’s success last year in
atively settled just weeks ago, after taking over the party’s central com-
Mr. Cuccinelli managed to outma- mittee, which then switched the
neuver the man long seen as the Re- nominating contest to a party con-
publican heir apparent, Lt. Gov. Bill vention dominated by conservative
Bolling. activists, set for May, instead of an
But after dropping out of the open primary.
nomination hunt late last year, Mr. Recent polling found the two Re-
Bolling now is crisscrossing the publicans fairly evenly matched,
state to drum up support for a pos- while Mr. McAuliffe edged both
sible independent run, all the while men. The most recent financial dis-
casting aspersions on Mr. Cuccinelli closures, in June, had Mr. Bolling
and what he sees as the party’s with $1.5 million in cash on hand,
shrinking appeal to independent and Competition for the Virginia governor’s mansion is looking livelier. Attorney General Ken Cuccinelli, left, a Republican compared with $627,000 for Mr.
moderate voters. Mr. Bolling quit running for governor, could face Lt. Gov. Bill Bolling, center, and Clinton friend Terry McAuliffe. Cuccinelli.
THE WALL STREET JOURNAL.
Washington Needs
New Model for Deals
[ Capital Journal. ]
BY GERALD F. SEIB
The next
Washington
impasse already is
taking shape;
what is needed
now is an entirely
new paradigm for resolving it.
One glimmer of hope is that a
bipartisan group of lawmakers
and activists are going to start
next week trying to create one.
The impasse will come when
the nation’s leaders need to do
their next round of deficit
cutting sometime in the next two
months, before the federal
government again hits its legal
debt ceiling and needs a new
round of funding from Congress
to keep running and pay its bills.
Republicans insist the new
budget deal must include only
spending cuts, no tax increases;
Democrats insist it must include
some increased tax revenue from
eliminating deductions and
exemptions.
Lurking in the background is a
deeper reality, which is that
there is nothing even
approaching a consensus on how
to deal with the elephant in the
room: the need to start reducing
the growth in costs of the big
Medicare, Medicaid and Social
Security entitlement programs.
On this core subject, the divide
between the two parties is even
more stark than it was over tax
rates before the New Year’s Day
resolution of that thorny subject.
No Labels aims to gather
a bipartisan group of
lawmakers and activists
to find a way to arrive at
‘a new politics of
problem solving.’
Once upon a time, it was
possible to argue that the way to
get beyond this impasse would
be for a core group of lawmakers
from the center of the spectrum
to band together, create a critical
mass, and produce a solution
that would attract others. But at
this point, there is too little of a
political center remaining in a
polarized Washington to make
that much of an option.
Thus, the need for a new
paradigm. The current model—
based on an assumption that the
White House and congressional
leaders can come to some
accommodation—clearly isn’t
working very well as evidenced
by two years of failed stabs at a
big deficit deal. Nor are the
models of the 1980s or 1990s
likely to be replicated today.
In the 1980s, the Reagan
economic program came together
because there was a coalition in
the center, consisting of
conservative Democratic foot
soldiers and moderate
Republican leaders, who
coalesced first around the
Reagan budget and tax cuts, and
then around modifications to
that program in subsequent
years.
In the 1990s, the two most
important figures on the political
scene were Bill Clinton and Ross
Perot, who rose in power and
prominence because they staked
out, and drew people to, the
political center. For President
Clinton, that meant dragging his
Democratic Party away from its
leftist moorings and toward the
center. For Mr. Perot, it meant
convincing disenchanted
partisans from both sides that,
by joining forces with him, they
could force the whole political
system to the center, even if that
meant detaching themselves
from their old party loyalties and
joining his independent and
third-party bids for the White
House.
Today, most of the elements
that produced those moves
toward common ground in the
’80s and ’90s are missing. There
are few conservative Democrats
or moderate Republican leaders
of the old mold; neither the
president nor his GOP leadership
counterparts are seen by the
other side as pulling people
toward the center; there is no
Ross Perot to lead a centrist
insurrection, much less a third
party.
Instead, there is a left and a
right, and not much of a magnet
to pull them together.
What’s lacking is an attitude
among the capital’s politicians
that, while acknowledging they
have different views, they must
agree that they need to solve
problems despite differences. In
the absence of a new center,
there is a need for a new
attitude.
And right now, this attitude is
more likely to emerge from the
two parties’ rank and file than
from the leadership, which has
broken its swords in failure over
the past two years. The best
model may be the big tax reform
of 1986, which came about
because a couple of second-tier
legislators in the Senate and
House—Bill Bradley and Richard
Gephardt—joined forces to start
a big train moving.
One place where this kind of
movement may be starting is a
group called No Labels, an
organization of Republicans,
Democrats and independent
political activists. It says it is
dedicated to finding “a new
politics of problem solving.”
Former Republican presidential
candidate Jon Huntsman and
Democratic Sen. Joe Manchin of
West Virginia—each a former
problem-solving governor with
something of a maverick
reputation—have just been
named its leaders.
They are convening a meeting
in New York on Jan. 14 that they
say will attract lawmakers from
both parties “committed to
meeting regularly to build trust
across the aisle.” The group also
is busy trying to generate
popular support for its efforts.
Two giant tasks lie ahead for
Washington: fixing the tax
system and changing entitlement
programs. Neither will happen
without such “trust across the
aisle.” We’ll see soon enough.
U.S. NEWS
Former Sen. Chuck Hagel, left, President Barack Obama and John Brennan at Monday’s White House announcement.
Hagel Is Pentagon Pick;
Brennan Tapped for CIA
BY SIOBHAN GORMAN
AND JARED A. FAVOLE
President Barack Obama nomi-
nated former Republican Sen. Chuck
Hagel to lead the Defense Depart-
ment, citing his experience in Viet-
nam and his willingness to break
party lines.
“Chuck represents the bipartisan
tradition that we need more of in
Washington,” Mr. Obama said at a
White House event Monday while
flanked by Mr. Hagel and outgoing
Defense Secretary Leon Panetta.
“That’s exactly the spirit I want on
my national-security team, a recog-
nition that when it comes to the de-
fense of our country, we are not
Democrats or Republicans, we are
Americans.”
Mr. Obama hailed Mr. Hagel’s
Army service in Vietnam, where he
was hit by shrapnel. “To this day,
Chuck bears the scars and the
shrapnel from battles he fought in
our name,” Mr. Obama said. He also
noted that if Mr. Hagel is confirmed,
he would be the first enlisted man
to serve as secretary of defense and
the first Vietnam veteran.
Mr. Obama also tapped longtime
counterterrorism chief John Bren-
nan to serve as director of the Cen-
tral Intelligence Agency, placing a
trusted aide at the helm of the spy
organization. Mr. Brennan, the pres-
ident said, has been “tireless” in
working to put al Qaeda on its heels.
“He is one of the hardest-work-
ing public servants I’ve ever seen.
I’m not sure he’s slept in four
years,” Mr. Obama said.
Mr. Hagel said that if confirmed,
he wants to strengthen U.S. alli-
ances and advance freedom
throughout the world. He told the
president: “I will always give you
my honest and most informed coun-
sel.”
Mr. Hagel has encountered in-
creasing opposition from Republi-
cans for his stance on the Iraq war,
which he voted for and then grew to
oppose, and for supporting Mr.
Obama for president in 2008.
Critics also have questioned Mr.
Hagel’s past support of Israel. Re-
publicans have pointed to Mr. Ha-
gel’s vote against designating the
Iranian Revolutionary Guard Corps
as a terrorist organization, and a
2007 comment referring to the
“Jewish lobby” intimidating legisla-
tors.
Administration officials have ac-
knowledged they expect a tough
confirmation fight, but say they are
confident they will prevail because
Republicans ultimately won’t be
able to topple a former colleague, a
Vietnam veteran and a two-term
GOP senator from Nebraska who
served on the foreign relations and
intelligence committees.
He received praise from Mr.
Panetta, the outgoing defense secre-
tary, who said “his experience, his
judgment, his deep understanding of
the security issues facing this coun-
try make him the right choice to be
secretary of defense.” Mr. Panetta
said he is looking forward to return-
ing to his family and his walnut
farm in California and “dealing with
a different set of nuts,” a remark
that drew laughter from the crowd
in the White House East Room.
Mr. Obama said he wanted a
quick confirmation for his nomi-
nees. Sen. Jim Inhofe (R., Okla.), the
ranking member of the Senate
Armed Services Committee, said he
has worked with Mr. Hagel and “his
nomination deserves to be fully vet-
ted.…I am aware of the serious con-
cerns about some of his policy posi-
tions, his record, and some of his
comments.”
Former Secretary of State Colin
Powell said Mr. Hagel “will be a
splendid successor to Secretary
Leon Panetta, who has done a su-
perb job in guiding the Pentagon. I
urge the Senate to hold prompt
hearings and to confirm this distin-
guished American as soon as possi-
ble.”
In choosing Mr. Brennan to suc-
ceed David Petraeus, who resigned
last year after admitting to an ex-
tramarital affair, Mr. Obama is re-
turning to a model of having a CIA
director with close White House
Tuesday, January 8, 2013 | 7
Getty Images
ties. Mr. Petraeus, a decorated four-
star general, wasn’t considered part
of Mr. Obama’s inner circle.
The move also brings full circle
the plan Mr. Obama had at the out-
set of his first term to install Mr.
Brennan, a former longtime CIA of-
ficer who had become a close cam-
paign adviser, at the helm of the
agency. Those plans were derailed
when Mr. Brennan came under scru-
tiny by liberal activists who criti-
cized him for having played a role in
Mr. Bush’s enhanced-interrogation
program for terrorism detainees.
Mr. Brennan has said he played
no role in tactics such as water-
boarding and opposes them.
The White House has been
weighing its pick for CIA director
for three months, and the final deci-
sion was a choice between Mr. Bren-
nan and Michael Morell, the acting
CIA director, who has been at the
agency for more than 30 years.
White House officials said Mr.
Obama chose Mr. Brennan because
the two have a close relationship.
Mr. Brennan has served at Mr.
Obama’s side for four years as coun-
terterrorism chief through many dif-
ficult decisions, including the raid
that killed Osama bin Laden.
At the White House, Mr. Brennan
has played a central role in Mr.
Obama’s most critical and contro-
versial counterterrorism and secu-
rity policies. He has been a chief
driver of Mr. Obama’s acceleration
of the CIA’s drone program and its
expansion into Yemen. He also has
been central in navigating the poli-
tics surrounding the administra-
tion’s inability to close the U.S.
prison in Guantanamo Bay, Cuba.
In the confirmation process, Mr.
Brennan may face criticism this
time less from liberals but instead
from some Republicans who oppose
Mr. Obama’s efforts to close the
Guantanamo prison and who are un-
comfortable with what they see as
Mr. Brennan’s outsize role in intelli-
gence and counterterrorism pro-
grams from the White House perch.
He is expected, however, to win con-
firmation.
8 | Tuesday, January 8, 2013 THE WALL STREET JOURNAL.

U.S. NEWS

When Veterans Can Feel Slighted U.S.

BY MICHAEL M. PHILLIPS
Health
Spending
When Rick Schumann’s son died
in a helicopter accident in Iraq, the
Shows Signs
military gave him a lapel pin with a
gold star on a field of purple.
When Gary Farwell’s son was
It Will Grow
killed in a similar crash in Germany, BY LOUISE RADNOFSKY
the military gave him a different
Wesley Hitt for The Wall Street Journal (3)

pin, with the star on a rougher, gold U.S. health-care spending grew at
background. a record low pace for a third consec-
The implication, Mr. Farwell said, utive year in 2011, according to fed-
is that the U.S. government holds his eral figures released Monday, but
loss in lower esteem than that of a signs are emerging that the slower
father whose son served in the same growth may not last for long.
military and died the same way, just National health expenditures
a few thousand miles away. rose 3.9% in 2011, the same growth
The distinctions bestowed upon rate as in 2009 and 2010, when peo-
families of the military dead can ple cut back on their use of medical
leave them feeling slighted instead Because Chief Warrant Officer 4 Marc Farwell, left, wasn’t killed in a combat zone, his family was given a simple gold pin, services amid the economic down-
of honored. Whether it is a lapel shown on his father, Gary, at right. A pin with a raised star, below, is given to survivors of a military death. turn. The figures were the slowest
pin, a special license plate or a spot growth on record in the 52 years
on a memorial wall, many military tions involving conflict with an op- purpose, sanctity and significance of that government actuaries have
survivors believe federal and state posing foreign force,” according to the honor we pay those who died tracked such spending.
governments are creating a hierar- federal regulations. while defending our nation while But data published Monday also
chy of honor that adds insult to At the end of the Vietnam War, they were in harm’s way,” Gen. Gay- showed that the amount spent on
grief. the military began issuing the less- hart wrote in a letter to an Idaho treating individuals had already be-
“Why should one family’s loss be ornate next-of-kin pin to the fami- House committee. gun rising, signaling that changes in
more deserving of the nation’s re- lies of troops who lost their lives Mr. Schumann, who received the the way Americans use health care
spect than the other family?” asked outside of a combat zone. purple-background pin after his son hadn’t become permanent.
Mr. Farwell. “Didn’t they lose the “The type of pin or pins is not a died in the Iraq helicopter crash, Growth in spending on doctors’
same thing?” reflection of what we think of their went to Richmond, Va., for the sign- visits and prescription drugs rose in
When Army Pvt. Jeremy Johnson loved ones,” said Juliet Beyler, the ing of legislation that allowed him 2011, while hospital spending contin-
killed himself after returning from senior Defense Department official to get a state Gold Star license ued to slow, the figures showed.
Afghanistan, a casualty-assistance of- overseeing the program. plate. While there, he noticed that Government actuaries said they be-
ficer presented his mother, Deborah, The gold-star concept originated his son, Lance Cpl. Darrell Schu- lieved those changes reflected peo-
with the simpler golden pin, which during World War I when parents mann, wasn’t on the list of the ple regaining health coverage
military regulations call a “Lapel But- began hanging red-and-white ser- act of Congress. fallen to be on the state war memo- through their jobs.
ton for Next of Kin of Deceased Per- vice flags in their windows. A blue Chief Warrant Officer 4 Marc rial. Mr. Schumann has spent the In 2014, Americans are expected
sonnel.” Two years later, when she star in the center indicated a son or Farwell completed four combat past five years trying to persuade to use more health services when
and some other grieving mothers husband serving in the military. A tours before the helicopter crash in the state to include the names of millions gain health insurance and
started a local support group, she no- gold star signaled a death. Germany. His father became im- the 33 Virginians who have died in greater access to medical care as
ticed others had the fancier purple The mothers of the war dead mersed in the recognition debate post-Sept. 11 combat zones from part of the federal health overhaul.
pins, called “Gold Star Lapel But- banded together to form American when he tried to apply for a special causes other than enemy action. The U.S. figures suggested there had
tons,” which are the other awards Gold Star Mothers, a group that to- Gold Star license plate in Idaho. The “They’re saying that my son’s been little impact on spending as a
given to survivors of a military death. day accepts military mothers no state turned him down. sacrifice and the sacrifice of 32 oth- result of the law in 2011, when few
“It makes me feel like because matter the causes or locations of “They have to have died as a re- ers didn’t matter,” said Mr. Schu- of its provisions had taken effect.
somebody else’s son was killed in their children’s deaths. sult of hostile action,” said Mel mann, who lives in Hampton, Va. Monday’s figures give new in-
action, it makes your child’s death “The pins are issued to the fam- Coulter, a spokesman for the Idaho Virginia authorities dispute that sight into the drivers of health
feel less important,” said Ms. John- ily so what does it matter how the Transportation Department. “No ac- characterization. But thus far they spending as policy makers wrestle
son, who lives in Sherwood, Ark. service person died?” asked Norma cidents, no suicides, no illnesses.” have ruled that memorials should be with how to control its growth. To-
Congress established the ornate Luther, a former Gold Star Mothers Mr. Farwell, a veterinarian, lob- reserved for those killed by enemy tal health expenditures in 2011 were
Gold Star pin in 1947, and, until president, whose son died in a mili- bied to get the Idaho law changed, fire. $2.7 trillion, up from $2.6 trillion in
mid-1958, the military awarded it to tary helicopter crash in Germany in but ran into resistance last year “We’re trying to sort this out,” 2010. Health-care spending accounts
the immediate family of anyone who 1988. Mrs. Luther has bombarded from Brig. Gen. Alan Gayhart, com- said Paul Galanti, the state commis- for one-sixth of the national econ-
died in the service during periods of the military and government with mander of the Idaho Army National sioner of veterans services. Mr. Gal- omy and is the biggest long-term
war. After that, the pin became letters asking that they reverse the Guard, who has since retired. anti, a former Navy flier who was a driver of federal spending growth.
available primarily to families two-pin policy, but sees no prospect “Although an honorable intent, prisoner of war in Vietnam for six Medical providers say the impact
whose loved ones died “engaged in of success. providing Gold Star plates to fami- years and eight months, said veter- of the recession was rapidly seen in
an action against an enemy” or Ms. Beyler, the Pentagon official, lies who lost a family member out- ans groups he consults are split on their practices in 2009 and 2010.
while engaged “in military opera- said such a change would require an side a combat zone diminishes the the issue. National surveys from the Centers
for Disease Control and Prevention
found around one in 10 respondents

Aurora Suspect ‘Relaxed’ After Shooting

reported delaying needed medical
care and prescription drugs for cost
reasons in that time.
Chad Fleming, a Wichita, Kan.,
BY DONNA BRYSON ple counts of murder and attempted body armor standing alongside a testified. Mr. Holmes said he didn’t, optometrist, said his patients
murder. white car. but casually volunteered that he had started updating their prescriptions
CENTENNIAL, Colo.—The police The initial testimony immedi- Mr. Oviatt initially believed the rigged his apartment with explosive and changing frames for fashion rea-
officers who apprehended the sus- ately touched on one of the central man was a fellow officer, but as he devices, the officer told the court. sons less regularly, and wearing
pect in a murder spree at a Colo- issues in the case: whether Mr. drew closer he realized it was not. Defense lawyers for Mr. Holmes their contact lenses a little longer.
rado cinema last summer testified Holmes was mentally ill at the time He pointed his gun at the man, immediately seized on the state- He also said that people began ask-
Monday that he was eerily calm and of the shooting, and if so, whether whom he identified in court as Mr. ments about the suspect’s bizarre ing if they could postpone routine
emotionally detached as he stood he is fit to stand trial. Holmes. The suspect surrendered behavior. They attempted to get the medical eye exams for cost reasons,
outside the theater clad in full body without incident, he said. officers to elaborate on how he had and asking for generic eye medicine
armor, chaos swirling around him. “He was completely compliant. been acting, but didn’t elicit much prescriptions. Those questions
The testimony by the Aurora po- A police officer who There wasn’t even normal tension in further detail. started dwindling in 2011, he said.
lice officers came at the start of a him,” Mr. Oviatt testified. “He Other officers were expected to Drug-spending growth almost
preliminary hearing Monday outlin- helped apprehend James seemed very, very relaxed. It was testify later Monday in what is ex- halted in 2010, rising 0.4%. That was
ing the case against James Holmes, Holmes after last year’s like there weren’t normal emotional pected to be several days of testi- because many people stopped going
the former University of Colorado responses to anything.” mony. Mr. Holmes sat at the defense to the doctor and obtaining pre-
graduate student accused of killing massacre in a Colorado Another Aurora officer, Aaron table listening with little emotional scriptions, said Steve Miller, chief
12 people and wounding 58 others cinema said he appeared Blue, testified that he reached Mr. response, clad in a jumpsuit but no medical officer at Express Scripts
at the screening of the latest Bat- Holmes almost at the same time af- longer in the bright reddish-orange Holding Co., which manages phar-
man movie shortly after midnight unusually detached. ter going through the bloodstained haircut he had at the time of the macy benefits for 100 million peo-
on July 20. theater and emerging through a shooting. His hair was brown, and ple. But drug spending grew 2.9%
Chief Judge William Sylvester back door. Mr. Blue also said that neatly trimmed, with long side- for 2011, according to the govern-
set aside at least five days for the Jason Oviatt, an Aurora police- Mr. Holmes appeared unusually de- burns. ment data.
preliminary hearing, during which man, testified that he was at a rou- tached as he was apprehended, but About 40 family members of Health-care executives have said
the prosecution is expected to lay tine traffic stop when he received an later alarmed officers when he ap- shooting victims and shooting survi- they have detected a leveling off in
out its strategy and evidence in or- alert that there had been an inci- peared fidgety as he was being put vors packed the Arapahoe County the decline of doctor’s visits, and the
der to convince the judge their case dent at the movie theater. He into a police car. Justice Center, along with roughly 2011 government figures found a
is strong enough to go to a full trial. rushed to the scene and ran along Believing he might pose a threat 40 journalists. Many others were 4.3% increase in spending on physi-
Mr. Holmes faces more than 100 the side of the theater with his to them, officers stripped him down listening to an audio-video feed of cian services.
felony criminal counts in connection handgun drawn, following a trail of to his underwear and asked him if the testimony from an adjacent —Timothy W. Martin
with the shooting, including multi- blood, when he saw a man in full he had additional weapons, Mr. Blue room. contributed to this article.
THE WALL STREET JOURNAL. Tuesday, January 8, 2013 | 9

WORLD NEWS

Record Heat Fuels Wildfires in Australia

BY ENDA CURRAN

SYDNEY—A string of wildfires

burned across Australia’s south and
east following a record run of swel-
tering heat, while residents of New
South Wales state girded Tuesday for
a major heat wave.
Temperatures in New South
Wales—the country’s most populous
state—are forecast to reach mid-40
degrees Celsius (around 104 degrees
Fahrenheit) and stay high over the
coming days. More than 90 fires are
already burning across the state.
Tuesday “will be perhaps the
worst fire-danger day this state has
ever faced,” Barry O’Farrell, the New
South Wales state premier, told re-
porters Monday. “If Sydney reaches
43 [degrees Celsius] tomorrow, it will
only be the third time in the history
of record keeping that the tempera-
ture in Sydney has been that high.”
Fire crews warned that heavy
rains in recent years mean the under-
growth is thick and can quickly burn.
The warning comes as wildfires
continue to rage across southern
Australia, with the federal govern-
ment promising financial aid to vic-
tims. Fires are blazing in Victoria
state and the Australian Capital Ter-
ritory, home to the nation’s Parlia-
ment in Canberra.
Tasmania, Australia’s smallest
state, has been hit hardest by the hot
weather conditions so far. More than
Reuters

100 properties on the island have

been destroyed and at least 1,000
people were initially stranded after a
huge bush fire cut the Tasman penin-
sula off from the remainder of the
state.
Hundreds of people have been
evacuated by boat to Hobart, the
state capital, and authorities said
emergency supplies have been driven
through a closed zone to the evacua-
tion center.
Prime Minister Julia Gillard, on a
visit to Tasmania, said, “There’s been
property damage and loss. We’re not
in a position yet where that can be
mapped in every detail.”
Ms. Gillard added: “We’ll see this
Australian Prime Minister Julia Gillard inspects the burnt remains of a school in southeast Tasmania on Monday.
unfold over coming days, fires are
still being fought and those fires
have to be dealt with.”
No deaths have been confirmed,
but police say fatalities can’t be ruled
out. Authorities are searching the
rubble of homes destroyed by the
blaze, which began Friday as temper-
atures in Hobart reached a record 42
degrees Celsius.
“There will be a period of time to
come yet before we’re in a position
to say that no one has died as a re-
sult of these fires unfortunately,” said
a spokesman for Tasmania police.
Officials say weather conditions
on the island eased Monday, but they
warn that a lack of rain and the risk
of stronger winds mean the fire
threat may yet spread.
Insurers estimate the Tasmania
fires have so far cost 26 million Aus-
tralian dollars (US$27 million).
“These figures are expected to
rise sharply in coming days as policy-
holders gain access to their proper-
ties,” the Insurance Council of Aus-
tralia said in a statement.
Popular with tourists, Tasmania is
an archipelago of more than 300 is-
lands that sits around 240 kilometers
southeast of the Australian conti-
nent. Its main island is about the size
of West Virginia and is home to a
population of about 500,000.
Australia has been hit by a spate
of extreme weather in recent years.
In 2009, 173 people were killed by
wildfires that swept across the state
of Victoria, while Queensland state
was hit hard by flooding and cy-
clones in 2011.
Karl Braganza, of the Bureau of
Meteorology’s climate center, said
five straight days of temperatures av-
eraging more than 39 degrees Celsius
was a record.
Analysts say that so the far the
hot spell doesn’t constitute a
drought. Last year, a decadelong
drought that ravaged the country’s
farming sector was declared over af-
ter a consistent period of heavy
rains.
—Caroline Henshaw
contributed to this article.

Trial of India Rape Suspects Venezuela Continues

On Fast Track, Closed to Media
Associated Press
NEW DELHI—An Indian magis-
trate ruled Monday that the media
won’t be allowed to attend pretrial
hearings or the trial of the five men
accused of raping and killing a
young student in the Indian capital,
a police official said.
Magistrate Namrita Aggarwal
upheld the prosecutor’s request that
the media be barred from attending
the proceedings, according to police
spokesman Rajan Bhagat. Hundreds
of journalists, lawyers from other
cases and curious onlookers had
crowded the courtroom where the
five were to appear. Outside the
courthouse complex, more than a
dozen TV satellite trucks jammed
the streets, and dozens of report-
ers—from India, the U.S., Japan and
elsewhere—were waiting for news.
The five defendants later ap-
peared before the magistrate, who
scheduled another pretrial hearing
on Thursday that is expected to re-
sult in the case being sent to a spe-
cial “fast-track” court. Indian courts
are notoriously slow, with some
cases dragging on for decades. The
trial is expected to begin in the
coming days. Indian rape trials are
normally closed to the media.
Authorities have charged the
men with murder, rape and other
crimes that could bring them the
death penalty. The crime caused na-
tionwide outrage, leading to massive
protests. A sixth suspect, who is 17,
is expected to be tried in a juvenile
The Dec. 16 bus attack
on the young couple in
New Delhi has sparked
outrage throughout the
country, leading to
massive protests.
court, where the maximum sentence
would be three years in a reform fa-
cility. Prosecutor Rajiv Mohan said
last week that a DNA test confirmed
that the blood of the victim
matched blood stains found on the
clothes of all of the accused.
On Sunday, two of the defen-
dants offered to become “approv-
ers,” or informers against the oth-
ers, according to reporters present
at the hearing. The two were pre-
sumably seeking lighter sentences.
The companion of the student
recounted in a television interview
last week how the pair was attacked
for 2½ hours on a New Delhi bus be-
fore being thrown on the side of the
road, where passersby ignored them
and police debated jurisdiction is-
sues before helping them. The stu-
dent died at a Singapore hospital
weeks after the Dec. 16 attack.
The attack has led to calls for
tougher rape laws and reforms of a
police culture that often blames
rape victims and refuses to file
charges against accused attackers.
The nation’s top law-enforcement
official said the country needs to
crack down on crimes against
women.
Since the Dec. 16 attack, New
Delhi has set up five fast-track
courts to handle sexual-assault
cases, which often get bogged down
for years. Indian courts are notori-
ous for delays, with millions of
cases pending across the country.
Search for Missoni’s Plane
BY KEJAL VYAS
CARACAS, Venezuela—Venezue-
lan authorities Monday continued
their search for a small charter
plane that went missing off the
coast of the South American nation
on Friday carrying the chief execu-
tive of Italy’s Missoni SpA fashion
house.
Vittorio Missoni, who also serves
as marketing director and is a son
of company co-founder Ottavio
Missoni, was aboard the aircraft.
Vittorio Missoni’s wife, Maurizia
Castiglioni, another Italian couple
and two Venezuelan pilots were also
on board the plane, according to
Venezuela’s Interior Ministry.
The Britten-Norman BN-2
Islander plane was returning to
Caracas from Los Roques, a chain of
islands about 125 kilometers north
of the Venezuelan mainland that is
popular with European vacationers.
In a statement on its website
Monday, the Italian fashion house
confirmed that Vittorio Missoni, 58
years old, and his wife were missing
but said that was “all the
information currently available.”
Venezuelan search-and-rescue
teams spent more than 18 hours
scanning the seas by aircraft over
the weekend as well as searching an
additional 151 man-hours by boat,
said Jorge Galindo, an Interior Min-
istry spokesman. Teams set out
again early Monday from Los
Roques and from the airport at
Maiquetia, just outside Caracas.
The Missoni family is taking a
hands-on approach to the search for
Vittorio Missoni. His brother, Luca,
the company’s creative director,
flew to Venezuela. His sister, Angela
Missoni, Missoni’s chief designer, is
in Rome working with Italian au-
thorities there. “We are full of hope
and trust the great work the Au-
thorities have been doing so far,”
Ms. Missoni said in a statement
Monday. “We will not give up.”
Known for its zigzag pattern
knitwear, the Missoni fashion house
is family-owned and run by co-
founder Rosita Missoni and her chil-
dren.
The loss of Vittorio Missoni
wouldn’t only be a family tragedy,
but would also likely force one of
his siblings—or perhaps his mother,
temporarily—to take the reins at the
company.
—Christina Binkley
contributed to this article.
10 | Tuesday, January 8, 2013 THE WALL STREET JOURNAL.

WORLD NEWS

U.S. Marines Face Tensions in Okinawa
BY YUKA HAYASHI
CAMP FOSTER, Japan—In late
November, a 20-year-old American
Marine stationed here on Japan’s
southern island of Okinawa was play-
ing parkour, an extreme sport in
which participants jump over urban
obstacles.
He fell from a wall onto the prop-
erty of a public building as he back-
flipped—and was arrested for tres-
passing and held for six days, before
being released without charge.
To the Marines, it was an extreme
case of overzealous enforcement for
an innocent mistake. “We have no
voice to say great injustice has been
done to this kid,” said David Gries-
mer, a Marines spokesman in Oki-
nawa.
To local officials, it was a neces-
sary response to what they see as a
rash of misbehavior by American
troops stationed in their community.
“It was an utterly justifiable arrest,”
said a spokesman for the Okinawa
prefectural police. “The suspect tres-
passed without justifiable reasons.
That was clearly an intrusion.”
Strains and misunderstandings
between the U.S. military and the lo-
cal population in Okinawa have risen
in recent weeks, even as defense offi-
cials in Tokyo and Washington pledge
closer military ties between the two
hasn’t been rising. Yet each case in
recent weeks has attracted heavy
coverage in the Okinawa media,
which hosts 70% of all the U.S. troops
stationed in Japan. That has
prompted U.S. officials to respond
with more stringent measures, to
show to their Japanese hosts they
take these incidents seriously. They
have banned the consumption of al-
cohol off base, and prohibited the
nighttime sale of alcohol, even inside
the bases. Officials also required sol-
diers to “buddy-up” with colleagues
when they leave their bases while off-
duty.
To Americans, a sort of vicious
cycle has emerged. As rules grow
stricter, adherence to them has be-
come tougher. That has led to more
rule-breaking and more headlines in
the local media.
“Every measure we implement
ends up being another stick that we
get beaten with in the local press,”
said William Truax, a colonel who
handles government and external af-
Above, protesters rallied in Okinawa in fairs at the Marine Corps in Okinawa.
October after an alleged sexual assault. American officials attribute the
Right, a cutout board for tourists recent tensions to misunderstandings
stands empty near a U.S. base. over the nature of the curfew. Most
in Japan believe the curfew would
new frustration among both the keep all American soldiers off the
troops and local residents. street between 11 p.m. and 5 a.m. ev-
To many Okinawans, the rules— ery day. So when they spot troops
and continuing violations of them— during those hours, they see them as
have highlighted what they see as an “curfew violators.” Some Japanese
Associated Press; Kyodo/Reuters (top)

allies, especially as Japan is mired in
a tense territorial dispute with China.
The spark was the alleged sexual
assault of a local woman by two
American sailors in October, which
set off strong protests on the island
that serves as a U.S. military hub in
East Asia—one that is increasingly
important for Washington as it pivots
more heavily to the region. The two
sailors have been indicted by Japa-
nese authorities and await trial.
Americans responded to the al-
leged assault with a strict curfew and
other new limits covering all 50,000
troops stationed or on temporary
stay in Japan. The clampdown was
intended to keep military-civilian dis-
putes, always simmering just below
the surface, from boiling out of con-
trol. But the new rules have frayed
nerves in unexpected ways, causing
inherent problem with the U.S. troops media have used the word “dasso,”
placed in the midst of their commu- which means “jail break,” to describe
nities. The restrictions haven’t those caught misbehaving during the
stopped troops from misbehaving. No night.
serious crimes involving American U.S. officials say the curfew is not
service members have been reported a “lockdown,” and that it allows ser-
since the alleged rape. vice members to leave their bases,
But there has been a steady with permission, for official duties
stream of minor yet embarrassing in- and other reasons, such as participat-
cidents, mostly involving military ing in recreational activities on other
personnel acting under the influence sleeping in a stranger’s apartment. In commanders there have a good grip bases. They also note that many
of alcohol—including recent charges late December, one Marine was ar- of their young soldiers. We can’t go Americans actually live off-base, and
of assault, trespassing and drunken rested on charges of trespassing in on like this,” said Ichiro Fujisaki, Ja- some accused of breaking curfew
driving. An airman allegedly entered an apartment in Naha, Okinawa’s cap- pan’s former ambassador to Wash- were simply going home.
a private residence during the curfew ital. The next day, another Marine ington, who returned home in No- “To believe we are confined to the
hours and punched a 13-year-old boy was arrested on charges of driving vember. bases, and we have almost prison-
in the face. A Marine was caught on drunk and colliding with a motorcy- “People have gratitude toward level control over our personnel is
suspicion of smashing his car into cle, according to Kyodo News. America for defending Japan, but completely unrealistic,” said Col.
three other cars while intoxicated, in- Even some Japanese who strongly what we’ve seen [in recent weeks] is Daniel Haas, chief of staff of III Ma-
juring two locals. In mid-November, a support the American troop presence a little too much.” rine Expedition Force based in Oki-
Marine lieutenant was arrested on say the problem has gotten out of Americans say that the number of nawa. “We are not a second society.
trespassing charges after being found hand in recent weeks. “I hope the reported crimes remains small and We are part of the community.”

Japan Executives Warn of Too Much Yen Weakness

BY PHRED DVORAK
AND KANA INAGAKI
TOKYO—Some Japanese execu-
tives, after months of demanding
the government take action to
weaken the yen, are now warning
that such weakness could go too far
if the currency loses value too fast
and for the wrong reasons, or if it
leaves the country exposed to soar-
ing fuel costs that would undermine
the economy.
The executives, who gathered at
an annual New Year’s reception held
Bloomberg News
Japan is facing as it tries to break panies and other Japan watchers
out of 20 years of stagnation and have said is key to ensuring fiscal
deflation. The strong yen has tor- stability. Japan has the developed
mented export-dependent electron- world’s biggest public-debt burden,
ics manufacturers and auto makers at more than twice the size of the
in recent years by making it more economy.
expensive for them to sell abroad Separately, Toshiyuki Shiga, chief
goods manufactured at home. operating officer of Nissan Motor
Prime Minister Shinzo
Abe, left, spoke with
business leaders at an
most reactors, and thus could result
in debilitating high energy costs.
“The weaker yen is good for the
broader Japanese economy, but I’m
most concerned about energy
prices,” Mr. Sasaki said. “The key is
how to achieve a weaker yen after
finding the right balance between
energy and the yen’s depreciation.”
Mr. Abe, whose Liberal Demo-
cratic Party took control of govern-
ment after a victory at the polls in
December, has been pledging strong
action to lift the economy, beat de-
flation and weaken the yen—partly
annual operating profit. Nissan puts
that figure at ¥20 billion, and
Honda Motor Co. at ¥16 billion.
Yet economists warn that Japan
has to keep its finances under con-
trol if it is to reassure investors that
its huge debt burden won’t lead to a
Greek-style fiscal crisis. Some mar-
ket watchers and businesses caution
that a weak yen could undermine
the economy as well, if it pushes the
costs of imports up to stressful lev-
els.
Takeshi Niinami, chief executive
of convenience-store operator Law-

by Japan’s three biggest corporate
lobbies, praised Prime Minister
Shinzo Abe’s new government for its
proposals to boost the economy and
tame the strong yen, which erodes
exporters’ profits and makes it
harder to sell Japan-made goods
overseas.
But they also cautioned that if
the economy stays weak, or if the
government doesn’t take steps to
get its bloated finances under con-
trol, investors could lose confidence
in Japan and flee, sending the yen
into free fall.
The cautionary notes underscore
the complexities of the challenges
annual New Year’s
gathering on Monday in
Tokyo.
“What I’m worried about…is if Co., also said the company hopes for
there is a sell-Japan trend and the further depreciation of the yen ver-
yen weakens all at once,” said Masa- sus the dollar, but that a “bad yen
hiro Sakane, chairman of construc- weakening” could result if investors
tion-equipment giant Komatsu Ltd. lose confidence in Japan.
Mr. Sakane said he would be Toshiba Corp. President Norio
particularly concerned if a weak Sasaki said a weaker yen could lead
economy prompted the government to higher prices for the fuel Japan
to put off implementing an increase has been importing in increasing
in the sales tax—a revenue-generat- quantities since the 2011 nuclear ac-
ing measure that credit-rating com- cident resulted in a shutdown of
through steps such as increased
public spending and aggressive
monetary easing. That has caused
the dollar to appreciate about 11%
versus the yen since mid-November,
when Mr. Abe began his campaign
for office.
On Monday, the dollar was trad-
ing at ¥87.80 after climbing Friday
to ¥88.48, its highest level since
July 2010.
Many manufacturers, such as
Nissan and Toyota Motor Corp.,
want the dollar at ¥100 or stronger.
Toyota says a single-yen fluctuation
over a full year means a difference
of ¥35 billion ($397 million) to its
son Inc., said at the New Year’s
gathering that even importers like
his company benefit from a weaker
yen, because it helps exporters
maintain employment, and thus
stimulates consumption.
But he also said the measures
taken to support the economy
shouldn’t include a postponement of
the sales-tax increase, saying inves-
tors could dump Japanese govern-
ment bonds if they lose confidence
in the country’s ability to handle its
debt burden.
 Japan’s auto makers are regaining
confidence in Chinese market........ 23
 THE WALL STREET JOURNAL.
Associated Press
Police on Sunday pass by the bullet-riddled vehicle of suspected criminals about 100 miles from Manila.
Philippines Shootings
Prompt Gun Ban Calls
BY JAMES HOOKWAY
A rising body count from a series
of shootings in the Philippines is re-
viving calls for the country’s leaders
to strengthen gun laws in one of
Asia’s more dangerous countries.
In the latest standoff, 13 people
were killed Sunday in a shootout be-
tween special forces and police and
what authorities described as a sus-
pected criminal gang in the town of
Atimonan, some 140 kilometers, or
about 90 miles, east of Manila.
On New Year’s Eve, two children,
4-year-old Ranjilo Nemer and 7-
year-old Stephanie Nicole Ella, were
shot dead in separate incidents, the
latter apparently killed by a stray
bullet when a reveler shot off a fire-
arm during a celebration. In Kawit,
south of Manila, a one-time candi-
date for local government named
Ronald Bae shot and killed eight
people in a rampage Friday before
being shot dead by police.
In Sunday’s firefight, gunmen in
three black SUVs fired on more than
50 army and police troopers who
flagged them down in an area with a
history of drug-smuggling and where
Communist guerrillas are known to
operate.
Police officials said Monday that
at least three of the slain suspects
were security officials, casting some
confusion over the exact circum-
stances of the encounter.
The worsening bloodshed is fuel-
ing renewed calls to tackle lax en-
forcement of gun laws and to tighten
up firearms regulations in the Philip-
pines, where police estimate there
are more than half a million unli-
censed firearms in circulation, many
of them unreliable, homemade weap-
ons.
The problem is worsened by
long-running Communist and Isla-
mist insurgencies in the south of the
country, which have helped support
an extensive gun-smuggling indus-
try and contributed to a law-and-or-
der problem that is seen as having
helped prevent the country from
reaching its full economic potential.
Roman Catholic bishops, an in-
fluential force in the country, have
thrown their weight behind a cam-
paign for tighter regulation, driven,
Crime's Toll
COUNTRY HOMICIDES,
(YEAR) PER 100,000 PEOPLE
Honduras
(2010)
Russia
(2009)
Indonesia
(2008)
Philippines
(2009)
U.S.
(2009)
India
(2009)
France
(2008)
China
(2008)
Source: UN Global Study on Homicide, 2011
The Wall Street Journal
in part, by the growing demands for
regulation in the U.S. after a gun-
man shot and killed 26 people at an
elementary school in Connecticut
last month before killing himself.
Bishop Deogracias Iñiquez from Ca-
loocan, the Manila neighborhood
where the 7-year-old girl was killed
New Year’s Eve, said by telephone
that he favors a total gun ban, and
that only police officers and soldiers
should be allowed to carry weapons.
Bishop José Oliveros from Malo-
los, just north of Manila, said a total
gun ban conforms to Christian
teachings. “It supports the gospel of
life versus the culture of death,” he
said.
A number of proposals for
tighter gun controls are sitting in
Congress. A so-called citizens’ pro-
tection act was filed in 2010, signed
by 86 Catholic bishops and other ac-
tivists, that seeks to limit the carry-
ing of firearms to security officials.
So far, the bill and similar pieces
of legislation have languished in the
House of Representatives, but Presi-
dent Benigno Aquino III, himself a
gun enthusiast, will study proposals
to improve the licensing of firearms
in the Philippines, presidential
spokeswoman Abigail Valte said Sat-
urday on national radio.
WORLD NEWS
Analysts say despite the latest
violence, the Philippines will likely
find it difficult to muster the politi-
cal will to deal with its gun problem.
The issue isn’t the presence of any
strong domestic gun lobby such as
82.1 the National Rifle Association in the
U.S. Nor is bearing arms constitu-
11.2
tionally protected in the Philippines.
Instead, it revolves around the way
8.1 many local politicians depend on
armed guards for protection.
5.4 The dangers politicians face were
brought into sharp relief in 2009
5.0 when armed men allegedly working
for the Ampatuan political clan ab-
3.4 ducted 57 people, including journal-
ists and political rivals, and shot
1.4 them dead in Maguindanao province
in the southern Philippines.
The Ampatuan family has denied
1.1
any wrongdoing while human-rights
groups have criticized the Philippine
government for its slow progress in
pursuing a trial.
Filipinos are supposed to refrain
from carry firearms in public during
election campaigns. But, writing in
the Philippine Daily Inquirer, analyst
Neal Cruz described such periodic
bans as a routinely ignored “farce.”
“Every election period, the Philip-
pines becomes another Wild West
with shootings and assassinations
every so often, even when there is a
‘total gun ban.’ When will this all
end?” he wrote, predicting the coun-
try’s Congress is unlikely to pass any
new gun-control legislation.
Other commentators blamed the
Philippines’ gun problem on the
country’s police force. Jarius Bondoc,
a political analyst, said the Philippine
National Police are seen as “inept”
and “crooked,” and “that’s why civil-
ians resort to arming themselves. In
so doing, they deter crime.”
Philippine National Police
spokesman Generoso Cerbo said he
disagreed with Mr. Bondoc. “Many
of the guns registered are owned by
gun enthusiasts; not that many re-
sort to gun ownership for security.”
He said that crime in the country
was at “manageable levels” and that
to say the police are inept is unac-
ceptable.
—Cris Larano and
Josephine Cuneta in Manila
contributed to this article.
Google Inc. Official
Lands in North Korea
Associated Press
PYONGYANG—Eric Schmidt, ex-
ecutive chairman of Google Inc., on
Monday became the highest-profile
U.S. executive to visit North Korea—
a country with notoriously restric-
tive online policies—since young
leader Kim Jong Eun took power a
year ago.
His visit has drawn criticism
from the U.S. State Department be-
cause it comes only weeks after a
controversial North Korean rocket
launch; the visit has also prompted
speculation about what the busi-
nessman hopes to accomplish. His
delegation said the Google chairman
wants a firsthand look at North Ko-
rea’s economy and social media in
his private visit.
Mr. Schmidt arrived on a com-
mercial Air China flight with former
New Mexico Gov. Bill Richardson,
who has traveled more than a half-
dozen times to North Korea over the
past 20 years.
Mr. Richardson, speaking ahead
of the flight from Beijing, called the
trip a private, humanitarian mission.
“This is not a Google trip, but
I’m sure he’s interested in some of
the economic issues there, the so-
cial-media aspect. So this is why we
are teamed up on this,” Mr. Richard-
son said, without elaborating on
what he meant by the “social-media
aspect.”
“We’ll meet with North Korean
political leaders. We’ll meet with
North Korean economic leaders, mil-
itary. We’ll visit some universities.
We don’t control the visit. They will
let us know what the schedule is
when we get there,” he said.
North Korea on Dec. 12 fired a
satellite into space. Washington
condemned the launch, which it
considers a test of ballistic-missile
technology, as a violation of U.N. Se-
curity Council resolutions barring
Pyongyang from developing its nu-
clear and missile programs. The Se-
curity Council is deliberating fur-
ther action.
“We don’t think the timing of the
visit is helpful, and they are well
aware of our views,” State Depart-
ment spokeswoman Victoria Nuland
told reporters last week.
The trip was planned well before
North Korea announced its plans to
send a satellite into space, two peo-
ple with knowledge of the delega-
tion’s plans told The Associated
Press.
Mr. Schmidt is expected to make
a donation during the visit, while
Mr. Richardson will try to discuss
the detention of a U.S. citizen jailed
in Pyongyang, members of the dele-
Eric Schmidt, left, disembarks from an airport bus in Pyongyang.
Tuesday, January 8, 2013 | 11
gation said. They asked not to be
named, saying the trip was a private
visit.
“We’re going to try to inquire
the status, see if we can see him,
possibly lay the groundwork for him
coming home,” Mr. Richardson said
of the U.S. citizen. “I heard from his
son who lives in Washington state,
who asked me to bring him back. I
doubt we can do it on this trip.”
The visit comes just days after
Kim Jong Eun, who took power fol-
lowing the Dec. 17, 2011, death of his
father, Kim Jong Il, laid out a series
of policy goals for North Korea in a
lengthy New Year’s speech. He cited
expanding science and technology
as a means of improving the coun-
try’s economy as a key goal for
2013.
North Korea’s economy has lan-
guished for decades, particularly
since the collapse of the Soviet
Union, which since the mid-1940s
had provided an economic safety
net. North Korea, which has very lit-
tle arable land, has relied on outside
help to feed its people since a fam-
ine in the 1990s.
In recent years, North Korea has
aimed to modernize its farms and
digitize its factories. Farmers told
the AP that management policies
were revamped to encourage pro-
duction by providing workers with
incentives.
Computer and cellphone use is
gaining ground in North Korea’s
larger cities.
However, most North Koreans
have access only to a domestic In-
tranet system, not the World Wide
Web. For North Koreans, Internet
use is still strictly regulated and al-
lowed only with approval.
Mr. Schmidt, who oversaw
Google’s expansion into a global In-
ternet giant, speaks frequently
about the importance of providing
people around the world with Inter-
net access and technology.
Google now has offices in more
than 40 countries, including all
three of North Korea’s neighbors:
Russia, South Korea and China, an-
other country criticized for system-
atic Internet censorship.
Accompanying Mr. Schmidt is
Jared Cohen, a former policy and
planning adviser for the U.S. State
Department who heads Google’s
New York-based think tank. The two
collaborated on “The New Digital
Age,” a book about the Internet’s
role in shaping society that comes
out in April.
Also leading the delegation is
Kun “Tony” Namkung, a Korea ex-
pert who has made frequent trips to
North Korea over the past 25 years.
Associated Press
12 | Tuesday, January 8, 2013 THE WALL STREET JOURNAL.

NEWS IN DEPTH

For Newly Minted M.B.A.s,

Smaller Paychecks Await
As Tuition Costs Soar, Graduates Are Saddled With a Lot of Debt and a Dearth of Job Prospects

BY RUTH SIMON

L
ike many students, Steve
Vonderweidt hoped that a mas-
ter’s degree in business adminis-
tration would open doors to a new job
with a higher paycheck.
But now, about eight months after
receiving his M.B.A., Mr. Vonderweidt,
36 years old, hasn’t
been able to find a job
in the private sector,
and continues to work
as an administrator at
PRICE OF a social-service agency
ADMISSION that helps Louisville
residents obtain food stamps, health
care and other assistance. He is sad-
dled with about $75,000 in student-
loan debt—much of it from graduate
school.
“It was a really great program,”
says Mr. Vonderweidt. “But the job
part has been atrocious.”
Soaring tuition costs, a weak labor
market and a glut of recent graduates
such as Mr. Vonderweidt are upending
the notion that professional degrees
like M.B.A.s are a sure ticket to finan-
cial success.
The M.B.A.’s lot is partly reflected
in starting pay. While available figures
vary by schools and employers, re-
cruiters’ expected median salary for
newly hired M.B.A.s was essentially
flat between 2008 and 2011, not ad-
justing for inflation, according to a
survey by the Graduate Management
Admission Council.
For graduates with minimal experi-
ence—three years or less—median
pay was $53,900 in 2012, down 4.6%
from 2007-08, according to an analy-
sis conducted for The Wall Street
Journal by PayScale.com. Pay fell at
62% of the 186 schools examined.
Even for more seasoned grads the
trend is similar, says Katie Bardaro,
lead economist for PayScale.com. “In
general, it seems that M.B.A. pay is
either stagnant or falling,” she says.
The pressures are greatest for
those attending less prestigious
schools, says Stanford Business
School professor Paul Oyer, who stud-
ies personnel trends. But even at top
programs, some graduates are likely
to struggle in today’s environment, he
says.
Another burdensome issue: a high
debt load. Nearly 60% of graduating
M.B.A.s said they expected to repay
some loans after graduation, accord-
ing to a 2012 GMAC survey. Among

Steve Vonderweidt says his University of

Austin Koester for The Wall Street Journal

Louisville M.B.A. hasn’t yet led to a better

job. He continues to work as an
administrator at a social-service agency.
THE WALL STREET JOURNAL. Tuesday, January 8, 2013 | 13

NEWS IN DEPTH

B-School Blues The traditional

A boom in graduate degrees... …has come as the financial payoff has declined.
Master's in business administration and management Incomes and loan debt for households headed by someone under age 35 who has attended
M.B.A. was mainly
All other Master’s degrees
graduate school and has student loan debt
the product of a full-
800 thousand $100 thousand
2010: $86,037
time, two-year
2011: 126,214
program. But
600 75 beginning in the
Incomes

604,421
1990s, many schools
400 50 created part-time
$81,758
Average student loan and online programs.
debt
200 25 The number of
degrees granted has
0
2001 ’03 ’05 ’07 ’09 ’11
0
1989 ’91 ’93 ’95 ’97 ’99 2001 ’03 ’05 ’07 ’09
grown faster than the
Ending school year
population.
Sources: U.S. Department of Education (degrees); Wall Street Journal analysis of Federal Reserve Board Survey of Consumer Finance (income, debt) The Wall Street Journal

households headed by people with student hub in Louisville, puts more emphasis on duced a full-time M.B.A. aimed at recent col- when the chain fills positions at its corporate
debt who attended graduate school and are un- M.B.A.s and other grad-school types than it did lege graduates that includes a paid internship office.
der 35, average student loan debt climbed to five years ago. Still, know-how trumps all. with a local employer. Next year, the school Nor does an M.B.A. guarantee a pay in-
$81,758 in 2010 according a Wall Street Jour- “We’re always going to look at the work expe- will begin another program for students with crease. “I haven’t seen an automatic boost for
nal analysis of Federal Reserve data. That fig- rience first and how has that been enhanced 12 to 15 years of work experience. any degree,” says Kevin Stakelum, director of
ure is up from $55,594 in 2007. through any advanced degree,” says spokes- Mr. Moyer acknowledges that the growth in talent acquisition for Humana Inc., one of Lou-
It is all a far cry from the late 1980s and woman Susan Rosenberg. offerings was driven in part by a desire to isville’s largest employers. While an M.B.A. can
early 1990s heyday for M.B.A.s, when some The University of Louisville illustrates how boost revenues. “When I get a budget cut, I be valuable, particularly in certain positions,
companies would hire 100 or more M.B.A.s. It some M.B.A. programs have struggled to re- think about starting a new program,” he says. “it’s a piece of the entire puzzle.”
wasn’t uncommon to recruit first, and fill ac- main attractive, and relevant, in this rocky en- “If we can do it really well and generate a lot Casting a wider net remains a challenge.
tual jobs later. vironment. of money, we can pour it back into our core “It’s always difficult to get those upper-tier
“Some of those companies would hire today R. Charles Moyer, dean of the College of business, which is undergraduate education.” companies to come and recruit,” says T. Ver-
barely in the single-digits,” says Mark Peter- Business, was recruited away from Wake For- Louisville now offers full- and part-time non Foster, who oversees career services.
son, president of the M.B.A. Career Services est University in 2005 with a mandate to ramp M.B.A.s as well as a highly regarded entrepre- “Once they do, they are always impressed.”
Council. up the Louisville M.B.A. program. Ten local neurship program that in total enroll roughly Joshua Sickles, a 2010 graduate of the part-
A weak economic climate is only partly to business leaders had pledged to kick in roughly 250 students—roughly a 10% increase since time program, figures his Louisville M.B.A.
blame for the M.B.A.’s plight. The changing na- $10,000 each for five years toward his Mr. Moyer’s arrival. With total tuition of helped him land a promotion at UPS that
ture of B-school programs, evolving corporate $350,000 paycheck. $32,000, a Louisville M.B.A. is still a relative added about $15,000 to his paycheck. “It was
needs—as well as the perceived value of the Louisville “was growing at that time,” re- bargain. But the price tag has more than dou- an investment in myself,” says Mr. Sickles, who
degree—have all helped to dilute the M.B.A.’s calls C. Edward Glasscock, a local attorney who bled under Mr. Moyer’s tenure. Revenues from borrowed roughly $30,000 for his degree.
allure. helped spearhead the fundraising effort. “We the M.B.A. programs have increased by more Other graduates have found returns to be
Formerly, the traditional M.B.A. was mainly had to make sure we had graduates to fill the than 250%. more elusive. “It definitely did not open up a
the product of a full-time, two-year program. workforce need.” The dean says an M.B.A. degree remains a lot of opportunities right away,” says Matthew
But beginning in the early 1990s, many schools Mr. Moyer tightened admission standards. “terrific investment,” though the returns might Wilson, 29, a 2010 graduate who says having
created part-time and executive M.B.A. pro- Also, in 2007, he revamped the school’s exist- not be evident for “a year or two.” an M.B.A. wasn’t a prerequisite for his current
grams, with lower-ranked schools often follow- ing part-time M.B.A. program, made up of stu- Indeed, some of the same companies that position in financial services. “I definitely
ing in the footsteps of academic leaders. On- dents who were pursuing degrees while work- supported the Louisville M.B.A. program stress would do it again,” he says. “But I don’t think
line degrees also gained in popularity. ing. Under the new program, groups of that experience, not the degree alone, opens it carries the same weight as it used to.”
As a result, the number of M.B.A. degrees students moved together through classes over the door to jobs. —Rob Barry
granted has grown faster than the population, a two-year period, which was later shortened Texas Roadhouse Inc., a Louisville-based contributed to this article.
says Brooks Holtom, a management professor to 20 months. restaurant chain, donated a $200,000 student
at Georgetown University’s McDonough School He also added faculty, increased course op- lounge to the B-school and has hired several
of Business. tions and introduced Saturday “enrichment M.B.A. students as interns and employees. But Online>>
“An M.B.A. is a club that is now not exclu- programs” on negotiation skills, ethics and spokesman Travis Doster says restaurant expe- For more articles in this series, go to
sive,” he says. “You should not assume that business etiquette. Three years ago, he intro- rience carries more weight than an M.B.A. WSJ.com/PriceOfAdmission.
this less-exclusive club is going to confer the
same benefits.”
Today’s global corporate culture amplifies
the competition. “We are trying to internation-
alize our business like everyone else,” says Lee
Ashton, director of international human re-
sources at spirits maker Brown-Forman Corp.
With 58% of its business outside the U.S., the
Louisville company has stepped up recruiting
of M.B.A.s from abroad.
U.S. schools granted a record 126,214 mas-
ter’s degrees in business and administration in
the 2010-11 academic year, a 74% jump from
2000-01, according to the Department of Edu-
cation. The M.B.A. march is part of an overall
boom in advanced degrees that took on added
steam as some recent college graduates and
others sought refuge from the recession by
pursuing advanced degrees. Tuition and fees
for full-time M.B.A. programs have risen 24%
over the past three years, according to the
main body that accredits U.S. business schools.
It is unclear how many M.B.A.s the market
really needs. Recently, more companies have
Austin Koester for The Wall Street Journal

indicated that “they are moving away from an

emphasis on M.B.A.s” and are instead hiring
more undergraduates at lower salaries who
they can then train in-house, says Camille
Kelly, vice president of employer branding at
Universum, a firm that advises companies on
how to attract and retain the best employees.
Companies, she says, “still will do M.B.A. hir-
ing, but it won’t be to the same extent they
have in the past.”
United Parcel Service Inc., which has a R. Charles Moyer, dean of the University of Louisville College of Business, says an M.B.A. remains a ‘terrific investment.’
14 | Tuesday, January 8, 2013
P
erhaps the greatest irony of the
Obama Presidency is how much it
has vindicated the antiterror
strategy of its predecessor. The latest
example is President Obama’s vexed
statement in signing the National De-
fense Authorization Act of 2013.
Among many other things, the bill
strengthens existing Congressional
limits on transferring detainees out of
Guantánamo and other U.S. facilities
either to the U.S. or to a third country.
But while signing the law last week,
Mr. Obama issued a nearly 1,800 word
statement objecting to various provi-
sions.
He protested, for example, that a
provision limiting the transfer of de-
tainees held in Afghanistan “could in-
terfere with my ability as Commander
in Chief to make time-sensitive deter-
minations about the appropriate dispo-
sition of detainees in an active area of
hostilities.” Such decisions are typi-
T
he U.S. National Labor Relations
Board isn’t suffering for work, but
President Obama’s appointees at
this arbiter of labor relations are none-
theless grabbing a vast new mission: reg-
ulating the workplaces of companies that
have no union at all.
That’s the gist of NLRB actions resur-
recting a musty provision in the 1935 Na-
tional Labor Relations Act known as “pro-
tected concerted activity.” Lawmakers
worried at the time that companies would
impose work rules dissuading employees
from communicating about a union. “Pro-
tected concerted activity” ensured that
employees could freely gather around the
proverbial water cooler. Yet as work-
places modernized and workers obtained
other protections, successful complaints
about violations of “concerted activity”
became rare.
That’s changed under NLRB Acting
General Counsel Lafe Solomon, who read-
A
tort lawyer’s legal adventurism is
never done, and therefore neither
is the Supreme Court’s obligation
to rein it in. On Monday, America’s High
Court heard oral arguments on the law-
suit industry’s attempt to end-run Con-
gressional limits on abusive class actions.
The U.S. Congress passed the Class Ac-
tion Fairness Act in 2005 to crack down
on the tort bar’s forum shopping to get
cases heard in friendly state courts. To
slow the pilgrimages to lawsuit swamps
like Madison County in Illinois and Miller
County in Arkansas, the law made it eas-
ier for cases to be removed to federal
court. Among other changes, the law gave
state attorneys general the right to be
notified of proposed class-action settle-
ments involving citizens of their state
and permitted interstate class-action
suits with aggregate damages greater
than $5 million to be moved to federal
court.
The $5 million rule has become a spe-
THE WALL STREET JOURNAL.
OPINION: REVIEW & OUTLOOK
War Powers Reversal
cally made based on “the judgment of Last week, President Obama wrote gress for making it harder to close
experienced military commanders and that “though I continue to oppose cer- Guantánamo, yet for a second year
national security professionals without tain sections” of the defense bill, “the President Obama has signed damaging
unwarranted interfer- need to renew critical de- Congressional restrictions into law.”
ence by Members of Obama discovers the fense authorities and On the merits, we don’t much like
Congress,” he wrote. And virtues of Presidential funding was too great” these intrusions on executive war
he even suggested that if not to sign it. Mr. Obama power, but Congress is surely within its
the provision “operates ‘signing statements.’ has issued more than 20 rights to use the power of the purse on
in a manner that vio- signing statements so far. Guantánamo and detainee transfers. The
lates constitutional sepa- In his latest, Mr. defense bill runs closer to the edge of
ration of powers principles,” he’ll ig- Obama also criticized Congress for try- unconstitutionality when it tries to
nore it. ing to limit his “constitutional duty to make plea bargains in military tribunals
Well, well. Perhaps readers recall the supervise the executive branch.” This more difficult. But given the Supreme
uproar when George W. Bush issued sounds a lot like the theory of the “uni- Court’s decisions (Hamdan and Boume-
similar “signing statements” defending tary executive” that turned Bush-era of- diene) on military tribunals and inviting
Presidential war powers. The criticism ficials like John Yoo into pariahs in the Congressional-executive cooperation,
was withering—from Barack Obama. legal academy. Congress probably can do that too.
In 2007 Senator Obama made this Democrats and most liberal journal- Senator Obama liked those rulings.
pledge: “I will not use signing state- ists are now mute at this irony, though But President Obama is finding that the
ments to nullify or undermine congres- some on the anti-antiterror left admit cheerleading he did then against the
sional instructions as enacted into law.” they’ve been had. Andrea Prasow of Hu- supposedly Imperial Bush is infringing
In 2008 Candidate Obama said “Con- man Rights Watch declared last week on his ability to pursue his own na-
gress’s job is to pass legislation. The that Mr. Obama should have vetoed the tional security policies. Mr. Bush must
president can veto it or he can sign it.” law: “The administration blames Con- be smiling.
Another NLRB Power Grab
ers may recall as the architect of the regulate how companies handle social gate workers accused of wrongdoing.
NLRB attempt to block Boeing from media. In the Facebook and Twitter age, The NLRB can only act on complaints
building planes in right-to-work South employers have an obvious interest in it receives. So the agency is now publicly
Carolina. Mr. Solomon is now teeing up rules that prohibit their employees from marketing its mission creep, with a new
decisions that use “concerted activity” to defaming colleagues, or broadcasting website that publicizes concerted-activity
dictate workplace rules confidential information. charges. “We think the right to engage in
that have nothing to do Regulating social The NLRB has nonethe- protected concerted activity is one of the
with the right to organize. media and banning less decided that even best kept secrets of the National Labor
Take the NLRB’s deci- reasonable restrictions Relations Act,” declared NLRB Chairman
sion last year in D.R. Hor- legal arbitration. impinge on concerted ac- Mark Pearce. “Our hope is that other
ton, which found that a tivity. workers will see themselves in the cases
company had violated the Mr. Solomon has issued we’ve selected and understand that they
concerted-activity rule by including restric- three reports that review dozens of do have strength in numbers.”
tions against class-action lawsuits in an ar- charges against networking policies, put- All of which highlights the degree to
bitration agreement. Mr. Solomon may be- ting the entire business world on notice. which the Obama NLRB has become a
lieve every worker needs a trial lawyer on Workers who bully their colleagues on wholly-owned subsidiary of Big Labor,
speed-dial, but it’s ludicrous to argue that Facebook, publicly complain that co- rather than a neutral arbiter of fair labor
this has anything to do with forming a workers got promotions, or who use ex- practice. In the near term, the U.S. Con-
union. Unless the ruling is overturned by pletives to disparage their bosses or gress should scrutinize its practices and
the Fifth Circuit Court of Appeals, the companies on social media are appar- cut its budget. Looking past the Obama
NLRB could begin attacking class-action re- ently all engaged in protected “concerted Presidency, Republicans should plan how
strictions across the economy. activity.” The board has also used the to rewrite the law to severely limit the
Also insidious is the NLRB’s effort to rule to limit employers’ ability to investi- NLRB’s power.
Supreme Court Class Action
cial target for creative lawyering. In artificial limit and remanded the case to defendant calculated could be as high as
Standard Fire v. Knowles, Arkansas resi- state court. But his decision runs afoul of $65 million when accounting for absent
dent Greg Knowles sued the Connecticut- previous Supreme Court rulings that class members.
based Standard Fire Insur- plaintiffs lawyers have no Avoiding such jackpot injustice was
ance company for The tort bar tries to right to impose limits on Congress’s whole point in passing the
payment for general con- gut a law reining in the claims of potential Class Action Fairness Act. Plaintiffs law-
tractor fees he says were class members before the yers use the threat of astronomical ver-
covered by his insurance legal forum shopping. class is even certified. In dicts and the heavy costs of discovery to
policy when his house was 2011’s Smith v. Bayer, the induce companies to settle. The tort bar’s
damaged by a hailstorm. Supreme Court wrote that forum shopping harms the states that be-
Mr. Knowles says Standard Fire paid for an “uncertified class action cannot bind come plaintiffs magnets, as well as busi-
repairs but should have also paid an ex- proposed class members.” nesses in other states that have to honor
tra 20% for a general contractor. Under plaintiff’s logic in Standard the decisions of those courts. In Stan-
Plaintiffs attorneys say the potential Fire, any case could be remanded to dard Fire, 18 state AGs have signed a
pool of similar class members includes state court if the plaintiffs merely de- brief supporting Congress’s effort to in-
hundreds or even thousands of Standard clare that damages will be capped at $5 crease the role of federal courts in re-
Fire customers who live in Arkansas. million. Then, because the limit can’t solving state class-action claims.
Those claims could exceed $5 million, but actually bind absent class members, The tort bar longs for the days when
to keep the case in friendly Miller County state courts could award gazillions it could easily bring class actions in sym-
the plaintiffs lawyers said they would cap more. pathetic jurisdictions and coerce settle-
the recovery amount at the $5 million See the scam? In a similar Miller ments. But Congress has addressed this
cut-off specified by the Class Action Fair- County case known as Basham v. Ameri- state-court abuse, and we hope the High
ness Act. can Nat’l Ins. Co., plaintiffs imposed the Court protects the law that restored
A federal district judge bought that phony “cap” despite damages that the some sanity to class actions.
THE WALL STREET JOURNAL.
BY STEPHEN MOORE
What stunned U.S. House
Speaker John Boehner more than
anything else during his prolonged
closed-door budget negotiations
with Barack Obama was this revela-
tion: “At one point several weeks
ago,” Mr. Boehner says, “the presi-
dent said to me, ‘We don’t have a
spending problem.’ ”
I am talking to Mr. Boehner in
his office on the second floor of the
Capitol, 72 hours after the historic
House vote to take America off the
so-called fiscal cliff by making per-
manent the Bush tax cuts on most
Americans, but also to raise taxes
on high earners. In the interim, Mr.
Boehner had been elected to serve
his second term as speaker of the
House. Throughout our hourlong
conversation, as is his custom, he
takes long drags on one cigarette
after another.
Mr. Boehner looks battle weary
from five weeks of grappling with
the White House. He’s frustrated
that the final deal failed to make
progress toward his primary goal
of “making a down payment on
solving the debt crisis and setting a
path to get real entitlement re-
form.” At one point he grimly says:
“I need this job like I need a hole in
the head.”
The president’s insistence that
Washington doesn’t have a spend-
ing problem, Mr. Boehner says, is
predicated on the belief that mas-
sive federal deficits stem from
what Mr. Obama called “a health-
care problem.” Mr. Boehner says
that after he recovered from his as-
tonishment—“They blame all of the
fiscal woes on our health-care sys-
tem”—he replied: “Clearly we have
a health-care problem, which is
about to get worse with Obama-
Care. But, Mr. President, we have a
very serious spending problem.” He
repeated this message so often, he
says, that toward the end of the ne-
gotiations, the president became ir-
ritated and said: “I’m getting tired
of hearing you say that.”
With the two sides so far from
agreeing even on the nature of the
country’s fiscal challenge, making
progress on how to address it was
difficult. Mr. Boehner became so
agitated with the lack of progress
that he cursed at Senate Majority
Leader Harry Reid. “Those days af-
ter Christmas,” he explains, “I was
in Ohio, and Harry’s on the Senate
floor calling me a dictator and all
kinds of nasty things. You know, I
don’t lose my temper. I never do.
But I was shocked at what Harry
was saying about me. I came back
to town. Saw Harry at the White
House. And that was when that was
said,” he says, referring to a
pointed “go [blank] yourself” ad-
dressed to Mr. Reid.
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The Education of John Boehner
Mr. Boehner confirms that at
one critical juncture he asked Mr.
Obama, after conceding on $800
billion in new taxes, “What am I
getting?” and the president replied:
“You don’t get anything for it. I’m
taking that anyway.”
Why has the president been
such an immovable force when it
comes to cutting spending? “Two
reasons,” Mr. Boehner says. “He’s
so ideological himself, and he’s
unwilling to take on the left wing
of his own party.” That reluctance
explains why Mr. Obama originally
agreed with the Boehner proposal
to raise the retirement age for
Medicare, the speaker says, but
then “pulled back. He admitted in
meetings that he couldn’t sell
things to his own members. But he
didn’t even want to try.”
Mr. Boehner is frustrated that
Republicans were portrayed by the
press as dogmatic and unyielding
in these talks. “I’m the guy who put
revenues on the table the day after
the election,” he says. “And I’m the
Getty Images
guy who put the [income] thresh-
old at a million dollars. Then we
agreed to let the rates go up, on
dividends, capital gains as a way of
trying to move them into a deal. . .
. But we could never get him to
step up,” Mr. Boehner says with a
shrug. Negotiations with the White
House ended in stalemate when “it
became painfully obvious that the
president won’t cut spending.”
Once the talks broke down, the
eventual scaled-back deal with no
spending cuts was brokered by Vice
President Joe Biden and Senate
Minority Leader Mitch McConnell,
with Mr. Boehner on the sidelines.
He says that after the tax package
passed the Senate, the House Re-
publican caucus debated two alter-
natives. One was to amend the Sen-
ate bill by attaching spending cuts,
and the other was to vote up or
down on the Senate bill.
“We were already off the cliff,”
he says of the rushed Jan. 1 vote,
and he feared that a no vote would
do “serious damage to the econ-
omy.” He denies twisting arms to
win passage. Even though a major-
ity of Republicans voted no, and he
took flak from conservative groups
as a sellout, “in the end, most of
our members wanted this to pass,
but they didn’t want to vote for it.”
In hindsight, what does he think
was his biggest strategic mistake?
“What I should have done the day
after the election was to come out
and say: The House has done its
work. The House passed a bill that
replaced the sequester with real
spending cuts. The House passed a
plan extending all of the current
tax rates. We passed a budget. We
call upon the Senate to do their
work.”
The left has been crowing that
it walked away with the crown
jewels and forced Republicans to
cave on their “no new taxes” prin-
ciple. Mr. Boehner sees things dif-
ferently: “The law of the land was
that all of the rates were going up
January 1, period. So the question
was, were we going to cut taxes by
$3.7 trillion.”
He’s no cheerleader for the final
deal—he derides the special-inter-
est corporate-tax provisions as con-
taining “an awful lot of garbage”
and grouses about “extending un-
employment without further re-
forms”—but he defends it as the
best bad outcome that could have
been expected: “Who would have
ever guessed that we could make
99% of the Bush tax cuts perma-
OPINION
The speaker of the House on his way to the budget vote, Jan. 1.
nent? When we had a Republican
House and Senate and a Republican
in the White House, we couldn’t get
that. And so, not bad.”
Where does the U.S. fiscal de-
bate go from here? The speaker is
adamant on two points: First, Re-
publicans won’t be agreeing to any
more tax increases during the next
two years. “The tax issue is re-
solved,” he says, and it will be dis-
cussed only in the context of a
broader debate about tax reform—
Leverage for the next clash:
GOP willingness to let the
spending sequester take effect.
specifically, lower rates. He dis-
misses the president’s declaration
that any future budget cuts will
have to be “balanced” with more
tax hikes.
Second, Mr. Boehner says he
won’t engage in any more closed-
door budget negotiations with the
White House, which are “futile.” He
adds: “Sure, I will meet with the
president if he wants to,” but
House Republicans will from now
on proceed with establishing a bud-
get for the year following what is
known as “regular order,” and they
will insist that Harry Reid and Sen-
ate Democrats pass a budget—
something they haven’t done in
nearly four years—before
proceeding.
The real showdown will be on
the debt ceiling and the spending
sequester in March. I ask Mr. Boeh-
ner if he will take the debt-ceiling
talks to the brink—risking a gov-
ernment shutdown and debt down-
grade from the credit agencies—
given that it didn’t work in 2011
and President Obama has said he
won’t bargain on the matter.
The debt bill is “one point of le-
verage,” Mr. Boehner says, but he
also hedges, noting that it is “not
the ultimate leverage.” He says that
Republicans won’t back down from
the so-called Boehner rule: that ev-
ery dollar of raising the debt ceil-
ing will require one dollar of
spending cuts over the next 10
years. Rather than forcing a deal,
the insistence may result in a series
of monthly debt-ceiling increases.
The Republicans’ stronger card,
Mr. Boehner believes, will be the
automatic spending sequester trig-
ger that trims all discretionary
programs—defense and domestic.
It now appears that the president
made a severe political miscalcula-
tion when he came up with the se-
quester idea in 2011.
As Mr. Boehner tells the story:
Mr. Obama was sure Republicans
would call for ending the seques-
ter—the other “cliff”—because it
included deep defense cuts. But Re-
publicans never raised the issue. “It
wasn’t until literally last week that
the White House brought up replac-
ing the sequester,” Mr. Boehner
says. “They said, ‘We can’t have the
sequester.’ They were always count-
ing on us to bring this to the table.”
Mr. Boehner says he has signifi-
cant Republican support, including
GOP defense hawks, on his side for
letting the sequester do its work.
“I got that in my back pocket,” the
speaker says. He is counting on
the president’s liberal base putting
pressure on him when cherished
domestic programs face the se-
quester’s sharp knife. Republican
willingness to support the seques-
ter, Mr. Boehner says, is “as much
leverage as we’re going to get.”
That leverage, he reasons, is
what will force Democrats to the
table on entitlements. “Think of it
this way. We already have an
agreement [capping] discretionary
spending for 10 years. And we’re
already in our second year of it.
This whole discussion on the bud-
get over the next several months
is going to be about these entitle-
ments.”
Given the bruising of the past
several weeks, Mr. Boehner is sur-
prisingly optimistic about getting
a deal done on corporate and per-
sonal income-tax reform. “The
president understands the need
for tax reform,” he says. “The
president admitted . . . in the first
meeting that we needed to do tax
reform, and he was for a tax re-
form process that would lower
rates.”
Mr. Boehner sees Republicans
with two goals: lowering tax rates
and closing loopholes, as happened
in 1986, and equalizing tax rates
between small businesses and
large corporations. His optimism
Tuesday, January 8, 2013 | 15
that Democrats will agree to that
framework seems Pollyannish
since they are now advocating
closing loopholes to raise reve-
nues—without lowering rates.
The driving passion for Mr.
Boehner in these fiscal debates is
his conviction that trillion-dollar
deficits are sapping the country of
its energy and prosperity. When I
ask him when the impact of this
debt will start to be felt, he says:
“It’s already here today. It’s killing
our economy. It’s causing investors
to sit on their cash. They’re afraid
to invest. It’s a wet blanket on top
of our economy.”
He sees debt as almost a moral
failing, noting that when he grew
up in a “little middle-class, blue-
collar neighborhood” outside of
Cincinnati, “nobody had debt. It
was unheard of. I just don’t do
debt.”
Mr. Boehner says that the only
way to build long-term U.S. eco-
nomic growth is to reduce the na-
tion’s debt through entitlement
and tax reform. But can such a
deal be achieved with a president
who doesn’t even think that Wash-
ington has a spending problem?
“He believes in the power of gov-
ernment,” Mr. Boehner answers. “I
believe in the power of the Ameri-
can people. It is really that
simple.” And really that difficult.
Mr. Moore is a member of the
Journal’s editorial board.
Pepper . . . and Salt
THE WALL STREET JOURNAL
“The data is showing they
actually have a longer attention
span than the American public.”
16 | Tuesday, January 8, 2013
[ Americas ]
BY MARY ANASTASIA O’GRADY
Is Hugo Chávez
dead or alive? And
if he is dead,
won’t that make it
difficult for him to
take the oath of
office on Thursday—when he is
supposed to be sworn in as the
Venezuela’s president for another
six-year term?
Inquiring Venezuelans want to
know. It has been four weeks
since Mr. Chávez left the country
Regardless of whether the
president makes it to his
inauguration, the angling to
replace him has begun.
for cancer surgery in Havana,
and he has yet to make a postop-
erative public appearance. The
details of his illness and his
prognosis have remained a state
secret since June 2011, when he
announced that he had cancer.
The government only will say
now that he is suffering a severe
respiratory infection that makes
it difficult for him to breath. But
as time goes by the speculation
that he is not going to recover is
increasing.
Even Cuba, which holds con-
Inconvenient Truths About Al Jazeera
[ Information Age ]
BY L. GORDON CROVITZ
Al Gore and his
co-investors just
sold liberal cable
channel Current
TV to Al Jazeera,
the network bank-
rolled by the emir of Qatar. How
much in carbon offsets does Mr.
Gore need to balance his estimated
$100 million from the sale to an
oil sheik?
Al Gore’s due diligence
must have missed the on-air
party, with cake, for a
deadly terrorist.
But there’s a more serious issue
here than hypocrisy. Current’s own-
ers could have simply said they
sold to the highest bidder, with the
emir paying an estimated $500
million for a network with viewer-
ship of only 22,000. Instead they
glorified Al Jazeera.
Writing for himself and Mr.
Gore, co-founder Joel Hyatt, a law-
yer and Democratic fundraiser, ex-
plained: “When considering the
several suitors who were inter-
ested in acquiring Current, it be-
came clear to us that Al Jazeera
was founded with the same goals
we had.” Among them: “to give
voice to those whose voices are
Venezuela After Chávez
siderable sway over the Venezue-
lan military and the country’s in-
telligence apparatus, would have
trouble pulling off a “Weekend at
Bernie’s” inauguration. Which ex-
plains why the president of the
Venezuelan national assembly,
Diosdado Cabello, announced on
Saturday that Mr. Chávez will re-
main the president after Thurs-
day whether he shows up for the
inauguration or not.
This is a violation of the con-
stitution, which says he must
take the oath on Jan. 10 before
the National Assembly or the Su-
preme Court. But it is hardly a
surprise. Dragging Mr. Chávez
across the finish line is a high
priority and the government be-
gan to lay the groundwork for
this Plan B last week when the
realization hit that he won’t
make it under his own power.
One hint was visible on state
television, where reporters tried
to stir up the passions of the
president’s supporters by telling
them that the opposition is root-
ing for his death. The hateful
rhetoric toward government crit-
ics—who have long hoped that
without Chávez there would be
no chavismo—is designed to dis-
courage them from insisting on
the constitutional path. Push back
against our diktat, the not-so-
subtle warning goes, and risk the
ire of the people.
The death of a head of state
introduces risks for any nation.
Because Mr. Chávez’s 14-year rule
has been built around a cult of
not typically heard; to speak truth
to power; to provide independent
and diverse points of view; and to
tell the important stories that no
one else is telling.”
Mr. Hyatt also asserted that
“Al and I did significant due dili-
gence.” He wrote that he spent a
week at Al Jazeera’s headquarters
in Qatar and was impressed by
the “journalistic integrity” he saw
there.
More due diligence might have
included a review of the close
journalistic coverage over the
years of Al Jazeera’s Arabic and
English broadcasts, which dis-
closes the unsurprising fact that
the network reflects the interests
of the government that runs it—
making it akin to Vladimir Putin’s
Russia Today and Beijing’s Xin-
hua. The emir of Qatar, Hamid bin
Khalifa Al Thani, appointed his
cousin as chairman of Al Jazeera.
The emir was last in the news for
donating $400 million to Hamas,
a terrorist organization.
Mr. Gore could have read the
Middle East Quarterly profile
titled “The Two Faces of Al
Jazeera.” The network gets good
marks for programming in areas
outside the emir’s direct interests,
but the article concludes that Al
Jazeera continues “to inflame
Arab resentments in its promotion
of anti-Americanism, Sunni sectar-
ianism and, in recent years, Isla-
mism.”
Founded in 1996, Al Jazeera
became well known after 9/11. In a
November 2001 New York Times
Magazine article, Middle East
OPINION
Reuters
his personality and because he
has so polarized the country, his
passing is likely to be more than
merely disruptive. The question
of how to handle the inauguration
deadline has been one problem
for the Chávez crowd. But there
is also looming economic diffi-
culty.
The official rate of the Venezu-
elan bolivar is now 4.3 to the dol-
lar but in the black market it
costs more than 17 bolivars to
buy a dollar. This suggests that
whoever inherits the presidency
is likely to have to manage a
sharp and painful devaluation.
The populist Mr. Chávez would
skillfully demagogue his way
through such a crisis. But it is
doubtful that either Vice Presi-
dent Nicolas Maduro or Mr. Ca-
Reuters
Al Jazeera’s logo on display at the International Television Programs Market
event in Cannes, France, April 2012.
scholar Fouad Ajami wrote that
the network’s staffers are “either
pan-Arabists—nationalists of a
leftist bent committed to the idea
of a single nation across the many
frontiers of the Arab world—or Is-
lamists.”
In 2007, the liberal Nation
magazine said that “field reports
are overwhelmingly negative with
violent footage played over and
over. . . . There’s a clear underlying
message: that the way out of this
spiral is political Islam.” Dave
Marash, formerly of ABC’s “Night-
line,” quit Al Jazeera’s English-
language station in 2008 when pro-
ducers in Qatar ordered up anti-
American programming.
In 2008, Al Jazeera threw an
on-air party for Samir Kuntar
bello—the two understudies who
will play the most important
roles after a Chávez death—would
do as well. This means that
things have to be tightly tamped
down when the day of devalua-
tion presents itself.
If Venezuela were to follow the
constitution, Mr. Chávez’s “abso-
lute absence” would mean that
Mr. Cabello would be named in-
terim president. He would have to
call an election in 30 days. Mr.
Maduro would probably be the
candidate.
It would be in the interest of
the government to call that elec-
tion as soon as possible. The lon-
ger it waits, the further the boli-
var can be expected to sink. The
Chávez side would also benefit
from the sympathy vote in the
when he was released from an
Israeli prison. Kuntar led a Pales-
tine Liberation Front terrorist
team that kidnapped an Israeli
family in 1979. He shot the father
and killed the 4-year-old daughter
by smashing her head against
rocks along the beach. In footage
available on YouTube, Al Jazeera’s
Beirut bureau chief hands Kuntar
a scimitar to cut the celebratory
cake and says: “This is the sword
of the Arabs, Samir.”
In 2009, Yusuf al-Qaradawi, host
of the network’s most popular Ara-
bic-language show, “Shariah and
Life,” said on air (also available on
YouTube): “Oh, Allah, take this op-
pressive Jewish, Zionist band of
people. Oh Allah, do not spare a
single one of them. Oh Allah, count
THE WALL STREET JOURNAL.
immediate aftermath of his death,
while the opposition would risk
looking insensitive. Plus, there
would be little time to organize
behind a single opposition candi-
date, a crucial process for a win.
But the chavistas have had
plenty of vulnerabilities of their
own, starting with infighting
between rivals: More than one
member of Mr. Chávez’s inner
circle wants his job. As the man
anointed by the ailing president
as his successor, Mr. Maduro, a
former union leader, is first in
line and word has it that Cuba
thinks he would be the easiest to
control. But Mr. Cabello, who is
close to the armed forces and re-
portedly has a strong nationalist
streak, has been making his own
play for the top spot.
Cuba recognized the danger
and last week moved to resolve
the problem. When the top lead-
ership flocked to Havana, it was
ostensibly to be near the cancer-
stricken Chávez. The real reason
for the trip may have had little to
do with praying at the coman-
dante’s bedside. On Saturday El
Nuevo Herald reported that
sources told it Cuba has been try-
ing to fashion a Venezuelan
“junta” that would pull the vari-
ous factions together and pre-
serve chavismo.
Apparently Cuba has decided
that to do that, Mr. Chávez—dead
or alive—must be retained as
“president.”
Write to O’Grady@wsj.com
their numbers and kill them, down
to the very last one.” Perhaps Mr.
Gore doesn’t have access to You-
Tube.
Al Jazeera’s coverage of the
Arab Spring has been uneven,
reflecting the emir’s interests. For-
mer Al Jazeera journalist Ali
Hashem wrote in London’s Guard-
ian in April that government offi-
cials had “asked the channel to
cover up the situation in Bahrain,”
Qatar’s neighbor, where a Sunni
monarch is brutally suppressing a
pro-democracy uprising led by ma-
jority Shiite protesters.
Judea Pearl, whose son Daniel
was the Wall Street Journal
reporter kidnapped and beheaded
in 2002 by al Qaeda terrorists,
once had high hopes that Al
Jazeera would be more open than
other Arab government media. But
he has written that the network
has “committed itself uncondition-
ally and unabashedly to the service
of Hamas and Hezbollah. . . . It is
no longer a clash with journalistic
standards but a clash with the
norms of civilized behavior.”
So it’s no surprise that before
buying Current, Al Jazeera
managed to get access to only a
few million cable households in
the U.S.
News consumers understand
that a former vice president justi-
fying a big payday is not the best
judge of “journalistic integrity.”
Arabs deserve and will some day
have a network independent of
any of their governments. When
this happens, Americans may even
watch.
Pound/Euro 0.8147 À 0.12% Yen/$ ¥87.69 g 0.53% Global Dow 2049.35 g 0.09% Gold 1645.50 g 0.16% Oil 93.19 À 0.11% 3-month Libor 0.30500 10-year Treasury À 3/32 yield 1.904%

Microsoft Transforms Xbox A Sensible U-Turn

In Battle for Living Room On Basel Liquidity Rules
BUSINESS & FINANCE 24 HEARD ON THE STREET 31

Tuesday, January 8, 2013 THE WALL STREET JOURNAL. europe.WSJ.com

U.S. Banks Reach New Foreclosure Deal

BY ALAN ZIBEL
AND DAN FITZPATRICK
Banks are putting a chapter of
the housing bust behind them,
agreeing to an $8.5 billion settle-
ment of regulators’ allegations that
they didn’t follow proper foreclo-
sure processes.
The settlement, which was an-
nounced on Monday with the Office
of the Comptroller of the Currency
and the Federal Reserve, requires
10 large banks to pay $3.3 million in
cash to 3.8 million mortgage bor-
rowers who were foreclosed upon in
2009 or 2010.
The pact ends a process that reg-
ulators launched in April 2011, re-
quiring banks to hire consultants to
review hundreds of thousands of
foreclosure files for defects. But
banks had spent more than $1.5 bil-
lion on consultants as of last fall,
and no money had been provided to
consumers thus far.
Both banks and regulators con-
cluded that the process was taking
far too long.
“Carrying the process through to
its conclusion would divert money
away from the impacted homeown-
ers and also needlessly delay the
dispensation of compensation to af-
fected borrowers,” Comptroller of
the Currency Thomas Curry said in
a statement.
Under the settlement, borrowers
are expected to be contacted by
March 31 with details of their pay-
ments.
They will vary from several hun-
dred dollars for minor violations to
$125,000 for violations of a law that
bans military foreclosures or a fore-
closure on a borrower who didn’t
miss any payments.
The 495,000 borrowers who have
already submitted claims through
this process are expected to get
larger payouts, regulators said.
“A couple hundred dollars will be
nothing,” said Geralyn Burrell, a 56-
year-old Henderson, Nev., paralegal
who nearly lost her Las Vegas home
to foreclosure three separate times
and was among the borrowers who
submitted claims.
Consumer advocates said the
deal was not as meaningful as regu-
lators said.
“It’s chump change,” said Diane
Thompson, a lawyer with the Na-
tional Consumer Law Center. “It’s
another example of the banks get-
ting off easy.”
Under the deal, banks could re-
ceive an additional $5.2 billion in
credit for loan assistance, including
some forms of aid they are already
undertaking—such as agreements to
let a homeowner sell the property
for less than the outstanding mort-
gage amount.
Regulators defended this portion
of the deal, saying it would ensure
that homeowners would get aid.
Bank of America Corp., J.P.
Morgan Chase & Co., Wells Fargo
Please turn to page 25

Citigroup’s Europe’s Airlines Battle Budget Rivals

Corbat Taps Two of Europe’s airlines strug-
gling to run short-haul networks Facing Headwinds
Two to be that can compete with discount al-
ternatives Monday embarked on
new initiatives to wrest back mar-

President ket share.

By David Pearson, Nicky

BY MATTHIAS RIEKER
Manuel Medina-Mora and Jamie
Forese will become co-presidents at
Citigroup Inc., as Chief Executive
Michael Corbat filled a spot that had
been open since the surprise exit of
former CEO Vikram Pandit in Octo-
ber.
In giving two of the bank’s top
executives more prominent roles,
Mr. Corbat largely recreated a man-
agement team put in place by his
predecessor. Rather than disappoint-
ing an executive by appointing one
as president over another, he pro-
moted as co-presidents the execu-
tives running Citigroup’s two main
businesses: wholesale and retail
banking.
But Mr. Corbat will have far more
direct control over Citi’s operations
at Citi, the U.S.’s third-largest bank
by assets, than did Mr. Pandit. All
businesses, and all regions except
Japan, will report directly to him,
along with human resources and
public relations. Mr. Corbat will have
13 senior executives directly report-
ing to him; Mr. Pandit had seven.
In addition to becoming co-presi-
dent, Mr. Forese also will become
head of Citigroup’s institutional cli-
ent group, the unit that includes
capital markets, large corporate
lending, transaction services and
private banking. Mr. Forese is cur-
rently CEO of securities and bank-
ing, the capital markets operations.
Redl and Inti Landauro
Air France, part of the Air
France-KLM SA group, said Monday
said it is offering €49 ($64) one-
way, no-frills tickets to lure passen-
gers back to its medium-haul net-
work. The new cheap fares will be
applied to 58 destinations, including
flights to and from Paris, Marseilles,
Toulouse and Nice, from Feb. 6.
The new offering is part of Air
France’s recovery plan that aims to
get the French airline’s short- and
medium-haul operations back into
the black by 2014, Chief Executive An Air France aircraft at City Airport in London
Alexandre de Juniac said.
Meanwhile, Air Berlin, partly Passenger traffic for 2012, in millions Change from previous year
owned by Abu Dhabi’s Etihad Air-
lines, said it has appointed a new 96.0
Deutsche Lufthansa1 3.0%
chief executive to turn around the
fortunes of the German midsize car- Ryanair 79.6 4.0%
rier that is working on a new cost-
cutting program, having failed to
Air France-KLM1 71.5 2.2%
turn a profit since 2007.
Air Berlin, like many of its larger
rivals such as Air France, took a
easyJet 59.2 6.7%
battering in 2012 because of high International Consolidated Airlines
fuel prices, fierce competition from (BA, Iberia) 54.6 1.8%3
discount airlines, and sluggish eco-
nomic growth in Europe. Air Berlin1 31.5 -5.4%
Wolfgang Prock-Schauer, cur-
rently the airline’s head of strategy, Norwegian Air Shuttle2 17.6 1.0%
will succeed Hartmut Mehdorn as
CEO. Mr. Mehdorn took on the job Aer Lingus 9.7 1.5%
on an interim basis in September
1
2011. 11 months only 212-month figure through November 2012 3
Excludes impact of acquisition of bmi
“Air Berlin is facing huge chal- Source: the companies Photo: Bloomberg News The Wall Street Journal

Mr. Medina-Mora will continue to lenges,” said Mr. Prock-Schauer.

lead Citi’s global consumer busi-
nesses, the bank’s recent profit en-
gine.
Mr. Medina-Mora and Mr. Forese
also will take control of the opera-
tions and technology for their busi-
ness units, a function that had been
centralized and overseen by former
president John Havens.
Mr. Havens, a close lieutenant of
Mr. Pandit and Citigroup’s head of
Please turn to page 23
“We must continue to push our pro-
cess of change forward rapidly to
become lean and smart, so that we
can be successful in the global com-
petitive environment.”
Air France recently launched a
new cost-cutting plan of its own, in-
cluding the reduction of 5,000 jobs.
Air Berlin’s bigger domestic rival
Deutsche Lufthansa has also em-
barked on an efficiency program to
restore its domestic operations to
profitability. British Airways par-
ent International Consolidated
Airlines Group is in talks with staff
about emergency cost savings to
rescue Iberia, its struggling Spanish
unit.
As well as trying to lower their
costs, the so-called legacy carriers
are also continuing to adapt their
economy-class products to try to
compete better with the discount
airlines that from early on dis-
pensed with allocated seating and
charged passengers extra for flying
with baggage that couldn’t be car-
ried on board.
“Many passengers base their de-
cision greatly on price so the bigger
airlines have to adapt if they don’t
want to lose market share,” said
Heinrich Grossbongardt, managing
director of aviation consultancy Ex-
pairtise in Hamburg, Germany.
“They must have appropriate of-
fers.”
Air France’s Mr. de Juniac said
an in-house survey found that fares
are the main criterion for 60% of
passengers when they make air-
travel plans for medium-haul desti-
nations.
The new fare structure will run
Please turn to page 22
18 | Tuesday, January 8, 2013 THE WALL STREET JOURNAL.

BUSINESS & FINANCE

Law-Firm Partners Face New Reality

Joining Top Tier No Longer Means Lifetime Employment as Demand for Legal Services Remains Stubbornly Weak
BY JENNIFER SMITH

It used to be that once a lawyer

grabbed the brass ring of partner-
ship at a major firm, lifetime em-
ployment was virtually assured.
But more partners are discover-
ing that those days are over.
As firms grapple with continued
lackluster demand for legal services,
some are handing out pink slips to
partners who don’t boost the firm’s
bottom line enough.
“You’re only as secure as the
amount of money you bring in,” says
a partner who during the recession
was asked to leave a large national
law firm. He was let go from his
subsequent firm last year.
It isn’t enough to be a good law-
yer, he says. “The job is to make
money for the firm.”
Having trimmed junior lawyers
and staff in the years after the eco-
nomic downturn, some big firms
now are fixing a stern eye on part-
ner performance. The firms are
keeping close track of how much
business lawyers bring in and how
many hours they bill. Those with
disappointing numbers can have
their pay cut or be stripped of their
ownership stakes. Others are simply
shown the door.
“It’s become a more challenging
environment,” says law-firm consul-
tant Tony Williams, who was a man-
aging partner at British law firm
Clifford Chance before leaving in
2000. “Firms are now much more
clear in what they expect…and much
less forgiving if people consistently
fall short.”
Take Waller Landsen Dortch &
David Cutler

Davis LLP. When the recession

caused business to sag, the Nash-
ville, Tenn., firm overhauled its part-
nership structure. Managers recali- And 55% of the 113 managing law-firm profits and triggered lay- who remain comparatively idle, drop in the average number of hours
brated pay and assigned specific partners and firm chairmen who re- offs and demotions. struggling to bill 1,700 hours a year, billed annually can add up to a sub-
hour and revenue goals to partners sponded to an American Lawyer Even before the downturn, some or even 1,500 hours, Ms. Alvary says. stantial hit, says Edward Newberry,
at the 200-lawyer firm. magazine poll said they planned to law firms were starting to trim low Such excess capacity can be the managing partner at law firm Pat-
“Over that time we went from ask between one and five partners performers. For many firms, selec- 900-pound gorilla for law-firm lead- ton Boggs LLP.
about 85 equity partners to about to leave in the coming year. Though tive partner culls have become what ers who have to decide what to do “Rate increases are hard to come
55,” says Chairman John Tishler. that proportion was roughly steady Mr. Williams, the U.K. legal consul- about partners whose practices may by, demand is not increasing,” he
“We had a lot of hard conversations, with the previous year, 5% intended tant, calls “good housekeeping.” not rebound. Some have served says. For firms trying to increase
and so some people left us.” to cut between 11 and 20 partners This new round of cuts comes as firms for decades. Others possess profits, “partner productivity is one
Those who stayed, he said, “be- this year, up from 1.2%. productivity among the highest-paid substantial expertise that would be of the remaining key tools.”
came much more engaged in devel- In past decades, partnership was tier of a firm’s lawyers remains hard to replace. The Washington, D.C., firm began
oping new lines of business.” the law-firm industry’s equivalent of stubbornly low, with some partners “You don’t want to tear the fab- setting individual productivity tar-
Most law firms don’t care to pub- getting tenure, a reward for skilled billing less than 1,300 hours a year, ric of the firm,” says Jeff Grossman, gets for its partners about two years
licize partner exits. But big U.S. and dedicated practice that con- down about 30% from the prereces- national managing director for Wells ago. Partners who aren’t up to par
firms do plan to cut partners this ferred prestige and ensured a com- sion industry benchmark of 1,900 Fargo’s Legal Specialty Group. “But may get additional training or be de-
year, according to two recent sur- fortable living. Partners typically re- hours. there are only so many hours a law ployed to other, busier, practices.
veys of law-firm leaders. ceived a share of annual profits; “There are a few very major firm is producing, and if you have “In some cases we are counseling
About 15% of roughly 120 firms some partners took on management firms that are genuinely and consis- too many people for the work, those people out of the firm, but that’s a
surveyed by Wells Fargo Private roles. tently busy,” says law-firm consul- additional individuals are siphoning step we prefer not to take,” Mr.
Bank’s Legal Specialty Group intend The current partner bleed isn’t tant Paula Alvary. off profits.” Newberry said. “Partnership stan-
to cut partners in the first quarter, as dramatic as it was in 2009 and But many of the country’s 200 For firms with hundreds of law- dards at all firms, including ours,
continuing a three-year trend. 2010, after the recession kneecapped top-grossing firms have partners yers, even a 100-hour or 250-hour have increased.”

Businesses
This index of businesses
mentioned in today’s
issue of The Wall Street
Journal is intended to
include all significant
reference to companies.
First reference to the
companies appears in
bold face type in all
articles except those
on page one and the
editorial pages.
Aer Lingus Group ......... 22
Air Berlin ................... 4,17
Air France-KLM.............17
Alcatel-Lucent .............. 31
Alcoa ............................. 26
Ally Financial................25
Andreessen Horowitz...29
Aozora Bank ................. 26
Apple........................20,24
Audi...............................23
Aurora Loan Services...25
Autodesk.......................29
Baidu...............................3
Bakrie Group.................19
Banca Monte dei Paschi
di Siena S.p.A............26
Banco Santander..........25
Bank of America...1,17,31
Basel Committee..........31
BBVA Bancomer...........21
Berau Coal Energy........19
BMW.............................23
Boeing...........................22
BP..................................26
Brown-Forman..............13
Bumi..............................19
Bumi Resources Tbk .... 19
Cathay Pacific Airways 22
Cerberus Capital
Management..............26
Charm Communications.3
Citigroup ............. 17,21,25
Commerzbank...............26
ConocoPhillips...............19
Countrywide Financial....1
Crédit Agricole..............26
Daishin Securities........20
Deutsche Bank..............26
Deutsche Lufthansa..4,17
Dongfeng Motor Group 23
easyJet..........................22
E.ON..............................26
Ericsson.........................31
EverBank Financial.......25
Fannie Mae................1,31
Federal Reserve............17
Ford Motor....................23
France Telecom.............20
Freddie Mac..................21
Google............11,20,24,29
Grupo Financiero
Santander Mexico.....21
Guangzhou Automobile
Group..........................23
INDEX TO BUSINESSES
Honda Motor............10,23
HSBC Holdings .......... 4,25
HTC................................20
Huawei Technologies....31
Humana.........................13
Iliad ............................... 20
International
Consolidated Airlines
Group..........................17
Japan Airlines...............22
J.P. Morgan Chase........17
Komatsu........................10
LG..................................20
LG Chem........................20
LG Display.....................20
LG Electronics...............20
Lot.................................22
Macfarlanes..................19
MetLife ......................... 25
Microsoft.......................24
Missoni............................9
Morgan Stanley............31
Netflix...........................24
Next.................................5
Nissan Motor...........10,23
Noble.............................19
Norwegian Air Shuttle.22
NR Investments ........... 19
Office of the Comptroller
of the Currency ......... 17
OneWest Bank..............25
Panasonic......................20
Patton Boggs................18
Pearson.........................29
People.cn.........................3
Pfizer...............................8
PNC Financial Services
Group..........................25
Qantas...........................22
Roku..............................24
Royal Dutch Shell....19,26
RWE .............................. 26
Ryanair Holdings..........22
Samsung Electronics....20
Samsung Group............20
SAS................................22
Sharp.............................20
Sina ................................. 1
Singapore Airlines........22
Sony .............................. 20
SunTrust Banks............25
Texas Roadhouse..........13
TiVo...............................24
Toshiba..........................10
Total S.A.......................26
Toyota Motor...........10,23
United Parcel Service...13
U.S. Bancorp.................25
Vivendi..........................20
Volvo Car.......................23
Waller Landsen Dortch &
Davis..........................18
Walt Disney..................24
Wells Fargo...................17
Wm. Morrison
Supermarkets..............5
Xinhua Network ............. 3
Xinhua News Agency.....3
Zhejiang Geely Holding
Group..........................23
ZTE................................31
Corrections  Amplifications
The share of euro-zone bonds issued
with collective-action clauses in total
bonds outstanding should reach by 2030
63% for Germany, 60% for France and It-
aly, and 64% for Spain, RBS estimates. A
graphic Monday in a Heard on the Street
article incorrectly showed the rise in is-
suance of bonds with collective-action
clauses cumulatively for Germany at
145%, France at 130%, Italy at 131%, and
Spain at 154%, rather than as a share of
total debt outstanding over time.
Readers can alert the London newsroom of The
Wall Street Journal to any errors in news articles
by emailing wsjcontact@wsj.com or by calling
+44 (0)20 7842 9901.
 THE WALL STREET JOURNAL.
Associated Press
Shell’s drilling rig Kulluk, pictured above as it sat grounded last week, was being towed on Monday toward Kodiak Island.
Shell Alaska Rig Towed
From Grounding Site
BY BEN LEFEBVRE
AND ALISON SIDER
Royal Dutch Shell PLC’s Kulluk
oil rig was successfully pulled off
the southern Alaska island where it
was grounded for a week, and as of
early Monday was moving slowly to-
ward Kiliuda Bay, off Kodiak Island,
where damage to the rig can be
more fully assessed.
As of 4 a.m. Alaska Standard
Time, the Kulluk was in tow and
moving at 3.8 knots, or 4.3 miles
per hour. Crews said there were no
initial signs that fuel had been dis-
charged into the ocean, and checks
of the rig’s fuel tanks since the Kul-
luk was brought afloat showed no
signs of leakage, according to a
news release Monday morning.
Shell’s Kulluk oil rig crashed into
the uninhabited Sitkalidak Island off
Alaska’s southern coast late Dec. 31
after stormy seas pried it loose from
tug boats that had been pulling it to
Seattle for maintenance. The Kulluk
had previously been drilling explor-
atory wells in Arctic waters as part
of Shell’s $5 billion bid to resusci-
tate offshore oil production in wa-
ters that haven’t seen such activity
for two decades.
Heavy rains, high waves and brutal
winds had blocked efforts Sunday to
move the Kulluk about 48 kilometers
to Kiliuda Bay, where damage to the
rig can be more fully assessed.
Salvage crews took incremental
steps Sunday to remove the rig from
the island. Crews attached the tow
Anglo American to Appoint Mark Cutifani as New Chief Executive
BY JOANN S. LUBLIN
Anglo American PLC has chosen
Mark Cutifani as its new chief exec-
utive and an announcement is likely
within a few days, according to a
person familiar with the situation.
Mr. Cutifani currently is chief ex-
ecutive of AngloGold Ashanti Ltd.,
which was spun off from Anglo
American in 1998. “The decision has
line to the Kulluk, and several hours
later, at 10:10 p.m. local time, the rig
was refloated from its position on
the island.
More than 730 people, a dozen
ships and a handful of helicopters
are trickling in to help remove the
Kulluk. The rig is being pulled by the
Aviq, with three additional tugs on
standby along with the U.S. Coast
Guard Cutter Alex Haley and two oil-
spill-response vessels, according to a
unified command update late Sunday
night. Boom—an absorbent material
used in oil cleanup efforts—was be-
ing deployed around Kodiak Island
to ensure any spilled fuel wouldn’t
reach nearby salmon fisheries. Shell
said the Kulluk is in stable condition,
with no evidence of any of the
150,000 gallons of diesel and lubri-
cants it carries leaking.
Water entering parts of the rig
has caused damage, including to its
generators.
Depending on how long it takes
to repair or replace the Kulluk, Shell
may not have the necessary number
of rigs ready to meet its U.S. permit
requirements by the summer restart
of Arctic drilling season. Shell paid
$2 billion for leases to drill in the
region but has only managed to
start two exploratory wells.
The grounding has raised the
hackles of politicians and environ-
mentalists, who have warned that
the extreme weather offshore
Alaska makes equipment problems—
and hazardous fuel leaks—more
likely to occur. The region’s relative
been made,’’ and Anglo American
will announce his selection “on or
before mid-January” but probably
earlier than that, the person said.
Cost overruns at flagship proj-
ects and a drop in Anglo American’s
share price over the past two years
led to the resignation in October of
CEO Cynthia Carroll.
The new chief executive will face
the difficult task of reining in costs
BUSINESS & FINANCE
remoteness also means that cleanup
efforts take longer to coordinate.
The National Resources Defense
Council and other environmental
groups as well as numerous U.S.
lawmakers are citing the Kulluk ac-
cident in efforts to pressure the
White House to suspend Arctic drill-
ing permits.
Shell’s Arctic drilling program
has been beset with mishaps from
the start.
Lingering ice prevented the com-
pany from dispatching its two rigs
to the region for months last year.
Once in Alaska, one rig used by
Shell—Noble Corp.’s Discoverer—
nearly ran aground in July after be-
coming unmoored while in port.
Equipment failures on the rigs have
also been a problem.
ConocoPhillips and other oil ex-
plorers are carefully following
Shell’s experience as they consider
whether or not to test the frigid
Arctic waters north of Alaska to ex-
tract the estimated 550 million bar-
rels of oil in the area.
The Kulluk grounding gives Shell
a chance to show that while prob-
lems may occur, they can also be re-
solved without major incident, said
Lysle Brinker, an analyst at energy
consulting firm IHS.
“If they can successfully get this
rig off the rocks without too much
more incident, it will be a plus to
show that they can deal with this
sort of problem,” Mr. Brinker said.
“But if there’s a large leak, it’ll make
things worse.”
at its Minas Rio iron ore project in
Brazil and getting its South African
platinum unit profitable amid a
breakdown in labor relations.
AngloGold is based in the South
African capital of Johannesburg, al-
lowing Mr. Cutifani to forge connec-
tions with groups that lobby the
government on behalf of business.
He is head of South Africa’s influen-
tial mining association.
Bumi Co-Founder
Urges New Board
BY ALEX MACDONALD
LONDON—The battle for control
of U.K.-listed coal miner Bumi PLC
deepened Monday when co-founder
Nathaniel Rothschild, a scion of the
European banking dynasty, called for
a general shareholder meeting with
the aim of replacing most of the
company’s directors.
The move is the latest twist in a
struggle between major sharehold-
ers over how to separate the miner
from Indonesia’s powerful Bakrie
family, after corporate-governance
issues and the launch of an indepen-
dent probe into alleged financial ir-
regularities at Bumi’s Indonesian as-
sets last September caused the
company’s share price to tumble
nearly 80% from its 2011 high.
NR Investments Ltd., a consor-
tium led by Mr. Rothschild, called
for a general meeting to replace 12
of Bumi’s 14 current board members
and in the process reinstate Mr.
Rothschild as an executive board di-
rector. Bumi said later Monday that
it would convene such a meeting in
February in order to “offer share-
holders a clear choice” on the com-
pany’s future leadership.
In a statement to shareholders,
Mr. Rothschild’s consortium ques-
tioned the board’s independence and
said the board had “failed in its du-
ties to minority shareholders.” Bumi
said the board has changed materi-
ally in the past few months after
four key shareholders resigned, leav-
ing nine independent directors with
majority control of the board.
NR Investments also said the
board didn’t appear to have “appro-
priately acted” upon the interim
findings of the independent probe
into allegations of irregularities at
Bumi’s Indonesian business. The
findings were disclosed to the board
toward the end of last year, but
weren’t made available publicly.
Bumi’s senior independent direc-
tor, Sir Julian Horn-Smith, re-
sponded to Mr. Rothschild by saying
that the board “has taken extremely
seriously” the findings of the probe.
Mr. Horn-Smith also said the
board has “been working extremely
Nathaniel Rothschild wants to replace 12 of Bumi’s 14 current directors.
Mr. Cutifani emerged as the
strongest contender for the job be-
cause Anglo American wanted
“someone with relationships and
deep knowledge of South Africa,’’
the person said. “He’s the most
qualified to deal with the issues
[company officials] have with South
Africa,’’ the person added.
Exact timing of the announce-
ment depends on how soon Mr.
Tuesday, January 8, 2013 | 19
hard to solve the various highly
complicated and challenging gover-
nance, operational and legal issues”
at the company.
Mr. Horn-Smith said the board
remains committed to separating
Bumi from the politically influential
Bakrie family. The Bakrie family—
which controls the Bakrie Group,
owner of a 24% stake in Bumi—has
offered to buy all of Bumi’s Indone-
sian coal-mining assets for about
$1.2 billion plus the family’s shares
in Bumi.
Mr. Rothschild owns about 12% of
Bumi. He stepped down from the
board in October on grounds that it
was failing to support minority
shareholders’ interests. Bumi Chair-
man Samin Tan rejected the claim,
saying he had attempted to protect
the interests of all shareholders. Mr.
Rothschild has recommended the
board reject parts of the Bakrie offer
and keep some of the Indonesian as-
sets, but only on condition that all
the top Indonesian shareholders exit
their stakes. As part of his proposal,
a consortium of investors would in-
ject cash into Bumi in order to buy
out the shareholders.
Bumi’s board has said it is inter-
ested in selling its 29.2% stake in In-
donesia’s largest coal miner, PT
Bumi Resources Tbk, for cash and
the cancellation of the Bakrie fam-
ily’s Bumi shares. But it wants to
keep its 85% stake in Indonesia’s
fifth-largest coal miner, PT Berau
Coal Energy Tbk. It also said its two
top Indonesian shareholders have in-
dicated they don’t intend to sell out
of their stakes under the terms pro-
posed by NR Investments.
Mr. Rothschild’s consortium said
that if its new board were to be
elected, the board would delay any
decisions about how to separate
Bumi from the Bakrie family until in-
vestigations by U.K. law firm Mac-
farlanes LLP and the U.K. Takeover
Panel are complete. It would also
create a Corporate Governance and
Ethics Committee.
NR Investments also said the
proposed board would make public
as soon as possible the interim find-
ings of the Macfarlanes probe.
Bloomberg News
Cutifani can arrange his exit from
AngloGold. He wants to leave his
current employer “in good shape,’’
the person said. “There has to be an
orderly transition.’’
Anglo American board members
met several CEO candidates during
their mid-December board meeting
in London, according to the person.
—Devon Maylie in Johannesburg
contributed to this article.
20 | Tuesday, January 8, 2013
Web Firms Asked to Share Costs Korea’sLG
ToRaiseTech
French Government, Internet Providers Want Google, Others to Invest in Infrastructure
BY SAM SCHECHNER
PARIS—The French government
is studying ways to push large Web
companies to pay local Internet pro-
viders more for the bandwidth be-
ing used, a minister said Monday, in
a sign of how European countries
are intensifying efforts to wring rev-
enue out of largely American busi-
nesses such as Google Inc.
Fleur Pellerin, France’s technol-
ogy minister, said the government is
looking at how existing telecommu-
nication regulations could be har-
nessed to ensure Web giants help
pay to roll out and maintain high-
speed networks.
“In coming years, with the ar-
rival of connected TV, Google TV,
Apple TV and Amazon TV, there’s
going to be more and more massive
bandwidth consumption, and the
question is who will pay for the nec-
essary investments,” Ms. Pellerin
said. “It’s a question that should be
asked with insistence.”
The government declaration fol-
lows a kerfuffle over the weekend in
which French Internet provider Iliad
SA, which operates under the brand
Free, moved to block ads that
Google sells, as a warning shot in
negotiations over such bandwidth
payments, according to a person fa-
miliar with the matter. The move
angered some French online-media
outlets, however, which argued that
the blocker could undermine their
ad revenue, as well.
Ms. Pellerin quickly called a
Monday-morning meeting with
Reuters
French online-media representa-
tives, followed by another with Free.
After the meeting, the company
stopped its blocking of advertise-
ments, according to the minister
and the person familiar with the
matter.
The issue of who should pay to
build out expensive fiber-optic and
HTC’s Profit Falls as Competition Mounts
BY LORRAINE LUK
TAIPEI—HTC Corp.’s net profit
fell for the fifth consecutive quarter
to its lowest level since 2006, and
analysts expect the first quarter to
remain challenging as competition
in the smartphone market intensi-
fies.
The Taiwanese company, which
started marketing HTC-branded
phones in 2006 and is now the
second largest seller of devices run-
ning the Android operating software
Bloomberg News
in the U.S., has lost market share re-
cently as rivals Apple Inc. and Sam-
sung Electronics Co. have intro-
duced products that are more
popular.
HTC’s global smartphone market
share slipped to 4% in the third
quarter of 2012 from just over 10%
a year earlier, according to market
research firm International Data
Corp.
That compares with Samsung’s
31% and Apple’s 15%.
The Taoyuan-based company
said its fourth-quarter net profit fell
91% to one billion New Taiwan dol-
lars ($34.4 million) from NT$10.94
billion a year earlier.
However, six analysts polled by
The Wall Street Journal expected
HTC to post a fourth-quarter profit
of NT$666 million, on average.
Revenue for the three months
BUSINESS & FINANCE
Fleur Pellerin, France’s technology minister, said Web investment is necessary.
high-speed mobile networks is a
sensitive one in Europe, where a
fragmented array of telecoms pro-
viders are suffering from shrinking
revenue and rising costs.
HTC is likely to face a tough first quarter with Samsung and Nokia expected
to introduce new smartphones. Above, a man in front of an HTC ad in Taipei.
ended Dec. 31 dropped 41% to
NT$60 billion from NT$101.42 bil-
lion a year earlier.
Analysts said HTC will face a
tough first quarter, as Samsung and
Nokia Corp. are expected to launch
new smartphones.
HTC launched its latest high-end
Butterfly smartphone in December.
“HTC’s Butterfly has received
some good reviews, but component
shortage could weigh on shipments,
and first-half revenue will continue
to decline from a year earlier as
competition intensifies,” said Wanli
Google and other Internet com-
panies often argue that they already
pay billions of dollars a year for
bandwidth to reach consumers,
through private deals with third-
Wang, an analyst at RBS.
HTC’s weakening position in the
U.S. is forcing the company to
rethink its strategy and focus more
on other markets.
HTC doesn’t disclose its geo-
graphical revenue breakdown, but
analysts said the U.S. likely ac-
counted for about half of the com-
pany’s revenue and about 40% of its
total smartphone shipments in 2011.
While the company has been
turning to Asia and other emerging
markets for growth, competition is
also intensifying in those markets.
party “content delivery networks”
or sometimes directly with Internet
providers. They also say that they
provide services that prompt house-
holds to subscribe to high-speed
service in the first place.
High-speed networks don’t come
cheap—Vivendi SA’s SFR said Mon-
day that it will spend €150 million
($196 million) on wiring France with
fiber optic cables in 2013—and tele-
communication companies are in-
creasingly reluctant to support
these costs alone.
“Internet providers have huge
costs to maintain the quality of ser-
vice of their networks,” said Pierre
Louette, deputy chief executive of
France Telecom SA, the country’s
partly state-owned telecom opera-
tor. “It makes sense that content
providers that use them should help
finance them, too.”
Discussions about how content
companies might pay to help build
data networks are the latest front
on which European authorities are
taking on American Internet giants.
Governments in France, Germany
and the U.K. are also looking at how
to squeeze more tax revenue out of
overseas Internet companies. A
French government report on the
topic is due in coming weeks.
Newspapers in France and Ger-
many are also looking into ways to
force search engines—especially
Google—to pay them for the right to
link to their content. While Germany
is considering adopting a new law,
the French government is supervis-
ing negotiations between Google
and a group of newspapers to find a
direct agreement.
In Belgium, a group of newspa-
pers recently reached a settlement
of long-standing litigation with
Google, in which the search com-
pany agreed to buy ads in their
newspapers and could help sell the
newspapers’ ads on the Web.
HTC
Net profit, in billions of
New Taiwan dollars
NT$10
8 price tags than similar LCD TVs.
6 with its OLED [TV] business this
4 year. It seems that LG wants to take
2 Securities analyst Lee Sung-Chul.
0 trillion won on R&D activity and fa-
4Q 1Q 2Q 3Q 4Q
’11 ’12
Source: the company
The Wall Street Journal
In China, the world’s biggest
smartphone market, HTC will likely
face more competition from local
handset makers such as ZTE Corp.
and Huawei Technologies Co.
The two Chinese companies,
which have been strong at the low
end of the market, are trying to sell
more high-end models.
However, Chief Executive Peter
Chou remains upbeat.
“The worst for HTC has probably
passed,” Mr. Chou said on Friday in
an interview with The Wall Street
Journal. “2013 won’t be too bad.”
THE WALL STREET JOURNAL.
Investment
BY MIN-JEONG LEE
SEOUL—South Korean conglom-
erate LG Group plans to boost in-
vestment in its electronics business
by nearly a third this year in an am-
bitious attempt to gain an edge
against crosstown rival Samsung
Group and struggling consumer-
electronics firms in Japan.
Funds from the 13.4 trillion won
($12.6 billion) earmarked for elec-
tronics investment will flow toward
affiliates LG Electronics Inc., which
makes televisions, personal comput-
ers and smartphones, and LG Dis-
play Co., which makes displays used
in everything from TVs to mobile
handsets. LG Group plans to up-
grade production lines for high-res-
olution liquid-crystal-display panels
and organic light-emitting diode, or
OLED, displays, it said. The in-
creased investment will also support
research and development related to
ultrahigh-definition TV sets, OLED
TV sets, flexible displays and soft-
ware used in smartphones.
“Whether it be smartphones or
television sets, the plan shows that
LG sees growth potential in high-
end display products,” said Daishin
Securities analyst Jeff Kang.
Funds from $12.6 billion
earmarked for LG Group’s
electronics investment
will flow to two affiliates.
The aggressive spending plan
comes after Samsung Group, which
has yet to release its capital-expen-
diture plans for this year, set a 47.8
trillion won investment budget for
last year. It also comes as many of
Japan’s major technology companies,
such as Sony Corp., Sharp Corp. and
Panasonic Corp., are struggling fi-
nancially and posting hefty losses in
the face of stiff competition from ri-
vals in Korea and Taiwan. With
dwindling cash positions, Japanese
companies haven’t been as aggres-
sive over the past year in boosting
capital expenditures.
One area where LG sees an op-
portunity is the market for OLED
TVs, which have more vivid displays
than existing liquid-crystal-display
models and tend to command larger
“LG is actively pushing ahead
the lead while it can,” said Shinyoung
LG will likely spend at least two
cilities related to OLED technology,
Mr. Lee said.
While Samsung Electronics Co.,
the world’s top TV maker by ship-
ments and Samsung Group’s flag-
ship company, already dominates
the market for small OLED displays
used in smartphones and other mo-
bile devices, LG Electronics beat the
company earlier this month in
launching a 55-inch OLED TV.
OLED TVs aren’t new, but com-
panies have been struggling to mass
produce larger models because of
technology constraints.
LG Group didn’t provide a break-
down of its investment plans for each
affiliate. The group is also planning
to invest 3.5 trillion won in its chemi-
cal business and 3.1 trillion won in its
telecommunications business.
THE WALL STREET JOURNAL. Tuesday, January 8, 2013 | 21

BUSINESS & FINANCE

Latin America’s New Credit Frontier

BY AMY GUTHRIE spokesperson said, and can lead to
bad marks for consumer-credit re-
MEXICO CITY—Latin American cords.
banks are experiencing a sharp rise Critics also say that Mexican
in “payroll loans” that are repaid banks are giving out the credit too
through deductions from workers’ liberally in a country with pent-up
paychecks. These often small and demand for loans.
relatively low-risk loans help banks “It appears very easy to take this
decide whether they want to deepen credit,” says Marco Carrera, director
their relationship with a borrower of market studies for Condusef, the
in the credit equivalent of a coffee consumer-finance protection arm of
date. Mexico’s Finance Ministry.
While little used in the U.S., pay- Regulators at Mexico’s Securities
roll loans have spread from Mexico and Banking Commission discovered
to Brazil. Banks give credit and then in 2012 that several banks had given
get repaid through an automatic de- payroll loans to customers who
duction of the person’s paycheck ev- were already overextended with
ery two weeks, increasing the likeli- other credit, like car loans.
hood of repayment. The loans’ The agency threatened to impose
newfound popularity—driven by higher reserve requirements if the
pre-approved offers at ATMs and, in banks didn’t correct their lending
some cases, competitive interest practices.
rates—could help the region’s ex- “If we don’t demand discipline at
panding middle classes gain access the banks, we have seen that time
to funds. But they also could turn and again, both in Mexico and
off consumers from credit or, some abroad, it’s very common for banks
fear, trigger widespread defaults in to commit excesses so as to win
other types of debt. market share and run a business
Payroll loans in Brazil rose 16.5% based more on short-term gains,”
Mauricio Palos for The Wall Street Journal

in the 12 months through September says Guillermo Babatz, who stepped

to some $88 billion, according to down in December as Mexico’s top
central-bank data. That is equivalent banking regulator.
to 60% of all personal credit in the Mexican bankers say their inter-
region’s largest economy. nal safeguards prevent customers
In Mexico, these loans jumped from overextending themselves on
32% in the same period to more payroll loans. “[We aren’t] wander-
than $9 billion, or double the rate of ing the streets asking people on ev-
credit-card growth. Three of Mex- ery corner if they want credit,”
ico’s largest banks say that one in Grupo Financiero Santander Mex-
five of their payroll customers has Payroll loans in Latin America are surging on pre-approved offers at ATMs. Here, BBVA Bancomer customers in Mexico. ico SAB Chief Executive Marcos
taken out such a loan. Martínez said.
Last month, Brazil’s biggest 40% for other types of consumer the U.S., according to government changed jobs again, joining another Mexican banks generally try to
bank, Itaú Unibanco Holding SA, credit. In Mexico, annual interest statistics. company that uses Banamex for its refrain from lending to customers
joined with Banco BMG SA, a mid- rates are similar to the 35% charged Javier Arrigunaga, chief execu- payroll. Suddenly, Banamex de- who already are allocating 40% of
size bank, to cash in on the payroll on much credit-card debt, even tive of Citigroup Inc.’s Banamex ducted the equivalent of more than their salaries to debt payments, the
loan market. The joint venture aims though the default rate on payroll unit, Mexico’s second-biggest bank, $600 from his account, saying that regulator says.
to lend some $14 billion in payroll loans is lower than on credit-card says information on payroll clients, Mr. Escobar had missed a payment Moody’s Investors Service last
loans over the next four years, bank debt: about 3% versus 5%. such as incomes and withdrawals, several years ago, and that with ac- month called the rapid expansion in
officials said. Some Mexican banks burned by a allows Banamex to bestow a “much cumulated interest, the bank was Mexican payroll loans “worrisome,”
Latin American banks for years 2008 jump in consumer defaults on healthier” credit than for unknowns. entitled to an amount equal to 24% comparing the buildup to the banks’
have been looking for ways to get credit-card balances view the pay- Yet, the loans also have the po- of the original loan. 2008 missteps with credit cards.
credit to traditionally underserved roll loans, known colloquially as tential to burn credit newcomers. Mr. Escobar, who doesn’t own a But Arturo Sánchez, a Standard &
customers. Payroll loans, in particu- “credi-nómina,” as surer bets for re- Félix Escobar, a 40-year-old sales credit card, says the experience Poor’s bank analyst, believes Mexi-
lar, have lower default rates than payment in a country where finan- representative at a beverage com- served as a “bad lesson” in credit can banks are starting to exercise
credit cards and can serve as an cial education is limited and con- pany in the state of Mexico, bor- and that payroll loans should be an greater caution before granting the
easy introduction to credit. In sumers have a spotty record of loan rowed around $2,500 from Banamex option of last resort. loans. “Overall, going forward, we
theory, the loans should carry a repayment. five years ago when his father fell A Banamex spokesperson said don’t see this product as bringing a
smaller interest rate than credit- In Mexico, the region’s second- ill. Mr. Escobar thought the payroll the bank has the power and legal systemic risk to the financial sys-
card debt, since their repayment is largest economy, there is one credit loan was paid off when he switched right, based on its credit contracts tem,” Mr. Sánchez says.
linked to paychecks. card for about every three adults to another employer that used a with clients, to pull late payments —Luciana Magalhaes
In Brazil, the interest rate on over age 20, compared with more competing bank for payroll, BBVA directly from client accounts. Delin- and Rogerio Jelmayer
payroll loans is around 20%, versus than five cards for every adult in Bancomer. Then, a year ago, he quent payments accrue interest, the contributed to this article.

BofA Fights Mortgage Headache With $11.6 Billion Deal

Continued from first page back defaulted mortgages that are ing legal costs resulting from the rector of Fannie’s federal regulator, Bank of America and Freddie Mac,
from investors who say Countrywide found to run afoul of the companies’ Countrywide acquisition. called the settlement a “major step reached at the same time, had been
misled them before the crisis about underwriting guidelines. They also Mortgage originations at the forward” in reducing uncertainty in criticized by a government watch-
the quality of mortgages, including can fine banks that don’t process bank dropped by 59% during the the mortgage market. dog as inadequate.
those pooled into securities, it then delinquent mortgage loans in a first three quarters of 2012 com- As part of Monday’s settlement, The Fannie settlement isn’t re-
sold to them. timely manner. pared with the year-earlier period, BofA agreed to transfer or sell loan- lated to a lawsuit filed by the U.S.
That total includes the deal an- While banks have grumbled while overall industry production payment collection for nearly one Attorney’s Office in Manhattan
nounced Monday and a landmark about Fannie’s zeal in putting back increased by 30%, according to In- million Fannie-insured mortgages to against Bank of America last year
$8.5 billion agreement reached in loans, Bank of America’s dispute side Mortgage Finance. outside companies in a bid to im- over the same issues.
2011 with a group of high-profile with Fannie was unusual. For years, prove the management of defaulted Fannie and Freddie were taken
mortgage-bond investors. That set- Fannie had aggressively courted loans. over by the U.S. government 4½
tlement has been stalled in court. Countrywide as its biggest client, While banks of all stripes So far, around 300,000 home- years ago and have cost taxpayers
The agreement with Fannie cov- but as the mortgage bust deepened, owners have received aid from last $137 billion to date. After years of
ers $11.2 billion in demands from it sent billions in defaulted loans to have grumbled about year’s multistate foreclosure settle- hemorrhaging red ink, the mortgage
Fannie that BofA repurchase soured Bank of America. Fannie’s zeal in putting ment, which required banks to slice companies have posted significant
mortgages that Fannie believed After Bank of America said in loan balances for certain borrowers. profits over the past year. Beginning
didn’t meet proper underwriting 2011 that it would stop honoring back loans, Bank of But millions of homeowners are still this year, all of the firms’ profits
standards, issued from the begin- certain put-back demands, Fannie America’s dispute with either behind on their payments or will be garnished by the U.S. Trea-
ning of 2000 to the end of 2008 by last year took the remarkable step owe more than their homes are sury as dividends for their govern-
Countrywide, which the lender ac- of declining to renew its loan-sales Fannie was unusual. worth. ment bailouts.
quired in 2008. contracts with Bank of America. Monday’s settlement follows an Fannie’s current chief executive
Mr. Moynihan called the agree- It isn’t clear whether Monday’s agreement that Bank of America is Timothy Mayopoulos, who served
ment a “significant step in resolving settlement will pave the way for “A favorable resolution of this struck two years ago with Fannie to as general counsel at Bank of Amer-
our remaining legacy mortgage is- BofA to resume mortgage sales to longstanding dispute…is in the best pay nearly $1.3 billion to extinguish ica until 2008, when he was fired
sues.” Fannie. Bank of America says it interest of taxpayers,” said Bradley certain repurchase claims. That one and replaced by Mr. Moynihan, who
Fannie and its smaller sibling, hasn’t yet done so. The bank has Lerman, Fannie Mae’s general coun- didn’t cover many Countrywide later became CEO. A Fannie spokes-
Freddie Mac, have collected tens of sharply pared back its mortgage sel. “We are pleased to have reached loans. woman said Mr. Mayopoulos didn’t
billions from banks over the past origination channels over the past an appropriate agreement.” A separate, more comprehensive take an active role in the BofA nego-
four years by requiring them to take two years, largely as a result of ris- Edward DeMarco, the acting di- $1.3 billion settlement between tiations.
22 | Tuesday, January 8, 2013
Airport firefighters investigate a fire onboard a Japan Airlines 787 Dreamliner at Boston’s Logan International Airport.
Boeing 787 Suffers Fire
Upon Landing in Boston
BY JON OSTROWER
AND JACK NICAS
A Boeing Co. 787 Dreamliner
operated by Japan Airlines Co.
suffered an onboard fire soon after
its passengers and crew had left
the plane at Boston’s Logan Inter-
national Airport on Monday, the
Massachusetts Port Authority said.
The blaze in the plane’s belly
filled the passenger cabin with
smoke, and though no passengers
or crew members were affected,
one firefighter suffered a minor in-
jury responding to the incident on
the brand new Dreamliner.
Teething problems are common
for new aircraft, but the 787 has
faced a number of problems with
its engines and electrical system in
recent months. The Boston incident
is the most serious since a Boeing
test flight had to make an emer-
gency landing in Texas following
an onboard electrical fire in late
Europe’s Airlines Battle Rivals
Continued from page 17
alongside Air France’s existing
economy fares, and passengers will
benefit from identical services in
the cabin such as free snacks and
newspapers. But passengers who
opt for the low fares will have to
pay for their checked baggage and
won’t be able to select their seat
online.
The restructuring programs at
the network carriers come as dis-
count airlines like Ireland’s Ryanair
Holding PLC, U.K.-based easyJet
PLC, and Norwegian Air Shuttle
continue to take market share in the
region, profiting in part from the
collapse of a number of smaller air-
lines in the past year.
Several others like Poland’s Lot
and Scandinavian carrier SAS A/B
are dependent on government sup-
port for survival.
Last week the Polish government
said it would restructure LOT Polish
BUSINESS & FINANCE
2010.
Boeing said it and JAL were
probing the incident, and the Na-
tional Transportation Safety Board
said it opened a formal investiga-
tion and was sending personnel to
the scene in Boston, according to
spokesman Eric Weiss.
The port authority said the jet,
carrying 173 passengers and a crew
of 11, landed in Boston at about
10:05 a.m. Monday local time after
a 13-hour flight from Tokyo. The
agency, known as Massport, re-
ceived a call about smoke in the
cabin from a worker at 10:30 a.m.,
after passengers had already left
the plane.
Richard Walsh, a Massport
spokesman, said authorities deter-
mined the fire began in the midsec-
tion of the aircraft, an area that
houses the jet’s batteries and elec-
trical components.
Mr. Walsh added that the auxil-
iary power unit battery, which is
Airlines to make it profitable again.
The news came after the flag car-
rier received a $127 million emer-
gency loan from the state in Decem-
ber so it could keep operating.
Latest traffic data underscored
the contrasting fortunes between
the budget carriers, flying between
multiple different cities throughout
Europe, and the larger network car-
riers that rely on their domestic op-
erations to feed passengers to long-
haul flights via their airport hubs in
cities like London, Paris, Berlin and
Frankfurt.
Ryanair Monday said it carried
4% more passengers in 2012, with
traffic rising to 79.6 million. easyJet
said it carried 59.2 million passen-
gers in 2012, 6.7% up from a year
earlier. Aer Lingus, the Irish flag
carrier partly owned by Ryanair,
said its traffic rose just 1.5% in 2012
to 9.7 million passengers.
Meanwhile, International Con-
European Pressphoto Agency
housed in a small compartment
known as the aft electrical equip-
ment bay, exploded after crews be-
lieved the fire was extinguished.
One firefighter suffered minor inju-
ries after the use of a fire suppres-
sant, he added.
JAL, which also flies 787s from
Tokyo to San Diego, Moscow, Sin-
gapore and Beijing, said it was in-
vestigating the incident.
“We are aware of the event and
are working with our customer,”
said Boeing spokesman Marc Birtel.
Video images of the affected
plane and records from Flighta-
ware.com indicate it was delivered
to JAL on Dec. 20.
The aircraft was part of a group
of seven Dreamliners delivered to
six Boeing customers during a 25-
hour period in late December, a re-
cord touted by the plane maker.
Boeing shares slid in the wake
of reports of the incident, and were
down 2% in U.S. afternoon trading.
solidated Airlines Group reported a
1.8% rise in the number of passen-
gers carried in 2012 compared with
2011, excluding the acquisition of
smaller carrier BMI. Including the
impact of BMI, passenger numbers
rose 5.6% to 54.6 million.
Separately, Air France’s Mr. de
Juniac denied an Italian press re-
port that there were any discus-
sions about increasing Air France’s
25% shareholding in Italian carrier
Alitalia.
Under a 2008 lockup agreement,
the carrier’s Italian shareholders
can sell their shares as of Jan. 12.
“For the moment, we have very few
financial means to do any acquisi-
tions,” Mr. de Juniac said. “We
don’t have any negotiations or any
offer to propose to the current
shareholders of Alitalia.”
—Alex Delmar-Morgan in Doha
and Tapan Panchal in London
contributed to this article.
Singapore Airlines
Offers Senior Pilots
Unpaid Time Off
BY GAURAV RAGHUVANSHI
SINGAPORE—Singapore Airlines
Ltd. is offering its most senior pilots
an option of taking unpaid leave, the
latest move among Asia’s premium
carriers to contain costs amid lack-
luster demand for long-haul travel.
The voluntary plan, launched in
December, allows captains at the
Singapore-based carrier to take up
temporary employment with other
airlines or just take time off, and
follows a similar offer made to the
airline’s more junior first officers in
March last year. Singapore Airlines
has about 2,350 pilots on staff.
Singapore Airlines says it has a
surplus of cockpit crews as a result
of reduced travel demand because of
the continuing global economic
downturn. The lull is affecting pre-
mium airlines more significantly be-
cause of fewer business travelers on
long-haul routes, which have been
the carriers’ most lucrative services.
While this year isn’t likely to be
as bad as 2012 for airlines, “the in-
dustry really isn’t forecasting a
sharp recovery and has become
more conservative to control costs,”
said Kelvin Lau, a Daiwa Research
analyst based in Hong Kong.
Singapore Airlines’ revenue per
passenger kilometer fell 3.4% in the
first half of the current fiscal year
ending in March, compared with a
year earlier, signaling weaker de-
mand.
The voluntary pilot-leave pro-
gram “will enable us to address the
short-term surplus, while at the
same time provide staff with the
opportunity to take leave for per-
sonal reasons should they wish to
do so,” Singapore Airlines spokes-
man Nicholas Ionides said on Mon-
day. Like those of other premium
airlines, senior captains at Singa-
pore Airlines are among some of
the highest-paid employees at the
company.
Mr. Ionides said the surplus of
captains is only temporary, adding
that the offer follows a request
made by the pilots themselves. He
declined to provide the number of
captains or first officers who have
Singapore Airlines hopes to contain costs in the face of reduced travel demand
amid the global economic slowdown. The carrier’s latest offer of unpaid leave
to senior pilots follows a similar program for more junior first officers last year.
THE WALL STREET JOURNAL.
taken the leave offer. The airline
also last year suspended its cadet-
pilot training program.
However, the carrier continues to
invest in new aircraft. Singapore
Airlines has 68 aircraft on firm or-
der, Mr. Ionides said.
The offer by Singapore Airlines
follows a similar move launched in
late 2011 by Australia’s Qantas Air-
ways Ltd., which asked pilots to vol-
unteer for unpaid leave as the car-
rier cut some unprofitable
international routes.
Captain Barry Jackson, president
of the Australian and International
Pilots Association, the main Qantas
pilots’ union, said between 230 and
250 of Qantas pilots are still on un-
paid leave,
“We continue to be told that
things will turn around but Qantas
won’t get any new planes until 2016.
It doesn’t look like that the situa-
tion will improve soon,” Mr. Jackson
said Monday.
Among cost-cutting measures at
other premium airlines, Hong Kong’s
Cathay Pacific Airways Ltd. earlier
withdrew all its older Boeing Co.
747-400 aircraft—once its main
long-haul workhorse—out of flying
long-haul routes because of soaring
fuel costs. Cathay, too, will offer its
pilots unpaid leave as it cuts back
on flying, according to a company
spokeswoman. However, the airline
expects to hire more pilots in com-
ing years as travel demand grows,
she added.
Analysts also said the need for
new pilots in the Asian-Pacific re-
gion is likely to be strong in coming
decades, particularly as budget air-
lines continue to expand.
“Pilots will not have any prob-
lems finding new jobs in the region
as there is a large number of air-
lines hiring,” said Brendan Sobie,
chief representative for Southeast
Asia at the Centre for Aviation, an
airline-industry consultancy.
Aircraft manufacturer Boeing
forecasts the need for 185,600 new
commercial-airline pilots in the
Asian-Pacific region alone through
2030, to meet the increase in air-
craft and to replace retiring crews.
Bloomberg News
THE WALL STREET JOURNAL.
Japan’s Car Makers Gain Ground Corbat Puts
His Stamp
BEIJING—Japanese auto makers
are regaining confidence in the Chi-
nese market, setting ambitious tar-
gets for growth this year after last
year’s sales were disrupted by cross-
border tensions.
Tokyo in August said it planned
to nationalize disputed islands in the
East China Sea. The announcement
prompted anti-Japanese protests
across China and sharp declines in
purchases of Japanese cars.
But December data pointed to a
faster-than-expected recovery for
Chinese sales of Japanese cars, and
some auto makers expressed opti-
mism that the worst was over.
Meanwhile, auto sales within Ja-
pan continued to hold up well last
month, despite the end of govern-
ment subsidies.
Toyota Motor Corp., Japan’s No.
1 auto maker by sales, said Monday
Bloomberg News
that it sold 840,000 vehicles in
China last year, down 4.9% from
2011. Sales last month declined 16%
from a year earlier to 90,400 vehi-
cles, after falling 22% in November,
44% in October and nearly 50% in
September.
Toyota set a 2013 China sales tar-
get of more than 900,000 vehicles,
up 7% from last year.
Honda Motor Co. targeted 25%
growth in China sales to 750,000 ve-
hicles for this year. The No. 3 Japa-
nese auto maker posted a 3.1% de-
cline last year. “We believe new
models to be launched will boost
sales significantly,” a Honda execu-
tive said.
But Nissan Motor Co. Chief Op-
erating Officer Toshiyuki Shiga said
that while sales of Japanese vehicles
in China are improving, Japanese
auto makers aren’t yet bringing back
customers who moved to German or
South Korean brands.
Nissan’s sales in China fell 24%
last month to 90,400 vehicles. That
compares with a 30% decline in No-
vember for Japan’s second-biggest
auto maker.
China imports relatively few pas-
senger cars, and foreign auto makers
are required to team with domestic
partners to produce cars in the
country.
Production at Honda’s joint ven-
ture with Dongfeng Motor Group
China, Europe Weigh on Volvo Car Sales
BY ANNA MOLIN
STOCKHOLM—Swedish car
maker Volvo Car Corp. on Monday
reported a 6% drop in 2012 vehicle
sales on weakness in China and Eu-
rope and warned that sales and
profit margins this year would be
pressured.
Volvo Car has struggled to gain
momentum for a revamp aimed at
keeping up with bigger rivals and
picking up customers in the highly
competitive Chinese auto market,
which it has identified as a key
growth area. The company replaced
its chief executive in October amid
frustration over recent losses and
disappointment over sluggish Chi-
nese sales.
The company’s sales decline con-
trasts with overall rising sales in
several auto markets. Sales of cars
and light trucks rose 13% to 14.5
million vehicles in the U.S. in 2012,
the highest point since 2007, re-
searcher Autodata Corp. said last
week. In Japan, 2012 sales of new
cars, trucks and buses rose 26%
from the year-earlier figure, to 3.39
million vehicles, the first increase in
Getting Back on Track
Japanese auto sales in China, change from a year earlier
HONDA
0%
–20
–40
–60
S 0 N D S 0
2012 ’12
Source: the companies
Co. has returned to its normal level,
while output at its venture with
Guangzhou Automobile Group Co.
was expected to return to its precri-
sis level this month, Honda said.
In Japan, auto sales fell 3.4%, the
fourth straight monthly decline. But
the drop was less sharp than auto
makers had expected, and less se-
vere than the double-digit slump
two years, according to figures re-
leased on Monday by the Japan Au-
tomobile Dealers Association. And
in the U.K., new-car registrations
rose 5.3% in 2012 to 2.04 million
units, the highest annual volume
since the recession struck in 2008,
according to the Society of Motor
Manufacturers and Traders.
Volvo Car, bought by Chinese
auto maker Zhejiang Geely Holding
Group Co. from Ford Motor Co. in
2010, said it sold 421,951 cars in
2012 as the phaseout of old models
and weaker consumer demand in
the wake of the European economic
crisis weighed on results. In 2011,
Volvo Cars sold 449,255 vehicles.
In 2012, sales in China shrank
nearly 11% to 41,989 cars, including
a steep 24% year-on-year drop in
December alone. The decline was
partly the result of fierce competi-
tion in the imported luxury segment
and the absence of the S40 model.
Volvo Car said it expects to
launch the new V40 model in China
in 2013, further its recruitment
drive and expand its retail network.
The company aims to nearly dou-
ble global vehicle sales to 800,000
BUSINESS & FINANCE
NISSAN TOYOTA
N D S 0 N D
’12
The Wall Street Journal
when a government subsidy pro-
gram ended a few years ago.
Sales of new cars, trucks and
buses dropped to 214,429 vehicles
last month, the Japan Automobile
Dealers Association said Monday.
Sales had declined 3.3% in Novem-
ber.
Toyota President Akio Toyoda,
who is chairman of the Japan Auto-
by 2020, including 200,000 cars in
China by 2015.
Volvo’s European sales fell 10%
to 227,027 cars, while sales in the
U.S., its biggest single-country mar-
ket, reached 68,079, up 1% from 2011
and mainly driven by demand for
the Volvo S60 sports sedan and
XC60 crossover.
“Competition in the car industry
will most likely continue to be as
fierce as in 2012 as manufacturers
will seek to capture volumes and
market shares in a market where
the economic situation will remain
unstable,” Volvo Car said in a state-
ment. “2013 is therefore expected to
be a challenging year in terms of
margins and growth.”
Volvo Cars reported a first-half
2012 net loss of 254 million Swedish
kronor ($38.8 million) compared
with a profit of 1.2 billion kronor in
the same period a year earlier.
“Volvo has had an in-between
year—old models have been phased
out while new models have yet to
enter the market,” said Martin
Skold, who studies the auto industry
at Stockholm School of Economics.
“Volvo also hasn’t been able to
Japanese auto makers were
encouraged by sales in China and at
home. Above, visitors look at a Nissan
Juke in a Japanese showroom.
mobile Manufacturers Association,
said the impact of the subsidies’ ex-
piration looked limited.
Some Japanese car makers rolled
out new models in recent months to
offset the effect of the government
in September ending its subsidy pro-
gram. Such efforts by auto makers
may have helped avoid the kind of
30% plunge that occurred after a
similar government program expired
in 2010.
Nissan’s Mr. Shiga said he was
concerned that solid demand for
new cars hadn’t spilled over to exist-
ing models. That could cut into sales
once new-model introductions slow.
Toyota’s Japanese sales fell 3.4%
last month, though sales of its up-
scale Lexus brand rose 32%. Nissan’s
sales declined 8.9%. Honda’s sales
fell 39% amid a lack of new models
as the company focused on minive-
hicles.
—Yajun Zhang in Beijing,
Colum Murphy in Shanghai
and Yoshio Takahashi in Tokyo
position itself on the Chinese mar-
ket in the same way as, for example,
the German auto manufacturers,”
Mr. Skold said.
The company said this year will
be “one of the most intense years in
the company’s history.” It is renew-
ing the bulk of its model range,
opening a new manufacturing plant
in Chengdu, China, in the second half
of 2013 and stepping up an $11 bil-
lion, five-year program that includes
an overhaul of its vehicle platform
and engine family, new factories and
improved marketing efforts.
The push will be financed with a
combination of loans and cash-flow.
Volvo in December said it would
borrow €922 million ($1.2 billion)
from the China Development Bank
to refinance existing loans, adding
that it hopes to secure additional
funding from the bank.
“Those loans will be crucial be-
cause cash-flow alone won’t be
enough,” Mr. Skold said. He said
Volvo will probably intensify market-
ing efforts in China to bolster its
brand and convince lenders it is able
to compete with bigger international
rivals such as Audi AG and BMW AG.
Tuesday, January 8, 2013 | 23
On Citigroup
Continued from page 17
wholesale banking, left with Mr.
Pandit in a shake-up initiated by the
bank’s board of directors. Lew
Kaden, a vice chairman who previ-
ously was chief administrative of-
ficer, will retire in the coming
weeks.
Todd Hagerman, an analyst at
Sterne, Agee & Leach Inc., said he
considers Monday’s changes “a first
step…with more executive changes
yet to come.”
In a move important to inves-
tors, Mr. Corbat also elevated Brian
Leach, the bank’s highly respected
chief risk officer. Mr. Leach was a
close ally of Mr. Pandit and was
credited with helping Citi to curb
risk and implement tighter controls
after the financial crisis hit. His de-
parture would have been a black eye
for Citi. Brad Hu, currently the Asia
risk chief, will become the bank’s
overall chief risk officer and report
to Mr. Leach.
Chief Financial Officer John Ger-
spach will remain in his role, as ex-
pected. He will oversee Citigroup’s
efforts to cut expenses, including
the bank’s goal to save $900 million
this year. The bank said in Decem-
ber that the initiative would result
in more than 11,000 job cuts.
“Citi is fortunate to have very
strong leaders with the skills and
experience I will rely on as we navi-
gate the challenges and opportuni-
ties ahead,” Mr. Corbat said in a
statement. “While the responsibili-
ties of some members of my team
Chief Financial Officer
John Gerspach will
remain in his role and
oversee cost-cutting.
are changing, this leadership team
and management structure will en-
sure continuity.”
Mr. Corbat appointed Jim Cowles
as CEO of Europe, Middle East, and
Africa, the role Mr. Corbat had be-
fore his promotion to CEO. Mr.
Cowles “has spent much if his ca-
reer in the region,” Mr. Corbat said.
Citigroup’s chief of operations
and technology, Don Callahan, will
continue to report to Mr. Corbat but
take on a new role as head of infra-
structure that spans business lines,
and ensure that the bank’s systems
are compliant with regulatory re-
quirements. Operations and technol-
ogy will face a heavy burden during
the implementation of the cost-cut-
ting plan; more than 5,700 job cuts
will come from that area, the bank
said in December.
Citigroup/Associated Press
Chief Executive Michael Corbat
24 | Tuesday, January 8, 2013
Microsoft Finds Crowd in Living Room
Xbox Console Contends With Stiff Competition; The ‘First to Successfully Combine Television With Interactive’
BY SHIRA OVIDE
High-tech giants have been bat-
tling for years over control of the
living room. That war is far from
over, but one company has grabbed
a surprisingly strong position: Mi-
crosoft Corp.
The software maker has pro-
gressively transformed its Xbox
from just a videogame machine into
a multipurpose hub for entertain-
ment delivered over the Internet.
Now, the 11-year-old hardware line
is facing its stiffest competition
yet.
Microsoft, seeking to give users
more reasons than solely games to
buy an Xbox console, has been busy
striking deals with companies such
as Netflix Inc., Google Inc.’s You-
Tube and Walt Disney Co.’s ESPN
unit to deliver content to the de-
vice.
While users can find competing
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TECHNOLOGY
firm Kleiner Perkins Caufield Byers.
Mr. Gordon called Microsoft’s Xbox
Live, the 10-year-old Microsoft ser-
vice linking Xbox to the Web, “one
of the great software inventions of
the generation.”
The success of the Xbox adds an
upbeat chapter to a long saga of
living-room disappointments for
Microsoft. Products such as
WebTV, a system acquired in 1997
for reaching the Internet from TV
sets, failed to find a broad footing.
So did efforts based on connecting
specially equipped personal com-
puters running Windows to TV sets.
Interactive TV was frequently a
focus when Microsoft Chief Execu-
tive Steve Ballmer, and co-founder
Bill Gates before him, kicked off the
annual Consumer Electronics Show
in Las Vegas. The opening keynote
this year was scheduled for Monday
night, but neither was scheduled to
attend; Microsoft decided before
the 2012 show to stop speaking or
exhibiting at CES.
Others are. Big consumer-elec-
tronics companies are expected to
announce advances in products
such as TV sets that come with In-
ternet connections and improved
operating systems—including prod-
ucts running the third revision of
Google Inc.’s TV software. Other ri-
vals, such as TiVo Inc. and Roku
Inc., keep updating their own set-
top boxes.
Even greater expectations are
building regarding whether Apple
Inc., whose Apple TV gadget links
iPhones, iPads and Web services to
TV sets, is planning a broader at-
tack that might include its own In-
ternet-connected TVs.
The potential prize is a say in
the future shape of entertainment,
and the more than $150 billion an-
nual market for U.S. television sub-
scriptions and TV advertising.
Marc Whitten, corporate vice
president in charge of Xbox Live,
says Xbox’s head start, expanding
services and user loyalty make him
confident about withstanding rivals
in home entertainment. “It’s really
an exciting time to be in the space
and see where entertainment is go-
ing,” Mr. Whitten says. “We’re in-
credibly honored to have the user
base we have, and I think that helps
us a lot.”
The Xbox’s sales—more than 70
million consoles since 2005—far
outstrip sales of specialty enter-
tainment hubs such as Apple TV.
Microsoft has been touting the
Xbox’s success beyond gaming for
some time. In a shift that Xbox offi-
cials first announced last March,
the company says Xbox Live users
entertainment activities such as
watching Netflix videos than on op-
tions for playing videogames online
with other people.
In a potential sign of its enter-
tainment ambitions, Microsoft
reached a recent deal to acquire id8
Group R2 Studios Inc., a startup
that has been working on technol-
ogy related to distributing and dis-
playing digital media on TV, accord-
ing to people familiar with the
matter.
Yet Microsoft faces a plethora of
rivals and skeptics, some of whom
point to compromises in price and
complexity in a device designed for
both gaming and streaming video.
An Xbox costs $199.99 or
$299.99, compared with a Roku on-
and up. To access most entertain-
THE WALL STREET JOURNAL.
TV Rumble
Products are
springing up to mesh
traditional TV with Videogame console from A Sony videogame console
online video and Microsoft that can stream for entertainment content
other Web features online video content that is ripe for an update
through Xbox Live
Pricing
$60 a year for
online subscription
$199.99 or $299.99 $249 or $299
Nintendo’s videogame Universal cable box and Lets users play video from
console combines DVR that also accesses Apple’s iPhones, iPads on a
cable-television listings, Internet content. Finds and TV, or buy movies and TV
Netflix and other services records content across TV shows, watch Netflix
and Internet.
$14.99 a month with a
one-year service-plan
commitment
$299.99 or $349.99 $149.99 and up $99
LG 3D
Google TV
First video player to stream TV with Internet Uses third generation of
Netflix videos and now connection, voice and Google TV software, and
offers more than 600 motion control built in. offers voice control
Internet channels
46” LED listed 47” listed online at
$49.99 to
online at $798 $1,099
$99.99
Source: the companies
The Wall Street Journal
ment features through the Xbox, Whitten and others familiar with its
users also need a subscription tier launch in 2001.
to the Xbox Live service at $60 a Microsoft has continued to add
year. online features and services to the
Subscriptions to Netflix, Hulu Xbox, including music-streaming
Plus or a cable-TV service add to and Web data-storage services an-
monthly bills. nounced last fall. It also has added
Anthony Woods, Roku’s chief ex-
voice-controlled search so a user
ecutive, concedes that devices such can find an episode of, say, “30
as the Xbox are the most widely Rock” whether on live TV, Netflix or
used routes to the Internet in living other on-demand services.
rooms now. But he predicts future Though long an unprofitable
growth will mainly come from de- business, Xbox also seems to finally
vices like Roku’s or Internet-con- be earning its keep. Wedbush Secu-
nected TVs, at least for households rities analyst Michael Pachter esti-
without gamers. mates Microsoft earns roughly $115
“A $50 Roku is a much better in gross profit on each Xbox con-
solution,” Mr. Woods says. sole.
The outcome of the battle might The Microsoft division anchored
come down to how Microsoft up- by the Xbox business posted reve-
dates the Xbox, which some indus- nue of $1.95 billion for the fiscal
try watchers say could happen by
the end of 2013.
first quarter ended Sept. 30, off
from $1.96 billion a year earlier,
According to people familiar and operating income of $19 mil-
with Microsoft’s deliberations, ex- lion, down from $340 million. As
ecutives have considered whether the Xbox 360 ages, sales have been
the next Xbox should come in two bumpy. The company says it
versions, a powerful but more ex- shipped 25% fewer Xbox consoles,
pensive console primarily for gam- or 1.7 million units, in the quarter
ing, and a stripped-down, less-ex- ended Sept. 30 compared with the
pensive version intended mainly for year-earlier period.
watching video and performing on- —Ian Sherr and Don Clark
line tasks. contributed to this article.
Mr. Whitten declines to discuss
future plans for the Xbox. “I con-
tinue to think this is the platform CES Coverage>>
to drive all of your entertainment Scan the code for
in one place,” he says. more news of the
Though long publicly associated Consumer Electronics
with gaming, broader entertain- Show or visit
ment goals were part of the origi- WSJ.com/Tech.
nal planning for the Xbox, say Mr.
THE WALL STREET JOURNAL. Tuesday, January 8, 2013 | 25

MARKETS

Corporate Bonds to Get an Extra Boost U.S. Banks

Reach New Deal
As Regulators Relax Rules on Lenders On Foreclosures
BY BEN EDWARDS interest rates. Continued from page 17
Squeezed Tighter Investors have increasingly & Co. and Citigroup Inc. all signed
A change of rules allowing cor- turned to corporate debt because it the deal, saying it will deliver more
porate debt to count toward funds Average yield spread for A-rated bonds in the iBoxx Euro Corporate index is seen as a safer bet than equities, aid to borrowers in a quicker fash-
that banks must hold to guard 3 percentage points while offering higher returns than ion.
against financial stress may push havens such as German bunds. Bank of America said the agree-
bond prices even higher, analysts Under the revised Basel III ment would be covered by $2.5 bil-
say. guidelines, corporate bonds with lion in mortgage-related charges it
The Basel Committee on Bank- 2 credit ratings from A+ to BBB- will would take for the fourth quarter
ing Supervision, a group of regula- 0.98 qualify for inclusion in banks’ li- for last year.
tors and central bankers, Sunday pct. quidity totals, though their value Citi said it would record a charge
broadened the range of assets points will be discounted by 50% when of $305 million in the fourth quarter
lenders can count toward reaching their contribution is calculated. of last year.
1
their so-called liquidity coverage Corporate debt and other secu- Ally Financial Inc., HSBC Hold-
ratios, making it easier for banks rities included as part of the re- ings PLC, OneWest Bank and Ever-
to meet their targets. vised guidelines, including equities bank didn’t sign onto the deal. A
The rule requires lenders to and highly rated residential mort- spokeswoman for Residential Capi-
hold enough high-quality liquid as- 0 gage-backed bonds, will be re- tal LLC, a unit of Ally that filed for
sets to be able to withstand a 30- 2012 2013 stricted to 15% of the total assets bankruptcy in 2012, said that be-
day liquidity crisis similar to that Source: Markit The Wall Street Journal used to calculate the ratio. cause of the company’s bankruptcy
which occurred in 2008. Liquid as- The rules are unlikely to boost filing, it would need more time to
sets must total 100% of the funds a liquidity in the secondary market. review the settlement.
bank theoretically would lose ac- such bonds, introducing new de- Mann, credit strategist at Société Investors remain reluctant to trade A spokesman for HSBC North
cess to in such a scenario. mand into the market, causing Générale. bonds given the scarcity of supply. America Holdings Inc. said HSBC
As drafted in 2010, the rules de- prices to rise and reducing the gap The average yield spread for A- “While banks may now be in- “remains in discussion on the mat-
fined liquid assets narrowly, as in yield, or spread, corporate debt rated bonds in the iBoxx Euro Cor- clined to buy more corporate ter.”
cash, government bonds, and not offers relative to less-risky debt. porate index, which measures the bonds, they would generally man- Other banks that signed onto the
much else. Under pressure from Yields fall when bond prices rise. performance of investment-grade age their ‘liquidity book’ separately deal were Aurora Loan Services,
banks, regulators agreed to let “In a market that is already bonds issued in euros, has fallen to to their ‘trading book’, so it doesn’t MetLife Bank, PNC Financial Serv-
lenders use less-traditional assets, squeezed, struggling from a lack of just under 1 percentage point from necessarily mean banks will be ices Group Inc., the Sovereign Bank
including some corporate bonds, to supply given the huge amount of 2.33 percentage points at the start more willing to act as market mak- unit of Banco Santander SA, Sun-
satisfy some of their requirements. demand that’s out there, it could of 2012, according to data provider ers,” said Michael Symonds, a Trust Banks Inc., and U.S. Bancorp.
The relaxation of the rules may see even more disproportionate Markit. The spreads are relative to credit analyst at Daiwa Capital MetLife Bank is a unit of insurer
make banks more eager to hold tightening in spreads,” said Suki a benchmark based on central-bank Markets. MetLife Inc.

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n ALEXANDRA INVESTMENT MANAGEMENT GH FUND S EUR OT OT CYM 12/14 EUR 140.48 5.2 5.8 2.2 Pictet-Asian Eq ExJpn-I USD OT OT LUX 01/07 USD 194.44 2.2 18.4 -0.8 MENA UCITS Fund OT OT IRL 12/27 USD 1033.05 11.3 11.7 -2.7
AlexandraConvertibleBondFundI,Ltd.(ClassA) OT OT VGB 08/31 USD 2155.22 NS NS NS GH FUND S GBP OT OT CYM 12/14 GBP NS.00 5.7 6.3 2.4 Pictet-Asian Eq ExJpn-P USD OT OT LUX 01/07 USD 180.48 2.1 17.4 -1.7 UAE Blue Chip Fund OT OT ARE 12/27 AED 5.11 18.2 19.3 0.5
GH Fund S USD OT OT CYM 12/14 USD NS.00 5.6 6.2 2.2 Pictet-Biotech-P USD OT EQ LUX 01/04 USD 373.32 4.0 32.5 9.9
GH Fund USD OT OT GGY 12/14 USD NS.00 4.6 5.1 1.1 Pictet-Conv. Bonds-P EUR OT OT LUX 01/04 EUR 99.20 3.1 9.0 -3.9
Hedge Investments OT OT GGY 07/20 USD NS.00 1.3 -2.9 2.5 Pictet-Digital Comm-P USD OT EQ LUX 01/04 USD 150.40 1.8 14.6 3.1
Pictet-Eastern Europe-P EUR EU EQ LUX 01/04 EUR 377.83 3.0 24.2 -4.2
Leverage GH USD OT OT GGY 12/14 USD NS.00 7.1 8.1 -0.1
Pictet-Emerging Markets-P USD GL EQ LUX 01/07 USD 541.74 2.6 13.8 -6.2
MultiAdv Arb CHF Hdg OT OT JEY 12/14 CHF NS.00 3.6 3.4 -0.3 Pictet-Eu Equities Sel-P EUR EU EQ LUX 01/04 EUR 502.76 2.7 20.9 4.3
MultiAdv Arb EUR Hdg OT OT JEY 12/14 EUR NS.00 3.9 3.8 0.5 Pictet-EUR Bonds-P EU BD LUX 01/04 EUR 459.77 -0.3 13.5 7.1
MultiAdv Arb GBP Hdg OT OT JEY 12/14 GBP NS.00 4.3 4.2 0.6 Pictet-EUR Bonds-Pdy EU BD LUX 01/04 EUR 305.08 -0.3 13.5 7.1
n BANC INTERNACIONAL D'ANDORRA. BANCA MORA.
MultiAdv Arb S EUR OT OT JEY 12/14 EUR 118.41 5.3 5.2 1.8 Pictet-EUR Corporate Bonds-P EU BD LUX 01/04 EUR 172.40 -0.2 13.6 6.0
Avgd. Meritxell 96, Andorra la Vella. Andorra. Ph. +376.884884 www.bibm.ad MultiAdv Arb S GBP OT OT JEY 12/14 GBP 124.60 5.7 5.6 2.0
Andfs. Anglaterra UK EQ AND 11/16 GBP 8.47 2.8 3.6 14.9 Pictet-EUR Corporate Bonds-Pdy EU BD LUX 01/04 EUR 104.51 -0.2 13.6 6.0 n YUKI MANAGEMENT & RESEARCH
MultiAdv Arb S USD OT OT JEY 12/14 USD 135.34 5.6 5.5 1.9 Pictet-EUR High Yield-P EU BD LUX 01/04 EUR 200.78 1.1 25.8 8.0
Andfs. Borsa Global GL EQ AND 01/04 EUR 6.08 2.9 5.2 -4.6
Andfs. Emergents GL EQ AND 11/02 USD 14.77 -20.4 -19.2 -4.7 MultiAdv Arb USD OT OT JEY 12/14 USD NS.00 4.2 4.1 0.6 Pictet-EUR High Yield-Pdy EU BD LUX 01/04 EUR 92.05 1.1 25.7 8.0
Andfs. Espanya EU EQ AND 01/04 EUR 10.68 3.4 4.0 -3.5 Pictet-Europe Index-P EUR EU EQ LUX 01/04 EUR 124.83 2.9 18.2 4.5 n YMR-N Series
Andfs. Estats Units US EQ AND 01/04 USD 16.70 3.6 11.7 2.0
n HSBC Uni-folio Pictet-European Sust Eq-P EUR EU EQ LUX 01/04 EUR 160.49 2.4 15.1 3.6
Asian AdbantEdge EUR OT EQ JEY 12/14 EUR NS.00 -0.1 -0.4 -6.0 Pictet-Glo Emerging Debt-P USD GL BD LUX 01/04 USD 329.45 0.4 16.8 11.3 YMR-N Growth Fund JP EQ IRL 01/07 JPY 8918.00 2.8 16.3 -4.7
Andfs. Europa EU EQ AND 01/04 EUR 6.52 2.6 8.1 -6.1
Asian AdvantEdge OT EQ JEY 12/14 USD NS.00 0.8 0.7 -5.3 Pictet-Glo Emerging Debt-Pdy USD GL BD LUX 01/04 USD 185.00 0.4 16.8 11.3
Andfs. Franca EU EQ AND 01/04 EUR 9.35 2.4 17.3 -1.6 n Yuki 77 Series
Andfs. Japo JP EQ AND 01/04 JPY 483.49 2.9 19.5 -1.7 Emerg AdvantEdge OT EQ JEY 09/28 USD 151.22 3.4 -2.4 -5.5 Pictet-Greater China-P USD AS EQ LUX 01/07 USD 391.11 2.1 22.5 -1.5
Andfs. Plus Dollars US BA AND 10/22 USD 9.66 2.3 3.0 6.2 Emerg AdvantEdge EUR OT EQ JEY 09/28 EUR 82.99 2.8 -3.0 -5.9 Pictet-Indian Equities-P USD EA EQ LUX 01/07 USD 310.06 0.6 19.5 -12.5
Yuki 77 General JP EQ IRL 01/07 JPY 5393.00 2.4 15.9 -5.4
Andfs. RF Dolars US BD AND 01/04 USD 12.23 0.1 5.4 1.7 Europ AdvantEdge EUR OT EQ JEY 06/30 EUR 127.84 -3.4 -1.3 2.2 Pictet-Japan Index-P JPY JP EQ LUX 01/07 JPY 8949.95 2.5 24.2 -1.3
Andfs. RF Euros EU BD AND 01/04 EUR 11.56 0.0 4.6 2.9 Europ AdvantEdge USD OT EQ JEY 06/30 USD 135.07 2.0 4.3 5.1 Pictet-Japanese Eq Opp-P JPY JP EQ LUX 01/07 JPY 4875.08 2.8 24.7 1.8 n Yuki Asia Umbrella Series
Andorfons EU BD AND 01/04 EUR 15.33 0.2 5.2 3.2 Pictet-Japanese Eq Sel-I JPY JP EQ LUX 01/07 JPY 8105.73 2.6 24.5 -0.2
Real AdvantEdge EUR OT OT JEY 04/30 EUR 104.69 1.3 -9.5 -1.9
Andorfons Alternative Premium GL EQ AND 11/30 EUR 93.81 0.6 0.0 -2.8 Pictet-Japanese Eq Sel-P JPY JP EQ LUX 01/07 JPY 7714.80 2.6 23.8 -0.9 Yuki Rebounding Gro Fd JP EQ IRL 01/07 JPY 9370.00 2.3 15.4 NS
Real AdvantEdge USD OT OT JEY 04/30 USD 105.31 1.5 -8.8 -1.7
Andorfons Mix 30 EU BA AND 01/04 EUR 9.89 0.7 5.3 0.1 Pictet-Pac (ExJpn) Idx-P USD AS EQ LUX 01/07 USD 350.61 2.3 25.5 5.9
Trading AdvantEdge OT OT GGY 12/14 USD 144.17 -4.0 -4.1 -1.9 Pictet-Piclife-P CHF OT OT LUX 01/04 CHF 847.67 1.4 8.9 3.1 n Yuki Chugoku Series
Andorfons Mix 60 EU BA AND 12/19 EUR 8.96 4.4 7.1 -2.5 Trading AdvantEdge EUR OT OT GGY 12/14 EUR 130.33 -4.1 -4.2 -1.8 Pictet-Premium Brands-P EUR OT EQ LUX 01/04 EUR 108.63 3.5 22.2 7.6
Trading AdvantEdge GBP OT OT GGY 12/14 GBP 139.15 -3.7 -3.8 -1.7 Pictet-Russian Equities-P USD EE EQ LUX 01/04 USD 67.61 2.8 13.1 -10.0 Yuki Chugoku Jpn Gen JP EQ IRL 01/07 JPY 6379.00 2.9 18.1 -4.2
n CG Portfolio Fund Ltd Yuki Chugoku JpnLowP JP EQ IRL 01/07 JPY 6602.00 2.9 4.9 -10.1
NAV OT OT CYM 12/14 GBP 25249.51 6.6 6.7 8.8 Pictet-Security-P USD GL EQ LUX 01/04 USD 135.37 2.0 18.5 2.6
n HSBC Trinkaus Investment Managers SA Pictet-Short-T Money Mkt CHF-P CH MM LUX 01/04 CHF 124.29 0.0 0.0 0.1
n Yuki Hokuyo Japan Series
n CHARTERED ASSET MANAGEMENT PTE LTD - TEL NO: 65-6835-8866 E-Mail: funds@hsbctrinkaus.lu Pictet-Short-T Money Mkt CHF-P dy CH MM LUX 01/04 CHF 91.21 0.0 0.0 0.1
Fax No: 65-6835 8865, Website: www.cam.com.sg, Email: cam@cam.com.sg Telephone: 352 - 47 18471 Pictet-Short-T Money Mkt EUR-P OT OT LUX 01/04 EUR 137.80 0.0 0.2 0.5 Yuki Hokuyo Jpn Gen JP EQ IRL 01/07 JPY 4210.00 2.3 17.7 -3.0
CAM-GTF Limited OT OT MUS 12/31 USD 402338.73 31.0 31.0 -1.5 HSBC Trinkaus Golden Opportunities OT OT LUX 01/04 USD 130.18 0.7 -1.7 -3.9 Pictet-Short-T Money Mkt EUR-Pdy OT OT LUX 01/04 EUR 95.60 0.0 0.2 0.5 Yuki Hokuyo Jpn Inc JP EQ IRL 01/07 JPY 4822.00 2.1 15.9 -3.6
Prosperity Return Fund A JP BD LUX 01/07 JPY 9716.39 2.0 12.9 0.9 Pictet-Short-T Money Mkt USD-P OT OT LUX 01/04 USD 132.08 0.0 0.4 0.3 Yuki Hokuyo Jpn Sm Cap JP EQ IRL 01/07 JPY 5418.00 3.9 30.7 2.4
n Citadele Prosperity Return Fund B OT OT LUX 01/07 JPY 8974.83 3.2 30.1 3.9 Pictet-Short-T Money Mkt USD-P dy OT OT LUX 01/04 USD 84.33 0.0 0.4 0.3
Republikas square 2a, Riga, LV-1522, Latvia Prosperity Return Fund C OT OT LUX 01/07 USD 91.82 1.2 14.7 0.6 Pictet-Small Cap Europe-P EUR EU EQ LUX 01/04 EUR 642.91 2.5 26.3 3.1 n Yuki Mizuho Series
Citadele Eastern Europ Bal EU BD LVA 01/04 EUR 16.27 0.4 16.5 0.8 Prosperity Return Fund D OT OT LUX 01/07 EUR 137.41 2.3 28.9 13.7 Pictet-Sov. ST Money Mkt-P EUR OT OT LUX 01/04 EUR 102.86 0.0 -0.1 0.2 Yuki Mizuho Gen Jpn III JP EQ IRL 01/07 JPY 2993.00 -7.0 -10.8 -15.7
Citadele Eastern Europ Bd EU BD LVA 01/04 USD 19.90 0.4 15.1 7.1 Renaissance Hgh Grade Bd A JP BD LUX 01/07 JPY 10678.87 1.8 20.9 4.2 Pictet-Sov. ST Money Mkt-P USD OT OT LUX 01/04 USD 101.94 0.0 0.2 0.1 Yuki Mizuho Jpn Dyn Gro JP EQ IRL 01/07 JPY 3847.00 2.6 15.4 -7.6
Citadele Russian Eq EE EQ LVA 01/04 USD 23.09 3.0 16.8 -6.7 Renaissance Hgh Grade Bd B JP BD LUX 01/07 JPY 9743.70 2.7 36.7 6.7 Pictet-Sov. ST Money Mkt-Pdy EUR OT OT LUX 01/04 EUR 99.95 0.0 -0.1 0.2 Yuki Mizuho Jpn Exc 100 JP EQ IRL 01/07 JPY 6306.00 2.4 17.9 -2.5
Renaissance Hgh Grade Bd C JP BD LUX 01/07 USD 99.07 0.8 20.5 3.2 Pictet-Sov. ST Money Mkt-Pdy USD OT OT LUX 01/04 USD 99.95 0.0 0.2 0.1 Yuki Mizuho Jpn Gen JP EQ IRL 01/07 JPY 7885.00 2.6 13.7 -6.0
n DJE INVESTMENT S.A. Renaissance Hgh Grade Bd D JP BD LUX 01/07 EUR 110.34 1.9 18.7 4.1 Pictet-Timber-P USD GL EQ LUX 01/04 USD 135.65 3.1 31.3 6.3 Yuki Mizuho Jpn Gro JP EQ IRL 01/07 JPY 5460.00 2.0 11.8 -8.5
internet: www.dje.lu email: info@dje.lu phone:+00 352 269 2522 0 fax:+00 352 269 25252 Pictet-USA Index-P USD US EQ LUX 01/04 USD 123.32 2.8 16.2 8.8 Yuki Mizuho Jpn Inc JP EQ IRL 01/07 JPY 7138.00 2.6 15.2 -3.9
DJE Real Estate P OT OT LUX 01/07 EUR 5.12 0.0 -5.3 -8.3 Pictet-USD Government Bonds-P US BD LUX 01/04 USD 588.95 -0.8 2.1 5.0 Yuki Mizuho Jpn Lg Cap JP EQ IRL 01/07 JPY 4522.00 3.1 16.2 -6.2
DJE-Absolut P OT OT LUX 01/07 EUR 239.45 2.1 16.1 1.6 Pictet-USD Government Bonds-Pdy US BD LUX 01/04 USD 386.90 -0.8 2.1 5.0 Yuki Mizuho Jpn LowP JP EQ IRL 01/07 JPY 10587.00 4.1 13.1 -5.7
DJE-Alpha Glbl P OT OT LUX 01/07 EUR 175.59 2.0 8.8 -4.9 Pictet-Water-P EUR OT OT LUX 01/04 EUR 173.40 3.7 15.2 6.5 Yuki Mizuho Jpn PGth JP EQ IRL 01/07 JPY 6426.00 2.7 14.5 -8.0
DJE-Div& Substanz P EU EQ LUX 01/07 EUR 259.17 2.4 15.1 1.8 Pictet-World Gvt Bonds-P USD OT OT LUX 01/04 USD 183.79 -1.6 0.1 3.2 Yuki Mizuho Jpn SmCp JP EQ IRL 01/07 JPY 7103.00 4.1 24.3 -1.1
DJE-Gold&Resourc P OT EQ LUX 01/07 EUR 172.65 1.4 -10.8 -14.1 Pictet-World Gvt Bonds-Pdy USD OT OT LUX 01/04 USD 138.55 -1.5 0.1 3.2 Yuki Mizuho Jpn Val Sel AS EQ IRL 01/07 JPY 5227.00 2.7 21.5 -4.8
DJE-Renten Glbl P EU BD LUX 01/07 EUR 151.84 0.4 9.1 4.9
LuxPro-Dragon I AS EQ LUX 07/20 EUR 144.57 -8.5 5.0 7.6 n MP ASSET MANAGEMENT INC. n POLAR CAPITAL PARTNERS LIMITED
LuxPro-Dragon P AS EQ LUX 07/20 EUR 140.29 -8.8 4.4 7.0 Tel: + 386 1 587 47 77
LuxTopic-Aktien Europa EU EQ LUX 01/07 EUR 19.72 1.8 17.9 4.4
International Fund Managers (Ireland) Limited PH - 353 1 670 660 Fax - 353 1 670 1185
MP-BALKAN.SI EE EQ SVN 08/12 EUR 19.29 -1.9 -8.4 -10.9 Global Technology OT EQ IRL 01/04 USD 17.62 2.0 12.9 -1.3
LuxTopic-Pacific OT OT LUX 01/07 EUR 22.03 3.7 27.6 -0.1 MP-TURKEY.SI OT OT SVN 01/04 EUR 49.49 1.5 59.5 2.5 Japan Fund USD JP EQ IRL 01/07 USD 17.94 0.6 4.4 -2.5 n OTHER FUNDS
Polar Healthcare Class I USD OT EQ IRL 01/04 USD 18.68 2.6 27.2 17.4 For information about these funds, please contact us on Tel: +44 (0) 207 842 9694/9633
n HERMITAGE CAPITAL MANAGEMENT LTD. Polar Healthcare Class R USD OT EQ IRL 01/04 USD 18.40 2.6 26.7 16.9 Medinvest Plc Dublin OT EQ IRL 09/30 USD NS.00 NS 1.3 -4.4
Tel: +7501 258 3160 www.hermitagefund.com
The Hermitage Fund GL EQ JEY 03/12 USD 963.12 4.5 105.6 -23.2
n Hemisphere Management (Ireland) Limited n WINTON CAPITAL MANAGEMENT LTD
Discovery USD A GL OT CYM 12/31 USD 101.35 NS NS NS Tel: +44 (0)20 7610 5350 Fax: +44 (0)20 7610 5301
n HORSEMAN CAPITAL MANAGEMENT LTD. Winton Evolution EUR Cls H GL OT CYM 11/30 EUR NS.00 -9.6 -7.2 -1.5
T: +44(0)20 7838 7580, F: +44(0) 20 7838 7590, www.horsemancapital.com Elbrus USD A OT OT CYM 10/31 USD 10.48 NS NS NS
Europn Conviction USD B EU EQ CYM 12/07 USD 155.30 6.6 5.6 6.7 Winton Evolution GBP Cls G GL OT CYM 11/30 GBP NS.00 -9.3 -6.8 -1.5
Horseman EurSelLtd EUR EU EQ GBR 11/30 EUR 252.32 26.7 23.8 8.2
GBR
n MERIDEN GROUP Europn Forager USD B EU EQ CYM 11/30 USD 278.27 10.6 10.4 7.4 Winton Evolution USD Cls F GL OT CYM 11/30 USD NS.00 -9.5 -7.1 -1.6
Horseman EurSelLtd USD EU EQ 11/30 USD 252.32 17.5 15.0 5.0 VGB
Tel: + 376 741 175 Fax: + 376 741 183 Email: meriden@meriden-ipm.com Latin America USD A GL EQ CYM 06/30 USD NS.00 NS NS NS Winton Futures EUR Cls C GL OT 11/30 EUR 228.05 -4.9 -3.3 2.6
Horseman Glbl Ltd EUR GL EQ CYM 11/30 USD 440.47 16.1 16.9 4.9
Antanta Combined Fund EE EQ AND 12/28 USD 262.59 -14.5 -13.8 -22.3 Paragon Limited USD A EU EQ CYM 12/31 USD NS.00 12.7 12.7 14.2 Winton Futures GBP Cls D GL OT VGB 11/30 GBP 247.25 -4.6 -3.0 2.6
Horseman Glbl Ltd USD GL EQ CYM 11/30 USD 440.47 16.1 16.9 4.9 UK Fund USD A OT OT CYM 04/13 USD 157.94 1.8 NS NS VGB
Antanta MidCap Fund EE EQ AND 12/28 USD 398.87 -18.5 -15.6 -32.6 Winton Futures JPY Cls E GL OT 11/30 JPY 15834.65 -5.4 -4.0 1.7
n HSBC ALTERNATIVE INVESTMENTS LIMITED Meriden Opps Fund GL OT AND 12/26 EUR 25.35 -11.3 -11.4 -24.4 Winton Futures USD Cls B GL OT VGB 11/30 USD 809.62 -4.8 -3.3 2.4
n PT CIPTADANA ASSET MANAGEMENT
T +44 20 7860 3074 F + 44 20 7860 3174 www.hail.hsbc.com Meriden Protective Div GL EQ AND 11/24 EUR NS.00 -2.8 NS NS
Tel: +6221 25574 883 Fax: +6221 25574 893 Website: www.ciptadana-asset.com

INDICES
HSBC ALTERNATIVE STRATEGY FUND Indonesian Grth Fund GL EQ BMU 01/02 USD 180.22 0.6 0.2 -0.5
Special Opp EUR OT OT GGY 12/14 EUR NS.00 16.5 17.5 6.2
Special Opp Inst EUR OT OT GGY 03/31 EUR 88.51 0.7 -0.3 13.3
Special Opp Inst USD OT OT GGY 12/14 USD NS.00 17.8 19.0 7.2
Special Opp USD OT OT GGY 12/14 USD NS.00 17.0 18.1 6.5 NAV ——————%RETURN ——————
FUND NAME GF DATE CR NAV 1-WK 1-MO 1-Q 1-YR 2-YR
n HSBC Portfolio Selection Fund
GH Fund CHF Hdg OT OT GGY 12/14 CHF NS.00 3.7 4.1 0.0
GH Fund EUR Hdg (Non-V) OT OT GGY 12/14 EUR 127.83 4.1 4.5 NS n Pictet Funds (Europe) SA, ROUTE DES ACACIAS 60, CH-1211 GENEVA 73 n THE NATIONAL INVESTOR n ARIX ABSOLUTE RETURN INVESTABLE INDEX
GH Fund GBP Hdg OT OT GGY 12/14 GBP NS.00 4.6 5.1 1.1 PO Box 47435, Abu Dhabi, UAE Web:www.tni.ae Feri Institutional Advisors, www.feri.de
Tel: + 41 (58) 323 3000 Web: www.pictetfunds.com ARIX Composite Gross USD OT OT GBR 12/31.00 USD1474.27 4.8 4.8 0.0
GH Fund Inst USD OT OT GGY 12/14 USD NS.00 5.1 5.7 1.7 Pictet-Agriculture-P EUR OT OT LUX 01/04 EUR 152.74 3.9 14.5 -0.8 MENA Special Sits Fund OT OT BMU 11/29 USD 1035.69 5.0 5.8 -3.8
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 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. All performance figures are calculated using the most recent prices available. 12-month and 2-year returns may be calculated over 11- and 23-month periods pending receipt and publication of the last month end price.

For information about listing your funds, please contact: Lauren Berkemeyer tel: +44 20 7572 2102; email: lauren.berkemeyer@dowjones.com
26 | Tuesday, January 8, 2013
Foreign Private Equity
Tapping China Funds
BY CHAO DENG
Yuan-denominated fundraising
by foreign private-equity firms in
China more than held steady last
year, even as their domestic coun-
terparts collected far less than in
2011. The news suggests overseas
investors see yuan funds as critical
to their long-term prospects in the
world’s second-biggest economy.
“We don’t want currency to be-
come an issue when the best local
companies think about
DEAL their choice of inves-
JOURNAL tors,” said Lei Yang,
Beijing-based manag-
ing partner at Northern Light Ven-
ture Capital, a foreign fund that
manages about $1 billion in capital
in three dollar-denominated funds
and three yuan-denominated ones.
Having access to yuan funds can
help foreign fund managers poten-
tially avoid regulatory hurdles in
areas off limits to foreign investors,
such as ventures that have some
degree of affiliation with the local
government. And the process of
raising yuan funds can help firms
build vital relationships.
Foreign firms raised $1.4 billion
worth of yuan funds for private-eq-
Bloomberg News
uity investments last year, slightly
up from $1.2 billion in 2011, accord-
ing to Asia Private Equity Review.
Their total contribution to the total
amount of yuan fundraising has
also ticked up to 14% in 2012, from
7% the year before.
Total yuan fundraising fell 42%
last year as domestic investors held
off. Private-equity investors, includ-
ing foreign-local joint ventures,
raised $10.2 billion worth of yuan
for China investments in 2012, fall-
ing short of the $17.6 billion raised
in 2011, according to Asia Private
Equity Review.
The total yuan raised by domes-
tic firms slipped to the equivalent
of $8.0 billion in 2012 from $15.5
billion in 2011.
“We saw the renminbi fundraising
market collapse faster than we had
anticipated” last year and expect
yuan fundraising to continue to be
difficult in 2013, given a lack of
transparency into how long compa-
nies must wait to list on domestic ex-
changes, said Gary Rieschel, founder
of Qiming Venture Partners, a foreign
private-equity fund manager based in
Cerberus to Sell Most of Aozora Stake
BY ATSUKO FUKASE
AND HIROYUKI KACHI
TOKYO—U.S. private-equity firm
Cerberus Capital Management LP
plans to sell most of its 58% stake in
Japanese lender Aozora Bank Ltd.,
largely exiting a 10-year roller-
coaster investment that highlights
how tough it has been for funds to
make sustainable profits from the
distressed banks they bought in the
wake of Japan’s 1990s financial cri-
sis.
Cerberus plans to reduce its
stake to about 8% by offering shares
in the open market, Aozora said
Monday, in a deal that would net
the firm around ¥158.1 billion ($1.8
billion) based on Monday’s closing
price of ¥250 per share on the To-
kyo Stock Exchange. That is on top
of an estimated ¥100 billion Cer-
berus made from cashing out some
One Up, One Down
Yuan-denominated fundraising by China’s domestic private-equity firms has
dropped but money raised by foreign firms has increased.
FUNDRAISING BY:
Foreign firms
Foreign-local joint ventures
Domestic firms
Source: Asia Private Equity Review
The Wall Street Journal
Chinese one-hundred yuan banknotes on disploay in Hong Kong last month.
Shanghai. Still, Qiming raised a $1
million yuan fund last year.
Domestic private-equity firms,
which rely on taking companies
public as a way of cashing out of in-
vestments, have been hit badly as
Chinese regulators stopped approv-
ing listing proposals in October, an
attempt, analysts said, to stabilize
the country’s stock market. China’s
benchmark stock index, the Shang-
hai Composite, ended the year up
3.2%, but not before plunging to a
four-year low in early December.
IPOs on the mainland market by
companies backed by private-equity
and venture-capital firms dropped
to a four-year low of 80.1 billion
yuan in 2012, according to research
firm China Venture.
Chinese private-equity firms
dominate yuan fundraising, given
their better access to local pools of
capital, including money from pro-
of its stake in 2006, when Aozora
listed its shares.
Cerberus paid ¥101 billion to buy
49% of Aozora in 2003. It subse-
quently bought additional shares
from various firms, leaving it with
its 58% stake.
In dollar terms, because of the
roughly 30% appreciation of the yen
versus the dollar since the begin-
ning of 2003, Cerberus’s gains could
be greater.
Cerberus wasn’t immediately
available to comment.
The appreciation of Cerberus’s
investment came early on, before
Aozora listed on the Tokyo exchange
in 2006 for an initial offering price
of ¥570 per share. Ever since, in a
pattern also seen after IPOs follow-
ing other purchases of distressed
Japanese banks by private-equity
funds, the investment has gone
downhill. The bank’s stock price has
MARKETS
5%
7% 88%
8% 78%
AMOUNT
RAISED 14%
$17.6
BILLION $10.2
2011 2012
vincial governments, which may be
reluctant to dole out cash to firms
they haven’t established relation-
ships with.
The biggest yuan fund in 2012
was a 10 billion yuan ($1.6 billion)
private-equity infrastructure fund,
raised by Suzhou International De-
velopment Venture Capital Holding
and domestic insurer China Life In-
surance. The largest in 2011 was a
10 billion yuan fund, raised by Hony
Capital, one of China’s largest pri-
vate-equity firms.
Vinit Bhatia, head of Bain & Co.’s
Greater China Private Equity prac-
tice, said that total yuan fundrais-
ing should come back, depending on
the macroeconomic environment
and the IPO market. The completion
of China’s once-in-a-decade transi-
tion to a new set of political leaders
may help by removing uncertainty,
he added.
fallen by more than half over the
last seven years.
Cerberus will remain Aozora’s
biggest shareholder even after the
sale. The bank said the price for the
tender hasn’t been determined, but
will be set between Jan. 16 and Jan.
18. It will be between 0.9 and 1.0
times the issue’s closing price on
one of those days.
Japanese banks, particularly
midsized lenders like Aozora, have
struggled with sluggish lending and
tough competition with the
“megabanks” at home, and have had
to find niche markets to prosper.
Aozora once relied on hedge-
fund investing and booked large in-
vestment losses. Recently, it re-
turned to being a simple banking-
services provider, focused on
middle-market banking, serving
wealthy retail clients, and real-es-
tate lending.
THE WALL STREET JOURNAL.
Bank Shares Shine;
Markets Decline
BY ANDREA TRYPHONIDES Jones Industrial Average fell 50.92,
AND SARA SJOLIN or 0.4%, to 13384.29. The Standard
& Poor’s 500-stock index fell 4.58
European bank shares rallied points, or 0.3%, to 1461.89. The in-
Monday in response to an easing of dex last week surged 4.6%, ending
international capital rules, but mar- Friday at its highest closing level
kets closed lower overall following since Dec. 31, 2007. The Nasdaq
strong gains last week. Composite Index lost 2.85 points, or
The Stoxx Europe 600 index for 0.1%, to 3098.81.
the banking sector finished up 1.1% Amazon.com was up 4% at an
after the Basel Com- all-time high in late trade, spurred
MARKET mittee on Banking Su- by a Morgan Stanley stock-rating
REPORT pervision, a group of upgrade to “overweight” from
the world’s regulators “equal-weight.”
and central bankers, said it would In the U.K., energy firms de-
make it easier for banks to comply clined. Oil prices hovered around
with rules meant to ensure that big the flat line as European markets
lenders are able to weather financial closed after being lower for most of
crises. Full implementation was de- the trading session. BP dropped 1%,
layed from 2015 until 2019. while Royal Dutch Shell fell 0.5%.
“The changes will at least make Total fell 1.7% in France. Crude for
it easier for some banks to satisfy February delivery settled up 10
the requirements when the ample li- cents a barrel at $93.19 on the New
quidity provided by quantitative York Mercantile Exchange.
easing is eventually withdrawn,”
said Capital Economics in a note,
describing the change as a “small RWE and E.ON dropped
positive” for the banking sector.
Shares of Banca Monte dei Pas- after Deutsche Bank cut
chi di Siena SpA rallied 6.9% in Mi- its ratings on the utility
lan, Crédit Agricole jumped 3.5% in
Paris, and Commerzbank added companies to ‘sell’ from
4.2% and Deutsche Bank gained ‘hold,’ citing challenges
2.8% in Frankfurt.
Still, the main European stock in- in the power markets.
dexes closed lower.
The Stoxx Europe 600 index fell
0.4% to 286.63, its first losing ses- In Germany, shares of RWE
sion of 2013. It finished Friday at a dropped 3% and E.ON fell 1.7% after
near two-year high. The U.K.’s FTSE Deutsche Bank cut its ratings on
100 closed down 0.4% at 6064.58, the utility companies to “sell” from
Germany’s DAX declined 0.6% to “hold,” citing challenges in the Eu-
7732.66, and France’s CAC-40 ended ropean power markets.
0.7% lower at 3704.64. The dollar declined against the
“There’s a bit of profit-taking” at euro and yen after big gains last
play, said Keith Bowman, an equity week. The euro climbed to $1.3111 in
analyst at Hargreaves Lansdown. late New York trade from $1.3069
“Fiscal negotiations in the U.S. are late Friday. The dollar bought
still being assessed by investors, but ¥87.80, down from ¥88.17.
there’s nothing to weigh on markets U.S. Treasury prices stabilized
in the near term.” after selling off sharply to begin the
Instead, he said, investors will year. The 10-year note was up 3/32
monitor the earnings season in the to yield 1.904% in late trading.
U.S., which unofficially kicks off Gold for January delivery de-
Tuesday when Alcoa reports results. clined $2.60 a troy ounce to
In the U.S., shares pulled back af- $1,645.50 on the Comex division of
ter big gains last week. The Dow Nymex.
Fund Scorecard
Eurozone Large-Cap Equity
Funds investing in equities of large-cap companies from the 12 Eurozone countries. At
least 75% of total assets are invested in Eurozone equities. Ranked on % total return
(dividends reinvested) in Euros for one year ending January 07, 2013
Leading 10 Performers
FUND FUND LEGAL % Return in $US **
RATING * NAME
NS Antecedo
Euro Equity
FUND MGM'T CO.
INKA
Internationale KAG mbH
CURR. BASE
EURDEU
YTD 1-YR 2-YR 5-YR
1.62 43.95 3.74 NS
NS JFG GTG Actions Bourse EURFRA 2.67 36.54 2.78 -2.58
Sélection Euro
NS Fidelity Fidelity (FIL EURLUX 2.75 33.28 6.63 -1.03
InstEuroBlueChipI-Acc-EUR (Luxembourg) S.A.)
NS Barclays Barclays Funds EURLUX 2.55 33.08 3.38 -0.84
Equity Euro A EUR Acc
NS LBPAM La Banque Postale EURFRA 2.43 33.01 NS NS
ActionsEuroFocusEmergentIA/I Asset Management
NS Objectif Lazard Frères EURFRA 3.45 32.93 0.20 1.00
Alpha Euro A A/I Gestion
NS Fidelity Fidelity (FIL EURLUX 2.73 32.56 5.80 -1.95
Euro Blue Chip A-EUR (Luxembourg) S.A.)
NS Sycomore Sycomore Asset EURFRA 3.44 31.23 1.58 -5.85
European Recovery I Management
NS MM Eurozone MM Asset EURIRL 2.84 30.79 5.03 NS
Equity Core 3 Management Limited
NS iShares EURO iShares EURIRL 0.89 30.53 7.18 -1.88
STOXXTotMrktGrwLrg(IE)
NOTE: Changes in currency rates will affect performance and rankings. Source: Morningstar, Ltd
KEY: ** 2YR and 5YR performance is annualized 1 Oliver’s Yard, 55-71 City Road
NA-not available due to incomplete data; London EC1Y 1HQ United Kingdom
NS-fund not in existence for entire period www.morningstar.co.uk; Email: mediaservice@morningstar.com
Phone: +44 (0)203 107 0038; Fax: +44 (0)203 107 0001
THE WALL STREET JOURNAL. Tuesday, January 8, 2013 | 27

GLOBAL MARKETS LINEUP

Major stock market indexes Stock indexes from around the world, grouped by region. Shown in local-currency terms.
PREVIOUS SESSION PERFORMANCE PREVIOUS SESSION PERFORMANCE
Region/Country Index Close Net change Percentage change Yr.-to-date 52-wk. Region/Country Index Close Net change Percentage change Yr.-to-date 52-wk.
EUROPE Stoxx Europe 600 286.63 -1.20 -0.42% 2.5% 15.8% Spain IBEX 35 8419.0 -16.80 -0.20% 3.1 1.6
Stoxx Europe 50 2641.20 -11.82 -0.45 2.5 10.0 Sweden OMX Stockholm 351.79 -1.69 -0.48 2.3 12.3
Euro Zone Euro Stoxx 266.81 -1.16 -0.43 2.3 18.4 Switzerland SMI 7049.30 -9.62 -0.14 3.3 17.7
Euro Stoxx 50 2695.56 -13.79 -0.51 2.3 17.3 Turkey ISE National 100 80224.41 660.46 0.83% 2.6 59.9
Austria ATX 2484.01 0.96 0.04% 3.4 31.3 U.K. FTSE 100 6064.58 -25.26 -0.41 2.8 7.3
Belgium Bel-20 2503.12 -13.20 -0.52 1.1 19.6 ASIA-PACIFIC DJ Asia-Pacific 135.67 -0.17 -0.13 1.8 14.6
Czech Republic PX 1054.6 -7.87 -0.74 1.5 17.9 Australia SPX/ASX 200 4717.30 -6.50 -0.14 1.5 14.9
Denmark OMX Copenhagen 468.75 0.92 0.20 3.6 26.9 China CBN 600 20901.74 114.97 0.55 0.5 6.9
Finland OMX Helsinki 6088.18 -4.54 -0.07 4.9 10.4 Hong Kong Hang Seng 23329.75 -1.34 -0.01 3.0 23.7
France CAC-40 3704.64 -25.38 -0.68 1.7 18.1 India Sensex 19691.42 -92.66 -0.47 1.4 24.5
Germany DAX 7732.66 -43.71 -0.56 1.6 27.6 Japan Nikkei Stock Average 10599.01 -89.10 -0.83 2.0 26.3
Hungary BUX 18774.87 114.58 0.61 3.3 16.6 Singapore Straits Times 3218.26 -6.96 -0.22 1.6 19.6
Ireland ISEQ 3499.95 2.52 0.07 3.0 21.1 South Korea Kospi 2011.25 -0.69 -0.03 0.7 10.1
Italy FTSE MIB 16895.66 -64.12 -0.38 3.8 15.4 AMERICAS DJ Americas 380.07 -1.69 -0.44 2.4 13.6
Netherlands AEX 351.24 -0.49 -0.14 2.5 12.9 Brazil Bovespa 61875.65 -647.41 -1.04 1.5 5.6
Norway All-Shares 501.82 -2.57 -0.51 2.3 11.5 Mexico IPC 44720.82 158.49 0.36 2.3 21.5
Poland WIG 47589.33 -298.83 -0.62 0.3 26.1 Note: Americas index data are as of 3:00 p.m. ET. Sources: SIX Financial Information; WSJ Market Data Group
Portugal PSI 20 5884.26 5.48 0.09 4.1 5.1
Russia RTSI 1526.98 Closed 10.5 10.5

Dow Jones Indexes MSCI indexes

Price-to- Price-to-
Dividend earnings PERFORMANCE (euros) PERFORMANCE (U.S.dollars) Dividend earnings PERFORMANCE (euros) PERFORMANCE (U.S.dollars) Developed and emerging-market regional and country indexes
yield* ratio* Dows Jones Index Last Daily 52-wk. Last Daily 52-wk. yield* ratio* Dows Jones Index Last Daily 52-wk. Last Daily 52-wk. from MSCI Barra as of January 07, 2013
2.48% 17 Global TSM 2723.33 -0.22% 15.1% Turkey Titans 20 -c 746.80 0.57% 67.5% 1000.16 0.74% 63.6% Price-to- LOCAL-CURRENCY
2.43 21 Global Dow 1472.40 -0.55% 9.8% 2048.28 -0.14 12.9 5.97% 14 Global Select Div -d 199.70 -0.16 9.5 223.82 0.26 12.6 Dividend earnings PERFORMANCE
yield ratio Morgan Stanley Index Last Daily YTD 52-wk.
2.41 15 Global Titans 50 203.20 -0.79 9.9 198.75 -0.38 13.0 5.70 14 Asia/Pacific Select Div -d 329.41 0.15 18.0
2.80% 14 ALL COUNTRY (AC) WORLD* 347.68 -0.30% 2.3% 16.1%
2.94 18 Europe TSM 2787.49 0.05 20.0 4.27 14 U.S. Select Dividend -d 420.48 -0.60 8.8
2.80 14 World (Developed Markets) 1,370.11 -0.42 2.4 15.9
2.49 18 Developed Markets TSM 2670.74 -0.26 15.1 1.96 16 Islamic Market 2339.66 -0.38 11.3
2.60 15 World ex-EMU 167.57 -0.49 2.5 15.4
2.49 12 Emerging Markets TSM 4354.97 0.04 14.4 2.06 15 Islamic Market 100 2235.70 -0.83 8.1 2506.21 -0.41 11.1
2.70 15 World ex-UK 1,371.39 -0.47 2.4 16.2
3.03 14 Africa 50 922.40 -0.13 17.6 766.88 0.29 21.0 Islamic Turkey -c 1906.10 0.67 44.0 4382.48 0.83 40.7
3.40 14 EAFE 1,633.07 -0.30 1.8 15.6
3.35 9 BRIC 50 438.20 -0.82 3.1 547.27 -0.41 6.0 2.67 17 Sustainability 978.20 -0.51 11.4 1081.79 -0.10 14.6
2.70 12 Emerging Markets (EM) 1,077.90 0.44 2.2 17.6
3.41 12 GCC 40 595.40 -0.18 4.6 495.02 0.23 7.5 3.09 22 Brookfield Infrastructure 2258.40 -0.71 10.1 2820.39 -0.30 13.3
3.70 13 EUROPE 99.12 0.36 2.9 16.7
2.15 17 U.S. TSM 15213.97 -0.41 14.7 1.29 18 Luxury 1572.30 -0.82 23.3 1746.08 -0.41 26.8
3.90 13 EMU 159.70 0.11 1.6 19.0
Kuwait Titans 30 -c 194.71 0.10 5.7 UAE Select Index
3.70 14 Europe ex-UK 103.84 0.38 2.9 19.1
RusIndex Titans 10 -c 3943.60 -1.88 11.5 6496.76 -1.64 9.1 DJ-UBS Commodity 145.00 -0.29 -6.3 137.91 0.13 -3.6
4.80 10 Europe Value 100.17 0.46 3.3 15.2
*Fundamentals are based on data in U.S. dollar. Footnotes: a-in US dollar. b-dividends reinvested. c-in local currency. Note:All data as of 2 p.m.ET. Source: S&P DowJones Indices 2.60 17 Europe Growth 94.52 0.27 2.5 17.8
2.90 224 Europe Small Cap 205.74 0.31 2.9 27.4
Cross rates U.S.-dollar and euro foreign-exchange rates in global trading 3.70 6 EM Europe 316.48 -0.38 1.9 20.2
3.80 11 UK 1,804.66 0.71 3.3 9.4
USD GBP CHF SEK RUB NOK JPY ILS EUR DKK CDN AUD 3.60 14 Nordic Countries 179.03 0.53 3.6 21.0
Australia 0.9544 1.5344 1.0343 0.1466 0.0314 0.1706 0.0109 0.2526 1.2501 0.1676 0.9679 ... 3.60 5 Russia 772.17 0.05 0.7 5.9
Canada 0.9860 1.5852 1.0685 0.1515 0.0325 0.1763 0.0112 0.2609 1.2915 0.1731 ... 1.0331 3.20 15 South Africa 1,030.05 0.09 1.9 22.9
Denmark 5.6954 9.1567 6.1722 0.8750 0.1876 1.0181 0.0649 1.5073 7.4602 ... 5.7763 5.9677 3.00 13 AC ASIA PACIFIC EX-JAPAN 476.02 0.51 2.1 21.2
Euro 0.7634 1.2274 0.8273 0.1173 0.0251 0.1365 0.0087 0.2020 ... 0.1340 0.7743 0.7999 2.20 24 Japan 548.70 3.47 3.5 23.0
Israel 3.7785 6.0748 4.0948 0.5805 0.1245 0.6754 0.0431 ... 4.9494 0.6634 3.8322 3.9592
2.90 11 China 65.32 -0.20 4.0 23.4
Japan 87.6919 140.9847 95.0327 13.4726 2.8885 15.6758 ... 23.2081 114.8649 15.3970 88.9372 91.8848
1.30 16 India 779.53 0.07 2.0 30.4
Norway 5.5941 8.9938 6.0624 0.8595 0.1843 ... 0.0638 1.4805 7.3275 0.9822 5.6735 5.8615
1.10 10 Korea 583.40 -0.63 0.6 12.3
Russia 30.3589 48.8089 32.9003 4.6642 ... 5.4270 0.3462 8.0346 39.7662 5.3304 30.7901 31.8105
3.50 21 Taiwan 280.50 -0.53 1.4 10.3
Sweden 6.5089 10.4645 7.0538 ... 0.2144 1.1635 0.0742 1.7226 8.5258 1.1428 6.6013 6.8201
Switzerland 0.9228 1.4835 ... 0.1418 0.0304 0.1650 0.0105 0.2442 1.2087 0.1620 0.9359 0.9669
2.20 15 US BROAD MARKET 1,655.33 -0.54 3.0 17.3
U.K. 0.6220 ... 0.6741 0.0956 0.0205 0.1112 0.0071 0.1646 0.8147 0.1092 0.6308 0.6517 1.60 23 US Small Cap 2,437.11 -0.78 3.5 20.4
U.S. ... 1.6077 1.0837 0.1536 0.0329 0.1788 0.0114 0.2647 1.3099 0.1756 1.0142 1.0478 3.20 16 EM LATIN AMERICA 3,923.03 0.26 3.3 8.9
Source: ICAP Plc. *Twenty-three developed and 26 emerging markets Source: MSCI Barra

Taiwan dollar 37.986 0.02633 29.000 0.03448

Commodities Prices of futures contracts with the most open interest Currencies London close on Jan. 7
Thailand baht 39.914 0.02505 30.472 0.03282
EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.MDEX: Bursa Malaysia Per In Per In
Derivatives Berhad; LIFFE: London International Financial Futures Exchange; COMEX: Commodity Exchange; LME: London Metals Exchange; AMERICAS Per euro In euros U.S. dollar U.S. dollars EUROPE Per euro In euros U.S. dollar U.S. dollars
NYMEX: New York Mercantile Exchange;ICE-EU: ICE Futures Europe
Year Year Argentina peso-a 6.4586 0.1548 4.9307 0.2028 Euro zone euro 1 1 0.7634 1.3099
ONE-DAY CHANGE
Commodity Exchange Last price Net Percentage high low Brazil real 2.6547 0.3767 2.0267 0.4934 1-mo. forward 0.9997 1.0003 0.7632 1.3102
Corn (cents/bu.) CBOT 685.75 5.50 0.81% 707.25 678.00 Canada dollar 1.2915 0.7743 0.9860 1.0142 3-mos. forward 0.9992 1.0008 0.7628 1.3109
Soybeans (cents/bu.) CBOT 1388.25 21.00 1.54 1,435.00 1,356.00 Chile peso 617.20 0.001620 471.20 0.002122 6-mos. forward 0.9984 1.0016 0.7622 1.3119
Wheat (cents/bu.) CBOT 750.25 3.00 0.40 788.00 739.75 Colombia peso 2319.12 0.0004312 1770.50 0.0005648 Czech Rep. koruna-b 25.552 0.0391 19.507 0.0513
Live cattle (cents/lb.) CME 132.950 unch. unch. 134.325 131.950 Ecuador US dollar-f 1.3099 0.7634 1 1 Denmark krone 7.4602 0.1340 5.6954 0.1756
Cocoa ($/ton) ICE-US 2,267 47 2.12 2,280 2,210 Mexico peso-a 16.7298 0.0598 12.7721 0.0783 Hungary forint 291.51 0.003430 222.55 0.004493
Coffee (cents/lb.) ICE-US 149.00 1.65 1.12 151.95 142.60 Peru sol 3.3340 0.2999 2.5453 0.3929 Norway krone 7.3275 0.1365 5.5941 0.1788
Sugar (cents/lb.) ICE-US 18.90 0.05 0.27 19.75 18.67 Uruguay peso-e 25.343 0.0395 19.348 0.0517 Poland zloty 4.1248 0.2424 3.1490 0.3176
Cotton (cents/lb.) ICE-US 75.70 0.65 0.87 75.87 73.72 U.S. dollar 1.3099 0.7634 1 1 Russia ruble-d 39.766 0.02515 30.359 0.03294
Rapeseed (euro/ton) LIFFE 452.25 5.00 1.12 466 444
Venezuela bolivar 5.70 0.175502 4.35 0.229885 Sweden krona 8.5258 0.1173 6.5089 0.1536
Cocoa (pounds/ton) LIFFE 1,441 19 1.34 1,446 1,416
ASIA-PACIFIC Switzerland franc 1.2087 0.8273 0.9228 1.0837
Robusta coffee ($/ton) LIFFE 1,962 14 0.72 1,974 1,908
Australia dollar 1.2501 0.7999 0.9544 1.0478 1-mo. forward 1.2081 0.8277 0.9223 1.0842
Copper ($/lb.) COMEX 3.6860 -0.0075 -0.20% 3.76 3.64 1-mo. forward 1.2532 0.7979 0.9568 1.0452 3-mos. forward 1.2071 0.8285 0.9215 1.0852
Gold ($/troy oz.) COMEX 1648.40 -0.50 -0.03 1,695.40 1,626.00
3-mos. forward 1.2585 0.7946 0.9608 1.0408 6-mos. forward 1.2052 0.8297 0.9201 1.0869
Silver ($/troy oz.) COMEX 30.160 0.214 0.71 31.54 29.24
6-mos. forward 1.2669 0.7894 0.9672 1.0340 Turkey lira 2.3329 0.4287 1.7810 0.5615
Aluminum ($/ton) LME 2,041.00 -48.00 -2.30 2,145.50 2,041.00
China yuan 8.1615 0.1225 6.2308 0.1605 U.K. pound 0.8147 1.2274 0.6220 1.6077
Tin ($/ton) LME 23,775.00 -175.00 -0.73 24,345.00 23,775.00
Hong Kong dollar 10.1525 0.0985 7.7508 0.1290 1-mo. forward 0.8148 1.2272 0.6221 1.6075
Copper ($/ton) LME 8,032.50 -27.50 -0.34 8,166.00 8,032.50
India rupee 72.2523 0.0138 55.1600 0.0181 3-mos. forward 0.8150 1.2270 0.6222 1.6072
Lead ($/ton) LME 2,295.50 -59.50 -2.53 2,419.50 2,295.50
Indonesia rupiah 12830 0.0000779 9795 0.0001021 6-mos. forward 0.8153 1.2265 0.6225 1.6065
Zinc ($/ton) LME 2,018.50 -35.50 -1.73 2,127.00 2,018.50
Nickel ($/ton) LME 17,290 -115 17,595 17,290 Japan yen 114.86 0.008706 87.69 0.011404 MIDDLE EAST/AFRICA
-0.66
1-mo. forward 114.84 0.008708 87.67 0.011406 Bahrain dinar 0.4938 2.0252 0.3770 2.6528
Crude oil ($/bbl.) NYMEX 93.26 0.17 0.18 93.87 91.52
3-mos. forward 114.79 0.008712 87.63 0.011411 Egypt pound-a 8.4508 0.1183 6.4517 0.1550
Heating oil ($/gal.) NYMEX 3.0381 0.0204 0.68 3.0702 2.9809
RBOB gasoline ($/gal.) NYMEX 2.7860 0.0217 0.79 2.8150 2.7433 6-mos. forward 114.70 0.008718 87.57 0.011420 Israel shekel 4.9494 0.2020 3.7785 0.2647
Natural gas ($/mmBtu) NYMEX 3.296 -0.007 -0.21 3.3710 3.0630 Malaysia ringgit-c 3.9858 0.2509 3.0429 0.3286 Jordan dinar 0.9290 1.0764 0.7093 1.4099
Brent crude ($/bbl.) ICE-EU 110.60 0.50 0.45 111.60 109.14 New Zealand dollar 1.5688 0.6374 1.1977 0.8350 Kuwait dinar 0.3694 2.7067 0.2821 3.5455
Gas oil ($/ton) ICE-EU 940.75 10.00 1.07 949.00 922.25 Pakistan rupee 127.706 0.0078 97.495 0.0103 Lebanon pound 1977.18 0.0005058 1509.45 0.0006625
Philippines peso 53.442 0.0187 40.800 0.0245 Saudi Arabia riyal 4.9131 0.2035 3.7508 0.2666
Sources: SIX Financial Information; WSJ Market Data Group
Singapore dollar 1.6119 0.6204 1.2306 0.8126 South Africa rand 11.2331 0.0890 8.5757 0.1166
South Korea won 1392.06 0.0007184 1062.75 0.0009410 United Arab dirham 4.8112 0.2079 3.6730 0.2723
WSJ.com Follow the markets throughout the day with updated stock quotes, news and
>>
commentary at WSJ.com. Also, receive email alerts that summarize the day’s trading in Europe a-floating rate b-financial c-government rate c-commercial rate d-Russian Central Bank rate.
and Asia. To sign up, go to WSJ.com/email. Source: ICAP Plc.
28 | Tuesday, January 8, 2013 THE WALL STREET JOURNAL.

BLUE CHIPS & BONDS

Below, a look at the Dow Jones Stoxx Dow Jones Industrial Average P/E: 14
Major players & benchmarks 50, the biggest and best known
companies in Europe, including the U.K. LAST: 13384.29
YEAR TO DATE:
t 50.92, or 0.38%
s 280.15, or 2.1%
Stoxx Europe 50: Monday's best and worst... OVER 52 WEEKS s 991.60, or 8.0%

Previous
close, in STOCK PERFORMANCE
Company Country Industry Volume local currency Previous session YTD 52-week
14000
Barclays United Kingdom Banks 61,112,005 287.20 3.79% 9.5% 52.4%
Deutsche Bank Germany Banks 8,329,367 35.78 2.83 8.6 35.7 50–day
ING Groep Netherlands Life Insurance 22,676,438 7.59 2.64 7.4 38.2 moving average 13500
t
UBS Switzerland Banks 12,355,593 15.00 1.90 5.1 35.3
BNP Paribas France Banks 4,134,946 45.21 1.86 6.2 62.1
13000

National Grid United Kingdom Multiutilities 7,424,640 694.00 -2.39% -1.3 13.9
High
GDF Suez France Multiutilities 4,196,201 15.69 -1.91 0.7 -23.6 12500
H&M Hennes & Mauritz B Sweden Apparel Retailers 3,619,276 223.10 -1.72 -0.6 2.7 Close
E.ON SE Germany Multiutilities 10,573,926 14.26 -1.69 1.2 -15.0 Low
12000
Total France Integrated Oil & Gas 4,191,402 39.16 -1.67 0.4 -2.0

...And the rest of Europe's blue chips 11500

12 19 26 2 9 16 23 30 7 14 21 28 4
Latest, Latest, Nov. Dec. Jan.
in local STOCK PERFORMANCE in local STOCK PERFORMANCE
Company/Country (Industry) Volume currency Latest YTD 52-week Company/Country (Industry) Volume currency Latest YTD 52-week Note: Price-to-earnings ratios are for trailing 12 months
Banco Bilbao Vizcaya Argn 29,493,912 7.41 1.20% 6.4% 20.1% BG Grp 7,283,170 1,032 -0.58% 1.9% -29.2%
Spain (Banks) United Kingdom (Integrated Oil & Gas) DJIA component stocks
Daimler 5,169,510 43.06 1.01 4.2 17.2 BHP Billiton 4,815,189 2,169 -0.62 1.9 11.3
Germany (Automobiles) United Kingdom (General Mining) Volume, CHANGE
Stock Symbol in millions Latest Points Percentage
British American Tobacco 2,495,692 3,194 0.61 2.3 5.1 Royal Dutch Shell A 2,035,467 2,141 -0.63 0.9 -10.2
United Kingdom (Tobacco) United Kingdom (Integrated Oil & Gas) AT&T T 23.8 $35.42 0.19 0.54%
Imperial Tobacco Grp 1,539,294 2,454 0.45 3.4 1.8 Diageo 2,650,193 1,813 -0.63 1.5 28.2 Alcoa AA 18.7 9.12 –0.14 –1.57
United Kingdom (Tobacco) United Kingdom (Distillers & Vintners) AmExpress AXP 3.3 59.93 0.32 0.54
Telefon L.M. Ericsson B 7,094,951 68.20 0.22 4.8 0.3 Standard Chartered 3,030,803 1,623 -0.67 3.1 14.2 BankAm BAC 183.2 12.10 –0.01 –0.08
Sweden (Telecommunications Equipment) United Kingdom (Banks)
Boeing BA 6.3 76.23 –1.46 –1.88
Tesco 13,419,709 349.30 -0.04 4.0 -10.6 GlaxoSmithKline 4,979,829 1,372 -0.69 2.8 -8.4
United Kingdom (Food Retailers & Wholesalers) United Kingdom (Pharmaceuticals) Caterpillar CAT 4.8 95.35 0.43 0.45
Anglo American PLC 2,183,854 2,001 -0.07 5.6 -19.0 Unilever 1,460,749 2,398 -0.70 1.4 13.0 Chevron CVX 3.9 109.68 –0.82 –0.74
United Kingdom (General Mining) United Kingdom (Food Products) CiscoSys CSCO 25.4 20.29 –0.19 –0.94
Banco Santander S.A. 45,417,627 6.32 -0.13 3.6 18.3 L'Air Liquide 441,337 94.66 -0.83 -0.4 -0.1 CocaCola KO 12.6 37.29 –0.37 –0.98
Spain (Banks) France (Commodity Chemicals)
Disney DIS 8.2 51.03 –1.16 –2.22
HSBC Hldgs 14,748,401 666.20 -0.21 3.0 33.7 SAP 2,368,026 60.95 -0.85 0.4 42.9
United Kingdom (Banks) Germany (Software) DuPont DD 3.5 45.81 0.08 0.18
Vodafone Group 77,831,659 159.65 -0.25 3.4 -11.1 Reckitt Benckiser Grp 625,113 3,923 -0.88 1.1 19.9 ExxonMobil XOM 8.6 87.82 –1.14 –1.28
United Kingdom (Mobile Telecommunications) United Kingdom (Nondurable Household Products) GenElec GE 26.9 21.09 –0.11 –0.53
Telefonica S.A. 14,756,992 10.45 -0.29 2.6 -19.9 Unilever CVA 2,672,160 29.12 -0.94 1.0 10.0 HewlettPk HPQ 16.6 15.20 0.06 0.40
Spain (Fixed Line Telecommunications) Netherlands (Food Products)
HomeDpt HD 4.7 62.82 –0.36 –0.57
Novartis AG 3,272,772 59.20 -0.34 3.0 8.2 Anheuser-Busch InBev 1,246,207 66.93 -1.02 1.8 40.9
Switzerland (Pharmaceuticals) Belgium (Brewers) Intel INTC 28.1 21.25 0.09 0.45
Siemens 1,498,861 83.62 -0.37 1.7 10.4 Deutsche Telekom 9,960,157 8.78 -1.04 2.2 -0.2 IBM IBM 2.2 193.38 –0.61 –0.31
Germany (Diversified Industrials) Germany (Mobile Telecommunications) JPMorgChas JPM 19.2 45.41 0.05 0.11
Sanofi SA 2,055,484 73.38 -0.39 2.8 31.5 BP PLC 18,736,810 448.75 -1.05 5.6 -5.9 JohnsJohns JNJ 6.5 71.36 –0.19 –0.26
France (Pharmaceuticals) United Kingdom (Integrated Oil & Gas) McDonalds MCD 4.6 90.92 1.07 1.19
Nestle 3,913,304 60.75 -0.41 1.9 12.5 Rio Tinto 3,432,815 3,575 -1.07 1.8 7.9 Merck MRK 9.8 42.04 0.07 0.17
Switzerland (Food Products) United Kingdom (General Mining)
Allianz SE 1,248,811 107.70 -0.46 2.8 48.4 BASF 1,921,566 71.64 -1.15 0.7 28.7 Microsoft MSFT 31.3 26.70 –0.04 –0.13
Germany (Full Line Insurance) Germany (Commodity Chemicals) Pfizer PFE 22.8 26.00 0.04 0.17
AstraZeneca 1,206,910 2,985 -0.50 2.6 -1.9 Moet Hennessy Louis Vuitt 510,513 140.15 -1.20 1.0 27.4 ProctGamb PG 4.1 68.58 –0.51 –0.74
United Kingdom (Pharmaceuticals) France (Clothing & Accessories) 3M MMM 2.3 95.52 0.15 0.16
Zurich Insurance Group 330,569 247.60 -0.52 1.7 15.9 ENI 9,584,290 18.75 -1.37 2.2 15.4 TravelersCos TRV 1.7 73.06 –1.00 –1.35
Switzerland (Full Line Insurance) Italy (Integrated Oil & Gas)
UnitedTech UTX 2.8 84.68 –0.30 –0.35
Roche Holding Part. Cert. 1,027,325 189.20 -0.53 2.8 15.2 Financiere Richemont 1,264,787 73.85 -1.53 3.4 49.4
Switzerland (Pharmaceuticals) Switzerland (Clothing & Accessories) UtdHlthGp UNH 6.8 52.10 0.01 0.02
ABB 4,356,567 19.32 -0.57 3.0 5.0 Bayer 1,822,959 71.62 -1.62 -0.4 39.7 Verizon VZ 18.0 44.53 0.23 0.52
Switzerland (Industrial Machinery) Germany (Specialty Chemicals) WalMart WMT 5.4 68.44 –0.62 –0.89
Sources: SIX Financial Information Source: WSJ Market Data Group

Credit derivatives
Tracking Spreads on credit derivatives are one way the market rates
creditworthiness. Regions that are treading in rough waters
Credit-default swaps: European companies
At its most basic, the pricing of credit-default swaps measures how much a buyer has to pay to purchase-and

credit can see spreads swing toward the maximum—and vice versa.
Indexes below are for five-year swaps.
how much a seller demands to sell-protection from default on an issuer's debt. The snapshot below gives a
sense which way the market was moving yesterday.

markets & Markit iTraxx Indexes

Index: series/version
Europe: 18/1
Mid-spread,
in pct. pts.
1.05
Mid-price
99.79%
Coupon
0.01%
SPREAD RANGE, in pct. pts.
since most recent roll
Maximum Minimum
1.41 1.03
Average
1.24
Showing the biggest improvement...
CHANGE, in basis points
Yesterday Yesterday Five-day 28-day
And the most deterioration
CHANGE, in basis points
Yesterday Yesterday Five-day 28-day

dealmakers Eur. High Volatility: 18/1

Europe Crossover: 18/1
Asia ex-Japan IG: 18/1
1.56
4.31
1.02
97.38
102.88
99.92
0.01
0.05
0.01
2.11
5.81
1.43
1.55
4.19
1.02
1.89
5.09
1.20
La C de Aho y Pensiones de
Barcelona
Eileme 2 AB publ
241
581
–19
–19
–23
–65
–37
–68
ALPHA Bk
AB Volvo
THOMSON REUTERS
1422
150
111
6
–94
–4
–30
–20

BANKIA 781 –25 –49 –167 GROUP 38 1 ... –1

Japan: 18/1 1.49 97.71 0.01 2.27 1.49 1.92
Nationwide Bldg Soc 140 –3 –7 –3 Valeo 150 5 –6 –10
Note: Data as of January 4
ACE 47 –1 –7 –11 Renault 276 8 –5 –58
In percentage points
Spreads Natixis 162 –4 –9 –15 HSBC Hldgs 75 2 –7 –16
Index roll 3.00 Hellenic Telecom –17 Endesa 2
Spreads on five- 816 –70 –197 75 –3 1
year swaps for HANSON 145 –3 –8 –5 Contl 184 5 –10 1
2.25 Clariant 194 –4 –19 –33 Bco SANTANDER 245 6 –22 –32
corporate debt; t Australia
based on Markit 1.50 Commerzbank 129 –2 –22 –38 Volkswagen 87 2 –5 –5
iTraxx indexes. t Source: Markit Group
0.75
Asia ex-Japan IG
0
July Aug. Sept. Oct. Nov. Dec. Jan
Behind Europe's deals: Bank revenue rankings, France
2012 2013 Behind every IPO, bond offering, merger deal or syndicated loan is one or more investment banks. Here are
Source: Markit Group investment banks ranked by year-to-date revenues from recent deals.
PERCENTAGE OF TOTAL REVENUE
Revenue, Equity Debt Mergers &
in millions share capital markets capital markets acquisitions Loans
BNP Paribas $204 11.4% 10% 43% 31% 15%
SG Corporate Investment Banking 158 8.9 14 43 26 16
Credit Agricole CIB 146 8.1 4 53 20 23
Natixis 108 6.0 2 76 3 19
HSBC 92 5.2 9 56 20 16
WSJ.com>> JPMorgan 84 4.7 ... 43 50 6
Follow the markets throughout the day, with updated
Deutsche Bank 71 4.0 3 37 53 7
stock quotes, news and commentary at WSJ.com.
Lazard 65 3.6 ... ... 100 ...
Morgan Stanley 62 3.5 16 30 54 1
Also, receive emails that summarize the day’s trading in
Europe and Asia. To sign up, go to WSJ.com/Email. Source: Dealogic
THE WALL STREET JOURNAL. Tuesday, January 8, 2013 | 29

PERSONAL JOURNAL

How to Profit From Online Studies

Free Classes Seek to Generate Revenue From Content Licensing, Exams or Job-Referral Services
BY MELISSA KORN courses, which they’ll complement
AND JENNIFER LEVITZ with in-person discussion groups
and supplemental assignments. An-
Professor Jeremy Adelman has tioch University, which enrolls about
taught a world-history class at 5,000 students over five U.S. cam-
Princeton University for several puses, announced in October that it
years, but as he led about 60 stu- would allow students to take some
dents through 700 years of history Coursera classes for credit.
on the ivy-covered campus this past Neither side disclosed the terms
fall, one thing was different: An ad- of the deal, though Mr. Ng says
ditional 89,000 students tuned into Coursera received a “modest” fee
his lectures free of charge via and is in similar talks with other
Coursera, an online platform. schools.
Those kinds of numbers, and Several school administrators
their potential for remaking higher admit they’re teaming up with
education, have gen- course providers mainly because
EDUCATION erated plenty of ex- they fear missing out on something
citement about mas- big. So far none of the elite schools
sive open online courses—dubbed that provide content for companies
MOOCs. They’ve also lured venture like Coursera and edX offer credit
investors and universities, who have for those classes, though attitudes
put millions of dollars into compa- may be shifting.
nies such as Udacity, Coursera and The American Council on Educa-
Annie Tritt for The Wall Street Journal

edX, which partner with schools or tion, an influential association of

instructors to offer these courses. university presidents, is considering
The most popular of these for-credit status for some Coursera
classes enroll hundreds of thou- courses. And some schools are de-
sands of students globally, and signing their own for-credit offer-
while they’re taught by star instruc- ings, creating potential competition
tors from top universities, they gen- for Coursera and its peers. In No-
erally don’t carry credit that can be vember 10 colleges, including Duke
applied to a college degree. University, joined forces with an-
While backers say the short, di- Udacity employees worked on programing the site at the company’s Palo Alto, Calif., office in April. other company to launch a series of
gestible lessons are nothing short of credit-bearing courses for students
revolutionary, MOOC providers are in funding from Kleiner Perkins Cau- bating whether to proceed as a non- nies use its platform to offer their at those schools.
still figuring out how to generate field & Byers and others, recently profit or for-profit venture. own training courses. Venture funders are optimistic
revenue while keeping basic course began notifying students that they “The business model was fairly With thousands of students in the math will work out eventually.
access free. can opt in to a job-placement ser- unclear, but there were some plausi- any one class, the varied quality of Andreessen Horowitz partner Peter
Sebastian Thrun, a Stanford Uni- vice, where recruiters can access de- ble ideas about how Coursera could student work is a barrier to wide- Levine, a Udacity board member, ac-
versity professor and co-founder of tails of their class performance. But turn into a sizable company,” Mr. spread acceptance of MOOCs. But knowledges that revenue plans are
Udacity, which launched in 2012 with the company matched only a hand- Sandell says. proctored exams, which could help hazy right now, but says he expects
a $21.5 million bankroll from such ful of students in its monthslong pi- About 350 companies have ensure academic rigor, may also of- “some real direction” on business
prominent backers as Andreessen lot and is still determining the fee signed up to access Udacity’s job fer a revenue opportunity. plans within the year.
Horowitz, says his fledgling industry structure. portal in recent months, though it Udacity and edX have both At least some providers of
is in “a state of experimentation.” While he declines to provide dol- has placed just about 20 students so joined with Pearson PLC’s Pearson MOOCs may decide that nonprofit
Udacity and others are trying out lar figures, co-founder Andrew Ng far. Recruiters pay for successful VUE to offer fee-based proctored ex- status is the way to go, taking cues
different business models, such as acknowledges “it’s still a business matches, and Mr. Thrun says Udac- ams at the company’s 450 test cen- from Carnegie Mellon University’s
matching students with employers, model that we’re fleshing out.” ity charges “significantly” less than ters world-wide. Udacity charges decade-old Open Learning Initia-
licensing content to schools and MOOCs are “an innovation look- Silicon Valley headhunters, whose $89, while edX’s president, Anant tive, which has nearly 45,000 stu-
charging for proctored exams, yet ing for a business model,” says cut he says can be two to three Agarwal, expects his to be under dents enrolled across its free and
it’s unclear what might stick—or, Kevin Kinser, an associate professor months of a candidate’s starting sal- $100 when the first exam is an- fee-based classes. While it relies
more important, can actually earn of higher education policy at the ary. nounced soon. Coursera is consider- mainly on grant funding and offers
money. State University of New York at Al- Udacity earns additional money ing similar plans. classes free to independent learn-
“Nobody has any idea how it’s bany. Online courses may be valu- from courses created by talent-hun- With completion rates for most ers, it has begun charging $15 to
going to work,” says Dave Cormier, able supplements to regular classes, gry technology companies including MOOCs usually falling below 10%, $25 per student for the academic
manager of Web communications but Mr. Kinser, whose research fo- Google Inc. and Autodesk Inc. Mr. the earning potential is limited. If versions of some courses—used at
and innovation at the University of cuses on nontraditional higher edu- Thrun says that with money from 10,000 people take a course, and schools such as University of Cali-
Prince Edward Island, who was in- cation models, says it’s hard to see job referrals and sponsored classes, 1,000 finish, early trials suggest just fornia, Berkeley—to ensure the ini-
volved in earlier iterations of how they can be more than altruis- “we will be able to survive quite a fraction of those students are tiative could sustain itself.
MOOCs a few years ago and has tic endeavors. well,” though the company, like likely to pay for verified exams. At Candace Thille, the project’s di-
been credited with coining the term Venture investors seem un- other course providers, declines to $89 a head, a successful course rector, says the new course provid-
in 2008. “People have ideas of how daunted. New Enterprise Associates provide financial projections. might net just a few thousand dol- ers have a lot to learn, especially
to monetize it, but simply don’t Inc. put $8 million into Coursera EdX, a nonprofit founded with lars in proctor fees. because they’ll have to answer to in-
have any evidence.” just weeks after NEA general part- $30 million each from Harvard Uni- Content licensing is showing vestors. “You can’t just cross your
Coursera, another firm with ner Scott Sandell learned that the versity and Massachusetts Institute some promise, with schools signing fingers and hope money flows in at
Stanford founders and $22 million company’s founders were still de- of Technology, is also letting compa- on to use MOOCs for large survey some point.”

Educators Debate Whether Online Courses Can Replace Traditional Classes

As millions flirt with free college- some users say their online class- lessons that interest them, and never ized classes. “If you go down that One experiment under way at San
level courses online, educators are mates lack the knowledge to contrib- have the intention of working all the path, it will be in complete defiance of Jose State University could help
still debating their academic merits. ute meaningfully to conversations. Us- way through the multiweek courses. everything we know about helping vul- prove MOOCs’ value in augmenting
Elite schools allow their profes- ing a peer-review model to grade However, they say they are trying to nerable students persist and succeed classroom lessons, said Ping Hsu, in-
sors to offer courses on Coursera, essays, as Coursera has done, exposes improve retention rates. in college,” she said. terim dean at the university’s College
Udacity and edX, but so far, most similar issues. That’s important not just for their In November, edX announced a of Engineering.
aren’t willing to award students And only a fraction of students— reputations but also for their proposed partnership with the Gates Foundation This fall, students in its Circuits
credit for those classes, which sug- under 10% in most classes—makes it revenue plans, as many are banking on linking students at Massachusetts- course—which 40% of students usu-
gests that they’re not fully endorsing all the way through those massive on- selling certificates of completion or based Bunker Hill and MassBay com- ally have to retake—were assigned
the pedagogy quite yet. line courses. earning money by matching successful munity colleges with courses taught lectures from edX’s course on the
While the most sophisticated That’s proof, some say, that MOOCs students with employers. by faculty from nearby Harvard Uni- same topic, taught by an MIT profes-
MOOCs—massive open online aren’t acceptable replacements for tra- Ms. Schneider—who took a Prince- versity and Massachusetts Institute of sor.
courses—go beyond a video lecture, ditional classes. ton University world history class Technology. In-person meetings were spent
some academics still question the “There’s a huge disconnect between through Coursera—said the most likely Students at those community col- doing lab projects, a switch that edu-
quality of additional content such as the massive enthusiasm…and evidence path for MOOCs is probably to estab- leges will be able to earn credit by en- cators call “flipping the classroom.”
quizzes and group discussions. of serious students who actually com- lish them as general education classes rolling in certain classes that are On the first big test, the 84 San
MOOC homework assignments plete these courses,” said Carol Geary at community colleges and other taught via MOOCs, and supplemented Jose State students beat last year’s
are often different from those re- Schneider, president of the Association broad-access universities. But that is with classroom instruction. average score. The class averaged a
quired in their classroom counter- of American Colleges and Universities. also the most dangerous, in her opin- Administrators at some big schools correct-answer rate of 70% on a mid-
parts. For example, exams may re- For their part, MOOC providers say ion because that would target a popu- are warming to MOOCs as a way to term this fall well above the typical
quire less analytical thinking—and that many students pick and choose lation best helped by small, personal- complement traditional instruction. 50% score from years past.
30 | Tuesday, January 8, 2013
Swans Are Soccer’s Rare Birds
BY JOSHUA ROBINSON
SWANSEA, Wales—The Swansea
City players were strangely subdued
as they left London after a recent
game, almost downcast. They criti-
cized themselves for their passing
and they grumbled about their ugly
performance. The conditions that af-
ternoon, torrential rain and swirling
winds, hadn’t helped their style or
their mood, either.
It was as if they’d forgotten the
most important part—that they’d ac-
tually won the game.
“We showed a different side of
Swansea,” midfielder Jonathan De
Guzman said after the 2-1 victory
over Fulham. “We didn’t play good
football today.”
It may seem odd, even presump-
tuous, for a small team that only ar-
rived in the Premier League in 2011
to beat itself up for winning ugly.
But Swansea’s passing style has
been its defining quality in becom-
ing one of England’s most improved
clubs of the past decade—and it has
no intention of changing that.
Not so long ago, in 2002-2003,
the Swans finished one point clear
of relegation from the fourth tier of
English soccer and into the semipro-
fessional ranks outside the Football
League. Only a victory on the final
day of the season kept them up.
Since then, the club has earned
three promotions and improved its
league position from one year to the
next in all but one season.
More remarkable is that four dif-
ferent managers have guided the
club up the ladder, all maintaining
the club’s identity.
Swansea’s style revolution began
with Roberto Martinez, now seen as
one of the brighter young managers
in the game. But at the time, he was
just a journeyman player in his first
managerial job—Martinez was 33
years old and closing a career that
saw him at seven clubs, including
Swansea, in 14 years.
“He’s the one who started think-
ing, ‘Now we need to develop a style
and a culture about us,’” said first-
team coach Alan Curtis, who played
in the Swansea team that shot from
the bottom division to the top flight
in the 1970s and 1980s. “Dare I say
Zuma Press
it: It’s a style reminiscent of what
the club was famous for even in the
1950s.”
The first thing Martinez changed
was the team’s training sessions. De-
fender Garry Monk remembered that
at other clubs, he would touch the
ball 100 to 200 times per practice.
Suddenly at Swansea, where Mar-
tinez wanted everyone to be com-
fortable with the ball at their feet
even by professional soccer stan-
dards, Monk was touching the ball
upwards of 500 times.
“It’s almost as if we stripped it
all bare to get back even to youth
academy football,” Curtis said.
“Players were back to having lots
and lots of touches of the ball, loads
of passing exercises, small-sided
games, smaller areas, and shorter,
sharper sessions. Everything was to
develop touch and technique.”
Martinez wanted Swansea to play
a more patient game, one that broke
with the hard-charging, direct tradi-
tion of clubs playing below the Pre-
mier League. This philosophy has
been at the heart of Swansea’s every
decision since then. Martinez left in
2006 and was succeeded by Paulo
Sousa, who had grown up as a mem-
ber of Portugal’s “golden genera-
tion,” then Brendan Rodgers—two
men who believe deeply in patient
buildup and possession soccer. When
Rodgers left for Liverpool last sum-
Celebration for Michu, left, and Danny Graham, whose FA Cup goals gave Swansea a 2-2 draw against Arsenal on Sunday.
mer, the club turned to another tac-
tically savvy manager, who also hap-
pened to be one of the finest
technical players of the 1980s and
1990s, Michael Laudrup.
“Who doesn’t want to play foot-
ball?” Monk said, with the kind of
emphasis on “football” that implies
prettiness. “None of the players here
want to come and get the ball and
just smash it up the field. I don’t
think anyone wants to see that.”
And Swansea has perfected the
art of style on a budget. Until two
summers ago, the club had never
spent more than $4 million on sum-
mer signings.
That changed with the leap to
the Premier League, but it didn’t
mean Swansea left the bargain busi-
ness.
The almost $30 million it spent
on new players this year was more
than made back with the sales of
Scott Sinclair to Manchester City
and Joe Allen to Liverpool for a total
exceeding $35 million.
Those two losses, which were
supposed to rob Swansea of its best
creative options, were replaced with
revelations like De Guzman (signed
on loan) and the slightly pricier
SPORT
Pablo Hernandez ($9.9 million). De-
fender Chico Flores, the club’s most
reliable defensive player, cost just
under $3.6 million.
Then there is Michu, the Premier
League discovery of the season.
Signed for just $3.6 million from
Rayo Vallecano in Spain, his 13 goals
put him in expensive company
among the top scorers in the league.
“They’re not your big, strapping,
6-foot-5 machines that head the ball
and run all day,” Monk said.
“They’re technically gifted players.”
Budget considerations aside, the
club understands it wouldn’t be able
to attract the biggest names anyway,
not to an old copper city on the
south coast of Wales. Curtis joked
that the best method for securing
players was to have them sign a con-
tract before they ever saw Swansea
or its training facility: a local health
club where space is shared with the
members. The coaches routinely
congregate in the café. Not long ago,
they held a team meeting in a
squash court. “Which was OK,” Cur-
tis said, “until they started playing
in the court next to us.”
Noisy squash players won’t be a
problem once the club moves into its
own facility later this year. But the
many small concessions that come
with playing here have been a sort
of selection mechanism for Swansea:
Those who thrive have bought into
the whole project. The players all
live locally, interacting with the fans
everywhere they go.
When Flores missed last month’s
Fulham game because of injury, he
sat in the away stands with the sup-
porters.
Of course, the biggest reason
players buy into it is that it works.
Last season, Swansea did more than
stay up in its first season in the Pre-
mier League, it finished 11th. And
this year, it has managed draws
against Manchester United and Chel-
sea, and banner victories over Arse-
nal and Liverpool to sit in ninth
place. Most recently, the Swans
came back from 2-1 down here to a
force a replay against Arsenal in the
third round of the FA Cup.
“We may go into a period where
we lose three consecutive games,”
Laudrup said, “but what we have al-
ready achieved now, this season, no-
body can take away from us.
“Not only in points, in experience
as well.”
THE WALL STREET JOURNAL.
HEARD ON
THE PITCH
Messi’s Fourth Ballon d’Or
Surprises No One
Lionel Messi won the Ballon
HEARD ON
d’Or for an unprecedented fourth
year in a row Monday evening,
THE FIELD
beating out his Barcelona team-
mate Andres Iniesta and Real
Madrid’s Cristiano Ronaldo. Messi
collected 41.6% of the vote from a
global electorate of players, man-
agers, and journalists. Ronaldo was
second and Iniesta, a European
champion with Spain, was third.
The trio was also in FIFA’s team
of the year, which consisted exclu-
sively of players from the Spanish
league.
Though Messi’s club missed out
on the Champions League and La
Liga titles in 2012, Messi racked up
records left and right. Most nota-
bly, his 91 goals set a mark for
goals in a calendar year, surpassing
Gerd Muller’s 40-year-old record of
85.
The women’s side came closer
to producing a surprise as U.S.
striker Abby Wambach, an Olympic
champion in London, took the prize
ahead of her teammate Alex Mor-
gan and the Brazilian forward,
Marta, a five-time winner. Wam-
bach was a runner-up last year.
Voters also recognized the
Olympic achievement of the U.S. in
the coach-of-the-year voting, with
Pia Sundhage taking the women’s
award. She stepped down from the
U.S. role after the games and is
now managing the women’s na-
tional team of her native Sweden.
In the other major awards, Vi-
cente del Bosque was named
men’s coach of the year for leading
Spain to its second straight Euro
title and Miroslav Stoch’s stunning
volley for Fenerbahce won the Pus-
kas award for goal of 2012.
—Joshua Robinson
2020 Hopefuls Deliver
Olympics Bids to IOC
The three finalists to host the
2020 Olympics—Tokyo, Madrid, and
Istanbul—formally delivered their
bid files to the International Olym-
pic Committee on Monday, detail-
ing their full plans for the games.
The IOC will select the winning city
when it meets in Rio de Janeiro in
September.
Of those candidates, only Tokyo
has hosted the games before, in
1964, but all three have submitted
bids in the past.
Doha, Qatar and Baku, Azerbai-
jan, meanwhile, were cut from the
2020 shortlist.
Based on a technical report re-
leased by the IOC last year, Tokyo
is currently considered the favorite
with eight months to go.
—J.R.
Agence France-Presse/Getty Images
Istanbul Mayor Kadir Topbas
THE WALL STREET JOURNAL. Tuesday, January 8, 2013 | 31

HEARD ON THE STREET

Email: heard@wsj.com FINANCIAL ANALYSIS & COMMENTARY WSJ.com/Heard

Sensible U-Turn on Basel

Some will see the Basel eligible liquid assets could
OVERHEARD
Sometimes it pays to be
passive-aggressive, at least
Latvia
Offers Path
Committee’s capitulation over
bank-liquidity rules as a vic-
tory for the banking lobby. In
Fear Flees
Index performance
lead to the reopening of this
vital funding channel, largely
closed since the onset of the
in financial markets.
Nearly two-thirds of U.S.
stock-fund managers lagged
For Euro
fact, it is a victory for com-
mon sense.
The main criticism of the
30%

Basel III agenda has always
been that it is excessively pro-
cyclical: Faced with tough new
capital and liquidity require-
ments, banks would respond
by deleveraging, restricting
lending and pushing up bor-
rowing costs, thereby under-
mining the prospects for an
economic recovery. Policy
makers for several years dis-
missed these arguments, not
least because models based on
mainstream economic theo-
ries suggested fears over bank
deleveraging were overblown.
But the decision Sunday by
the Basel Committee’s Group
of Governors and Heads of Su-
pervision is an important ac-
knowledgment that their orig-
inal analysis was wrong.
Under the new rules, banks
will be given an extra four
years, until 2019, to fully meet
requirements of the Liquidity
Coverage Ratio. This requires
banks to hold sufficient high-
quality liquid assets to meet
30 days of likely cash with-
drawals in a stress situation.
More important, the defi-
nition of high-quality liquid
15
0 banks, reducing what has been
–15
–30
–45
–60
2012
Sources: FactSet; Markit
assets is being significantly
widened beyond government
bonds and central-bank de-
posits to include corporate
bonds rated triple-B-minus
and above, equities and some
The inclusion of mortgage securitizations in
the pool of eligible liquid assets could lead to
the reopening of this vital funding channel.
securitizations. Similarly, the
definition of a stress scenario
was watered down to assume
lower levels of withdrawals.
The result should be to
Euro Stoxx Bank Index
Markit iTraxx Europe
Senior Financials
'13
The Wall Street Journal
free up hundreds of billions of
dollars currently held in low-
yielding assets that could be
deployed in more productive
investment, supporting not
only the recovery but boost-
ing bank margins and there-
fore making it easier for banks
to meet their capital targets.
The inclusion of mortgage
securitizations in the pool of
global financial crisis. At the
same time, the changes could
help weaken the feedback loop
between sovereigns and
threatening to become a wor-
rying degree of concentration
risk. A loosening of the U.K.’s
particularly draconian liquid-
ity rules last year has led to
an easing in credit conditions.
No wonder bank stocks
rose on the news. Among the
biggest beneficiaries will be
French and German banks that
had been among the most vo-
cal critics of the previous pol-
icy, given their greater reli-
ance on nonretail deposits
that the Liquidity Coverage
Ratio rules consider more at
risk of withdrawal in a crisis.
Euro-zone bank stocks
have rallied back to an aver-
age 0.9 times 2013 tangible
book value, Credit Suisse esti-
mates. The Basel Committee’s
U-turn may yet help push
stocks above book value—a
crucial threshold because it
will reduce market pressure
on banks to deleverage. That
is good news for shareholders
and bondholders, suggesting a
further step on the road back
to health. — Simon Nixon
behind their benchmarks last
year, partly because of jolt-
ing changes in the sectors
that led the market during
2012, Goldman Sachs says.
That means investors
who left actively managed
funds for passive index
products look pretty smart,
as the Standard & Poor’s
500-stock index jumped 13%
during the year.
And plenty of U.S. inves-
tors appear to have
switched to passive prod-
ucts. A net $129.57 billion
left U.S. stock mutual funds
last year through November,
according to the Investment
Company Institute, a trade
group.
During the same period,
U.S. stock exchange-traded
funds saw a net $63.25 bil-
lion in inflows, according to
ICI data.
Goldman also notes that
88% of hedge funds were
lagging behind the S&P 500
as of mid-December, when
the average hedge fund was
up 8.1% for the year.
All in all, it wasn’t a great
year for the pros.
—overheard@wsj.com
Growth
From near-death to re-
birth: After 2012’s euro-
breakup fears, investors might
hear more talk of euro expan-
sion in 2013. Latvia is aiming
to join in 2014, becoming the
euro zone’s 18th member, and
Poland’s leaders have declared
the need to rev up member-
ship preparations. That sug-
gests a degree of confidence
in the euro zone, but for both
the currency bloc and the can-
didate countries, risks remain.
For Latvia, the benefits of
joining may well outweigh the
costs. The lats is pegged to
the euro, and the financial
system makes heavy use of
the single currency: 90% of
loans and 50% of bank depos-
its are denominated in euros,
Fitch Ratings notes. Latvia
has led the way in austerity
politics in Europe; essentially,
it already has joined the euro,
just without formally doing
so. Euro membership may
generate interest savings and
higher exports while eliminat-
ing currency-conversion costs,
the Latvian central bank ar-
gues.
But Latvia still needs to
request a formal ruling on its

Huawei Offers BofA’s Winding Mortgage Journey membership. It expects to

meet the financial criteria
embedded in the Maastricht
For Brian Moynihan, the repurchase demands, about sure delays. But BofA also will treaty, but the decision to join

Hope for Rivals

A New Year’s call from
Huawei Technologies offers a
rare cheery note for the tele-
com-equipment sector.
The Chinese company,
which isn’t listed, will show a
profit jump of more than 10%
for 2012, according to an
email sent to Huawei’s staff by
Chief Executive Guo Ping in
December and posted to Hua-
wei’s website last Friday.
What is good for Huawei
isn’t necessarily good for the
industry.
With the weak global econ-
omy curtailing spending on
telecom equipment, Huawei’s
performance likely came at
the expense of peers such as
shows that Huawei and ZTE
have pushed down prices
there. The competition is also
tough in China, where Huawei
made about a third of its sales
in 2011 and ZTE, about 45%.
ZTE’s recent results reflect
the struggle. It issued profit
warnings before each of its
past two quarterly earnings
reports. In the three months
to September 2012, ZTE had a
loss of 1.95 billion yuan ($313
million), versus a 299 million
yuan profit a year earlier, as
revenue rose just 5%.
For Huawei’s rivals,
though, there is a silver lining
in Mr. Guo’s email: The com-
pany will shift focus in 2013
journey through Bank of
America’s mortgage morass
has been a slow walk in a cold
rain. On Monday, BofA an-
nounced an $11.6 billion set-
tlement with Fannie Mae. It
is the latest deal regarding
mortgages struck by Chief Ex-
ecutive Moynihan in the past
few years.
While BofA may yet face
billions more in mortgage-re-
lated losses, these are less
likely to threaten its viability,
a real concern not too long
ago. Indeed, diminishing legal
uncertainty has pushed the
stock back toward tangible
book value. The challenge now
is to show BofA can generate
sustainable earnings.
Prospects are improving.
Still, BofA hasn’t posted back-
to-back quarters of earnings-
$25 billion at the end of the
third quarter, fall by $11.2 bil-
lion. But it will have to boost
the reserves it has for such
demands by $2.5 billion as
deal-related expenses were
higher than what it had provi-
sioned for. That may unsettle
investors who thought BofA’s
$16 billion repurchase reserve
was sufficient. At the least,
they may pay closer attention
to the estimate BofA places on
possible losses above the re-
serves, now $4 billion, down
from $6 billion.
And BofA could still see
further losses. It is paying
Fannie $3.6 billion in cash to
settle some claims and an-
other $1.3 billion related to
fees associated with foreclo-
Getty Images
repurchase $6.75 billion in
loans. The bank has marked
down their value, spurring in
part the reserve increase. But
only $16 million was perform-
ing and another $2.7 billion
was performing but modified,
according to Fannie.
Attention now turns to
BofA’s remaining, big mort-
gage-related legal issues.
These include battles with
bond insurer MBIA and pri-
vate investors who bought
mortgage bonds, including an
$8.5 billion settlement BofA
has agreed to and which is
still going through the courts.
Mr. Moynihan’s efforts to
put BofA’s past behind it
aren’t over. But he is getting
closer. —David Reilly
the euro is clearly a political
one—for both sides. Some
polls show Latvians are skep-
tical of the euro; an opposi-
tion party may seek a referen-
dum, a move that Latvian
Prime Minister Valdis Dom-
brovskis says is unnecessary.
The road for other Eastern
European candidate countries
to join is longer. Polish Prime
Minister Donald Tusk in De-
cember called for a relaunch
of euro-membership prepara-
tions, to ensure Poland was
part of the core of Europe.
But Finance Minister Jacek
Rostowski said the euro zone
had its own restructuring to
do in order for euro adoption
to be safe. Elsewhere, the
Czech Republic in December
decided not to set a target
date for euro entry, citing the

ZTE Corp., Ericsson and Alca-
tel-Lucent. Mr. Guo’s message
says Huawei’s 2012 revenue
rose by a third from the year
before—a much steeper rise
than the reported increase in
profit. That suggests Huawei
cut prices and margins to
boost sales and take market
share from the competition.
Both Huawei and ZTE are
partly shut out of the U.S.,
where lawmakers allege they
may represent a security
threat. That heaps importance
on their operations elsewhere.
European regulators said
last month their analysis
from rapid growth to profit-
ability. That could stabilize
margins across the board.
Morgan Stanley estimates
ZTE’s operating margins could
jump from 0.9% in the second
half of 2012 to 4.6% in the sec-
ond half of this year, close to
2011’s level. Its shares gained
1.9% in Hong Kong on Monday.
“We have weathered an-
other turbulent year,” Mr. Guo
says in his email to the staff.
Huawei’s rivals may have
fared less well. But a truce on
pricing would be a sign of
much sunnier climes ahead.
—Duncan Mavin
per-share growth since early
2008. And the bank said
moves announced Monday—
including its participation in
an $8.5 billion settlement by
big banks related to foreclo-
sure abuses—will mean
fourth-quarter EPS being only
“modestly positive.”
The Fannie agreement also
underscores how persistent
the issue has been. Two years
ago, BofA rang in the New
Year with a different mort-
gage settlement with Fannie
and Freddie Mac.
This deal means BofA will
see its outstanding mortgage-
Hit and Miss rising cost of joining due to
Quarterly earnings per share at bailout facilities such as the
Bank of America European Stability Mecha-
nism.
$1.50
Meanwhile, existing euro-
zone states might have their
1.00
own concerns over larger
economies joining, either be-
0.50
cause of potential future large
0 bailouts or further complica-
0
tions in the unwieldy political
process in the bloc. That said,
–0.50
expansion would be a sign of
vitality and a confirmation
–1.00
that the euro is here to stay.
'07 '08 '09 '10 '11 '12
Source: the company Bank of America’s corporate That would be a valuable gain
The Wall Street Journal headquarters in Charlotte, N.C. for euro-zone leaders.
—Richard Barley
32 | Tuesday, January 8, 2013 THE WALL STREET JOURNAL.

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