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VOL. XXXII NO.

8
TUESDAY, FEBRUARY 11, 2014
Inside Sochis Ring of Steel
THEWINTEROLYMPICS27
DJIA 15801.79 0.05% Nasdaq 4148.17 0.54% Stoxx Eur 600 325.30 0.06% FTSE 100 6591.55 0.30% DAX 9289.86 g 0.13% CAC 40 4237.13 0.21% Euro 1.3644 0.23% Pound 1.6419 0.16%
EUROPE EDITION
WSJ.com
Nigel Gray refused to give in to the elements Monday, leaving home in a rowing boat after the river
Thames flooded Wraysbury, southern England. The U.K. is enduring one of its wettest winters in 250
years, with politicians blaming each other for lack of action to beat severe flooding. Article on page 4
Briton Rules the Waves as Thames Spills Over
Reuters
Swiss Vote
Stirs Concern
In Europe
Switzerland was warned
Monday of potentially serious
repercussions in its relation-
ship with its biggest trading
partner, the European Union,
after Swiss voters backed a
cap on immigration in a refer-
endum.
The outcome of Sundays
vote potentially undermines
close ties with the 28-nation
bloc that are crucial to the Al-
pine nations economic suc-
cess and that of its influential
financial-services sector.
Switzerland now is highly
unlikely to honor a pledge to
scrap quotas for migrants
coming from the EUs newest
member, Croatia, on July 1a
move that would in turn trig-
ger the suspension of other
accords by the EU.
Treaties governing rela-
tions between the two sides
contain a guillotine clause
that invalidates the entire
package if one of component
is terminated.
One cant have, on one
hand, a privileged access to
the internal market of the Eu-
ropean Union and on the
other hand, dilute the free
movement of people. The two
are linked, the Luxembourg
Foreign Minister Jean Assel-
born said in Brussels.
The vote was welcomed,
however, by anti-immigration
parties inside the EUeven
though any new restrictions
would ostensibly apply to all
EU citizens.
A slim majority of Swiss
voters approved the measures
to introduce quotas on foreign
workers, reflecting wide-
spread concerns that a flood
of immigrants is pushing up
housing prices and creating
too much competition for
jobs.
It calls for the government
to renegotiate the treaty with
the EU that guarantees free
movement of workers. About
64,000 EU citizens have set-
tled in Switzerland every year
over the past decade, accord-
ing to the Federal Office for
Migration.
It wasnt immediately
clear how the Swiss govern-
ment would implement the
new limitsthe referendum
calls for quotas within the
next three years.
But senior EU figures
made plain that Switzerland
wouldnt be able to dismiss
elements of the trade package
that it later decides it doesnt
like.
Cherry-picking from its
Please turn to page 6
By Vanessa Mock in
Brussels and Neil
MacLucas in Zurich
Opinion: The Swiss vote for
isolationism, narrowly........... 12
European Banks Parry U.S. Rules
LONDONEuropean banks
are considering new ways to
cushion the blow of U.S. fi-
nancial-safety rules set to
kick in as early as next year.
The moves are a reaction
to planned Federal Reserve
rules that will require the U.S.
arms of foreign banks to be
better capitalized and subject
them to annual stress tests.
European banks for years
have run the operations on
much thinner capital buffers
than their American rivals.
Among the tactics under
consideration, banks including
the U.K.s Barclays PLC, Ger-
manys Deutsche Bank AG
and Switzerlands UBS AG
could shore up their U.S. sub-
sidiaries by buying debt from
them, according to people fa-
miliar with the banks strate-
gies. Other banks are selling
assets or considering moving
businesses into legal struc-
tures outside the purview of
U.S. regulators.
The ideas are triggering
criticism from some banking
experts who say they wont
strengthen the overall health
of the banks and could draw
unfavorable scrutiny from
regulators, including the Fed,
which is responsible for over-
seeing U.S. banks.
Such moves shouldnt be
perceived as creating capital,
said Cornelius K. Hurley, di-
rector of the Boston Univer-
sity Center for Finance, Law &
Policy. I doubt the Fed will
fall for thisapproach, let
alone the foreign banks
home-country supervisors.
Bank executives say the
steps they are considering are
legitimate ways of adhering
to increasingly onerous regu-
lations, while minimizing
costs to shareholders. They
note that any steps will need
to win the support of regula-
tors in both the U.S. and the
banks home countries.
The Fed is expected to
publish the rules in final form
in coming weeks, but they
wont go into effect until next
year at the earliest. In addi-
tion to requiring banks to
thicken their capital cushions
and face yearly stress tests,
the rules will subject banks
to more-rigorous oversight
from the Fed. The more-strin-
Please turn to page 17
BY MAX COLCHESTER
AND DAVID ENRICH
Nokia
Readies
Android
Phone
Nokia Corp. plans to re-
lease this month a smart-
phone that runs a version of
Google Inc.s Android mobile
software, said people familiar
with the matter, as it con-
cludes the sale of its handset
business to Microsoft Corp.
Nokia engineers had been
developing the Android phone
when Microsoft was conduct-
ing due diligence on its 5.4
billion ($7.4 billion) deal to
buy the Nokia handset busi-
ness and license the com-
panys patents. The Android
phone was aimed at emerg-
ing-market customers, and
has been tailored in a way
that wont promote some of
the key Google-developed fea-
tures that a more traditional
Android-powered phone
might, these people said.
Three years ago, Nokia
agreed to abandon the home-
grown software used on most
of its smartphones in favor of
Microsoft Windows Phone
software after Microsoft of-
fered billions of dollars for
marketing and development.
Last year, the Finnish com-
pany agreed to sell its hand-
set business to Microsoft, ce-
menting that partnership.
One of newly appointed
Microsoft Chief Executive Sa-
Please turn to page 16
BY SVEN GRUNDBERG
AND SHIRA OVIDE
$1.75 (C/V) - KES 250 - NAI 375 - 1.70
Inside
After leaked earnings
data, Barclays was
again under scrutiny
Monday for how it
protects information
Business ...................15
Heard on the Street... 28
Millions of Americans are unable to buy
health insurance because of a mismatch
between federal and state rules on eligibility
In Depth..........................................................10-11
Investor Carl Icahn drops
push for Apple buybacks.... 16
28 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
HEARDON THE STREET
Email: heard@wsj.com FINANCIAL ANALYSIS & COMMENTARY WSJ.com/Heard
U.K.s Barclays Is Failing the Trust Test
Barclays has a worrying
problem holding on to num-
bers.
The U.K. bank hastily an-
nounced its profit before tax
for 2013 on Monday along
with an adjusted measure a
day before schedule, after an
apparent early disclosure in
the Financial Times.
That followed weekend
news that details relating to
thousands of customers in its
now-closed financial-plan-
ning division had allegedly
been stolen and sold. That
matter has been referred to
U.K. regulators.
The two stories add to
the impression that Barclays
is too accident-prone an in-
stitution to be worthy of cus-
tomeror investortrust.
Chief Executive Antony Jen-
kinss strategy to regain con-
fidence is focused on cutting
back Barclayss controversial
investment bank. He should
be just as concerned with the
retail banking arm he ran for
three years from 2009.
In the near term, Bar-
clayss results show it had an
awful fourth quarter. The
banks 2013 adjusted profit
of 5.2 billion ($8.52 billion)
before tax is only 200 mil-
lion higher than it was at the
end of September. Its full-
year profit before tax of 2.9
billion showed no increase
over the first nine months of
2013.
Judging by its peers re-
sults, Barclayss investment
bank is likely to have strug-
gled in its once-lucrative
fixed-income trading busi-
ness.
Like other banks, Barclays
is facing more regulatory and
litigation costs: Last month
it said it would add 330
million to its legal provisions
in the fourth quarter. Banks
like to strip such so-called
below-the-line charges out of
their adjusted earnings.
That is an increasingly
untenable accounting cha-
rade. Rather than being an
exceptional item, litigation
costs are becoming a stan-
dard business charge for
banks.
In the last six years, Bar-
clays has taken more than 9
billion of one-off charges,
according to Deutsche Bank,
equivalent to nearly 40% of
its equity in 2007.
Restructuring costs ac-
count for over a quarter of
Barclayss one-offs since
then. The company also paid
a 290 million fine in 2012
for its role in the Libor-fix-
ing scandal. But its retail and
business bank has brought
Barclays plenty of grief, too.
It has so far expensed 4 bil-
lion relating to mis-selling of
payment protection insur-
ance, and 1.5 billion due to
mis-selling of interest-rate
swaps to retail customers.
The latest story of customer
data theft could lead to fur-
ther fines.
Mr. Jenkins has portrayed
himself as a kind of honest
broker, coming from the re-
tail bank to sort out Bar-
clayss investment-banking-
led reputational problems.
But Barclayss problems run
throughout the institution.
Arguably, it is now too big
and unruly to manage.
When Mr. Jenkins gives
more detailed 2013 results
on Tuesday, he must show
how he will get a grip on
Barclays.
Andrew Peaple
Africa May Offer Growth Chance
Investors snapped up
bonds from Africa last year: a
string of sovereigns including
Ghana, Rwanda and Nigeria
tapped the market as money
managers hunted for yield.
The yields on those bonds
are mostly higher now, rang-
ing between 6% and 9%, pro-
pelled by repeated bouts of
emerging-market turmoil. But
investors weighing Africas
potential opportunities must
navigate the two great threats
haunting markets: the U.S.
Federal Reserve and China.
Last summer, when the
Fed started talking about
reining in its quantitative-
easing program, emerging
markets wilted. African bonds
didnt escape the turmoil. Ul-
timately, however, the gradual
end of loose monetary policy
at the Fed shouldnt detract
from Africas big lure for in-
vestors: growth, powered by
good demographics, macro-
economic stability and eco-
nomic overhauls.
Since the lost decades of
the 1980s and 1990swhen
growth averaged 2.6% in sub-
Saharan Africa according to
the International Monetary
Fundthe acceleration has
been sharp. Growth between
2000 and 2012 averaged 5.5%
for the same region. The IMF
projects growth of 6.1% in
2014 and 5.8% in 2015. Debt
levels now are low as a share
of gross domestic product.
But China, the other big
factor worrying investors,
could yet cast a shadow on
the African outlook. Trade
with China rose to around
$200 billion in 2012 from $9
billion in 2000, according to
African lender Ecobank,
fueled by exports of commod-
ities. The recent drop in Chi-
nese growth indicators has
fanned investor fears, al-
though the move appears
modest. Still, a sharp slow-
down in China would be
bound to weigh on African
growth, and test African gov-
ernments ability to overhaul
their economies.
However, the market is
starting to discriminate be-
tween borrowers.
In last years selloff, bonds
issued by Ghana and Zambia
suffered. Now, with the Fed
cutting bond purchases, they
have been hit again.
Both countries have trou-
bling fiscal situations, with
swollen budget deficits.
Ghana was last week forced
to raise rates to 18% and in-
troduce foreign-exchange con-
trols to defend its currency.
Nigerias bonds have per-
formed relatively well, but
the country suffers from cor-
ruption and is vulnerable to
oil-price developments.
Others have fared better.
Take Rwanda, which sold a
$400 million bond with a
yield of just 6.875% in May
2013, drawing orders for
nearly eight times that
amount.
Rwandas bond price fell
sharply in last years turbu-
lence, reaching just under 85
cents on the dollar by Sep-
tember. But now, its bond
trades around 95.5 cents on
the dollarand has been rela-
tively stable so far this year.
Last summers move had
little to do with Rwandas
credit quality, and more to
the mass exodus from emerg-
ing-market bonds sparked by
the Fed. Indeed, Rwanda won
a positive rating outlook from
Fitch Ratings in August.
Bonds issued in December
by Gabon, which runs a large
current-account surplus, have
climbed even during the lat-
est emerging-market wobbles.
Africa isnt insulated from
worries about global growth
or Fed policy. But some coun-
tries may offer better shelter
than others.
Richard Barley
Africa Rising
Change in annual gross
domestic product
The Wall Street Journal Sources: International Monetary Fund; FactSet
8
2
0
2
4
6
%
90 83 00 10
Sub-Saharan
Africa
World
Price of government bonds,
percent of face value
105
80
85
90
95
100
%
14 2013
Zambia 5.375%,
due September 2022
Rwanda 6.625%,
due May 2023
How bad is the economy
in India? If it werent for the
farms, things would be a lot
worse.
Indias government proj-
ects the economy will ex-
pand 4.9% in the fiscal year
ending in March. Industrial
output is mostly flat, while
services growth has slowed.
The bright spot is agricul-
ture, which the government
figures will expand faster
than last year. If other parts
of the economy dont pick
up, this could leave Indias
growth rate more vulnerable
than many suspect.
Indian agriculture de-
pends on seasonal rains,
which were ample last year.
But next fiscal year, there is
some chance an El Nio cli-
mate effect may rob farm-
ers of water, says Citigroup.
For all of Indias efforts
the past two decades to
modernize and shake its
agrarian roots, growth this
year will still be hostage to
the whims of the weather.
OVERHEARD
Indias Maruti Suzuki
Faces a Smoother Road
Indias car market may be
going through some dark
days. But the leading passen-
ger-car maker, Maruti Su-
zuki, has a brighter road
ahead.
Maruti is the biggest play
on Indias auto industry, with
41% of the passenger-car mar-
ket last year, according to
LMC Automotive.
There are doubts its domi-
nance can persist, though. As
brands including Honda and
Hyundai aggressively expand,
analysts expect Marutis mar-
ket share to fall by 2020. This
comes amid a moribund In-
dian car market that shrank
last year for the first time in
more than a decade.
Yet Maruti is preparing for
a eventual rebound, and
doesnt have to tie up capital
to do it.
Japans Suzuki Motor,
which owns 56% of the car
maker, says it will build a
$500 million factory in the
western state of Gujarat. And
a Suzuki spokesman says the
company will provide capital
for expansion down the road.
Starting in 2017, Suzuki
will sell cars from this plant
to Maruti at zero profit, and
let Maruti market them.
The facility could eventu-
ally double Marutis capacity
from the current 1.5 million
cars a year.
The Japanese parent bears
the risks of the new plant
with its low-cost funds, while
Maruti can deploy its own
capital for marketing plus re-
search and development.
The $1.1 billion net cash it
had as of September is ample
firepower to boost its rural
network and market its prod-
ucts to choosy Indian buyers.
Investors bristled four years
ago when Maruti increased its
royalty payments to Suzuki
for the use of its technology,.
However, they now can enjoy
the new plant as a gift from
Japan.
Marutis enterprise value,
which adjusts for net cash, is
an attractive 7.9 times earn-
ings before interest, taxes, de-
preciation and amortization
for the next 12 months.
That is lower than its five-
year average, and cheaper
than peers. Indian two-
wheeler maker Hero Mo-
toCorp fetches 9.5 times and
Bajaj Auto 10.8 times, while
SUV maker Mahindra & Ma-
hindra gets 14.3 times.
Indias auto market will re-
main weak should interest
rates stay high, which many
expect. Three-quarters of In-
dian car buyers use loans.
Yet the cycle will turn at
some point. Marutis plans
should keep it in the fast lane
when it does.
Abheek Bhattacharya
Fine Mess
Barclays's below-the-line charges
The Wall Street Journal
Source: Deutsche Bank
3.0 billion
0
0.5
1.0
1.5
2.0
2.5
08 07 09 10 11 12 13
Antony Jenkins,
CEOof Barclays
Pole Position
Big brands share of the Indian
passenger-car market
The Wall Street Journal Source: LMC Automotive Photo: Associated Press
0 40% 10 20 30
Maruti
Suzuki
Hyundai
Tata
Mahindra
Toyota
2011
2013
Maruti Suzukis new Celerio
The Japanese parent bears the risks of the
newplant, while Maruti can deploy its own
capital for marketing and research.
Disappointing 2013
results and an
alleged data theft add
to the impression
Barclays is too
accident-prone to
merit investor trust.
B
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2 | Tuesday, February 11, 2014
AM IM UK SW FR IT SP TK BR PL IS AE GR
THE WALL STREET JOURNAL.
PAGE TWO
The fate of
Democrats this
election year rests
in the hands of
Southern women.
Three Southern
women, to be specific. They are
seeking Senate seats in races that,
perhaps more than any others,
will answer the paramount
political question of 2014: Can
Democrats retain control of the
Senate?
Two of these womenMary
Landrieu of Louisiana and Kay
Hagan of North Carolinaare
trying to win re-election on
terrain no longer naturally
friendly to Democrats.
The third, Michelle Nunn of
Georgia, is trying to do something
harder, which is to break the GOP
hold in the Deep South. She seeks
to take back for the Democrats a
seat now held by retiring
Republican Sen. Saxby Chambliss.
A statewide victory in the South
would be a significant Democratic
breakthrough.
A look at the simple math of
the Senate shows why these three
races are key. Democrats now hold
55 seats, counting two
independents who tend to vote
with the Democrats. That means
Republicans need to pick up six
Democratic seats to take control.
Democrats have to defend 21
seats they currently hold, while
Republicans have to defend just 15,
meaning the GOP has more targets
of opportunity. Nine of the seats
Democrats are defending are very
competitive and could go either
way; only two Republican-held
seats really fit that description.
All three of the Southern
Democratic women are running in
such competitive races. The race
in Georgia is the one where the
Democrats have the best chance of
taking away a Republican seat,
which would help offset losses
elsewhere.
In each of these three races
there are distinct limits to the
amount of help President Barack
Obama can provide; to some
extent, he is a liability. But there
are three things the president can
do to help these women.
The first is to raise money. One
distinct bright spot for Democrats
so far this election cycle has been
their success at outraising
Republicans despite the
presidents rough political year in
2013, an advantage a sitting
president can help maintain.
Nationally, the Democrats
Senate campaign committee raised
$52.6 million during 2013, while
the Republicans committee raised
$36.7 million. Individually, each of
the three women outraised their
likely Republican opponents. Being
well-funded is a necessary, though
not sufficient, condition for
winning in a tough environment
particularly when well-heeled
outside groups are sure to lend
Republicans a hand.
Second, Mr. Obama can
generate excitement and pump up
turnout among the Democratic
base, especially minorities. The
African-American population is a
big factor in each of these states;
it represents more than 30% of the
population in Louisiana and
Georgia, and just over 20% in
North Carolina.
Third, the president could
approve the Keystone XL pipeline.
The pipeline, which would carry
Canadian tar-sands oil south
across the U.S. for shipment on to
refineries in the Midwest and
South, tends to be a popular idea
in red-tinged states, such as these
three, and among independent
voters of the kind these
Democratic women must woo. Its
particularly important to Ms.
Landrieu in energy-obsessed
Louisiana.
So what are the prospects for
these Southern women? Consider
their races in turn:
Louisiana: This state used to
elect Democrats regularly but has
moved steadily Republican. The
GOP holds the other Louisiana
Senate seat, and five of the states
six House seats, and Mr. Obama
won just 41% of the 2012 vote.
Offsetting those problems is
the Landrieu name, a venerable
one in Louisiana politics, and Ms.
Landrieus relatively moderate
voting record. Like other
Democrats, though, she appears to
have been dragged down by the
rough rollout of the Affordable
Care Act championed by the
president. Odds are shell face a
tough fall runoff against
Republican Rep. Bill Cassidy, a
solid contender.
North Carolina: This state is
more favorable territory for
Democrats; Mr. Obama won North
Carolina narrowly in 2008, though
he lost it narrowly four years
later.
Still, polls suggest Ms. Hagan
has her hands full. One advantage
she enjoys is the fact that she has
prepared for a tough race. She
raised $2 million in the fourth
quarter of 2013, compared with
about $700,000 for state House
Speaker Thom Tillis, her most
likely opponent. She has $6.8
million in the bank, while Mr.
Tillis has about $1 million.
Georgia: This state has become
tough sledding for Democrats, but
they hope there is enough magic
left in the Nunn name to reverse
their fortunes. Ms. Nunn has been
chief executive of the bipartisan
Points of Light Foundation and is
the daughter of former Sen. San
Nunn. Aside from that golden
family name, Ms. Nunn has one
other advantage: A crowded field
of seven Republican contenders,
who could well slice and dice one
another in both a primary election
and a likely runoff to determine
the GOP nominee.
Control of Senate Linked
To Three Southern Races
[ Capital Journal. ]
BY GERALD F. SEIB
i i i
Business & Finance
n Axel Springer CEO Mathias
Dpfner is hesitating at the
price of online assets as the
European newspaper publisher
bids for Forbes magazine. 15
n The BOEs Carney is ex-
pected to change the banks pol-
icy guidance, only six months
after setting a new course when
he took the helm at the 320-
year-old institution. 4
n Nestl is said to be studying
whether to unwind its 30%
stake in LOral when it is free
to in April, a sale that could
set off a chain reaction of buy-
backs, also involving Sanofi. 17
n Prices of bitcoin have fluc-
tuated recently on factors
ranging from government regu-
lation to its acceptance by real-
world retailers. Now add an-
other driver: perceived
technical glitches. 17
n Austrias banks have re-
fused to participate in a bad
bank carved out of the wreck-
age of failed regional Hypo
Alpe Adria, raising the risk
that the government might de-
clare the bank insolvent. 18
n Borrowing costs for Chinese
firms are rising strongly, a
shift that could herald weaker
profits, slower economic
growth and even the first de-
faults by corporations. 15
n Toyota said it would stop
producing cars in Australia. 18
i i i
World-Wide
n Europe will target better ties
with Cuba after EU foreign min-
isters approved negotiations
with the island nation aimed at
deepening bilateral political and
economic dialogue. 6
n Turkey and Israel might
clinch an agreement to settle a
four-year feud that left their
governments estranged, mark-
ing a significant step in bol-
stering U.S. interests and re-
storing a key security pillar. 3
n Syrias government and op-
position refused to meet as a
spate of attacks on humanitar-
ian convoys overshadowed ef-
forts to resume peace talks. 9
n Iranians say Rouhanis gov-
ernment, in subtle ways, has
tried to ease the most zealous
enforcement of Islamic codes
and create space for more per-
sonal expression in public. 9
n Afghan militant group
Hezb-e-Islami launched a car-
bomb suicide attack in Kabul,
killing two contractors for the
U.S.-led coalition and wounding
several Afghan civilians. 8
nU.S. lawmakers will tighten
oversight on the Department of
Veterans Affairs over its response
to what they say are manage-
ment and medical errors. 7
nAstronomers in Australia
identified what they say is the
oldest known star, estimating it
was formed 13.6 billion years ago.
Whats News
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Syria: The Evacuation of Homs
Hundreds of the sick and starving trapped in the Syrian city of Homs
were rescued this weekend. See their journey at blog.wsj.com/middleeast
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Senate candidate Michelle Nunn, center, is trying to win in Georgia and make inroads for Democrats in the Deep South.
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THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 27
THE WINTER OLYMPICS
Security Is Discreet
Inside Ring of Steel
Sochi, Russia
The roughly 40,000 Russian secu-
rity officials checking bags, scanning
water bottles and patrolling train
stations to safeguard the Olympic
Games are part of one of the worlds
fiercest security machines. They are
also dressed a bit like Barney.
Russia has re-
sponded to a ter-
rorist threat from
the neighboring North Caucasus that
brought two suicide bombings to the
city of Volgograd in late December
by rolling out whats likely the most
extensive security apparatus to
guard any modern Olympic Games.
But there is barely a Kalashnikov in
sight. Fearing that visitors first im-
pression of Russia would be that of a
militarized zone, Russian security
services have taken significant mea-
sures to make the operation seem
warm and fuzzy, a rarity in a place
where police often come across as
intimidating.
The main thesis that were oper-
ating under for the event is that se-
curity will be unnoticeable, Federal
Security Service official Alexei Lavr-
ishchev said last fall. It will not be
in your face, it wont interfere with
anyone in public spaces.
The effort is noticeableor unno-
ticeable, as it were.
Just about all of the Russian se-
curity forcesdrawn from the police,
the military, and other agenciesvis-
ible inside and at the entrances to
the Olympic Park wear purple pants
and athletics jackets decorated with
the Sochi 2014 logo and colorful tra-
ditional Russian patterns. A heavily
fenced-in building that appears to be
part of the security operationan
unmarked surveillance blimp is low-
ered into its parking lot at nightis
decorated with a colorful mural
showing a giant green tree and pur-
ple eggplant.
Its present but its not obtru-
sive, said Scott Hume, associate di-
rector of security operations with
Global Rescue, a security firm that is
providing support to the U.S. Ski
Team and to corporate clients in
Sochi.
That doesnt mean it isnt there.
Russian security forces have devel-
oped what officials describe as a
ring of steel with checks around
the perimeter of the city. People who
bought tickets to the games were re-
quired to submit their passport de-
tails and a photo, and they must scan
their photo-adorned badges at
checkpoints to get into the venues
and the Olympic Park.
Along the roads, railways and
even airport runways around Sochi
stand police sentries, sometimes just
a few hundred feet apart. The road
and railroad leading from the Olym-
pic Park on the Black Sea coast to
the cluster of ski resorts where the
outdoor events take place is lined
with surveillance cameras. Military
boats are visible off the coast.
But the Russian organizers ap-
pear to have concentrated on secur-
ing a large perimeter around Sochi
and keeping to a minimum any show
of force in the immediate vicinity of
Olympic venues.
Another part of the security ap-
paratus is surveillance. Andrei Solda-
tov, a Russian security watchdog and
editor of the Russian security web-
site Agentura.ru, says that surveil-
lance across the city includes com-
munications interception, drones,
sonars to identify hostile submarines
and a record amount of CCTV cam-
eras employed in an Olympic area.
He says that setup allows for a
lower-visibility physical security
presence.
Russian security forces didnt re-
spond to a request for comment re-
garding Sochis surveillance and se-
curity setup. The
I nt e r na t i o na l
Olympic Commit-
tee declined to comment.
When prompted, security forces
can emerge quickly from the back-
ground. When a private Wi-Fi net-
work was switched on during the
opening ceremony, which security
forces prohibited, a purple-clad
agent carrying a large electronic de-
vice showed up immediately to in-
vestigate.
The approach marks a contrast
from other large events that Russia
has guarded, including protest
marches in Moscow and the recent
G-20 summit in St. Petersburg,
where uniformed and at-times armed
security officers were prominent.
Soldatov says it is clear why
Russia would roll out intimidating
security officials ahead of a protest
in Moscow. At these events, you
dont have ordinary visitors, he
says. You dont have tourist. You
dont have visitors you want to im-
press with your civilized approach.
He says that actions against activists
ahead of the Games intimidated
many people into avoiding Sochi al-
together.
Fans and journalists entering the
Olympic Park or taking Sochis new
rail system undergo an airport-style
security check when entering one of
the train stations. On Saturday, the
check even included a device to test
whether or not the contents of a wa-
ter bottle were harmless.
But after that, there are few if
any checkpoints ahead of the sports
facilities, because security personnel
have created a connected clear
zone that allows people who have
already gone through security checks
to move fairly easily around the ven-
ues. The forces are confident enough
in the security to allow prominent
leaders to mingle close to the fans,
as when Russian Prime Minister
Dmitry Medvedev attended a biath-
lon event Saturday night.
Perhaps the most noticeable
change from past Olympics is the
relative lack of visible guns.
Im sure theyre not that far
away, Hume said.
Security has been a highand
usually highly visiblepriority at the
Olympics ever since terrorists mur-
dered 11 members of the Israeli
Olympic team at the 1972 Munich
Games. A bombing at the 1996 At-
lanta Games killed one and injured
111.
At the London Olympics in 2012,
the U.K. deployed army personnel in
camouflage who patrolled alongside
private security guards with machine
guns. At the Salt Lake City Olympics
in 2002, Utah deployed its National
Guard in uniform. News photographs
from those Games, which took place
months after 9/11, show soldiers in
military garb, guns hanging from
their shoulders, guarding a speed
skating practice session.
In Sochi, the most-visible guns
are those the biathlon racers carry
on their backs. The security is far
heavier in farther-flung areas of
Sochi outside the Olympic vicinity.
Terrorism experts have warned that
such soft targets are more vulnera-
ble than highly-guarded areas closer
to the Games themselves.
During the opening ceremony, se-
curity was intense in downtown
Sochi. Fans entering a downtown
live zone to watch the festivities
had to submit to searches and
metal detectors.
But nearly an hour away, nothing
so intense greeted visitors to the
seaside Olympic Park. Martin Sutter-
luetti, a 55-year-old visitor from Aus-
tria, said he felt certain security was
high around the Olympics. But you
dont feel it, he said.
A pair of German tour operators
complained about having to register
their passports for photographic ID
to receive tickets.
But Dina Galeyeva, 53, visiting
from central Russia, said that that
early screening probably explains
why public security seems subdued
at the Games.
They already know about every-
one who is here, anyway, she said.
As for the design of those special
purple outfits the security personnel
are wearing? Ms. Galeyeva is a fan.
So much so, she said, that she
planned to buy one if possible for
her son.
Joshua Robinson
contributed to this article.
BY PAUL SONNE
AND ANTON TROIANOVSKI
Purple-clad security patrolling the Rosa Khutor mountain cluster village.
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Get the jump on market-moving news across the
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cover the biggest developments in markets, nance
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THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 3
NEWS
Israel, Turkey Near Repairing Alliance
Turkey and Israel are on the
verge of settling a four-year feud
that left their once-allied govern-
ments estranged, officials from both
countries said, a development that
would restore stability to a vital re-
gional relationship.
Negotiators from both countries
have intensified talks in the past
month, shuttling back and forth be-
tween Turkey and Israel with in-
creasing frequency, in an effort to
renew their alliance.
The countries downgraded diplo-
matic ties after an Israeli raid in
2010 killed nine Turkish activists
aboard a ship, the Mavi Marmara,
seeking to breach the Jewish states
economic blockade of the Gaza Strip,
which Israel imposed in response to
militant attacks.
We are living through a period
where our relationship is closest to
normalizing since Mavi Marmara,
Ahmet Davutoglu, Turkeys foreign
minister, told a Turkish television
station on Sunday.
Most matters, including the vital
point of compensation for victims
families, have been settled, said peo-
ple familiar with the talks.
But a deal could still falter on
sensitive issues including Israels de-
mand for immunity for Israeli gener-
als who oversaw the 2010 incident
aboard the ship.
Any immunity deal must be
passed by Turkeys parliament in
Ankara, people familiar with the
deal said. Prime Minister Recep
Tayyip Erdogans ruling Islamist-
leaning party has ramped up anti-Is-
raeli rhetoric in recent years, blam-
ing the country for a host of ills,
including Turkeys nationwide anti-
government protests in June and the
ouster of his ally President Moham-
med Morsi in Egypt.
Still to be settled in the talks are
also Turkish demands to open trade
access to Gaza.
It will require a good turnabout
under these circumstances, where Is-
rael is constantly blamed and named
in conspiracy theories, said Sinan
Ulgen, a former Turkish diplomat
and current visiting scholar at Carn-
egie Endowment for International
Peace. Certainly, the government
will undertake a political evaluation.
The foreign ministries from both
countries declined to comment on
the question of immunity.
Were in touch for a final meet-
ing, compensation will be another
step and there may be concrete de-
velopments to get aid to Gaza and
Palestine, Mr. Davutoglu said.
An agreement could help Mr. Er-
dogans electoral chances ahead of
local elections on March 30. Israels
leader, Benjamin Netanyahu, could
tout the deal to offset rising con-
cerns over economic and political
isolation should the current peace
talks with the Palestinians falter.
Turkey also stands to regain
some of the support it has lost
among U.S. lawmakers and improve
the balance sheet of its foreign pol-
icy by sending its ambassador back
to Israel, Mr. Ulgen said.
Rekindling ties between the two
U.S. allies, whose close security coop-
eration in the 1990s and early 2000s
was a cornerstone of Washingtons
Middle East policy, could also lead to
more economic cooperation, espe-
cially in energy, observers say.
The two countries can also lever-
age their alliance to resume their in-
fluential role in the Middle East dur-
ing a period of great turmoil, he
added, citing potential collaboration
against al Qaeda and Islamist ex-
tremists in Syria.
A deal would be a clear sign of
success for the Obama administra-
tion, which is in search of a concrete
milestone in its foreign policy. It
would also eliminate the uneasy bal-
ancing act U.S. had to do between
two of its allies, Mr. Ulgen said.
The two countries rapproche-
ment started in March, when U.S.
President Barack Obama cajoled Mr.
Netanyahu into calling and apologiz-
ing to Mr. Erdogan for the deaths.
Both Turkish and Israeli leaders
have come under mounting domestic
and international pressure.
Mr. Erdogans government, in
power since 2002, faces sporadic pro-
tests following demonstrations last
summer and was hit in December with
a corruption probe. The Turkish leader
has launched a charmoffensive, flying
fromTokyo to Brussels, Tehran, Berlin
and Sochi to refurbish his image be-
fore the March elections. The vote is
seen as a referendumon Mr. Erdogan,
who is expected to run for president
this summer.
On the other hand, Mr. Netan-
yahu was warned just last week
about rising boycott efforts by U.S.
Secretary of State John Kerry, who
is expected to unveil proposals to
guide the Jewish states peace talks
with Palestine within weeks. Den-
marks Danske Bank and Vitens, a
Dutch water company, have said
they would avoid activities with
some Israeli businesses because of
their West Bank operations.
In contrast, bilateral trade be-
tween Turkey and Israel rose to a re-
cord $5.1 billion last year, jumping
47% since the Mavi Marmara raid
even as the countries downgraded
diplomatic ties, according to Turkeys
Economy Ministry. With Israels natu-
ral gas finds in the Eastern Mediter-
ranean, businessmen are eager for a
restoration of good diplomatic rela-
tions that could also anchor energy
exports from the Jewish state and
turn Turkey into an energy hub.
By Emre Peker in Istanbul
and Joshua Mitnick
in Tel Aviv
Two countries whose ties
frayed after Israel killed
nine Turkish activists
step up talks to resolve
their four-year dispute.
26 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
THE WINTER OLYMPICS
U.S. Aims to End a 38-Year Drought
Kikkan Randall Is Poised to Win Americas First Olympic Medal in Cross Country Skiing Since 1976
Sochi, Russia
For eight long years, Kikkan Ran-
dall and her coach have been talking
about one three-minute ski race that
will take place Tuesday afternoon
here in the Caucasus Mountains.
Randall, a 31-year-old paragon of
fitness, and coach Erik Flora have
literally moved mountains of snow
to prepare. Randall has logged thou-
sands of hours on her roller skis on
the roads surrounding Anchorage
where she lives. She has done more
pull-ups with a 60-pound weight
strapped to her waist than most
people do in a lifetime with no
weight at all.
Already a world champion, Ran-
dall performs this self-torture with
the singular goal of winning some-
thing no American has won in four
decades: an Olympic medal in cross-
country skiing. It is a sport in which
barely 1% of the U.S. population par-
ticipates.
When I do school presentations
I tell the kids I hear this crying at
night, Randall said in a recent in-
terview. I check my husband and
its not him, I check my cats, its not
them. Then I realize its my world
championship medal. It really wants
an Olympic medal to hang out with.
An Olympic medal would really kind
of give a lot of validation to the
sport in our country.
Bill Koch was the last American
to win an Olympic medal in cross-
country. He took silver in the 30-ki-
lometer race in Innsbruck in 1976.
Flora, Randalls coach, said they
first began pointing toward Tues-
days race eight years ago, when she
was 23-years old and far from elite.
They couldnt focus on winning at
the 2010 Olympics because cross-
country skiing rotates each Games
between two sprint-competition
styles: classic and freestyle (or
skate). Randall is merely a good
skier at classic, the style staged at
the 2010 Games. But she is great at
freestyle, which is on schedule for
Tuesday.
On paper, she ought to win. For
two years running she has won the
womens sprint overall world cup
cross-country title. She won a world
cup race held last year on the
course here at the Laura Cross
Country and Biathlon Center.
But amid a 38-year drought since
America won its only cross-country
medal, Randall and her coaches have
taken nothing for granted. During
last years world cup test event
here, Randalls coaches skied the 1.5
kilometer course with a GPS track-
ing device. When they returned to
Alaska, where
Randall lives and
trains with her
hometown club, the Alaska Pacific
University Nordic Ski Center, they
combined that information with
maps and technical data about the
track, such as the location of the
turns and changes in altitude.
Using a snow-moving machine
called a PistenBully, they built a rep-
lica of the course on Eagle Glacier, a
45-minute drive and six-minute heli-
copter ride from Anchorage, where
the club is based.
During her summer training on
the glacier, Randall headed out on a
roughly 90-sec-
ond sprint,
turned onto a
sharp climb, followed by a short,
steep descent that ends with a hair-
pin turn, just like the course here.
Its one of the advantages of
owning a home training facility on a
glacier where there arent any trees
or existing trails, said Flora, a for-
mer teammate of Randalls at the
APU club, and her coach since 2006.
Across nearly every international
sport, whether skiing or soccer, the
stereotype of American athletes is
that they arent that technically
skilled, but they possess a relentless
work rate and a never-say-die atti-
tude that makes them hard to beat.
Randall, as conditioned as any ri-
val, also draws praise for her pow-
erful and exacting form.
She is very good technically
with the skating, one of the best,
said Egil Kristiansen, Norways
womens cross-country coach. Shes
going to be very hard competition.
When Randall is on, she perfectly
coordinates the contact her pole and
ski make with the snow, flexing her
core in the kind of upright crunch
her sport demands. After years of
following Flora on the snow, she has
figured out how to position her skis
to avoid her competitors and take
the right line around turns. That is
easier said than done, since cross
country skis are about 5 centimeters
wide and cut straight. They arent
meant to turn like downhill skis, and
skiers have been reaching 50 miles
an hour on the Olympic course.
It helps that Randall is a worka-
holic. In the off-season, she will do
a 2
1
/2--hour roller ski in the morning,
take a nap, warm up 30-60 minutes
on roller skis, head to a weight
training session, then go for a run
or ski some more.
Flora said Randalls training
schedule has its roots in two years
he spent in Norway in the early
1990s. An international skier as a ju-
nior, he realized how much harder
the Norwegians worked, and how
focused and intense their practice
sessions were. Everything was mea-
sured, everything was done for a
reason. When he became a coach at
APU, Flora increased Randalls work-
load about 30%. She could take it,
he said.
That meant more hours and
more intensity. APU has a recre-
ational course and a more challeng-
ing racing course. Randall began
spending most of her time on the
racing course, practicing in race
conditions.
Ahead of Tuesdays race, every-
thing appears to be setting up for
Randall, and for America, the poten-
tial end of a long winless streak. Not
only is it a skate-style race, she is in
her athletic prime and healthy. Here
in Krasnaya Polyana, she has been
alternating hard, simulated-race
training sessions with light recovery
days. Friday and Sunday were hard.
Saturday and Monday were sched-
uled to be light.
Race officials even did her a fa-
vor. Since last years World Cup
event, they added a 1.5 meter incline
on the final straightaway. It used to
be flat. That will favor the more
powerful skiers over the gliders.
Randall, queen of the pull-up with
the 60-pound weight, is as powerful
as they come.
The Olympics is the worlds big-
gest stage, she said. I would really
love to have that medal.
BY MATTHEWFUTTERMAN
Kikkan Randall, 31, is favored to win the first U.S. cross-country skiing medal since Innsbruck in 1976.
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When Bronze Trumps Gold
One of the loudest home crowds
of the Olympics so far raised the
roof of the Iceberg Skating Palace
Monday afternoon for Russian
skater Victor An, who claimed the
host nations fifth medal of the
Games. He took bronze in the short-
track 1,500 meters, behind winner
Charles Hamelin of Canada and
Tianyu Han of China.
Hamelin, now a five-time Olym-
pic medalist, finished in 2 minutes
14.985 seconds, 7 hundredths of a
second ahead of his nearest rival.
J.R. Celski was the top American in
fourth.
I just wanted to make sure I
didnt listen to the crowd cheering
for the Russian and stuck to my
[plan], Hamelin said.
Hamelin has been the dominant
figure in short-track this season,
finishing top of the World Cup
standings in two distances, the
1,000 and the 1,500 meters. The
only one he didnt own, the 500
meters, belonged to An. After the
first day of short-track competition,
their rivalry is shaping up to be one
of the most intriguing of these
Games. They are expected to square
off in at least two more finals.
Hamelin took control of the race
early on by heading straight to the
front of the group, while An tried to
position himself for an attack from
the back of the pack. But he left it
too late and couldnt quite catch the
leading pair on the final lap.
Maybe he could have done one
position better, Russia coach Se-
bastien Cros said of An. He wasnt
in a great spot early in the race.
Most of the pro-Russian crowd
stayed behind to celebrate Ans spot
on the podium anyway, which may
seem strange when you consider
that An wasnt Russian until three
years ago. In fact, his name wasnt
Victor until three years ago either.
Originally Korean, An won three
gold medals for South Korea in
2006 at the Torino Games under the
name Ahn Hyun-Soo.
After a long layoff due to a knee
injury and a falling out with the Ko-
rean Skating Union, he missed the
Vancouver Games and defected to
Russia. His new home had only ever
won a single medal in short-track,
and even that is largely forgotten
it was a bronze earned under the
flag of the Unified Team in 1992.
But the fans left no doubt that
they had fully adopted An as he
skated around the rink draped in a
Russian flag.
BY JOSHUA ROBINSON
Charles Hamelin of Canada celebrates his 1,500 meters gold medal on Monday.
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4 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
EUROPE NEWS
U.K. Criticized Over Flood Response
As Waters Keep Rising, Government Agencies Snipe at Each Other Over Whether Everything Was Being Done
LONDONHundreds of homes
west of London were at severe risk
of flooding after the River Thames
burst its banks Monday, the govern-
ment said, as England continued to
suffer from one of the wettest win-
ters in more than two centuries.
With waters predicted to rise
further this week, Prime Minister
David Cameron said the government
would do all it could to assist those
affected as he visited flood-hit areas
in the southwest of England.
However, his efforts to present a
coordinated response were under-
mined after parts of the govern-
ment blamed each other for not do-
ing more to protect communities.
The opposition Labour Party also
accused the government of being
slow to react.
The governments Environment
Agency, which manages flood de-
fenses, issued severe flood warn-
ingsmeaning there is a danger to
lifefor 14 areas in the southeast of
England and two in the southwest,
one of the hardest-hit regions. It
also warned that flooding was ex-
pected and immediate action re-
quired for 137 further areas across
England, with the highest risk seen
in the Midlands, southeast and
southwest of the country.
The agency said England had the
wettest January since 1776 and is
heading toward the wettest win-
terdefined as the months of De-
cember, January and Februaryin
250 years.
Despite the efforts of staff and
volunteers and the support of the
military, more than 600 homes were
flooded over the past week, it said.
Extreme weather will continue
to threaten communities this week,
with further severe flooding ex-
pected Monday evening into Tues-
day along the Thames in [the coun-
ties of] Berkshire and Surrey, Paul
Leinster, the chief executive of the
Environment Agency, said in a
statement. River levels are high
across southwest, central and
southern England and further rain
has the potential to cause signifi-
cant flooding.
Significant groundwater flooding
was also expected in the southeast,
including parts of London, the
agency said.
Eric Pickles, the minister respon-
sible for local government, told Par-
liament that the River Thames had
burst its banks in some locations
and police had declared a major in-
cident. There was also a high risk
that the Severn and Wye rivers, in
the west of England, would flood
this week, he said.
Some of the heaviest flooding
has been in the Somerset Levels, a
coastal plain farming area in south-
west England about 225 kilometers
from London. The government has
accepted that its decision to reduce
dredging of rivers there in the past
may have exacerbated the flooding.
Coastal areas have also been bat-
tered by heavy winds and high
tides. Last week the sea washed
away the ground under a section of
railway in the coastal town of Dawl-
ish, leaving it dangling in the air
like a rope bridge and knocking out
a vital rail link connecting the
southwestern counties of Devon and
Cornwall with the rest of Britain.
Train operators said services
were unable to run in parts of the
Thames Valley and southwest.
Im only interested in one thing
and that is making sure that every-
thing the government can do is be-
ing done and will go on being done
to help people through this difficult
time, Mr. Cameron told BBC televi-
sion. Last week he pledged an addi-
tional 100 million ($164 million) to
help households, businesses and
farmers cope with the severe
weather.
Nevertheless, a political fight
erupted after Mr. Pickles told the
BBC on Sunday that the government
had relied too much on the advice
of the Environment Agency and that
it had been a mistake to reduce
dredging of rivers in Somerset.
Asked whether the agencys chair-
man, Chris Smith, should resign, he
said that was a matter for Mr.
Smith.
Mr. Smith hit back in a radio in-
terview Monday, saying his staff
knew 100 times more about flood
management than any politician and
he had no intention of resigning.
Mr. Pickles was called on to help
coordinate the flood response after
Owen Paterson, the environment
minister, stood aside last week to
have an eye operation. Mr. Paterson
had faced criticism over his han-
dling of the floods.
Mr. Camerons spokesman said
there was no difference of opinion
between the two ministers follow-
ing local media reports that Mr. Pat-
erson disagreed with Mr. Pickless
assessment of the agency.
The center-left Labour Party said
it was unbelievable that officials
had embarked on a blame game
when homes were at risk.
Instead of blaming officials for
their decisions and now turning on
each other like ferrets in a sack,
ministers must get a grip on this
worsening situation, said Maria
Eagle, the center-left partys
spokeswoman on environmental
matters.
BY NICHOLAS WINNING
Bank of England Looks Ready to Change Policy Cues
Bank of England Gov. Mark Car-
ney is expected Wednesday to
change the U.K. central banks policy
guidance, only six months after set-
ting a new course when he took the
helm at the 320-year-old institution.
In the U.S., the Federal Reserve
has also altered its rate guidance,
underscoring the difficulties faced
by central banks preparing for a re-
turn to more normal policy settings
after half a decade of crisis mea-
sures.
In August, the U.K. had just em-
barked on an economic recovery. Mr.
Carney and his colleagues on the
Monetary Policy Committee wanted
to assure businesses, households
and investors that the bank was un-
likely to raise the benchmark inter-
est rate soon. That was intended to
ensure that businesses and house-
holds increased their spending, rein-
forcing the recovery.
But the MPCs pledgethat it
wouldnt consider a rate rise until
the unemployment rate fell to 7%
may have become a victim of its own
success. With the economy growing
rapidly in the second half of last
year, the unemployment rate fell to
7.1% in November, and now appears
likely to reach the threshold two
years earlier than the MPC had ini-
tially projected.
On Wednesday, the MPC will re-
lease its new forecasts for growth
and inflation. Mr. Carney has said
the committee would also make pub-
lic their thoughts on how they might
evolve guidance, although it isnt
clear that they will decide on a de-
finitive successor to their August
pledge.
The Bank of England is con-
cerned that without forward guid-
ance each data release pointing to a
continuing recovery could bring
closer the time at which business
and households expect the bench-
mark interest to rise.
A business factoring in a near-
term rate rise might hold back on in-
vestment, one of the weak spots of
the recovery.
Mr. Carney has said he wouldnt
favor a simple lowering of the unem-
ployment threshold, and would in-
stead prefer linking the central
banks future decisions on rates to a
wider range of economic develop-
ments.
There have been enough hints
from Governor Mark Carney and his
colleagues to suggest that single
state-contingent guidance will be
dropped in favor of a rather broader
form of guidance, perhaps involving
a number of labor market and eco-
nomic variables, said Jonathan
Loynes, chief European economist at
Capital Economics.
The BOE finds itself in a similar
position to the Fed, which it fol-
lowed in August. The Fed had said it
wouldnt raise its key rate as long as
the U.S. jobless rate was above 6.5%,
but as that threshold neared, altered
its guidance to say it will keep rates
near zero well past the time that
the jobless rate reaches 6.5%.
While a lowering of the unem-
ployment threshold may not be the
MPCs preferred option, some econo-
mists expect that a reference to vari-
ous measures of slack in the jobs
market may still play a part in guid-
ance. While the unemployment rate
has fallen sharply, wage growth is
still very weak, and therefore not a
source of inflationary pressure.
There is also evidence that many
Britons arent working as much as
they would like to, a phenomenon
known as underemployment. But
with the jobs market improving rap-
idly, and in a way that seems difficult
for the MPC to accurately forecast,
that may simply leave them in a sim-
ilar position six months from now.
The MPC may well lean on the
concept of underemployment to
keep rates on hold for a while even
once the jobless rate falls below
7%although, with the economy
growing strongly, we suspect that a
broad set of labor-market
guideswill signal pressure to hike
later this year, said Michael Saun-
ders, an economist at Citigroup.
Some economists believe the
MPC should take this opportunity to
radically alter its communications
strategy once more, and publish its
own forecasts for future interest
rates, alongside the assumptions
they have made about the way the
economy will change that underlay
those forecasts. That is a strategy
used by both Swedens Riksbank and
Norways Norges Bank.
BY PAUL HANNON
About 40 British Royal Marines were helping to reinforce flood defenses on Monday, laying sandbags and bailing water, around Somerset in southwest England.
A
g
e
n
c
e
F
r
a
n
c
e
-
P
r
e
s
s
e
/
G
e
t
t
y
I
m
a
g
e
s
7%
Level the jobless rate must
fall to before the Bank of
England will raise rates
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 25
PERSONAL JOURNAL
Eric Heiden on Life After Sports Stardom
Eric Heiden, the former speed
skater who won five Olympic gold
medals in 1980, was back at the
Winter Games last week. But he
wasnt in Sochi, Russia, to com-
pete. He was there as the team
physician for the U.S. speed skat-
ing teamnone of whose current
members were yet born when Dr.
Heiden set his records.
Against a backdrop of threats
from terrorist groups and strained
relations between the U.S. and
Russia, these Winter Games will
have a different atmosphere from
the 1980 Olympics in Lake Placid,
N.Y., where Dr. Heiden famously
won all of the long track speed
skating races, a first in the sport.
Now 55, he has the same phi-
losophy about sports and politics
that he did back then. He says that
if he had qualified for the 1980
summer Olympics in Moscow in
cycling, his second sport, he would
have gone despite the U.S. boycott.
In general, I still feel that poli-
tics dont have a place in the
Olympics, he says. Look back tra-
ditionally at how the Olympics be-
ganit was an attempt to get rid
of politics and break down walls.
In a phone interview from in-
side the heavily guarded Olympic
Village, Dr. Heiden says that the
athletes seem unaffected by inter-
national differences. These guys
are not aware of whats going on
politically, he says. Theyre
tweeting each other and posting
on Facebook.
Most competitors have been
encouraged to stay within the vil-
lages secure perimeter. But behind
layers of fencing and screening
like an airport, Dr. Heiden says,
traveling between venues is actu-
ally more convenient than for past
Olympics, because the event loca-
tions are closer together. If you
stand in the parade area where the
torch is, its 100 yards from the
hockey, figure skating and speed
skating, he says.
As the U.S. teams doctor, Dr.
Heiden decided to stay with the
team for two weeks in Italy for
training, followed by four days
with them in Sochi. (He was eager
to get home to his family and left
before the Games officially
started.) From a physicians stand-
point, he says, the time before the
competition is the most critical for
preventing illnesses and injuries.
In speed skating, the most com-
mon afflictions result from over-
use, such as lower back and knee
pain.
In his own career as a skater,
Dr. Heiden says that his injuries
were minimal. I broke some
bones, my wrist and ankle, but
thats really about it, he says. I
had stress fractures. The team
hes working with now ranges
from teenagers to athletes in their
early 30s, about the time most
speed skaters retire.
Dr. Heiden retired from speed
skating early, at age 21. I kind of
had had enough of it, he remem-
bers. I lost that motivation to re-
ally focus on skating. After his
victories at Lake Placid, he decided
to focus on cycling. He didnt
reach the same level in his second
sport but excelled by American
standards, he says. When I had a
chance to race in Europe, I was an
average rider. In 1985, he won the
first U.S. Professional Cycling
Championship. A year later, he
competed in the Tour de France,
but he crashed a few days before
finishing the race.
Now that he cycles only for fun
and fitness, he is nostalgic for his
life as an athlete. When youre in
the midst of it, you dont appreci-
ate it as much as when you get out
of it and have a normal life, he
says. I miss the travel and the ca-
maraderie. Still, Dr. Heiden appre-
ciates being able to enjoy sports
events much more than before. I
get to explore, rather than being
focused and only being in the ho-
tel or at the rink.
He also misses his former phy-
siquethough not all of it. As a
competitor, he was famous for his
enormous muscular thighs, which
looked to be nearly the circumfer-
ence of his waist. (I have no clue
how big they were, he says; he
never bothered to measure them.)
Do they still look the same? No,
thank God, he says, laughing.
Nowadays I think Im pretty nor-
mal.
Growing up in Madison, Wis.,
Dr. Heidens athletic abilities were
anything but average. The son of
an orthopedic surgeon (his own
field of medicine) and a home-
maker, he started skating on the
lake behind his grandfathers
house at a young age and became
a club figure skater by age 5. By
the time he turned 8, he was also
playing hockey and was recruited
to Madisons speed skating team.
At age 16, he made it onto the
national speed skating team,
which invited him to compete with
them in Europe for three months.
I was like, I get to miss school
for three months! he says. I
was certainly surprised by how
quickly I became very good at it.
Two years later, he won the World
Championship.
Success in speed skating and
cycling doesnt pay as well as
more popular U.S. sports such as
football or basketball, and Dr. He-
iden says he and his teammates
were never motivated by money.
The most he made in a year as a
speed skater was less than $5,000,
he recalls. His parents supported
him during that time, and he made
money as a security guard at Os-
car Mayer, the meat purveyor. As a
cyclist, he was allowed to take
sponsorships, bringing in an in-
come in the low six figures. He
says that while some U.S. athletes
can make a good living through
sponsorships, others only receive a
small stipend (when he was an
Olympic athlete, about $6 a day,
he remembers) to compete.
Whats really important to
achieving success in sports is in-
nate motivation, says Dr. Heiden.
Motivation is a very hard thing to
teach an athlete. Working with so
many athletes over the years, he
has come to believe that most are
driven by a need to explore their
personal limits.
Theyre not so concerned
about the outcome, whether its a
win or a loss, but just want to
know they have challenged them-
selves and performed up to what
they consider acceptable, he ex-
plains. Most feel they have never
reached a perfect competition or
had a perfect game, and theyre al-
ways challenging themselves and
can always find fault in what
theyve done despite being victori-
ous.
That nagging dissatisfaction of-
ten drives them to be successful at
later endeavors, once their com-
petitive careers are over. He points
to two former Olympic athletes
Debi Thomas, a figure skater
turned physician, and Mike Plant,
a speed skater turned baseball ex-
ecutive.
Dr. Heiden considers his great-
est accomplishment to be his work
as a physician and orthopedic sur-
geon, rather than his Olympic
medals. He had always wanted to
go into the same field as his fa-
ther, so after getting his bachelors
degree from Stanford University in
1984, he went on to get a medical
degree there too.
After his residency and train-
ing, he returned to California as an
orthopedic surgeon, eventually be-
coming a team physician for the
Sacramento Kings. He and his wife,
also a surgeon, and their two chil-
dren, ages 10 and 12, relocated to
Park City, Utah, in 2006 to open
their own practice. Two years
later, he co-wrote a health and fit-
ness book, Faster, Better, Stron-
ger, and today he works primarily
on ACL and other joint-related in-
juries.
As a former athlete, Dr. Heiden
often faces pressure from the
pharmaceutical industry to spon-
sor new technologies and medica-
tions. Although sponsorships
helped him get through college
and medical school, he says that
he avoids endorsements now. But
he still brings his sports mentality
to his medical career. Its like be-
ing an athleteyoure only as
good as your last case, he says.
BY ALEXANDRA WOLFE
Former Olympic star skater Eric Heiden, who today is the U.S. speed-skating teams doctor, believes the time during training before the competition is the most critical for preventing illnesses and injuries.
A
r
t
h
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r
B
o
n
d
a
r
f
o
r
T
h
e
W
a
l
l
S
t
r
e
e
t
J
o
u
r
n
a
l
Innate motivation is
the key to success in
sports, he says. Its
a very hard thing to
teach an athlete.
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 5
EUROPE NEWS
Commentators were left
scratching their heads after the
German Constitutional Courts
ruling on the legality of the
European Central Banks as-yet
unused bond-buying program.
The program, known as
Outright Monetary Transactions,
allows the ECB to buy sovereign
bonds from embattled euro-zone
member states that agree to
implement economic reforms, but
it has never been activated since
its creation in 2012. A loose
coalition of ECB critics had
challenged its constitutionality.
For some, the court washed its
hands of an awkward matter by
referring the question of the
programs legality to the
European Court of Justice,
Europes highest court.
For others, the referral was
close to disingenuous: The judges
made clear they thought the
program was in breach of EU law,
and after the ECJ issues its
opinion, the German court will
have the last word in its final
ruling.
It may take a long time to find
out whos right. The Karlsruhe-
based court took almost seven
months from the initial hearing to
issue Fridays decision. Based on
its past record, the ECJ could need
at least twice as long.
Yet the main practical
implication of the constitutional
judges decision may lie in the
unmistakable political message it
sends to the German government:
just say no.
This matters because the OMT
was remarkably successful in
reversing the spiraling increase in
sovereign-bond yields in the euro
zones periphery in 2012.
So why has an instrument that
has proved so effectivewithout
even being usedproved so
controversial in Germany?
The answer lies in a school of
economics unique to Germany. The
majority of German economists,
Adalbert Winkler of the Frankfurt
School of Finance and
Management wrote in an analysis
of the courts decision, hail from
the ordoliberalism school, which
stresses the importance of rules in
protecting markets from political
interference. This is neoliberalism
minus the laissez-faire.
The ordoliberals are suspicious
of the OMT because it appears
designed to interfere in how
markets set prices. By buying
bonds to keep yields low, the
central bank creates moral
hazard, they argue, weakening
governments resolve to improve
their economies performance, and
thus their solvency, through
structural and fiscal reforms.
Critics of this view argue that
markets often ignore, then
overreact to, changes in economic
fundamentals. Such
disproportionate reactions can, if
left unchecked, lead to self-
fulfilling prophecies and turn
liquidity shortages into
insolvencies, justifying
intervention in exceptional
circumstances.
A more intermediate view is
that it wasnt until the OMT was
introduced that investors started
giving Italy and Spain credit for
the structural reforms they had
been implementing for months.
The constitutional court has
now said where it stands, and that
is firmly in the ordoliberal camp.
The independence of the ECB may
be sacrosanct but, in the courts
eyes, it is also severely
circumscribed, it turns out.
As Mr. Winkler argues, the
courts view of what constitutes
monetary policyas opposed to
economic policy, which would be
outside its mandatewould
seem to rule out acting as a
lender of last resort, as the ECB
has been doing since 2008, when
it started fulfilling banks
liquidity needs in full in response
to the global financial crisis.
Of course, Karlsruhe makes a
legal argument too: By buying
unlimited stocks of bonds from
selected countries, the OMT could
generate vast losses for the ECB.
Under certain circumstances, the
German parliament could be
forced to absorb these losses by
tapping taxpayers, a breach of the
constitution, which states that
parliament, as the sovereign,
should dictate tax and budget
matters and never be dictated to.
Should the court find the ECB
in breach of the German
constitution whether or not it is
abiding by EU law in the eyes of
the ECJit could ban the
Bundesbank from participating in
OMT operations. It will take
months, perhaps years, to see
whether it comes to this.
But the courts decision has
immediate relevance too. Beyond
the legal and economic arguments,
it is a shot across the bow of the
government, a warning to ensure
that the OMT remains what it is
an unused policy.
One condition for the bond-
buying program to be triggered is
for the applicant country to
request and obtain a preliminary
program from the European
Stability Mechanism, the euro-
zone bailout fund. No such
program can be accepted without
the German government putting it
to parliament and parliament
endorsing it.
So while the ECB has full
discretion over whether it triggers
bond purchases once the
conditions are fulfilled, it is
hostage to Berlins nod.
Karlsruhe hasnt taken a knife
to the euro zones ultimate safety
net, but it has made it clear to
Berlins politicians that it
shouldnt be used.
German Courts Message to Berlin: Say No
[ Brussels Beat ]
BY BERTRAND BENOIT
How the world advances
CME Group is a trademark of CME Group Inc. The Globe logo is a trademark of Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners. Copyright 2013 CME Group. All rights reserved.
Condence to build
Thats what developers and their investors and lenders
can achieve when theyre smart about managing risk.
And smart managers work with CME Group, the worlds
leading derivatives marketplace. Businesses and nancial
institutions around the world partner with us to help them
manage every kind of risk. Interest rate uctuations, stock
market movements, changing currency valuations, energy
costs whatever the risk, we help the world advance
beyond it. Learn more at cmegroup.com/advance.
24 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
Major players & benchmarks
Credit derivatives
Spreads oncredit derivatives are one way the market rates
creditworthiness. Regions that are treading inroughwaters
cansee spreads swing toward the maximumand vice versa.
Indexes beloware for five-year swaps.
Markit iTraxxIndexes SPREADRANGE, in pct. pts.
Mid-spread, since most recent roll
Index: series/version in pct. pts. Mid-price Coupon Maximum Minimum Average
Europe: 20/1 0.77 101.08% 0.01% 1.04 0.69 0.82
Eur. HighVolatility: 20/1 1.16 99.24 0.01 1.61 1.01 1.24
Europe Crossover: 20/1 2.93 108.93 0.05 4.08 2.75 3.29
Asia ex-JapanIG: 20/1 1.46 97.92 0.01 1.57 1.24 1.38
Japan: 20/1 0.83 100.82 0.01 0.97 0.68 0.83
Note: Data as of February 7
Spreads
Spreads on
ve-year swaps
for corporate
debt; based on
Markit iTraxx
indexes.
In percentage points
3.00
2.00
1.00
0
1
t
Asia ex-Japan IG
t
Australia
2013
Aug. Sept. Oct. Nov.
2014
Dec. Jan.
Index roll
Source: Markit Group
BehindEurope's deals: Bank revenue rankings, Global (ex US)
Behind every IPO, bond offering, merger deal or syndicated loanis one or more investment banks. Here are
investment banks ranked by year-to-date revenues fromrecent deals.
PERCENTAGEOFTOTAL REVENUE
Revenue, Equity Debt Mergers &
in millions share capital markets capital markets acquisitions Loans
GoldmanSachs $236 6.9% 32% 27% 40% ...
MorganStanley 186 5.5 35 32 29 4%
Bankof America Merrill Lynch 167 4.9 23 50 26 1
Citi 167 4.9 32 55 12 1
JPMorgan 140 4.1 25 47 25 2
Barclays 136 4.0 12 51 30 8
Credit Suisse 133 3.9 23 40 37 ...
HSBC 133 3.9 35 60 1 4
Deutsche Bank 133 3.9 28 54 16 1
Source: Dealogic
Tracking
credit
markets &
dealmakers
Dow Jones Industrial Average P/E: 15
LAST: 15801.79 s7.71, or 0.05%
YEAR TO DATE: t774.87, or 4.7%
OVER 52 WEEKS s1,830.55, or 13.1%
Note: Price-to-earnings ratios are for trailing 12 months
16650
16300
15950
15600
15250
14900
15 22 29 6 13 20 27
Dec.
3 10 17 24 31
Jan.
7
Feb.
High
Close
Low
50day
moving average
t
StoxxEurope 50: Monday's best andworst...
Previous
close, in STOCKPERFORMANCE
Company Country Industry Volume local currency Previous session YTD 52-week
Sanofi SA France Pharmaceuticals 3,301,220 71.99 1.78% -6.7% 4.3%
AstraZeneca United Kingdom Pharmaceuticals 2,197,747 3,915 1.42 9.5 30.5
British American Tobacco United Kingdom Tobacco 2,117,041 2,967 1.42 -8.4 -9.6
Lloyds Banking Group PLC United Kingdom Banks 118,213,724 82.87 1.31 5.1 57.0
L'Air Liquide France Commodity Chemicals 931,959 97.74 1.28 -4.9 6.6
Banco Bilbao Vizcaya Argn Spain Banks 24,869,648 8.88 -1.86% -0.7 22.4
Banco Santander S.A. Spain Banks 34,474,947 6.44 -1.63 0.0 11.7
Telefonica S.A. Spain Fixed Line Telecommunications 14,976,512 11.28 -1.18 -4.7 12.0
Deutsche Bank Germany Banks 6,744,735 35.12 -0.88 1.3 -3.9
Deutsche Telekom Germany Mobile Telecommunications 7,845,653 11.66 -0.85 -6.2 36.4
...Andthe rest of Europe's blue chips
Latest,
in local STOCKPERFORMANCE
Company/Country (Industry) Volume currency Latest YTD 52-week
Barclays 51,659,722 275.00 1.21% 1.1% -7.9%
United Kingdom(Banks)
National Grid 4,993,131 800.50 1.07 1.6 16.0
United Kingdom(Multiutilities)
Tesco 9,554,172 323.70 0.87 -3.2 -10.7
United Kingdom(Food Retailers &Wholesalers)
Financiere Richemont 1,178,143 87.90 0.86 -1.0 18.1
Switzerland (Clothing &Accessories)
BGGrp 6,793,621 1,061 0.71 -18.3 -4.1
United Kingdom(Integrated Oil &Gas)
Diageo 3,024,857 1,829 0.61 -8.6 -3.1
United Kingdom(Distillers &Vintners)
BHP Billiton 6,394,959 1,815 0.55 -2.9 -15.8
United Kingdom(General Mining)
Unilever 1,632,959 2,375 0.51 -4.3 -5.6
United Kingdom(Food Products)
Telefon L.M. Ericsson B 5,706,117 80.50 0.44 2.5 4.1
Sweden (Telecommunications Equipment)
ENI 9,439,570 16.59 0.42 -5.1 -4.2
Italy (Integrated Oil &Gas)
Roche Holding Part. Cert. 1,195,170 254.80 0.31 2.2 26.1
Switzerland (Pharmaceuticals)
Unilever CVA 3,795,291 27.76 0.31 -5.2 -4.9
Netherlands (Food Products)
Royal Dutch Shell A 2,368,882 2,106 0.21 -2.7 -1.0
United Kingdom(Integrated Oil &Gas)
Glencore Xstrata PLC 14,062,508 326.05 0.20 4.3 -15.3
United Kingdom(General Mining)
UBS 7,367,255 18.45 0.16 9.0 20.1
Switzerland (Banks)
Standard Chartered 2,935,310 1,242 0.12 -8.7 -26.7
United Kingdom(Banks)
BP PLC 16,493,658 482.05 0.07 -1.2 5.8
United Kingdom(Integrated Oil &Gas)
Zurich Insurance Group 283,367 266.30 0.04 3.0 4.2
Switzerland (Full Line Insurance)
Anheuser-Busch InBev 1,284,883 71.37 0.03 -7.6 11.3
Belgium(Brewers)
Vodafone Group 78,457,027 222.00 ... -6.3 27.7
United Kingdom(Mobile Telecommunications)
Latest,
in local STOCKPERFORMANCE
Company/Country (Industry) Volume currency Latest YTD 52-week
Bayer 1,512,763 95.45 -0.01% -6.4% 36.0%
Germany (Specialty Chemicals)
Schneider Electric 1,065,056 60.80 -0.05 -4.1 10.9
France (Electrical Components &Equipment)
AXA 3,894,618 19.40 -0.05 -4.0 46.3
France (Full Line Insurance)
Nestle 5,592,337 67.55 -0.07 3.4 5.6
Switzerland (Food Products)
Reckitt Benckiser Grp 1,009,511 4,776 -0.15 -0.4 12.8
United Kingdom(Nondurable Household Products)
Siemens 1,448,672 93.24 -0.17 -6.1 20.8
Germany (Diversified Industrials)
SAP 2,339,230 55.97 -0.18 -10.2 -5.1
Germany (Software)
Credit Suisse Group AG 3,668,222 27.16 -0.22 -0.4 2.9
Switzerland (Banks)
Novartis AG 3,700,794 72.00 -0.28 1.1 15.3
Switzerland (Pharmaceuticals)
GlaxoSmithKline 7,076,502 1,608 -0.31 -0.2 11.4
United Kingdom(Pharmaceuticals)
Allianz SE 927,990 125.70 -0.32 -3.6 22.6
Germany (Full Line Insurance)
ABB 4,624,789 22.66 -0.35 -3.5 17.5
Switzerland (Industrial Machinery)
Moet Hennessy Louis Vuitt 763,341 133.50 -0.52 0.7 0.3
France (Clothing &Accessories)
Total 3,257,127 42.95 -0.53 -3.6 11.9
France (Integrated Oil &Gas)
Daimler 2,629,431 63.20 -0.54 0.5 40.5
Germany (Automobiles)
HSBC Hldgs 26,659,206 624.10 -0.59 -5.8 -12.9
United Kingdom(Banks)
INGGroep 11,039,867 10.06 -0.59 -0.4 47.3
Netherlands (Life Insurance)
BASF 1,795,281 78.32 -0.63 1.1 9.0
Germany (Commodity Chemicals)
Rio Tinto 3,688,630 3,382 -0.73 -0.8 -7.5
United Kingdom(General Mining)
BNP Paribas 3,551,340 59.01 -0.84 4.2 32.3
France (Banks)
Sources: SIX Financial Information
DJIAcomponent stocks
Volume, CHANGE
Stock Symbol in millions Latest Points Percentage
AT&T T 17.6 $32.41 0.12 0.36%
AmExpress AXP 4.7 88.19 1.19 1.37
Boeing BA 6.5 127.06 0.04 0.03
Caterpillar CAT 3.9 94.44 0.43 0.45
Chevron CVX 7.2 111.57 0.48 0.43
CiscoSys CSCO 39.6 22.84 0.16 0.73
CocaCola KO 18.2 38.57 0.62 1.63
Disney DIS 7.6 77.02 1.35 1.78
DuPont DD 3.5 63.47 0.02 0.03
ExxonMobil XOM 9.3 89.48 1.10 1.22
GenElec GE 26.7 25.03 0.16 0.64
GoldmanSachs GS 3.0 161.16 0.77 0.48
HomeDpt HD 5.4 76.36 0.09 0.12
Intel INTC 20.7 24.27 0.07 0.29
IBM IBM 3.2 177.17 0.08 0.05
JPMorgChas JPM 12.9 56.64 0.02 0.04
JohnsJohns JNJ 6.2 90.94 0.90 1.00
McDonalds MCD 6.0 94.87 1.05 1.10
Merck MRK 8.3 54.91 0.14 0.26
Microsoft MSFT 18.0 36.70 0.14 0.38
Nike B NKE 2.6 72.56 0.13 0.18
Pfizer PFE 19.3 31.43 0.21 0.67
ProctGamb PG 6.0 77.96 0.65 0.84
3M MMM 2.6 129.77 0.56 0.43
TravelersCos TRV 3.8 82.34 1.46 1.81
UnitedTech UTX 3.5 111.50 0.77 0.70
UtdHlthGp UNH 6.6 69.70 1.66 2.32
Verizon VZ 9.5 46.91 0.10 0.21
VISAClA V 2.0 220.01 1.77 0.80
WalMart WMT 5.2 73.71 0.04 0.05
Source: WSJ Market Data Group
Credit-default swaps: European companies
At itsmost basic, thepricingof credit-default swapsmeasureshowmuchabuyer hastopaytopurchase-and
howmuch a seller demands to sell-protection fromdefault on an issuer's debt. The snapshot belowgives a
sense whichway the market was moving yesterday.
Showing the biggest improvement...
CHANGE, in basis points
Yesterday Yesterday Five-day 28-day
ONOFinII 88 46 51 114
SOCIETEAIRFRANCE 320 28 39 17
FCEBk 88 6 7 8
Portugal Telecom 318 21 37 52
Lafarge 208 13 21 16
Renault 150 9 19 8
Holcim 118 6 16 12
Portugal TelecomIntl Fin 323 16 31 57
Stmicroelectronics 98 5 6 5
HeidelbergCement 176 8 21 10
Andthe most deterioration
CHANGE, in basis points
Yesterday Yesterday Five-day 28-day
BOCGROUP 26 1 ... 1
Grohe Hldg 60 1 ... 2
Novartis 24 ... ... 2
Kabel DeutschlandVertrieb
undService
46 1 1 1
IMPERIAL ChemInds 25 ... ... 1
SABMiller 61 1 3 12
Alliance Boots Hldgs 108 1 ... 4
CARLTONComms 135 1 2 5
StdCharteredBk 118 1 7 15
BkOFSCOTLAND 62 ... 3 3
Source: Markit Group
BLUE CHIPS & BONDS
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6 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
EUROPE NEWS
Swiss Vote Rattles Industries
ZURICHSwiss industries began
assessing on Monday the potential
impact of a controversial referen-
dum to cap immigration that calls
into question future economic
growth.
Sectors ranging from banking to
construction could be affected by
the Stop Mass Immigration mea-
sure, which Swiss voters narrowly
approved on Sunday.
The measure requires the gov-
ernment to implement quotas on
foreign workers within three years,
but doesnt set explicit levels. The
introduction of quotas could jeopar-
dize Switzerlands relationship with
the European Union. Quantitative
controls on immigration violate a
Swiss-EU agreement that governs
immigration and market access.
The result is like a thunder-
bolt, the widely read Neue Zrcher
Zeitung said in an opinion piece
that argued voters may be risking a
relationship that has broadly bene-
fited them. The bilateral success
story has been stopped abruptly.
Passage of the measure has
raised concerns about the continued
health of the countrys robust econ-
omy, which has sidestepped the re-
cession and unemployment that
many of its European neighbors
have experienced.
Many Swiss companies, particu-
larly in the huge banking and phar-
maceutical industries, depend on
skilled executives from outside the
country.
Switzerlands manufacturing and
agricultural industries also rely on
the EU as a market, sending more
than half of the countrys 201 billion
Swiss francs ($224 billion) in annual
exports to the 28-country bloc.
Oliver Adler, head of research at
Credit Suisse, estimates that Swit-
zerlands economic output will likely
decline by 1.2 billion Swiss francs,
or 0.3% of gross domestic product,
over the three-year phase-in period.
The Swiss Bankers Association, a
lobby for the industry, said it re-
gretted the decision of voters to ap-
prove the measure, cautioning it
might hamper banks ability to find
the staff they need.
Banks need qualified employ-
ees, the SBA said in a statement,
adding that roughly a quarter of
Swiss banking employees come from
the EU. The SBA fears that the
available pool of trained staff will
decrease now.
A slim 50.3% majority of voters
approved measures to introduce
quotas on foreign workers.
The vote tapped into widespread
concerns that an increase in the
number immigrants is pushing up
housing prices and creating too
much competition for jobs for na-
tive Swiss.
The results showed immigration
driving a wedge between urban
Switzerland, where many highly
paid foreign professionals live, and
rural Switzerland. Voters in Zurich,
Geneva, Basel and Zugcities that
host the headquarters of both Swiss
and foreign multinational corpora-
tionsvoted against the measure,
while voters in rural and farming
communities in the mountainous
central and eastern parts of the
country approved the proposed
curbs for foreign workers.
The vote also split along lan-
guage lines, a common issue for the
multilingual country. Nearly 70% of
voters in the Italian-speaking Can-
ton of Ticino, where Italians regu-
larly cross the border for work,
voted in favor of restricting immi-
gration. The five French-speaking
cantons, which have traditionally
backed EU-friendly issues, voted
against the initiative.
Corporate Switzerland acknowl-
edged the decision of the voters but
urged caution as to how quotas are
introduced.
What is crucial now is the way
in which the quota system is imple-
mented and the need to avoid sub-
sequent damage to the bilateral
agreements as far as possible, said
Pascal Brenneisen, the president of
Novartis AGs operations in Switzer-
land.
John Letzing, Marta Falconi
and John Revill in Zurich
contributed to this article.
BY NEIL MACLUCAS
Opponents of the vote in Switzerland to set quotas for immigrants protested against the measure in Zurich on Sunday.
A
s
s
o
c
i
a
t
e
d
P
r
e
s
s
EU Warns of Consequences From Swiss Vote
relationship with the EU isnt a du-
rable strategy for dealing with Eu-
rope, said German Foreign Minister
Frank-Walter Steinmeier.
Michel Barnier, EU commissioner
for the single market, said in an in-
terview that the vote is likely to
have heavy consequences. Well
probably need to reconsider our ap-
proach with Switzerland in a gen-
eral way. Mr. Barnier said.
The European Commission, the
EUs executive arm, leads negotia-
tions with non-EU members like
Switzerland.
If that treaty is changed, six
other agreements negotiated after
the Swiss rejected EU membership
in 1992 would also be in jeopardy.
Those embed Switzerland into the
EU economy and cover free move-
ment of people, goods and services
as well as agriculture and public
procurement.
It is also unclear if talks planned
Continued from page 1 for Wednesday aimed at simplifying
the web of accords between the two
sides would take place. I fear that
all [these discussions] will be sus-
pended, Mr. Barnier said.
Sundays referendum came amid
simmering frustrations in Brussels
over what officials describe as the
Swiss desire to reap the rewards of
the single market of 500 million
people, while refusing make conces-
sions of its own.
One case in point is the issue of
banking secrecy, which Switzerland
has defended against pressure from
the EU to reveal details of account
holders resident in the EU to tax au-
thorities.
Around one-fifth of Switzerlands
population of 8 million is made up
of immigrants, two-thirds of whom
are highly trained workers, accord-
ing to the Organization for Eco-
nomic Cooperation and Develop-
ment in Paris.
The initiative doesnt specify the
level of quotas Switzerland needs to
introduce but directs the govern-
ment to limit residency permits
governed by Swiss economic inter-
ests.
The initiative also identified peo-
ple living in EU countries along
Switzerlands border but working in
the Alpine country as subject to the
quotas.
The granting of residency per-
mits will be based largely on the
needs of the employer and the abil-
ity of the employee to integrate and
earn his or her own living, the ini-
tiative read.
In a statement, the Federal
Council, Switzerlands cabinet and
collective head of state, said it
would submit a proposal on imple-
menting the quotas to parliament as
soon as possible.
The council acknowledged the
initiative was contrary to the princi-
ple of free movement of persons and
said it would begin discussions with
the EU on the next steps.
Anti-immigration parties in the
EU welcomed the vote. Nigel Farage,
head of the U.K. Independence
Party, congratulated the Swiss peo-
ple for taking advantage of their
position outside the European Union
to set their own immigration rules
in their own national interest. A
U.K. referendum on the issue would
have the same outcome, he said,
but by a landslide.
Heinz-Christian Strache, head of
the right-wing Austrian Freedom
Party, said the Swiss vote was a big
success against mass immigration.
He said a majority in Austria would
back immigration caps, adding the
recent opening of labor markets
across the EU to workers from Ro-
mania and Bulgaria should be re-
versed.
John Letzing and
Marta Falconi in Zurich
and Tom Fairless in Brussels
contributed to this article.
EU Targets
Better Ties
With Cuba
BRUSSELSEurope is set to tar-
get improved ties with Cuba after
the blocs foreign ministers ap-
proved negotiations with the island
nation aimed at deepening bilateral
political and economic dialogue.
While the European Union lifted
economic sanctions in 2008 and re-
mains Cubas biggest foreign inves-
tor and No. 1 trade partner, the 28-
nation bloc has long curtailed
political ties with the island, focus-
ing on Cubas human-rights and
democratic record.
European officials say they hope
negotiations could lead to a perma-
nent dialogue on human rights as
well as exploring ways to improve
trade ties, including by exploring
trade facilitation measures and a
mechanism for resolving disputes.
They also hope it will allow the EU
to engage more directly with citizen
groups.
The EU hopes to start negotia-
tions on a new bilateral agreement
in the coming months. They say Cu-
ban diplomats have privately wel-
comed the European overtures.
I am confident these negotia-
tions will help consolidate our en-
gagement with Cuba, said EU for-
eign-policy chief Catherine Ashton
on Monday. I hope Cuba can take
up this offer and that we can work
soon toward a stronger relation-
ship.
Led by Spain, the EU adopted a
common position on Cuba in 1996,
which made closer ties contingent
on a clear improvement in the re-
gimes human-rights record and
steps toward democracy.
Following a crackdown on dissi-
dents in Cuba, the EU imposed eco-
nomic sanctions and limited high-
level contacts with the Cuban
government in 2003.
However the blocs common po-
sition, which Cuba has long rejected,
has gradually been sidelined as
some governments have pursued
closer ties with Havana.
Dutch Foreign Minister Frans
Timmermans was the latest senior
official to visit Cuba last month as
he urged the EU to engage more ac-
tively with the government.
Nevertheless, some European
governments, including the Czech
Republic and Poland, remain cau-
tious on warming ties, meaning any
new agreement could face a hard
sell within the bloc.
EU officials say that the push to
revise policy comes at a time of sig-
nificant economic and political over-
haul by Ral Castros regime and
that, if negotiations produce a broad
new agreement with Cuba, the EU
could look again at its common po-
sition.
EU officials also insist they have
kept both the U.S. administration
and leading lawmakers informed of
their plans. One senior EU diplomat
said last week that there is full un-
derstanding in Washington for what
we are seeking to achieve.
But the official said Europe isnt
seeking to be a pathfinder to pave
the way for closer U.S.-Cuba ties.
BY LAURENCE NORMAN
Three Cantons in Focus
Many cantons that are home to big multinationals, which employ large numbers of
foreigners, voted against the quotas. But rural cantons and those with a high
number of cross-border day-workers voted for them.
Ticino, where a large number of Italians cross the border for work every day, voted strongly
in favor of the quotas.
Zurich, the seat of Switzerlands international banking sector, voted against quotas.
Basel-Stadt, home to pharmaceutical companies Novartis AG and Roche AG, had one of the
largest margin of votes against the measure.
The Wall Street Journal Sources: Swiss Federal Statistical Ofce; Staff reports
50%
68.2% Voted Yes (82,652 Votes)
47.3% (239,139)
39% (24,941)
31.8% Voted No (38,589)
52.7% (265,973)
61% (39,007)
Officials hope talks lead
to a permanent dialogue
on human rights.
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 23
Major stockmarket indexes Stock indexes fromaround the world, grouped by region. Showninlocal-currency terms.
PREVIOUS SESSION PERFORMANCE
Region/Country Index Close Net change Percentage change Yr.-to-date 52-wk.
EUROPE Stoxx Europe 600 325.30 0.21 0.06% -0.9% 13.2%
Stoxx Europe 50 2857.66 -2.16 -0.08% -2.1 8.8
Euro Zone Euro Stoxx 310.76 -0.09 -0.03 -1.1 17.8
Euro Stoxx 50 3032.53 -5.96 -0.20 -2.5 15.3
Austria ATX 2590.77 -3.62 -0.14 1.7 7.7
Belgium Bel-20 2913.54 4.11 0.14 -0.4 16.3
Czech Republic PX 1005.92 4.70 0.47 1.7 1.2
Denmark OMXCopenhagen 616.90 4.39 0.72 9.0 29.9
Finland OMXHelsinki 7352.08 66.96 0.92 0.2 18.7
France CAC-40 4237.13 8.95 0.21 -1.4 16.1
Germany DAX 9289.86 -12.06 -0.13 -2.7 21.4
Hungary BUX 18115.28 9.21 0.05 -2.4 -4.8
Ireland ISEQ 4804.82 -24.95 -0.52 5.8 33.2
Italy FTSE MIB 19682.82 -9.26 -0.05 3.8 18.4
Netherlands AEX 389.64 0.10 0.03 -3.0 12.9
Norway All-Shares 604.66 -2.71 -0.45 0.3 16.0
Poland WIG 52024.29 -113.61 -0.22 1.4 11.3
Portugal PSI 20 6921.80 -6.39 -0.09 5.5 12.9
Russia RTSI 1336.02 -5.47 -0.41% -7.4 -15.5
PREVIOUS SESSION PERFORMANCE
Region/Country Index Close Net change Percentage change Yr.-to-date 52-wk.
Spain IBEX35 9982.70 -89.70 -0.89 0.7 22.1
Sweden OMXStockholm 422.19 1.41 0.34% -0.3 15.4
Switzerland SMI 8324.85 6.25 0.08 1.5 12.4
Turkey BIST 100 64050.16 -564.2 -0.87 -5.5 -18.6
U.K. FTSE 100 6591.55 19.87 0.30 -2.3 5.2
ASIA-PACIFIC DJ Asia-Pacific TSM 1383.89 8.90 0.65 -4.5 2.2
Australia SPX/ASX200 5222.10 55.60 1.08 -2.4 5.3
China Shanghai Composite 2086.07 41.57 2.03 -1.4 -14.2
Hong Kong Hang Seng 21579.26 -57.59 -0.27 -7.4 -7.0
India S&P BSE Sensex 20334.27 -42.29 -0.21 -4.0 4.5
Japan Nikkei Stock Average 14718.34 255.93 1.77 -9.7 32.0
Singapore Straits Times 3017.20 4.06 0.13 -4.7 -7.7
South Korea Kospi 1923.30 0.80 0.04 -4.4 -1.4
AMERICAS DJ Americas 452.54 0.05 0.01 -2.8 14.8
Brazil Bovespa 47710.82 -362.78 -0.75 -7.4 -18.4
Mexico IPC 40166.88 -358.86 -0.89 -6.0 -10.9
Note: Americas index data are as of 3:00p.m. ET. Sources: SIXFinancial Information; WSJ Market Data Group
Cross rates U.S.-dollar and euro foreign-exchange rates inglobal trading
USD GBP CHF SEK RUB NOK JPY ILS EUR DKK CDN AUD
Australia 1.1182 1.8359 1.2469 0.1724 0.0322 0.1822 0.0109 0.3175 1.5257 0.2044 1.0120 ...
Canada 1.1050 1.8142 1.2321 0.1704 0.0318 0.1801 0.0108 0.3138 1.5077 0.2020 ... 0.9882
Denmark 5.4693 8.9799 6.0987 0.8435 0.1574 0.8913 0.0535 1.5531 7.4625 ... 4.9497 4.8912
Euro 0.7329 1.2033 0.8173 0.1130 0.0211 0.1194 0.0072 0.2081 ... 0.1340 0.6633 0.6554
Israel 3.5216 5.7820 3.9269 0.5431 0.1013 0.5739 0.0345 ... 4.8049 0.6439 3.1870 3.1494
Japan 102.1541 167.7247 113.9115 15.7542 2.9394 16.6484 ... 29.0083 139.3829 18.6779 92.4504 91.3581
Norway 6.1360 10.0745 6.8422 0.9463 0.1766 ... 0.0601 1.7424 8.3721 1.1219 5.5531 5.4875
Russia 34.7528 57.0599 38.7527 5.3596 ... 5.6638 0.3402 9.8686 47.4180 6.3542 31.4516 31.0800
Sweden 6.4842 10.6463 7.2305 ... 0.1866 1.0568 0.0635 1.8413 8.8473 1.1856 5.8683 5.7990
Switzerland 0.8968 1.4724 ... 0.1383 0.0258 0.1462 0.0088 0.2547 1.2236 0.1640 0.8116 0.8020
U.K. 0.6091 ... 0.6792 0.0939 0.0175 0.0993 0.0060 0.1730 0.8310 0.1114 0.5512 0.5447
U.S. ... 1.6419 1.1151 0.1542 0.0288 0.1630 0.0098 0.2840 1.3644 0.1828 0.9050 0.8943
Source: ICAPPlc.
MSCI indexes
Developed and emerging-market regional and country indexes
fromMSCI as of February 10, 2014
Price-to- LOCAL-CURRENCY
Dividend earnings PERFORMANCE
yield ratio MSCI Index Last Daily YTD 52-wk.
2.50% 16 MSCI ACWI* 394.88 -1.15% -3.3% 11.2%
2.50 17 World(DevelopedMarkets) 1,611.78 -1.19 -3.0 14.7
2.40 17 Worldex-EMU 196.34 -1.23 -3.1 14.5
2.40 17 Worldex-UK 1,624.76 -1.24 -2.9 15.4
3.10 16 EAFE 1,851.35 -1.04 -3.4 9.7
2.70 11 EmergingMarkets (EM) 937.30 -0.80 -6.5 -12.3
3.30 16 EUROPE 110.88 0.72 -1.1 12.1
3.20 18 EMU 193.02 -0.89 -2.4 16.0
3.20 18 Europe ex-UK 119.83 0.85 -0.4 14.5
4.20 13 Europe Value 112.68 0.80 -0.7 12.7
2.40 21 Europe Growth 105.01 0.64 -1.5 11.3
2.30 23 Europe Small Cap 264.37 0.64 1.4 28.6
3.70 6 EMEurope 262.26 0.17 -4.5 -16.1
3.60 13 UK 1,937.69 0.17 -2.8 4.2
3.30 17 Nordic Countries 203.30 0.85 0.8 11.8
3.70 4 Russia 764.53 0.67 -3.5 -4.8
3.00 18 SouthAfrica 1,092.33 0.77 -4.0 8.7
3.00 13 ACASIAPACIFICEX-JAPAN 443.65 -0.92 -5.2 -7.2
1.80 16 Japan 733.07 2.33 -9.0 26.3
3.40 9 China 57.98 1.54 -8.1 -11.4
1.50 16 India 789.01 0.20 -3.4 1.3
1.20 10 Korea 556.73 0.72 -5.5 -1.6
2.90 16 Taiwan 293.19 1.09 -3.1 4.0
1.90 19 USBROADMARKET 2,050.41 -1.29 -2.6 21.0
1.50 30 USSmall Cap 3,133.41 -1.17 -2.9 25.3
3.20 14 EMLATINAMERICA 2,930.48 -0.18 -8.4 -25.6
*Twenty-four developed and 21 emerging markets Source: MSCI
S&PDowJones Indices
Price-to-
Dividend earnings PERFORMANCE(euros) PERFORMANCE(U.S.dollars)
yield* ratio* S&PDowJones Index Last Daily 52-wk. Last Daily 52-wk.
2.45%18.52 Global TSM 3136.14 0.17% 12.4%
2.99 17.72 Global DOW 1660.33 -0.18% 12.2% 2405.51 -0.01 14.4
3.05 13.47 Global Titans 50 220.36 -0.07 8.5 224.51 0.10 10.7
3.17 19.15 DevEurope TSM 3334.04 0.28 17.3
2.39 19.37 DevelopedMarkets TSM 3163.63 0.20 15.3
2.99 13.07 S&PBMI EmgMarkets 238.98 -0.19 -11.6
3.33 18.44 S&PEurope 350 1325.49 0.10 13.9 1625.11 0.32 15.8
3.24 21.17 S&PEuro 1317.19 -0.05 18.5 1636.61 0.18 20.5
3.80 17.32 Europe Dow 1380.10 -0.26 13.7 2000.31 -0.05 16.0
3.61 8.55 BRIC50 355.26 -0.58 -16.2 462.05 -0.41 -14.6
1.93 19.85 U.S. TSM 18893.31 -0.02 19.3
Kuwait Titans 30 -c 204.94 0.41 5.2
Price-to-
Dividend earnings PERFORMANCE(euros) PERFORMANCE(U.S.dollars)
yield* ratio* S&PDowJones Index Last Daily 52-wk. Last Daily 52-wk.
TurkeyTitans 20 -c 653.08 -0.83% -16.8%
6.35%14.98 Global Select Div 244.06 0.34 8.6
6.71 14.35 Asia/Pacific Select Div 275.64 0.39% -7.8% 321.94 0.60 -5.9
U.S. Select Dividend -d 1198.83 -0.17 18.0
3.29 29.14 S&PGlbNat Resources 1944.66 0.24 -9.6 2635.74 0.41 -7.8
2.16 19.16 Islamic Market 2670.39 0.29 11.8
2.50 17.18 Islamic Market 100 2911.06 0.31 13.4
Islamic Turkey -c 3911.57 -0.82 -8.9
3.29 21.22 Sustainability Europe 107.06 0.00 12.9 160.61 0.21 15.1
3.97 22.93 S&PGlbInfrastructure 1471.85 -0.13 5.5 2267.92 0.04 7.6
1.94 13.55 Luxury 2013.61 0.65 13.8
DJ-UBSCommodity-p 113.31 -0.34 -9.1 128.05 -0.34 -8.9
*Fundamentals are based on data in U.S. dollar. Footnotes: a-in USdollar. b-dividends reinvested. c-in local currency. Note:All data as of 2 p.m.ET. Source: S&PDowJones Indices
GLOBAL MARKETS LINEUP
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Commodities Prices of futures contracts withthe most openinterest
EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.MDEX: Bursa Malaysia
Derivatives Berhad; LIFFE: London International Financial Futures Exchange; COMEX: Commodity Exchange; LME: London Metals Exchange;
NYMEX: NewYork Mercantile Exchange;ICE-EU: ICE Futures Europe
ONE-DAY CHANGE Year Year
Commodity Exchange Last price Net Percentage high low
Corn (cents/bu.) CBOT 443.50 -0.75 -0.17% 450.25 406.25
Soybeans (cents/bu.) CBOT 1325.00 -6.50 -0.49 1,340.00 1,260.50
Wheat (cents/bu.) CBOT 585.25 7.75 1.34% 612.75 550.00
Live cattle (cents/lb.) CME 140.125 -0.275 -0.20 143.200 135.375
Cocoa ($/ton) ICE-US 2,921 -19 -0.65 2,958 2,636
Coffee (cents/lb.) ICE-US 135.90 0.20 0.15 144.15 110.20
Sugar (cents/lb.) ICE-US 15.64 -0.09 -0.57 16.42 14.70
Cotton (cents/lb.) ICE-US 87.20 -0.27 -0.31 88.84 82.39
Rapeseed (euro/ton) LIFFE 374.00 -2.25 -0.60 385 349
Cocoa (pounds/ton) LIFFE 1,860 -7 -0.37 1,874 1,676
Robusta coffee ($/ton) LIFFE 1,788 21 1.19 1,883 1,575
Copper ($/lb.) COMEX 3.2210 -0.0150 -0.46 3.4245 3.1750
Gold ($/troy oz.) COMEX 1274.50 11.60 0.92 1,280.10 1,203.70
Silver ($/troy oz.) COMEX 20.035 0.099 0.50 20.660 18.970
Aluminum($/ton) LME 1,719.00 22.00 1.30 1,813.00 1,686.50
Tin ($/ton) LME 22,250.00 220.00 1.00 22,475.00 21,410.00
Copper ($/ton) LME 7,159.00 98.50 1.40 7,422.00 7,051.00
Lead ($/ton) LME 2,135.00 37.50 1.79 2,242.00 2,097.50
Zinc ($/ton) LME 2,021.50 48.50 2.46 2,090.00 1,964.00
Nickel ($/ton) LME 14,140 255 1.84 14,730 13,425
Crude oil ($/bbl.) NYMEX 99.94 0.06 0.06 100.55 91.47
Heating oil ($/gal.) NYMEX 2.9944 -0.0559 -1.83 3.0598 2.8905
RBOBgasoline ($/gal.) NYMEX 2.7248 -0.0241 -0.88 2.8043 2.5942
Natural gas ($/mmBtu) NYMEX 4.417 -0.099 -2.19 4.7620 3.8580
Brent crude ($/bbl.) ICE-EU 107.92 -0.93 -0.85 110.79 104.75
Gas oil ($/ton) ICE-EU 914.25 -1.75 -0.19 943.75 893.75
Sources: SIX Financial Information; WSJ Market Data Group
Currencies Londonclose onFeb. 10
Per In
AMERICAS Per euro In euros U.S. dollar U.S. dollars
Argentina peso-a 10.6509 0.0939 7.8061 0.1281
Brazil real 3.2654 0.3062 2.3933 0.4178
Canada dollar 1.5077 0.6633 1.1050 0.9050
Chile peso 757.67 0.001320 555.30 0.001801
Colombia peso 2795.26 0.0003577 2048.65 0.0004881
Ecuador US dollar-f 1.3644 0.7329 1 1
Mexico peso-a 18.1543 0.0551 13.3053 0.0752
Peru sol 3.8491 0.2598 2.8211 0.3545
Uruguay peso-e 30.175 0.0331 22.116 0.0452
U.S. dollar 1.3644 0.7329 1 1
Venezuela bolivar 8.66 0.115418 6.35 0.157480
ASIA-PACIFIC
Australia dollar 1.5257 0.6554 1.1182 0.8943
1-mo. forward 1.5285 0.6542 1.1203 0.8927
3-mos. forward 1.5348 0.6516 1.1248 0.8890
6-mos. forward 1.5443 0.6476 1.1318 0.8836
China yuan 8.2686 0.1209 6.0601 0.1650
Hong Kong dollar 10.5842 0.0945 7.7572 0.1289
India rupee 85.0453 0.0118 62.3300 0.0160
Indonesia rupiah 16420 0.0000609 12034 0.0000831
Japan yen 139.38 0.007174 102.15 0.009789
1-mo. forward 139.36 0.007176 102.14 0.009791
3-mos. forward 139.32 0.007178 102.11 0.009794
6-mos. forward 139.24 0.007182 102.05 0.009799
Malaysia ringgit-c 4.5475 0.2199 3.3329 0.3000
NewZealand dollar 1.6494 0.6063 1.2088 0.8272
Pakistan rupee 143.682 0.0070 105.305 0.0095
Philippines peso 61.413 0.0163 45.010 0.0222
Singapore dollar 1.7333 0.5769 1.2704 0.7872
South Korea won 1464.03 0.0006830 1073.00 0.0009320
Taiwan dollar 41.356 0.02418 30.310 0.03299
Thailand baht 44.756 0.02234 32.802 0.03049
Per In
EUROPE Per euro In euros U.S. dollar U.S. dollars
Euro zone euro 1 1 0.7329 1.3644
1-mo. forward 1.0000 1.0000 0.7329 1.3644
3-mos. forward 1.0000 1.0000 0.7329 1.3644
6-mos. forward 1.0000 1.0000 0.7329 1.3645
Czech Rep. koruna-b 27.541 0.0363 20.185 0.0495
Denmark krone 7.4625 0.1340 5.4693 0.1828
Hungary forint 311.39 0.003211 228.22 0.004382
Norway krone 8.3721 0.1194 6.1360 0.1630
Poland zloty 4.1783 0.2393 3.0623 0.3266
Russia ruble-d 47.418 0.02109 34.753 0.02877
Sweden krona 8.8473 0.1130 6.4842 0.1542
Switzerland franc 1.2236 0.8173 0.8968 1.1151
1-mo. forward 1.2233 0.8174 0.8966 1.1153
3-mos. forward 1.2227 0.8179 0.8961 1.1159
6-mos. forward 1.2216 0.8186 0.8953 1.1169
Turkey lira 3.0167 0.3315 2.2109 0.4523
U.K. pound 0.8310 1.2033 0.6091 1.6419
1-mo. forward 0.8312 1.2031 0.6092 1.6415
3-mos. forward 0.8316 1.2025 0.6095 1.6407
6-mos. forward 0.8322 1.2016 0.6099 1.6395
MIDDLE EAST/AFRICA
Bahrain dinar 0.5143 1.9443 0.3770 2.6528
Egypt pound-a 9.4998 0.1053 6.9625 0.1436
Israel shekel 4.8049 0.2081 3.5216 0.2840
Jordan dinar 0.9661 1.0351 0.7081 1.4123
Kuwait dinar 0.3854 2.5948 0.2825 3.5404
Lebanon pound 2055.32 0.0004865 1506.35 0.0006639
Saudi Arabia riyal 5.1170 0.1954 3.7503 0.2666
South Africa rand 15.1655 0.0659 11.1149 0.0900
United Arab dirham 5.0117 0.1995 3.6731 0.2722
a-floating rate b-financial c-government rate c-commercial
rate d-Russian Central Bank rate.
Source: ICAPPlc.
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 7
U.S. NEWS
Fed Nominees Tenure
At Citi Is Grist for Senate
The nominee for Fed vice chair-
man is likely to face questions at his
confirmation hearing about whether
he would be a tough regulator of big
banks after earning several million
dollars at one.
While senators of both parties ex-
pect Stanley Fischer to be confirmed,
some Senate Banking Committee
members who will be grilling him
this month say they would like to
know more about his three years as
vice chairman of Citigroup Inc.,
which the Federal Reserve super-
vises.
We should examine what Mr.
Fischer learned from his time on
Wall Street and how he would apply
this experience to his new job, said
Sen. Sherrod Brown, an Ohio Demo-
crat. Some of the best watchdogs
have come from industry, while oth-
ers have been lap dogs. We must do
all that we can to ensure that our
regulators will work to protect the
public and break Washingtons long-
held bias towards Wall Street.
A spokeswoman for Sen. Eliza-
beth Warren said the Massachusetts
Democrat will look closely at the re-
cords of all of the presidents nomi-
nees for the Fed and will have a large
number of questions for themin-
cluding about how their prior experi-
ences might inform their views on
bank regulation and the risk too-big-
to-fail banks pose to our economy.
White House spokesman Eric
Schultz responded, Stanley Fischer
has spent the past four decades
managing economic policy in posts
at the World Bank, the Bank of Is-
rael, the [International Monetary
Fund], Citi, and the pre-eminent aca-
demic institutions in the world. He is
a leading thinker of this generation
and will bring experience, judgment
and deep knowledge of the financial
system to the Federal Reserve.
Mr. Fischer worked at Citi from
2002 to 2005, a period when the
bank profited greatly from financial
activities related to the credit and
housing booms that ended with the
financial crisis. From February 2004
to April 2005 he led the banks Pub-
lic Sector Group, which gives finan-
cial, technological and regulatory ad-
vice to governments. He was also
chairman of the banks Country Risk
Committee, a group of senior Citi of-
ficials who assess the potential pit-
falls of the firms international in-
vestments, determining where to
invest and where not to. And he was
president of Citigroup International,
which then managed the firms over-
seas businesses.
He said in a January letter to the
Feds assistant general counsel that
he would take several steps to avoid
any actual or apparent conflict of in-
terest if he was confirmed for the
Fed job. He said he would sell his
holdings in several financial firms,
including asset manager BlackRock
Inc. and American Express Co., and
in the Citigroup Employees Fund of
Funds I LP. He also said he wouldnt
participate in any Fed matter with a
direct and predictable effect on my
financial interests without a written
waiver.
Mr. Fischer is the latest in a
string of former Citi officials tapped
for top jobs by the Obama adminis-
tration, including Treasury Secretary
Jack Lew and U.S. Trade Representa-
tive Michael Froman. The Treasury
Department said last week that it
would hire Citigroup economist
Nathan Sheets to advise Mr. Lew.
Former Obama economic adviser
Lawrence Summers became a Citi-
group consultant after leaving the
administration.
Mr. Summerss work for financial
firms helped fuel opposition to his
candidacy for the top Fed job last
summer, but Citi experience wasnt a
major hurdle in the confirmation of
Mr. Lew or Mr. Froman to their
posts.
Mr. Fischer said in a 2011 inter-
view with a Massachusetts Institute
of Technology publication that he
was drawn to Citi years ago by Rob-
ert Rubin, who had been a member
of its board. They had worked to-
gether battling a series of global fi-
nancial crises during the Clinton ad-
ministration, when Mr. Rubin was
Treasury secretary and Mr. Fischer
was the IMFs first deputy managing
director.
At Citi, Mr. Fischer reported di-
rectly to Mr. Rubin, according to an
offer letter filed with the Securities
and Exchange Commission. The let-
ter shows Mr. Fischer was to receive
[twice-monthly] salary payments of
$20,833, annualized to $500,000. In
addition, he would be a paid a sign-
ing bonus of another half million
dollars, as well as $2 million in
yearly bonuses, the letter said.
Mr. Fischer won praise from Citi
colleagues who respected his wide-
ranging expertise and approachable
manner. Bob Annibale, Citis global
director of community development
and microfinance, said Mr. Fischer,
who was born in what is now Zambia,
took the time to be involved in some
of the banks programs targeting
some of the worlds poorest coun-
tries.
He spent his life somewhere
where the vast majority of people
dont have access to basic financial
services. Hes very committed and fo-
cused on that last mile, Mr. Annibale
said.
Shayndi Raice
contributed to this article.
BY PEDRO NICOLACI DA COSTA
Stanley Fischer, who served for three years as vice chairman of Citigroup, was nominated as vice chairman of the Fed.
A
g
e
n
c
e
F
r
a
n
c
e
-
P
r
e
s
s
e
/
G
e
t
t
y
I
m
a
g
e
s
LawmakersPressure
VeteransDepartment
Congress is poised to tighten its
leash on the Department of Veterans
Affairs over its response to what law-
makers say are management and
medical errors, just as VA facilities
are flooded with a new generation of
injured troops.
Top members of congressional
committees that oversee the VA are
frustrated with the agency in the
wake of incidents ranging from a pa-
tients death after an altercation with
a nursing assistant in Louisiana to a
deadly outbreak of Legionnaires dis-
ease in Pennsylvania. Lawmakers say
these episodes reflect a lack of ac-
countability at the 1,700 VA hospitals,
clinics and other facilities.
Congress now appears likely to
impose legislative penalties. The
House last week unanimously passed
a bill that included a five-year ban on
bonuses for senior VA executives.
The Senate is considering less severe
restrictions on performance pay. The
chairman of the House Veterans Af-
fairs Committee, Rep. Jeff Miller (R.,
Fla.), says he plans to introduce a
measure this week that would make
it easier to fire or demote executives
whose performance falls short.
VA needs to more directly and
explicitly measure each leaders con-
tribution, said Rep. Mike Michaud of
Maine, the top Democrat on the
House VA committee.
The VA cares for 8.75 million pa-
tients, from nonagenarian World War
II veterans to teenagers with brain
injuries from Afghanistan. Vietnam-
era vets are now heavy VA users.
In some ways, the agency is polit-
ically inviolate. Since the 2000 fiscal
year, its budget has tripled to $148
billion in the current fiscal year, with
no serious talk of cuts despite gen-
eral concern about government defi-
cits. But that windfall and the influx
of wounded vets have also drawn in-
creased congressional scrutiny.
The dispute has taken a testy
turn, with Mr. Miller and VA Secre-
tary Eric Shinseki swapping com-
ments about VA accountability prac-
tices. In a Jan. 31 letter to Mr. Miller,
the secretary defended the agencys
bonus and dismissal practices, even
going so far as to explain bonuses
given to particular employees. Re-
sults, or lack thereof, for which em-
ployees and executives are responsi-
ble and accountable, are factors when
evaluating performance, wrote Mr.
Shinseki, a former Army general.
Mr. Miller shot back Friday: Its
becoming more apparent by the day
that there seems to be just two types
of people who think VA is properly
holding its leaders accountable: VA
executives who have received huge
performance bonuses year after year
despite failing in their jobs and those
who work in VAs central office.
Lawmakers complain the VA
hasnt responded to more than 100
congressional requests for informa-
tion, some more than a year old. It
almost feels as if they see their job as
holding back information, said Rep.
Mike Coffman (R., Colo.), who is
pushing to give the Army Corps of
Engineers oversight of three troubled
VA construction projects.
VA officials say they have an-
swered more than 85,000 informa-
tion requests in the past four years.
They say the agency has spent less
on bonuses than allowed by law.
Any adverse incident for a vet-
eran within our care is one too
many, said VA spokesman Drew
Brookie. When an incident occurs in
our system we aggressively identify,
correct and work to prevent addi-
tional risks.
Sen. Bernie Sanders, a Vermont
independent who heads the Senate
VA oversight committee and is one of
the agencys biggest allies on Capitol
Hill, says most veterans are satisfied
with VA care. However, he expressed
some concern about the VAs re-
sponse when things go wrong. When
people are doing a bad job, we dont
want them staying in the job; when
they do a good job, we want to see
them rewarded, Mr. Sanders said.
Im not going to tell you thats al-
ways the case with the VA.
Among the incidents that have
become friction points:
A nursing assistant allegedly
killed a 70-year-old patient in an al-
tercation at a VA hospital in Alexan-
dria, La. VA officials deemed the
death accidental. The local coroner
thought otherwise and took steps
that led to manslaughter charges.
The nursing assistant pleaded not
guilty. His attorney didnt respond to
requests for comment. The VA said it
couldnt comment.
The VA inspector general said
the VA system in Pittsburgh didnt
follow standard procedures in man-
aging plumbing, leading to an out-
break of Legionnaires disease that
sickened at least 21 and contributed
to the death of five. In September,
the commission that accredits hospi-
tals said the Pittsburgh VA hadnt ad-
equately mapped its plumbing sys-
tem to identify areas at high risk. The
VA says Pittsburghs water-safety
regimen is now one of the most rig-
orous in the industry. The hospital
director has received performance
bonuses and remains in her job. The
VA had no further comment, and a
representative for the facility didnt
respond to requests for comment.
The inspector general found the
director of the Augusta, Ga., VA hos-
pital guilty of abuse of authority
for having hired a favored congres-
sional aide. Other problems beset the
hospital: It received only a condi-
tional accreditation from its inspec-
tion authority, and a backlog of gas-
trointestinal exams led to worsened
sickness in at least seven patients.
Three of those have since died, per-
haps as a result of those aggravated
illnesses, according to the VAs Mr.
Brookie. The director was briefly re-
moved from her post but was soon
put in charge of another VA hospital.
She retired in the fall and didnt re-
spond to requests for comment.
BY MICHAEL M. PHILLIPS
AND BEN KESLING
Paying the Bill
Veterans Affairs total spending,
including medical care and military
pensions, since 2000
The Wall Street Journal
Source: White House Ofce
of Management and Budget
Note: For scal years ending Sept. 30
$140
0
20
40
60
80
100
120
billion
2000 02 04 06 08 10 12 14
Est. $148.2
We should examine what
Mr. Fischer learned from
his time on Wall Street,
said Sen. Sherrod Brown,
an Ohio Democrat.
22 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
BUSINESS BRIEFS
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Leading 10Performers
FUND FUND LEGAL %Return in $US **
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2 FonCaixa InverCaixa Gestin EURESP 1.06 3.55 4.75 6.63
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MARKETS
Fund Scorecard
Stocks Steady With
Yellen in the Wings
European and U.S. stocks were
little changed Monday as investors
continued to digest Fridays disap-
pointing U.S. jobs report and looked
ahead to testimony this week from
Federal Reserve Chairwoman Janet
Yellen.
The Stoxx Europe 600 index
closed up less than 0.1% at 325.30,
its fourth straight
gain. The U.K.s FTSE
100 added 0.3% to
6591.55. Frances
CAC-40 tacked on 0.2% to 4237.13,
despite data released Monday show-
ing a sharper-than-expected slow-
down in French industrial produc-
tion in December. Germanys DAX
shed 0.1% to 9289.86.
The ability of stocks to push
higher late last week after the poor
jobs report, and to hold those gains
Monday, was an encouraging sign,
traders said.
Investors appear to be accept-
ing that the short-term volatility in
the data doesnt call into question
the gradually improving trend in the
U.S. economy, said Ian Williams,
economist and strategist at broker-
age Peel Hunt.
In the U.S., the Dow Jones Indus-
trial Average rose 7.71 points, or
0.05%, to 15801.79. The S&P 500 in-
dex gained 2.82 points, or 0.2%, to
1799.84. The Nasdaq Composite In-
dex climbed 22.31 points, or 0.5%, to
4148.17.
Some investors appeared com-
fortable taking modestly bullish po-
sitions before Ms. Yellens testi-
mony, said David Seaburg, head of
equity sales trading at Cowen & Co.
I think people are comfortable
being long ahead of it, he said. I
dont think people feel shes going
to hold off on [tapering the Feds
bond-buying program], but I dont
think people are concerned about
any surprises.
Many investors have been ex-
pecting more volatility in stocks this
year after last years relatively
smooth ride higher.
Joel Johnson, founder of John-
sonBrunetti Retirement & Invest-
ment Specialists, which oversees
$300 million, said the market could
remain volatile over the coming
weeks as uncertainty over the econ-
omy and Fed policy hang over inves-
tors minds. But he recommends in-
vestors not overreact to short-term
market weakness.
Were telling our clients pull-
backs can be expected, stay the
course and dont expect what you
saw last year, Mr. Johnson said.
The S&P 500 soared 30% in 2013.
Expect a little volatility. But over-
all, the economy will be in a better
spot and the markets will be mod-
estly higher this year, said.
Emerging-market currencies
were mostly lower against the dol-
lar, but remained well above their
weakest levels hit during the recent
selloff, having recovered some
losses last week. The Turkish lira,
South African rand and Hungarian
forint all fell against the dollar.
The euro edged up to $1.3637 in
late New York trading from $1.3616
late Friday.
In corporate news, Nokia gained
2.8% after announcing Friday it had
settled all pending patent litigation
with HTC Corp., while a collabora-
tion deal was also struck.
Shares in Centrica fell 1.7%. The
U.K.s energy secretary called on
regulators to scrutinize profits of
the companys British Gas unit as
part of their current review of com-
petition in energy retail.
In the U.S., Hasbro was up 4.8%
in late trade. The toy makers
fourth-quarter report fell short of
estimates, but analysts said the re-
sults were still good enough to put
Hasbro on positive footing for 2014.
Yelp gained 1.7% after The Wall
Street Journal reported that Yahoo
will incorporate Yelps listings and
reviews of local businesses into
search results. Yahoos was up 1%.
Gold for February delivery
gained $11.50 an ounce, or 0.9%, to
$1,274.80 on the Comex division of
the New York Mercantile Exchange.
Dan Strumpf
contributed to this article.
BY TOMMY STUBBINGTON
MARKET
REPORT
New Rules Put Buyout
Firms Out on Their Own
Most private-equity firms have to
raise funds by sending executives
around the world to drum up inter-
est from investors. For years, execu-
tives at Ridgemont Equity Partners
never had to leave Charlotte, N.C.,
home to both the buyout firm and its
lone backer: Bank of America Corp.
But in 2010, the bank spun off
Ridgemont. Since then, it has had to
raise money like other independent
firms do. This past summer, Ridge-
monts executives wrapped up 18
globe-trotting months in which they
gathered $735 million from new in-
vestors.
The fundraising, said Ridgemont
partner Travis Hain, was challeng-
ing and lengthy, but also galvaniz-
ing. It forced us to demonstrate
how and why we compare favorably
to the best investors in the indus-
try, he says.
The firm raised about 9% more
than its goal.
As banking rules are redrawn,
many other private-equity execu-
tives will earn more air miles. The
principal reason: A postcrisis provi-
sion known as the Volcker rule is
forcing financial institutions to shed
their buyout businesses.
The rulepart of the Dodd-Frank
lawaims to limit the risks big
banks can take with their own capi-
tal. Under the rule, approved by five
federal financial-regulatory agencies
last year, banks have to sharply re-
duce their stakes in their private-eq-
uity units, or shed them altogether,
by 2015.
Banks werent always in the buy-
out business. They piled in during
the boom years leading up to the
2008 financial crisis, taking part in
some of the eras biggest corporate
takeovers. Doing so sweetened their
bottom lines. Some bank executives,
who were able to invest in buyout
pools, got a chance to taste the huge
profits earned by their peers at pri-
vate buyout shops.
Now, those profits, and the risks
they brought with them, are being
curtailed due to the Volcker rule
and, sometimes, the banks own
business priorities. For newly inde-
pendent firms and their executives,
the shift offers a chance to see if
they can thrive on their own.
J.P. Morgan Chase & Co. is in
the process of spinning out One Eq-
uity Partners, a private-equity arm.
The bank, which had been the firms
only investor, wont put money into
a new fund One Equity Partners is
raising and is exploring a sale of its
stake in the buyout shops existing
investments, according to people fa-
miliar with the matter.
Goldman Sachs Group Inc. plans
to keep its private-equity businesses
but is reducing the amount of capi-
tal it holds in existing funds. To
comply with a Volcker requirement
that funds names dont evoke those
of their parent banks, it is replacing
the moniker GS Capital with Broad
Street on new funds.
As for Ridgemont, it was sepa-
rated from Bank of America in part
to free up capital on the banks bal-
ance sheet that was held against the
firms investments, as well as to com-
ply with the Volcker rule, according
to people on both sides of the split.
Losing a banks financial support
presents a challenge for private-eq-
uity firms that used to be nestled
within financial institutions. Out on
their own, they must vie for inves-
tors cash against big firms, such as
Apollo Global Management LLC and
Warburg Pincus LLC, that are coming
off hugely profitable stretches. In
general, newly independent firms
have raised less on their own than
when they had bank backing, even if
they are exceeding their own goals,
according to securities filings and
private-equity executives.
For example, Wells Fargo & Co.
four years ago spun out Pamlico
Capital. The firm last year capped
off a $650 million buyout pool,
which was 30% more than it set out
to collect. The total was far less
than the $1.1 billion it raised in
2007, when it was known as Wacho-
via Capital Partners.
Wachovia Capital became part of
Wells Fargo when Wells and Wacho-
via merged in 2008.
After dipping to as low as $670
million in the aftermath of the fi-
nancial crisis, the average size of
new private-equity funds rose to
$1.2 billion in 2013, according to
Preqin, a data provider.
Newly independent firms will
have to anticipate managing more
modest funds with more aggressive
return targets to cover new costs,
such as offices and support staff,
while competing with returns of-
fered by rivals, said Rolf Lindsay, an
attorney with the law firm Walkers
who helps private-equity firms cre-
ate investment funds.
Private-equity executives say
there are benefits to being on their
own. Freed from a big banks con-
straints, such as internal limits on
exposure to particular industries or
regions, and potential conflicts
around investments, like bidding on
companies being sold by bankers at
a funds parent company, the pri-
vate-equity firms can have greater
latitude in choosing investments.
BY RYAN DEZEMBER
Bank of America headquarters
B
l
o
o
m
b
e
r
g
N
e
w
s
TELECOMS
Vodafone Interested in Spain
Vodafone Group PLC Chief
Executive Vittorio Colao said he is
interested in having more exposure to
Spain as the company looks to expand
beyond wireless service.
In a meeting with reporters in New
York on Monday, Mr. Colao declined to
comment on reports that Vodafone is
exploring making a bid for Spanish
cable company ONO. But he said
Vodafone is focused on offering a
combination of services like wireless,
broadband Internet and television in
the markets where it operates, and
said that so-called convergence is
happening more quickly in Spain than
in other places.
It is one of the markets that
clearly we are looking at, he said.
Vodafone is looking at options for
its large store of cash as it wraps up
the $130 billion sale of its stake in U.S.
mobile operator Verizon Wireless to
joint venture partner Verizon
Communications Inc.
Acquisitions are part of the
calculation. Last year, Vodafone agreed
to buy Germanys biggest cable
operator, Kabel Deutschland Holding
AG, for about $10.6 billion. Vodafone is
also interested in expanding its
presence in business and emerging
markets, Mr. Colao said.
We are looking at acquisitions
which are sizable and would transform
the company, he said Monday.
Thomas Gryta
MATERIALS
Continental Acquires Veyance
Continental AG agreed to buy U.S.
rubber and plastics company Veyance
Technologies Inc. from private-equity
firm Carlyle Group for $1.9 billion, the
German car-parts and tire maker said
Monday.
Veyances business and geographic
presence compliment Continentals
existing global footprint, Continental
Chief Executive Elmar Degenhart said.
Veyance saw about $2 billion in
revenue last year. It produces conveyor
belts, industrial hoses, air spring
systems and power transmission belts
for industrial applications. Earnings
before interest, tax, depreciation and
amortization totaled $270 million in
2013. The transaction is subject to
regulatory approval.
Friedrich Geiger
TECHNOLOGY
BlackBerry BBM Chief Exits
The executive in charge of
BlackBerry Ltd.s instant-messaging
tool, BBM, has left the company,
creating a hole in one of the
smartphone companys core offerings.
Andrew Bocking, executive vice
president in charge of BBM, has made
the decision to leave the company,
according to a BlackBerry
spokeswoman.
BBM remains a separate unit
within the company, but now will fall
under the responsibility of John Sims,
who joined BlackBerry in December to
head its enterprise unit. Mr. Bockings
departure was first reported by the
technology website BGR.
Mr. Bocking declined to comment.
BlackBerry Chief Executive John
Chen has said that BBM would be one
of four key areas of focus for the
company.
Will Connors
Online
>>
For more breaking news, go to
WSJ.com/Business and follow
@wsjbusiness on Twitter.
8 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
WORLD NEWS
OECD Is Upbeat on First-Half Growth
Growth is set to pick up in most
large developed economies during
the first half of 2014 and to stabilize
in most large developing economies,
with the exception of India, accord-
ing to leading indicators published
Monday by the Organization for
Economic Cooperation and Develop-
ment.
The leading indicators suggest
that a rebalancing of global eco-
nomic growth is under way, with
large developing economies playing
less of a key role than they did in
the years following the onset of fi-
nancial crisis of 2008.
But with growth in developed
economies still modest and vulnera-
ble to setbacks, the stabilization of
growth rates at relatively weak lev-
els in large developing countries has
led to concerns about the strength
of the global economy as a whole
this year.
Composite leading indica-
torscontinue to show signs of an
improving economic outlook in most
advanced economies, the OECD
said.
The indicators are designed to
provide early signals of turning
points between the expansion and
slowdown of economic activity, and
are based on a wide variety of data
series that have a history of signal-
ing changes in activity.
According to the indicators
which are based on information
available in Decembereconomic
growth is set to pick up in the U.S.,
U.K. and Japan, and is also likely to
accelerate in the euro zone.
While the currency areas recov-
ery will continue to be led by Ger-
many, there are also signs that eco-
nomic growth is set to pick up in
France and Italy.
The leading indicator for France
rose to 100.5 in December from
100.3 in November, while the lead-
ing indicator for Italy rose to 101.3
from 101.2.
However, there was little sign of
a pickup in growth in either country
in figures for industrial production
released Monday.
Italys industrial output fell 0.9%
from November in seasonally ad-
justed terms, reversing three
months of gains, national statistics
institute Istat said, while Frances
statistics agency said output fell by
0.3% in December.
A reading of 100 for a leading in-
dicator means economic growth is
set to be at the trend rate, which it-
self varies widely among large econ-
omies.
Chinas trend rate of growth is
much higher than Germanys, for ex-
ample.
The leading indicator for the
OECDs 34 members rose to 100.9
from 100.8 in November.
While the leading indicators for
the Group of Seven leading nations
were all above 100 in December, the
indicators for large developing
countries were all stable below that
mark, with the exception of Indias,
which fell further below its trend
level.
The prospect of a period of rela-
tively muted growth, coupled with
the expectation that central banks
in developed economies will begin
to raise their interest rates in com-
ing years, has led to an outflow of
capital from a number of developing
countries in recent months.
In response, some central banks
in developing countries have raised
their interest rates to prevent an
overly sharp depreciation in their
currencies.
Many economists believe it will
take some time to restore growth
rates in developing countries to pre-
viously high levels, since that will
require politically difficult policy
changes.
The recent slowdown in the ma-
joreconomies has been driven
largely by structural factors, mean-
ing that a new wave of reforms is
needed if they are to regain their
vigor, said Neil Shearing, an econo-
mist at Capital Economics.
But, as things stand, the likeli-
hood of a big shift in policy over the
coming years looks slim. So far, only
China has announced the type of
comprehensive reform package that
is now needed, he added.
BY PAUL HANNON
Rebalancing
Index of leading economic indicators
The Wall Street Journal
Source: Organization for Economic Cooperation
and Development
102
96
98
100
13 2012
OECD: 100.9
India: 97.0
Kabul Car Bomb Kills Two
KABULThe Afghan militant
group Hezb-e-Islami carried out a
car-bomb suicide attack in Kabul on
Monday, killing two contractors for
the U.S.-led military coalition and
wounding several Afghan civilians.
While most recent attacks in the
Afghan capital have been the work
of the Taliban, Hezb-e-Islamia
separate group led by warlord Gul-
buddin Hekmatyarclaimed respon-
sibility for this one.
High-profile attacks by the group
are rare in Kabul, where many Hezb-
e-Islami members serve in senior
positions in the Afghan government.
But a militant wing of the organiza-
tion still pursues attacks against
foreign forces.
Haroon Zarghun, a spokesman
for Hezb-e-Islami, said the attack
was carried out by a would-be mar-
tyr named Hakimullah, who targeted
a U.S. convoy.
Mr. Zarghun said the attacker
was looking for an opportunity to
target the convoy, and not harm ci-
vilians. He added that: We only
carry martyrdom-seeking attacks on
foreigners. We dont conduct such
attacks against Afghan police, army,
and civilians.
Eyewitnesses said the blast oc-
curred around 2:30 p.m. near Pul-e
Charkhi prison, a facility in eastern
Kabul where prominent insurgents
and other detainees are incarcer-
ated. The force of the blast shat-
tered windows and scattered
twisted wreckage around the resi-
dential neighborhood.
Obaidullah, the owner of a mod-
est shop near the scene, said the ex-
plosion blew out his storefront win-
dows and knocked all of the goods
off his shelves.
The bomber was in a Toyota Co-
rolla that hit two armored SUVs of
the foreigners, said Mr. Obaidullah,
who goes by one name. I saw a
child in the nearby house who was
wounded.
The U.S.-led International Secu-
rity Assistance Force said two con-
tractors for the coalition were
killed. An Afghan security official on
the scene told reporters that seven
Afghan civilians were wounded.
Insurgents have targeted Kabul
several times in recent weeks with
suicide attacks as the country pre-
pares for presidential elections in
April. Hezb-e-Islami, however, also
has been engaged in peace talks
with President Hamid Karzais gov-
ernment.
Mr. Karzais chief of staff, Abdul
Karim Khurram, and several provin-
cial governors have been affiliated
with Hezb-e-Islami and Mr. Hekmat-
yar in the past. One of the 11 candi-
dates running for president in April,
Qutbuddin Hilal, is a Hezb-e-Islami
member, too.
In September 2012, Hezb-e Is-
lami claimed responsibility for a
suicide bombing that struck a mini-
van packed with employees of an
American aviation firm working for
the U.S. government.
That bombing, which killed 12
people, was one of the deadliest tar-
geting foreign civilians in Afghani-
stan before a January attack on a
Kabul restaurant that killed 21 peo-
ple, including senior representatives
of international groups.
Security has been stepped up in
Kabul over the past week as candi-
dates launched their campaigns for
president. The area around Pul-e
Charkhi had a heavy presence of Af-
ghan troops.
Mondays attack came amid a
standoff between the U.S. and Afghan
governments over a security deal
that would pave the way for a U.S.-
led force to remain in Afghanistan af-
ter 2014 to conduct limited training
and counterterrorism missions.
Mr. Karzai has thus far declined
to sign the deal, saying Washington
must meet his conditions, including
launching peace talks in earnest
with the Taliban.
Elsewhere in Afghanistan, local
officials confirmed an aircraft crash
in Deh Mirdad district of Wardak
province, a mountainous area that
borders east-central Ghazni prov-
ince. Coalition officials said they
were aware of the reports, but said
there were no reports of insurgent
activity in the area.
BY NATHAN HODGE
AND HABIB KHAN TOTAKHIL
NATO soldiers inspecting the scene on Monday in Kabul after a suicide car bomber targeted a NATO convoy.
E
u
r
o
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e
a
n
P
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e
s
s
p
h
o
t
o
A
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e
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c
y
China Making Slow Start
To 2014, Say Economists
The first data of 2014, along with
projections by economists, suggest
the slowdown in Chinas economy
that began in December continued
into the new year.
China data buffs have to make do
with a meager crop of economic sta-
tistics at the start of the year. Most
economic indicators suffer from dis-
tortion around the Lunar New Year
holiday, which falls in January some
years and in February in others.
To avoid misleading signals,
China combines much of the data
for January and February, so the
numbers dont come out until
March. But most of the information
that is available points in one direc-
tion: down.
Purchasing managers indexes re-
leased by the Chinese government
and HSBC Holdings PLC suggest
that both manufacturing and serv-
ices lost momentum in January.
HSBCs manufacturing PMI slipped
into contractionary territory for the
first time since July, and the gov-
ernments equivalent indexwhile
positivewas only slightly stronger.
The weakness came in a month
when world markets tumbled, upset
by the U.S. Federal Reserves moves
to pare back its monetary easing, as
well as by weak data coming out of
China and the U.S. A currency deval-
uation in Argentina and a political
crackdown in Turkey also helped
spoil investors appetite for emerg-
ing-market currencies and stocks.
Chinas export figures for Janu-
ary, which are due out on Wednes-
day, will probably show a sharp
slowdown. But that isnt because of
a sudden drop-off in shipments as
much as it is because of a bloated
number in January of last year,
when the tally was likely bulked up
by overreporting.
With that distortion in mind, the
median forecast of 11 economists
surveyed by The Wall Street Journal
is for year-over-year export growth
of just 0.1%, after a 4.3% rise in De-
cember. Imports are also expected
to show measly 3% growth, down
from 8.3% a month before, leaving
Chinas hefty trade surplus intact.
Inflation probably ticked down,
with a year-over-year climb in the
consumer-price index of just 2.3%,
according to the Journals survey,
down from 2.5% in December.
Food prices climbed as usual
over the holiday period, but the ef-
fect was mild. The Agricultural
Wholesale Price Index for January
2014 came in 1.2% last years level.
Banks very likely got off to a
cracking start to the year, with new
lending quotas setting off the tradi-
tional January credit binge. They
probably made a net 1.1 trillion yuan
($180 billion) of new local currency
loans over the month, according to
the survey. That is way ahead of De-
cembers 481 billion yuan figure, but
is a very modest rise from 1.07 tril-
lion yuan in January 2013.
That would reflect changing pol-
icy, with market interest rates rising
and regulators curbing a lending
splurge that has kept Chinas econ-
omy humming while other countries
had years of weak growth.
Economists now say that debt
load threatens to overwhelm the fi-
nancial system if China doesnt find
a way to deal with it.
The central bank has been tight-
ening liquidity in hopes of bringing
down lending growth gently. Inter-
bank interest rates, which are af-
fected by the central banks regular
interventions in the money market
as well as banks demand for liquid-
ity, have been volatile for months.
The seven-day repo ratea key
barometer of lending conditions
peaked at 6.58% ahead of the holi-
day, as people withdrew cash for
gifts and travel and banks scram-
bled to meet the demand. Still, that
was tame compared with the severe
liquidity shortages that spooked
markets last year, when the Peoples
Bank of China was slower to step in.
The PBOC seems to have
learned from its recent lessons and
acted more quickly to provide li-
quidity support where necessary,
and improved its communications
with the market, said Harrison Hu,
an economist at UBS.
If China is to come through the
Feds tapering and the recent mar-
ket jitters in good shape, regulators
will have to keep up that balancing
actpushing up interest rates in the
market, without triggering the kind
of crisis they are trying to avoid.
BY RICHARD SILK
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 21
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Wall Street has
many sins but is
Detroits historic
bankruptcy one of
them? Motor Citys
current leaders
seem to think so.
Some clear battle lines are
emerging in the fight over the
spoils of the largest municipal
bankruptcy in the U.S. Among
them: a tug of war between
Detroits emergency manager
Kevyn Orr and investors, insurers
and banks over two debt deals
dating back to 2005 and 2006 that
shored up the citys pension fund.
In a lawsuit filed late last
month, Mr. Orrs office called the
deals structure a sham and claimed
it was designed to circumvent rules
over Detroits indebtedness.
The banks, which were led by
UBS AG, persuaded the city to do
the deals and earned generous
fees for transactions that
contributed to Detroits downfall,
according to the document. A
series of swaps linked to the
debt sales led to further,
disastrous financial
consequences for the city, the
suit alleges.
UBS, the lead bank on both
deals, declined to comment. Siebert
Brandford Shank & Co., the bank
that co-led the 2006 transaction,
said in a written response: At that
time the transaction was fully and
completely reviewed, vetted and
approved by multiple experts and
stakeholders.
The banks arent accused of
wrongdoing, but the suit asks the
judge to invalidate the transactions,
which raised around $1.4 billion,
and cancel all outstanding interest
payments. Mr. Orrs office didnt
reply to requests for comment.
The dispute is relevant for two
reasons. First, investors and banks
are worried about being penalized
in favor of pensioners in the
bankruptcy process. And recent
comments by Michigan Gov. Rick
Snyder that taxpayer money
wouldnt be used to bail out Wall
Street have deepened what Amy
Laskey, a managing director at
Fitch Ratings Inc., in a recent note
called an us-versus-them
mentality. Mr. Snyders aides
dismiss the criticism. But the way
Wall Street is perceived to have
behaved in those debt sales will
go a long way to establishing or
dispelling such views.
More generally, the lawsuit
describes a type of financial
innovationnot unlike exotic
mortgage products and complex
derivativesthat hit banks
reputations during the 2008
crisis. So the case could be viewed
as either an example of financial
groups hoodwinking unsuspecting
clients into doing dubious deals or
a sign of the unfair blaming of
banks for transactions between
consenting adults.
Here is what isnt disputed: In
2005, facing a cash crunch that
crimped its ability to fund its
pension plans, Detroit sold
$1.44 billion in certificates of
participation, or COPs, to
investors. The sums didnt add to
Detroits indebtedness because of
a web of companies and trusts
that were interposed between the
city and the final payments.
For Mr. Orr, that was just
smoke and mirrors, because the
money to pay interest on the
COPs ultimately came from the
citys coffers. The bond insurer
Financial Guaranty Insurance Co.
disagrees. FGIC insured around
$1.1 billion of those COPs and will
be on the hook if the deals are
canceled. Derek Donnelly, a senior
managing director, told me that
the lawsuit presents a completely
flawed view of the deal.
The transaction didnt really
saddle the city with any
incremental financial obligations,
he said. In fact, Mr. Donnelly
estimates the COPs saved Detroit
about $500 million in financing
costs.
COPs are a common form of
municipal financing but they
normally are backed by revenue
from the lease of equipment or
facilities such as buses or a gas
plant, which would be used to pay
interest. What is unusual in
Detroits case is that COPs were
used to top up the pension system
and their interest was paid out of
city funds.
Does that mean the banks
behaved badly? Maybe not. A look
at the deals documents shows
that they were scrubbed by all
three major credit-rating
companies and two independent
financial advisers for the city:
Robert W. Baird & Co. and Scott
Balice Strategies LLC. R.W. Baird
didnt reply to a request for
comment and PFM Group, which
has since acquired Scott Balice
Strategies, declined to comment.
The fact that the deals were
vetted and reviewed by so many
external parties suggests the banks
werent a major driver of Detroits
bankruptcy and is something the
court will have to consider when
making a decision on the lawsuit.
SBS, however, added to the
controversy by hiring Sean
Werdlow, Detroits finance
director, in November 2005, a few
months after the first COP deal.
There is no suggestion of
wrongdoing, but the lawsuit does
highlight Mr. Werdlows job swap.
A spokesman for SBS said the
bank played a minor role in the
2005 deal, earning just $134,000
in fees. He added that Mr.
Werdlow recused himself from
any dealings with Detroit for a
year after joining SBS.
Even if Wall Street had only a
bit part in Detroits drama, it still
manages to hog the limelight.
Francesco Guerrera is The Wall
Street Journals financial editor.
Write to him at: currentac-
count@wsj.com and follow him on
Twitter: @guerreraf72
Wall Street Takes Spotlight in Motor City
[ Current Account ]
BY FRANCESCO GUERRERA
Some clear battle lines
are emerging in the fight
over Detroits bankruptcy.
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 9
WORLD NEWS
Something New for Iranian TV: Music
TEHRANWhen Iranians tuned
into state television for a day of
special holiday programming re-
cently, they were treated to a re-
markable sightfor the Islamic Re-
public, anyway.
There, for all to see, was a per-
formance by Avaye Parsian, a tradi-
tional Persian music band. It was
the first time a full band had played
instruments on state TV since 1979,
when the Iranian revolution ushered
in an arch-conservative Islamist re-
gime that deemed such displays too
irreverent for television.
Before the day was out there was
more: The Pallett, a popular con-
temporary music band, appeared on
a late-night show called Radio 7 in
an equally daring way for a jazz or
rock band. They didnt actually play
instruments, but they did exuber-
antly pretend toair band style.
That appearance is becoming
something of a Beatles-on-Ed-Sulli-
van moment for contemporary mu-
sic in Irans tightly controlled public
sphere. Before the taped perform-
ance ended, The Palletts page on
Facebookamong the social media
banned in Iran but widely used by
everyone from the president on
downlit up with comments.
Reactions to the TV appearances
reflected the hopes many Iranians
feel after the election of a new pres-
ident, Hasan Rouhani, in June. He
succeeded the bellicose Mahmoud
Ahmadinejad. In subtle ways, Irani-
ans said Mr. Rouhanis government
has tried to ease the most zealous
enforcement of Islamic codes and
create space for more personal ex-
pression in public.
Some viewers were taken aback
by the musical broadcasts, others
thrilled.
I thought it was courageous,
said Nahal Mahzouf, 28, translator
and screenwriter.
Mr. Rouhani has yet to come
through on big-ticket campaign
promises such as releasing hundreds
of activists still detained after the
protests over disputed presidential
elections more than four years ago.
Two opposition presidential candi-
dates from that raceMir Hussain
Mousavi and Mehdi Karroubire-
main under house arrest. Nor has
the president managed to legalize
social-media sites such as Facebook
and Twitter as he talked about dur-
ing the electioneven though he is
an active user himself. But Mr. Rou-
hani has talked about expanding the
boundaries for personal freedoms.
That has created hope and support
from someanger, fear and opposi-
tion among others.
His new culture minister, Ali
Jannati, is the son of one of the Is-
lamic Republics most powerful
hard-line clerics. But he, nonethe-
less, is widely credited with helping
promote the new atmosphere of ten-
tative experimentation and cautious
envelope-pushing. Building on Mr.
Rouhanis small steps will be one
important measure of his ability to
maintain popular support while ne-
gotiating the removal of sanctions
in return for reining in Irans nu-
clear program.
Members of Avaye Parsian and
The Pallett said they never intended
to create a fuss, much less a Pussy
Riot-style protest.
Saman Alipour, the 25-year-old
founder of Avaye Parsian, said the
band wasnt even aware they would
be shown on television until their
live performance was over. Mr. Ali-
pour, who plays the Tar, a strummed
instrument featured mainly in tradi-
tional Persian music, said they had
assumed it would be the usual tele-
vision appearance where they
played in the studio while nature
photos and abstract designs are
shown on TV.
The producer who decided to
show Avaye Parsian declined to
comment. In the furor of headlines
and online debate after the show, he
was quoted in one online outlet say-
ing he showed the band by mistake.
We received both positive and
negative feedback, said Mr. Alipour.
But were hopeful. He said the
band, which he formed when he was
16 years old, has received a raft of
new invitations to play.
Mansour Zabatan, the 42-year-
old producer of Radio 7, where The
Pallett made its splash that day, said
having the group pretend to play in-
struments was an attempt to stay
within the rules yet still give young
fans what they want.
That is in line with the shows
mission, as he sees it, of bridging
massive gulfs between young and
old, conservative and liberal, sacred
and profane.
We want to help the two sides
talk to each other, he said.
He worked with the band to
make the appearance more about
having fun with the music than
making fun of restrictions on instru-
ments, he said.
BY BILL SPINDLE
Pallett band members pretend to play their instruments on Iranian state TV as the ban on musical performances eases.
R
a
d
i
o
7
Homs Tension Unsettles Talks
Syrias government and opposi-
tion refused to meet face-to-face on
Monday as weekend attacks on hu-
manitarian aid convoys overshad-
owed efforts to restart peace talks
in Geneva.
The two delegations met sepa-
rately Monday with United Nations
mediator Lakhdar Brahimi, who
shuttled between them at the start
of the second round of talks. In the
first round, the two parties met in
the same room in hopes that this
would build trust. But the constant
violence at home was having a chill-
ing effect on the diplomacy.
Mr. Brahimi was seeking to re-
kindle dialogue a day after U.N. con-
voys came under fire while deliver-
ing aid to thousands of Syrians who
have been trapped for more than 18
months by a government siege of
the historic old quarter of Homs,
Syrias third-largest city.
U.N. convoys rolled through
bursts of mortar shells and sniper
bulletsattacks that each side
blamed on the other. Valerie Amos,
who heads the U.N.s global relief ef-
forts, said 11 people have been killed
since the operation began.
U.N. officials in Homs said a total
of 1,160 people have been evacuated
from the old city in the four days
since the aid operation began on
Friday. On Monday alone, 460 were
brought out, they said.
Regime representatives have
blamed extremist rebels for the at-
tacks on the humanitarian convoys,
claiming they didnt want civilians to
leave. The regime has maintained that
the rebels are holding civilians as hu-
man shields, but U.N. officials who en-
tered the besieged area said they saw
no evidence to back up that claim.
We cannot talk about a real and
credible peace process before the
killing and terrorism stops, Syrian
Deputy Foreign Minister Faisal al
Mekdad told reporters on the steps
of the U.N. offices in Geneva.
Opposition delegate Louay Safi
alleged the regime was behind the
attacks on U.N. convoys.
It is not acceptable that the re-
gime will send its own delegation to
talk peace while it is killing our peo-
ple in Syria, he said.
Some U.N. employees and an aid
worker said forces loyal to President
Bashar al-Assads regime were be-
hind the attacks, though the U.N. of-
ficially didnt cast blame.
Ms. Amos said the sides agreed
to extend a partial cease-fire in
Homs for 72 hours to provide more
aid and bring out more people.
She said it was absolutely unac-
ceptable that U.N. and Syrian Arab
Red Crescent workers were deliber-
ately targeted during the operation.
I am deeply disappointed that
the parties were unable to hold
their cease-fire in Homs, she said.
This led to 11 people losing their
lives needlessly as the operations
were carried out.
The focus on Syrias besieged
communities has drawn attention
away from what was supposed to be
front and center at the second
round of talks: How to transition
away from Mr. Assads authoritarian
rule. With the talks losing momen-
tum, Russian Deputy Foreign Minis-
ter Mikhail Bogdanov proposed
broadening the conference to di-
rectly involve representatives of
Moscow and Washington who have
so far hovered on the sidelines.
Moscow, a major Assad regime
ally, is under pressure to show the
diplomacy isnt a waste of time.
Mr. Brahimis office said he
planned to meet with U.S. and Rus-
sian officials Friday. A U.S. official
welcomed the Russian proposal but
cautioned that all sides needed to
focus the talks on political transi-
tion. Many opposition members and
their Western backers fear the talks
are designed to buy the Assad re-
gime time to use siege tactics to
force rebels out of blockaded areas.
Last week, a resolution drafted
in part by Western powers was sub-
mitted to the five permanent mem-
bers of the Security Council, de-
manding all parties allow
humanitarian access to besieged ar-
eas. But Russia, which has veto
power in the council, rejected the
proposal, saying pragmatic negotia-
tions with the Syrian parties, rather
than pressure from the Council, is
the best way to get aid in.
French Foreign Minister Laurent
Fabius renewed the push for the
draft resolution, backed by the U.S.
We call for much stronger ac-
tion on the humanitarian field and
that cities be opened to medicines
and food, Mr. Fabius said. It is ab-
solutely scandalous that we are talk-
ing for so long while the population
is being starved.
Joe Lauria at the United Nations
and Inti Landauro in Paris
contributed to this article.
By Stacy Meichtry in
Geneva and Sam Dagher in
Homs, Syria
More than 1,000 have
been evacuated and 11
killed in the aid operation.
20 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
China Cements Role in the Gold Market
BEIJINGChinas output and con-
sumption of gold rose to records last
year, entrenching the countrys posi-
tion as the worlds largest producer
of the metal and an opportunistic
buyer of bargain-priced commodities.
The unprecedented level of Chi-
nese purchases came as the price of
the precious metal tumbled 28% to
end the year at $1,205.99 an ounce,
its lowest since September 2010, ac-
cording to data from investment ser-
vice BullionVault.
Chinese consumers bought 1,176.4
metric tons of gold in 2013, 41% more
than a year earlier, the China Gold
Association said in written com-
ments Monday. It is the first time
Chinese consumption has crossed
1,000 tons, the state-backed group
said.
By far the largest chunk of de-
mand came from gold jewelry, the
Chinese markets traditional main-
stay purchase, with consumption ris-
ing 43% from a year earlier to 716.5
tons.
Meanwhile, consumption of gold
barsusually regarded as a pure in-
vestment productrose 57% to 375.7
tons, the association said, which
could mark the beginning of a shift
in Chinese preferences.
This was a large magnitude of
increase for gold bars, and it might
show the Chinese peoples strong de-
sire for gold as an investment, said
Everbright Futures gold analyst Hu
Yanyan.
Middle-aged Chinese investors,
particularly female shoppers, took
advantage of low gold prices to snap
up bargains throughout 2013, espe-
cially during the summer. These
older ladies, affectionately called
damas, drove gold prices up 4% for
a week in August, although they
didnt succeed in reversing the global
markets broader slump, analysts
said.
Investors sold gold last year amid
concerns that the U.S. Federal Re-
serve would scale back stimulus mea-
sures, and tepid global inflation
didnt justify holding the precious
metal. Gold is seen as a hedge
against inflationary risks.
Chinese consumers account for
about a quarter of global gold de-
mand, according to the China Gold
Association.
But analysts say the bulk of its
buyers are budget-conscious shop-
pers who buy enough to ride on weak
prices but not enough to underpin a
prolonged price rise.
Local prices usually take their
cues from U.S. and European mar-
kets.
Still, Chinas rising purchases
have persuaded policy makers that
the country could gain greater price-
setting power in gold markets, which
it has pursued by widening trading
hours for gold and giving commercial
banks greater ability to trade.
Analysts say Chinese consump-
tion this year is likely to keep rising
amid weak global gold prices.
The U.S. dollar is likely to rise
more this year, which means that
gold prices will keep falling, Ever-
brights Ms. Hu said. Gold prices usu-
ally have an inverse relationship with
the dollar, as a substitute investment.
China also notched a record for
gold output in 2013, with production
increasing 6.2% from 2012 to 428.16
tons, the association said. China has
been the worlds largest gold pro-
ducer for the past seven years.
The World Gold Council will re-
lease global consumption data for
2013 later this week, which analysts
say could show China surpassing In-
dia as the worlds top consumer of
the precious metal.
Council data showed Indias con-
sumption in 2012 reaching 864.2
tons. The council said in November
that New Delhis imposition of higher
import taxes on gold, designed to
rein in its current-account deficit,
was likely to have the intended ef-
fect of substantially suppressing de-
mand.
But the strength of Indian de-
mand in the first half of the year
means that full-year consumer de-
mand is still on track to narrowly ex-
ceed the 2012 total, the council said.
BY CHUIN-WEI YAP
Chinas consumption of gold bars rose 57% in 2013, which could mark the beginning of a shift in Chinese preferences.
R
e
u
t
e
r
s
BUSINESS & FINANCE
Going for Gold
China's rising consumption of the
precious metal
The Wall Street Journal
Source: China Gold Association
1,200
0
200
400
600
800
1,000
metric tons
2002 04 06 08 10 1213
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10 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
Millions in U.S. AreTrapped
In Health-LawCoverage Gap
With 24 States Declining to Expand Medicaid, Some People Earn Too Little to Qualify for Subsidies
E
rnest Maiden was dumbfounded to
learn that he falls through the cracks of
the health-care law because in a typical
week he earns about $200 from the Happi-
ness and Hair Beauty and Barber Salon.
Like millions of other Americans caught
in a mismatch of state and federal rules, the
57-year-old hair stylist doesnt make
enough money to qualify for federal subsi-
dies to buy health insurance. If he earned
another $1,300 a year, the government
would pay the full cost. Instead, coverage
would cost about what he earns.
Its a Catch-22, said Mr. Maiden, an
uninsured diabetic. Without help, he said,
he must choose between paying the bills
and buying medicine.
The 2010 health law was meant to cover
people in Mr. Maidens income bracket by
expanding Medicaid to workers earning up
to the federal poverty lineabout $11,670
for a single person; more for families. Peo-
ple earning as much as four times the pov-
erty line$46,680 for a single personcan
receive federal subsidies.
But the Supreme Court in 2012 struck
down the laws requirement that states ex-
pand their Medicaid coverage. Republican
elected officials in 24 states, including Ala-
bama, declined the expansion, triggering a
coverage gap. Officials said an expansion
would add burdensome costs and, in some
cases, leave more people dependent on gov-
ernment.
The decision created a gap for Mr.
Maiden and others at the lowest income
levels who dont qualify for Medicaid cover-
age under varying state rules. The upshot is
that lower-income people in half the states
get no help, while better-off workers else-
where can buy insurance with taxpayer-
funded subsidies.
The federal government offered to pay
the full cost of the expansion for three
years, and then states would pay 10% of the
annual expansion costs. The Congressional
Budget Office estimates the current expan-
sion will cost the federal government nearly
$800 billion over the next 10 years.
Some GOP-led states are revisiting their
decision as complaints pile up over the cov-
erage gapand its consequences for busi-
nessesin such states as Utah and Florida.
The state senate in New Hampshire last
week reached a tentative deal to expand
Medicaid. In Virginia, newly elected Demo-
cratic Gov. Terry McAuliffe hopes to get
legislators to reverse his Republican prede-
cessors stance against expansion.
Lawmakers are also getting a push to
boost Medicaid rolls from hospitals that ex-
pected a vast new pool of paying customers
under the health-care law. Instead, the fail-
ure to expand Medicaid coverage by some
states not only adds fewer insured patients,
it also eliminates the payments hospitals
had long received to cover the cost of unin-
sured people they treat free.
Obama administration officials are tour-
ing some states that resisted the expansion,
including Texas. Expanding Medicaid will
significantly increase the number of pa-
tients with insurance, said Aaron Albright,
a spokesman for the Centers for Medicare
and Medicaid Services, the federal agency
overseeing the laws implementation. This
is a critical opportunity to help millions
more Americans gain access to quality, reli-
able health coverage.
For now, nearly five million people ages
18 to 64 get no financial help to buy cover-
age because of the gap, according to esti-
mates by the Kaiser Family Foundation.
BY CHRISTOPHER WEAVER
Birmingham, Ala.
IN DEPTH
Cal Morris is among the higher-wage earners in Alabama who qualify for federal subsidies. He and his wife make about $35,000 a year and qualify for a subsidy of as much as $439 a month.
Hair stylist Ernest Maiden, who earns about $200 a week, cant afford health insurance.
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THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 19
Hedge Funds Clash Over Argentine Debt
As Argentina struggles to stave
off a second debt default in 13 years,
two U.S. hedge funds are playing cen-
tral but opposing roles in the coun-
trys efforts to untangle itself from
the previous crisis.
The two firms, Gramercy Funds
Management LLC and Elliott Man-
agement Corp., have hundreds of
millions of dollars at stake as Argen-
tina tries to wrap up a saga that
dates back to its decision to give up
on its debt payments in December
2001. But the firms have taken con-
flicting tacks in trying to get their
money back.
Gramercy, which manages $3.9
billion, has been advising Argentina
behind the scenes on how to restore
its reputation with the international
community and regain access to capi-
tal markets.
In doing so, Gramercy has antag-
onized Elliott, a bigger firm that has
been doing battle with Argentina for
years.
Famous for its bare-knuckled tac-
tics with debtors, Elliott once tried to
seize the plane of Argentinas Presi-
dent Cristina Fernandez de Kirchner
during a fueling stop and impounded
an Argentine Navy vessel.
The clash between the two invest-
ment firms came to a head late last
month when Elliott called a compro-
mise proposal being pushed by Gra-
mercy beyond bizarre, entirely im-
practicable and a stunt in a letter
to Elliotts investors.
The skirmish shows how a sover-
eign default can have repercussions
for years to follow, with huge sums in
the balance. It also is a rare example
of two multibillion-dollar funds tak-
ing directly opposing strategies on a
big trade.
One has chosen overt coopera-
tion and the other has chosen overt
confrontation, says Anna Gelpern, a
professor at Georgetown Law and a
fellow at the Peter G. Peterson Insti-
tute for International Economics.
Im very curious to see how it
shakes out.
The dispute is rooted in Argen-
tinas December 2001 default on $80
billion of privately held debt. In 2005,
Argentina made bondholders an of-
fer: In exchange for the original
bonds on which it had defaulted, it
would issue them new, discounted
bonds coupled with warrants pegged
to its future growth. Worth about 27
cents on the dollar at the time, the
offer was accepted by bondholders
holding about 76% of the debt on
which Argentina defaulted. Elliott
and others held out for better terms,
while Argentina vowed not to extend
the offer again.
With $23.3 billion under manage-
ment, Elliott is run by 68-year-old
billionaire investor and Republican
Party donor Paul Singer.
Mrs. Kirchner has vowed never to
negotiate with Elliott and denounced
the firm as vultures.
An Elliott spokesman said the
firms position has been consistent
for years.
We look forward to Argentina
sitting down with its unpaid creditors
to forge a solution to the ongoing de-
fault, he said. Elliott encourages
other parties to urge the Argentine
government to negotiate directly
with us to ensure a successful resolu-
tion, he added.
Gramercy has played a less public
and more conciliatory role. There
have been sightings of Gramercy
founder Robert Koenigsberger at the
presidential palace in Buenos Aires.
Court documents show that El-
liotts claim against Argentina totals
about $2.5 billion, while Gramercys
exposure is at least $400 million.
Run by 48-year-old former invest-
ment banker Mr. Koenigsberger, Gra-
mercy became a major actor in the
story when it quietly approached Ar-
gentina in 2010 and persuaded it to
reopen the 2005 offer. By then, the
package of bonds and warrants Ar-
gentina had offered five years prior
had appreciated in value, as the
country returned to growth. But El-
liott, several other investment firms
and thousands of Italian pensioners
again declined the offer.
Since then, Gramercy has been
advising the Argentine government
on how to normalize its relations
with the international community.
Gramercy defends its efforts to
work with the Argentine govern-
ment. Elliott has the same access
to the Argentine government as Gra-
mercy does. Its just that they cant
reach common ground with it, says
a person familiar with Gramercys
thinking.
Gramercy has provoked Elliott at
times.
In a presentation to New Hamp-
shires retirement fund in September
2012, Gramercy outlined a multistep
plan to restore Argentinas standing
in capital markets while further iso-
lating the holdouts. The 47-page
slide show came to Elliotts attention
when it was posted on the Internet
by the conservative National Legal
and Policy Center, which said it ob-
tained it through a Freedom of Infor-
mation request.
Argentina has since followed
Gramercys playbook.
The hedge fund was able to
profit during that process by pur-
chasing some judgments issued
against Argentina by the World
Banks arbitration court at steep
discounts to their face value and
later settling them with the country
for more, people familiar with the
matter say.
While Gramercy has cozied up to
Argentina, Elliott has taken the coun-
try on in U.S. courts. In August, a fed-
eral appeals court in New York sided
with Elliott, ruling that Argentina
cant make interest payments on the
exchange bonds it issued in 2005 and
2010 unless it pays the minority
holdouts what it owes them on the
original bonds.
The ruling wont take effect until
the U.S. Supreme Court decides
whether to hear the case later this
year.
But it has rattled Gramercy: If it is
affirmed, Argentina could opt to de-
fault on the exchange bonds Gra-
mercy holds to avoid paying Elliott
and the other holdouts.
Gramercys response has been to
push the proposal that Elliott has
dismissed as unworkable. It would
have holders of the bonds Argentina
issued in 2005 and 2010 cede some
of their interest payments to the
holdouts.
In return, the holdouts would
drop their legal claims against Ar-
gentina. That would enable Mrs.
Kirchner to save face by not break-
ing her vow to never negotiate with
the holdouts.
As of two weeks ago, Gramercy
had rallied support from asset man-
agers who hold close to 30% of the
2005 and 2010 bonds, but it needs
85% for its proposal to have a chance.
BY JOHN CARREYROU
BUSINESS & FINANCE
Steep Slide
How many Argentine pesos one
U.S. dollar buys, weekly
The Wall Street Journal
Source: FactSet Note: As of Friday
0
8
6
4
2
pesos
2000 10
Scale is inverted to
show weakening peso
Rising Borrowing Costs Add to Risks for Chinese Firms
The double whammy of an eco-
nomic slowdown and rising borrow-
ing costs will cause problems for
companies already struggling with
sliding profit margins, Mr. Ding said.
Evergreen is in a particularly vul-
nerable position as Beijing moves to
contain the growth in debt. It is a pri-
vate company so it doesnt get the
preferential treatment, such as cheap
loans, that state-owned companies
receive. And it is in a sectorheavy
industrythat China is de-emphasiz-
ing as it tries to boost consumption
and reduce its dependence on invest-
ment as a source of economic growth.
The company, which promotes
its entrepreneurial passion, accu-
mulated its debt in a rapid expan-
sion that included acquiring MagIn-
dustries Corp., a Canadian mining
company that hopes to dig for pot-
ash in the Republic of Congo.
Chinas corporate debt has risen
more rapidly than its economy has
expanded over the past five years.
According to J.P. Morgan Chase &
Co., Chinas corporate debt was
124% of gross domestic product in
2012, up from 111% in 2010 and 92%
in 2008. J.P. Morgan economist Hai-
bin Zhu said the number likely rose
further in 2013.
Corporate debt in comparable
emerging economies is 40% to 70%
of GDP, while in the U.S. the figure
is 81%, according to J.P. Morgan.
While heavy debt loads can hurt
companies, there is also concern
about the impact on lenders. In
China, banks tend to hold loans on
their balance sheets and are the big-
gest buyers of corporate bonds.
High corporate debt is the big-
gest vulnerability for the Chinese fi-
nancial sector, followed by shadow
banking and local government debt
issues, Mr. Zhu said.
Continued from page 15 Rates have even risen for some
of Chinas most important borrow-
ers. China Development Bank, a
state-owned lender charged with
helping to develop the nations
economy, saw the rate it pays on
five-year bonds rise to 5.75% this
month from 4.97% in late October
and 4.16% in January 2013.
For the Export-Import Bank of
China, which helps finance the vast
flows of goods into and out of
China, the coupon rate on its three-
year bond rose to 5.44% in this
month from 4.80% in late October
and 3.62% in late February 2013.
The increase in borrowing costs
was driven in part by a rise in rates
on government bonds. The yield on
Chinas benchmark 10-year govern-
ment bond reached 4.75% in late No-
vember, the highest since January
2005 and up from 3.68% at the end
of 2012, according to WIND Info and
Thomson Reuters. The yield has
since fallen to 4.51%.
For short-term bonds like the
ones sold by Evergreen, the average
coupon rate on new issues now
stands around 6.26%, up from 4.38%
at the beginning of this year and
2.77% in 2005.
With a coupon of 9.90%, Ever-
greens latest debt issue is effectively
a junk, or speculative-grade, bond,
said Wang Ming, a partner at Shang-
hai Yaozhi Asset Management, which
oversees two billion yuan in assets.
If [Evergreens] bill coupon rate
rises above 10% next year, how will
they be able to honor repayment?
Mr. Wang said.
Evergreen declined to comment
on the interest rates it is paying or
its ability to repay its debt. The
bill sale was a market exercise. We
do everything according to the
rules of the market, said an official
at Evergreens finance department,
who declined to comment further.
Evergreen said in the prospectus
for its December bond issue that if
the shipbuilding industry stays weak
the companys profitability will
likely keep sliding, which will affect
the issuers repayment ability. Ev-
ergreens net profit dropped to
45.89 million yuan in the first nine
months of 2013 from 324.68 million
yuan a year earlier.
The slide has made Evergreens
debt situation worse. At the end of
2010, the firms earnings equaled
33% of its outstanding debt, while a
year later the figure fell to 12% of its
debt. At the end of 2012, Ever-
greens earnings equaled just 7% of
outstanding debt. Figures for 2013
arent publicly available.
No corporate bond in China has
ever failed to pay off, though some
issuers have been bailed out.
We keep guessing when we will
see the first bond default in China
and I think it might be possible to
see one or two cases this year, said
Yaozhis Mr. Wang. He declined to
comment on his own portfolio, but
advised investors to avoid bonds
issued by risk-prone small compa-
nies, especially those in sectors bur-
dened by overcapacity, such as the
shipping and solar industries.
Even if there are no defaults, if
many companies are forced to cut
spending to raise cash for debt re-
payment, that could cause the econ-
omy to slow.
Rising money-market rates and
bond yields have also translated into
higher rates on bank loans, which ac-
count for the bulk of corporate lend-
ing in China. Smaller, private firms
have been hit the hardest.
According to Lily Li, financial di-
rector of a medium-size, privately
owned pharmaceutical firm in
Shanghai, banks are now charging
at least 8% for a one-year loan, com-
pared with a little over 6% a year
ago. The cost of borrowing from
banks is becoming really unbearable
now. We wont die, but its really too
much pressure for us, Ms. Li said.
Jason Lee, who runs a Taiwan-
ese-owned electronics supplier
based in Jiangsu province, has kept
his costs low by borrowing in cur-
rencies such as the yen or by bor-
rowing from his bank in Taiwan, an
option not available to most Chinese
companies.
Ive been watching the credit
crunches very closely and I would
definitely lose money if I took yuan-
denominated loans, Mr. Lee said.
Amy Li
contributed to this article.
Chinese Companies Borrow More and Pay More for the Privilege.
Now Beijing is slowing credit
growth by driving up interest
rates that banks pay to one
another.....
Chinese corporate debt has risen
rapidly as banks boosted lending
to stimulate the economy during
the nancial crisis...
That has put a squeeze on
companies, which have to pay
higher interest rates even as
growth slows.
Sources: CEIC, J.P. Morgan estimate (corporate debt); WIND Info (seven-day repo rate and yields on corporate bills) The Wall Street Journal
Chinas corporate debt as percentage
of GDP
120
0
20
40
60
80
100
%
09 10 11 12 2008
Seven-day repo rate
12
0
2
4
6
8
10
%
14 2013
Yields on one-year AA-rated
corporate bills
12
0
2
4
6
8
10
%
14 2013
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 11
IN DEPTH
Many of those people are clustered in the
South, living in states where income limits
for Medicaid coverage have historically
been among the lowest in the U.S.
Eugene Steuerle, an Urban Institute
economist and former Treasury Department
official who served under presidents in
both parties, said he couldnt recall a social
program that excluded beneficiaries be-
cause they earn too little.
In Alabama, Gov. Robert Bentley, a phy-
sician, said in his annual address last
month that Medicaid expansion carried
costs he doubted the federal government or
his state could afford. Medicaid accounts
for more than one-third of Alabamas bud-
get, the states costliest service after educa-
tion, and it would have to grow larger to
comply with the health-care law.
A spokeswoman for Mr. Bentley said his
position was clear in public statements.
One of Mr. Bentleys constituents, 27-
year-old Tanisha Fields, who is uninsured,
arrived at University of Alabama at Bir-
minghams flagship hospital on a recent
evening for treatment after a miscarriage.
Hospitals are obligated to treat emergency
room patients, regardless of their ability to
pay.
Ms. Fields, who has a 4-year-old son,
earned about $7,000 last year working at a
cleaning service. That is too little to qualify
for federal help buying coverage in new
health-law marketplaces, and too much for
coverage in Alabamas Medicaid program,
which has an income ceiling of $2,832 for a
family of two, after deductions. If Ms.
Fields could buy insurance for $50 a month,
she said, I definitely would.
Governors in some states that refused to
expand Medicaid now say the coverage gap
is hard to ignore. I am not a fan of the Af-
fordable Care Act, Utah Gov. Gary Herbert
said in an interview. But, he said, he is
working with state legislators on a plan to
expand Medicaid after advisers calculated
that about 60,000 of his constituents would
fall through the gap.
That is not fair, Mr. Herbert said.
When I say doing nothing is not an option,
Im talking about the 60,000 people in Utah
who live below the poverty line and dont
have access to health care.
Mr. Maiden, the hair stylist, learned in a
Dec. 23 letter from the federal government
that he wasnt eligible for help. The cheap-
est bronze-level insurance plan available
to Mr. Maiden, who is single and a smoker,
costs $437 a month. That plan, from Blue
Cross & Blue Shield of Alabama, has a
$6,350 annual deductible.
Mr. Maiden would have to spend about
$11,600 a yearmore than his entire annual
incomeon premiums and the deductible
before Blue Cross would begin paying for
most services. If he earned an extra $1,300
a year, he would qualify for about $470 a
month in federal subsidies under the
health-care law to pay premiums, and addi-
tional subsidies that would reduce the de-
ductible for certain plans to as little as
$100 a year.
Earning more, he said, is a challenge.
Demand in Birmingham for his styling serv-
ices is low, he said: These are difficult
times.
A Blue Cross spokeswoman said the in-
surer offered some of the most cost-effec-
tive health insurance premiums in the coun-
try and noted that Alabama has among the
lowest average rates of states using Health-
Care.gov, the federal insurance exchange.
But higher-wage families in some cases
pay less for coverage in Alabama. Cal Mor-
ris, 37 years old, opened Church Street Cof-
fee & Books with his wife, Heather, in a
wealthy Birmingham suburb nearly three
years ago.
The coffee shop and Mr. Morriss second
job as a church janitor yields about
$35,000 a year for the couple, who have
three children.
Under the law, the family qualifies for a
subsidy of as much as $439 a month. They
could pay as little as $83 a month for a
midlevelor so-called silverBlue Cross
plan that lists at $522.43 a month, accord-
ing to HealthCare.gov. The couples chil-
dren are covered by the states Medicaid
program.
Mr. Morris, who has severe and un-
treated psoriasis, said he looked forward to
seeing a doctor, now that he has coverage.
Federal census data show about two-
thirds of nearly 30,000 uninsured people
living in Jefferson County, which includes
Birmingham, would qualify for Medicaid if
the program was expanded to fit with the
health-care law.
While Birminghams unemployment rate
is low, many of its workers are poor. The
bottom 10% of local workers employed full-
time in 32 professionsincluding health-
care aide and hairdresserearn less than
$16,000 a year, according the Bureau of La-
bor Statistics.
Many of these people are only now
learning of the health-care gap. Shunteria
Taylor, 28 years old, lost a job as a per-
sonal-care aide in 2012. She lives on about
$10,500 a year in child support and disabil-
ity benefits for her 9-year-old son, Bran-
don. She said she was looking for work.
Based on her income, the cheapest in-
surance coverage would cost Ms. Taylor
$146 a month, with a $6,350 deductible. I
have a lot of health problems, she said,
but I just cant afford insurance.
Hospitals, including UAB Health System,
see the coverage gap as a threat.
All we see is our revenues going
down, said Will Ferniany, UABs chief exec-
utive. Like other hospitals, it faces deep
cuts in federal reimbursement for treating
uninsured patients under the health-care
law, he said, but wont see many new pay-
ing patients without the Medicaid expan-
sion.
On a recent evening, as a rare blizzard
struck Birmingham, dozens of uninsured
patients filed through the emergency room
at UABs main campus. Complaints ranged
from headaches and swollen feet to broken
bones. Such visits contribute to more than
$100 million in uncompensated care costs
at the hospital, according to 2012 Medicare
data.
Seneca Womack, age 38, arrived that
evening seeking treatment for an epileptic
seizure. A couple of hours later, he was dis-
charged but then slipped on a patch of ice
on his way home, breaking his leg.
Since losing his last two jobsas a ride
operator at an amusement park and restau-
rant cookMr. Womack has had no regular
income, leaving him below the threshold
for health insurance subsidies.
Before his latest mishap, Mr. Womack
had piled up more than $50,000 in hospital
bills for treatment of seizures and related
injuries. He said he borrows $130 a month
from his sister to buy drugs for high blood
pressure, depression and epilepsy.
I need insurance, he said.
Hospitals Take Hit in Failed Medicaid Expansion
State decisions to decline federal offers to
expand Medicaid are costing hospitals, in addi-
tion to lower-wage workers.
Hospitals backed the health-care law be-
cause it promised to create new, paying cus-
tomers. Instead, the failure to expand Medicaid
coverage by some states not only adds fewer
insured patients, it also eliminates the pay-
ments hospitals had long received to cover the
cost of uninsured people they treat free.
Shelby Baptist Medical Center, just outside
of Birmingham, Ala., pulled in about $1.6 million
after expenses in 2012, Medicare data show. It
was buoyed that year by more than $9 million
in disproportionate-share hospital payments
from the federal Medicare and state-run Medic-
aid programs.
Those funds are targeted for cuts that could
erase margins at hospitals like Shelby Baptist.
About 190,000 Alabama residents who were
initially expected to qualify for Medicaid will fall
into a coverage gap because the state didnt ex-
pand the government health-insurance program,
according to estimates by the Kaiser Family
Foundation.
Unfortunately in our state, without expand-
ing Medicaid, and with very limited enrollment
in the exchange, were not seeing the benefit,
said Greg Johnston, chief financial officer of the
four-hospital Baptist Health System that oper-
ates the Shelby facility. Were seeing more on
the cut side.
In 2012, almost 40% of the 84 dispropor-
tionate-share hospitals in Alabama were oper-
ating in the red, according to annual financial
reports provided by the hospitals to Medicare.
Rosemary Blackmon, executive vice president
of the Alabama Hospital Association, said the
industry group expected hospitals to absorb
about $40 million in health-law related cuts this
year. Congress in December delayed a portion
of the cuts to funds that reimburse hospitals
for treating uninsured people.
The financial woes of hospitals wont slow
the arrival of uninsured customers, They are re-
quired to treat people who arrive in emergency
rooms under federal law, regardless of ability to
pay.
Alabama hospitals that receive government
payments for uncompensated care provided
$602 million in such services in 2012, Medi-
cares data show. The hospitals were reim-
bursed for more than 60% of those costs
through the extra Medicare and Medicaid pay-
ments, the data show.
Christopher Weaver
Alabama resident
Shunteria Taylor,
with her son
Brandon, lives on
about $10,500 a
year and falls into
the health-care gap.
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*Wisconsin's Medicaid threshold was already high enough to close the gap before the Affordable Care Act passed. Note: Some parents,
disabled adults and people receiving SSI may qualify for Medicaid in states that arent expanding the program. Michigans planned
expansion begins in April.
Source: Kaiser Family Foundation (number in coverage gap); Census; The Affordable Care Act The Wall Street Journal
Lef Out
Texas
Mont.
Idaho
Utah
Wyo.
Kan.
Neb.
S.D.
Fla.
Okla.
Wis.*
Ala. Ga.
Mo.
La.
Pa.
Ind.
Tenn.
N.C.
Va.
Miss.
S.C.
Maine
N.H.
Alaska
In 24 states that didn't expand Medicaid as of Jan. 1, 4.8 million people fall into a coverage gap:
They earn too little to qualify for health-law subsidies to buy private insurance, and arent eligible
for benets under existing state programs.
Health law coverage available for a single, adult worker, by income
States that havent expanded Medicaid
States that have expanded Medicaid
$46,680 $16,105 Annual income: $11,670
Gap No subsidy
No subsidy Medicaid
Federal subsidy
Federal subsidy
Less than 20%
20% to 25%
More than 25%
SHARE OF
UNINSURED
IN THE GAP
18 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
Nissan Plays Catch-Up on Global Goals
YOKOHAMA, JapanNissan Mo-
tor Co. said a weak yen combined
with booming sales and profit in Ja-
pan led to a 57% jump in net income
in the latest quarter.
Even so, the company said it
would be a stretch to hit its full-
year targets for global profit and ve-
hicle sales, citing weak profitability
in major markets abroad.
The contrasting results at home
and overseas show how Nissan, Ja-
pans second-largest auto maker by
sales volume, is continuing to strug-
gle to raise profit abroad, as it
pushes to meet ambitious global
targets set by its charismatic chief
executive, Carlos Ghosn.
We know its not easy to meet
the goals [for the full year] but its
not impossible, Nissan Corporate
Vice President Joji Tagawa said at
an earnings news conference on
Monday, adding that a series of new
cars will help the company catch up
with its targets by driving stronger
profit growth in the current, final
quarter of this fiscal year.
The Yokohama-based car maker
has been pulling out all the stops to
build and beef up factoriespartic-
ularly in emerging marketsto hit
an 8% operating-profit margin and
global market share by March 2017.
It has also been pushing hard to
bolster sales in the North American
market with incentives amid in-
creasing price competition.
But those efforts have eroded
Nissans bottom line, while sales in
many regions havent picked up
much yet. In Asia, vehicle sales ac-
tually fell slightly during the quarter
from a year earlier, as demand
slipped in Thailand.
Nine months into its fiscal year,
Nissan has achieved only 61% of its
full-year target for operating profit,
an important measure of the
strength of underlying business. As
of the end of December, it had sold
71% of the 5.2 million vehicles it is
aiming to sell by the end of March.
Plenty of hope is resting on new
models to lift performance in the fi-
nal quarter. Nissan recently
launched a redesigned Rogue small
sport-utility vehicle in North Amer-
ica and is set to introduce the Dayz
Roox minicar in Japan soon. More
new vehicles are to arrive in show-
rooms in other markets.
Surging sales in Japan during
the three months ended December
propped up the overall profit fig-
ures. Revenue in Japan was up 12%,
while operating profit in Japan
jumped fivefold to 87 billion
($849.9 million), helped by a rush of
buying ahead of a scheduled rise in
the sales tax rate to 8% from 5%.
A yen that was 24% weaker
against the dollar in the quarter than
it was a year earlier also pushed up
profit margins for exports. All of Ja-
pans auto makers have benefited
from a weaker currency, which
boosts overseas earnings when they
are converted into yen terms.
The strong Japan performance
pushed Nissans overall net profit up
to 84.3 billion in the quarter from
53.8 billion a year earlier. Overall
sales for the quarter rose 25% to
2.52 trillion yen.
But even with the tailwind of the
weaker yen, Nissans North Ameri-
can profit suffered in particular,
with operating income plunging 87%
to 3.4 billion during the quarter,
even as revenue rose 33% to 1.15
trillion. Mr. Tagawa said the startup
costs for a new plant in Mexico and
high sales promotions costs
squeezed profit in the region.
Globally, the company posted an
operating profit margin of only 3.1%
during the past quarterfar off
from its midrange target, and well
behind rivals Toyota Motor Corp.
and Honda Motor Co., where the
weak yen and strong sales led to
margins of 9.1% and 7.6%, respec-
tively, during the same period.
Nissan has blamed its weak
profitability in part on the large
costs of investing in factories and
equipment, with nine projects
moving simultaneously. It also has
cited weak demand in some emerg-
ing markets.
Increasing production capacity in
developing markets like Brazil is a
key part of its strategy to build mar-
ket share. Nissan had a 6.2% market
share world-wide in the past fiscal
year.
The car maker reshuffled its
management three months ago to
spot problems and deal with them
more quickly, amid its rapid busi-
ness expansion.
BY YOSHIO TAKAHASHI
Nine months into its fiscal year, Nissan has achieved only 61% of its full-year target for operating profit, an important
measure of the strength of underlying business. Above, a visitor at the companys headquarters in Yokohama, Japan.
A
s
s
o
c
i
a
t
e
d
P
r
e
s
s
Toyota Joins Exodus in Australia
Australia is poised to lose its
place among the ranks of auto-mak-
ing nations after Toyota Motor
Corp. said it would stop producing
cars in the country, the latest gear
change in the industrys pivot to-
ward emerging markets.
Toyota said Monday that the last
vehicle would roll out of its factory
at Altona, near Melbourne, in 2017,
resulting in the loss of at least 2,500
jobs. The Japanese company cited
factors including high production
costs and a strong Australian dollar.
Ford Motor Co. and General Motors
Co. are planning similar exits.
We did everything that we could
to transform our business, but the
reality is that there are too many
factors beyond our control that
make it unviable to build cars in
Australia, Max Yasuda, chief execu-
tive of Toyotas Australian unit, said
in a written statement.
Toyotas Australian unit swung to
a profit of 220.9 million Australian
dollars (US$197.9 million) in the fis-
cal year through March 2013 as the
company cut costs. Still, it faced
challenges as consumers shifted
away from large passenger vehicles,
such as the Camry, in favor of im-
ported sports-utility vehicles. Toy-
otas most popular vehicle in Austra-
lia, the Corolla, is shipped in from
overseas.
Toyota, which exports 70% of the
vehicles built at its Altona factory,
said it was no longer confident that
it would be able to count on having
enough suppliers in the country af-
ter Ford and GM leave. It was also
worried about the impact of Austra-
lia signing more free-trade agree-
ments, which could increase imports
of less-expensive cars. A long-dis-
cussed pact with Japan could be
sealed as early as July, when Japa-
nese Prime Minister Shinzo Abe may
visit Canberra.
The end of the road for auto
manufacturing would be a blow to
the $1.5 trillion Australian economy,
in which the sector has declined for
years as resources investment and
exports have grown. Australias eco-
nomic growth has slowed sharply in
recent months, hurt by falling con-
sumer confidence, soft business in-
vestment and a domestic currency
that remains stronger than its his-
torical average, which makes exports
less cost-competitive overseas.
Australias jobless rate has been
creeping up to levels not seen since
the global financial crisis in 2008.
Thousands of workers in the once-
booming resources sector have lost
jobs over the past year as companies
adjusted to lower commodity prices.
Flag carrier Qantas Airways Ltd. said
recently it would cut 1,000 jobs to
help stem losses. Experts estimate
that at least 6,600 jobs will be di-
rectly affected when auto manufac-
turing ends.
Australian Prime Minister Tony
Abbott, a conservative, has resisted
pleas from other manufacturers, in-
cluding in food processing, for aid
packages to help keep plants open
and resist competition from cheaper
imports. He has maintained that
companies need to get their busi-
nesses in order, rather than rely on
handouts. The stance has been criti-
cized by opposition lawmakers and
unions, which have warned of a A$21
billion hole in the economy and the
loss of up to 45,000 jobs, both direct
and indirect, if the auto industry
dies.
The job losses in the auto indus-
try are concentrated in the states of
South Australia and Victoria, which
have large concentrations of blue-
collar workers. Ford is closing plants
in Geelong and Broadmeadows, also
on the outskirts of Melbourne. GM
plans to close its operations in Mel-
bourne and in South Australias state
capital, Adelaide.
The first 300 workers from
Fords facilities were made redun-
dant this month ahead of a complete
shutdown of the two plants by 2016.
The risk to Mr. Abbott is that
there will be a backlash against the
conservatives at the state level, with
both Victoria and South Australian
voters due to head to the polls later
this year.
Rob Taylor in Canberra,
Ross Kelly in Sydney
and Yoshio Takahashi in Tokyo
contributed to this article.
By David Winning in Sydney
and Kana Inagaki in Tokyo
BUSINESS & FINANCE
Austrian
Lenders
Reject Hypo
Bad Bank
Austrias banks have refused to
participate in a bad bank carved
out of the wreckage of failed re-
gional lender Hypo Alpe Adria AG,
raising the risk that the government
may declare the bank insolvent.
Austrian Finance Minister and
Vice Chancellor Michael Spindeleg-
ger acknowledged Monday that he
had failed to persuade the countrys
largest private-sector banks to fund
a new institution that would wind
down the bulk of operations at the
bank, which was nationalized at the
end of 2009 after a disastrous ex-
pansion into southeastern Europe
during the boom.
That leaves the government ef-
fectively with two options: It can ei-
ther assume the bad assets itself,
and allow any further losses to hit
the public accounts, or it can put
the bank into an insolvency process.
Hypos estimated liabilities far ex-
ceed its assets, so insolvency would
almost certainly impose losses on
the banks creditors, the first time
since the financial crisis that a Eu-
ropean Union member states gov-
ernment had failed to honor debts
owed by a bank wholly under its
control.
The government in December
sold Hypos domestic operations to
a private investor, leaving only the
banks operations in the Balkans and
Italy. As such, there is no direct risk
to Austrian depositors any more,
only to the banks bondholders; its
owner, the government, and Bay-
erische Landesbank, its former
owner, which still has 2.3 billion
($3.14 billion) of deposits tied up in
the group as a result of the 2009
nationalization.
Talking to journalists after his
meeting with representatives from
the banks broke down, Mr. Spindel-
egger said the government will look
at the establishment of a state-
owned bad bank first, similar to the
model used in Germany since the
crisis. Mr. Spindeleggers predeces-
sor, Maria Fekter, had refused to
countenance such a step, fearing
that the extra debt load would cause
credit-ratings firms to cut Austrias
sovereign rating.
We have to look the facts in the
face, Mr. Spindelegger said.
Neither he nor any other Aus-
trian official was willing to venture
an opinion on how much could still
be lost on Hypos remaining assets,
which have shrunk to under 30 bil-
lion from a peak of 50 billion as a
result of successive write-downs
and asset sales.
However, Helmut Ettl, joint head
of banking supervisor Financial
Market Authority, told journalists
the only remaining models will all
be expensive but warned against ex-
perimenting with insolvency.
A bankruptcy scenario is clearly
a scenario where at the end of the
day no one knows exactly how large
the risks are, Mr. Ettl said.
The government and central
bank have also shied away from the
latter course for the past two years,
saying it would have far-reaching
consequences for the borrowing
costs not only of the government,
but for all government-controlled
entities and for the Austrian econ-
omy.
BY NICOLE LUNDEEN
AND GEOFFREY T. SMITH
Source: VFACTS The Wall Street Journal
Tough at the Top
Note: Figures dont add up to 100% due
to rounding.
Five largest auto sellers in
Australia by market share
Others
Ford
Hyundai
Mazda
Holden
Toyota
Others
Mitsubishi
Mazda
Ford
Holden
Toyota
2008
39%
6.0%
7.9%
10%
13%
24%
7.7%
8.5%
9.1%
9.9%
19%
46%
2013
12 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
OPINION: REVIEW & OUTLOOK
S
wiss voters narrowly approved an
anti-immigration ballot measure
Sunday. The margin was thin,
50.3%, but the effects could be wide-
ranging and damaging. Switzerland is
not a member of the EU, but agreements
with Brussels allow for the free move-
ment of labor between the republic and
the union, along with passport- and visa-
free travel.
Now Bern has three years to translate
the will of the Swiss majority into law,
while at the same time working out with
the EU what Sunday's vote means for
EU-Swiss relations. The referendum
didnt spell out specific limits on immi-
gration, so it will be up to the govern-
ment, which opposed the referendum, to
set the caps in accordance with the vote.
EU officials are not pleased with the
Swiss, and at least some in the European
Parliament are threatening retaliation
through possible trade sanctions. Half of
Swiss exports go to the
EU, by which Switzerland
is almost entirely sur-
rounded.
Switzerland may ap-
pear to be a land of inter-
national bankers and tony
ski resorts. But its also a mountainous,
fiercely independent and sometimes-in-
sular country that, not very many gener-
ations ago, lived largely cut off from its
neighbors. Sundays votes reflected that
duality; there are still millions in Swit-
zerland who would prefer to be left
alone.
But the isolated Switzerland of the
relatively recent past was also a much
poorer country, and the nations current
prosperity is a product of its openness to
trade with Europe and the
rest of world. The multi-
nationals that call Swit-
zerland home could de-
camp if they cant employ
the people they need to
stay competitive, and
Switzerlands business-friendly reputa-
tion will be undermined if would-be em-
ployees cant get visas.
Meanwhile, anti-immigration politi-
cians in the rest of Europe will be watch-
ing closely what happens next in Swit-
zerland. Britain is not part of the
Schengen agreement that permits visa-
free travel in the union, but it is in the
EU and as such is required to allow free
movement of EU citizens who want to
work in Britain. The U.K. Independence
Party would like to see that change, and
if Switzerland can close its borders the
calls for Britain to follow suit will get
louder. The EU will have at least one eye
on all this as it weighs how to respond to
what the Swiss do next.
Its a credit to Swiss democracy that
the countrys leadership will feel bound
by the results of the vote, however close
it was and whatever side they were on
before the vote. But a more-open Swit-
zerland is also likely to be successful and
prosperous. We expect the Swiss in their
wisdom will eventually come around to
seeing the point.
W
hile the IRS is playing favorites
with tax-exempt groups in
Washington, state regulators
are also expanding their attempts to reg-
ulate political speech in America. Last
week the Ninth Circuit Court of Appeals
heard oral arguments in two Washington
state cases that will decide if legal repre-
sentation can be considered an in-kind
contribution to a political campaign.
In 2010, Puyallup resident Robin Far-
ris started a recall campaign against for-
mer Pierce County Treasurer Dale
Washam for alleged abuse of government
resources and other misdeeds. Under
Washington state law, contributions to
the effort, including free legal advice,
were capped at $800 (now $900), se-
verely restricting Ms. Farriss right to
free speech.
The Virginia-based Institute for Jus-
tice took up Ms. Farriss case, arguing
that organizations that dont coordinate
with a candidate cant be subject to cam-
paign-finance restrictions because they
dont raise a corruption problem. This is
the law since the Supreme Courts Citi-
zens United ruling in 2010. In recall elec-
tions, the opposition has no candidate to
coordinate with.
The Ninth Circuit agreed in 2012, but
by that time the recall campaign was
over, having been unable to collect
enough signatures thanks in part to the
fundraising restrictions. On Thursday,
the appeals court reconsidered whether
Washington states contributions cap can
be applied to any recall campaign.
Meantime, the state Public Disclosure
Commission turned on the Institute for
Justice (IJ), threatening to fine Ms. Far-
ris on grounds that the libertarian legal
groups pro-bono work on the recall caps
should count as an in-kind contribution.
IJs interest was the constitutional issue,
not the recall campaign itself, but the
regulators shrug off that detail because
their real goal is to control how much
political speech is allowed.
If this regulatory view prevails, politi-
cal groups would only be able to get a
few hundred dollars of legal representa-
tion if their civil rights are violated. This
would also pose a major threat to
501(c)(3) organizations like the Institute
for Justice, which could see its tax-ex-
empt status threatened if states like
Washington counted pro-bono work on
civil-rights cases as campaign contribu-
tions.
The state took a similar position in a
case argued last week involving Family
Pac, a conservative group that success-
fully challenged Washingtons ban on po-
litical-action committees collecting more
than $5,000 from a single contributor
within three weeks of an election. Family
Pac was eligible to be compensated for its
attorneys fees after the win, but the Pub-
lic Disclosure Commission claimed that
because Family Pac didnt disclose the
pro-bono work of its law firm as an in-
kind political contribution, it wasnt enti-
tled to the fees. Talk about sore losers.
While conservatives are the regulatory
target in these cases, the threat could en-
snare all kinds of political groups and
their attorneys. That explains why the
Center for Competitive Politics and the
American Civil Liberties Union of Wash-
ington Foundation have joined the Insti-
tute for Justice brief. The speech police
never rest, so we hope the judges put
them in their place.
U
.S. Assistant Secretary of State for
Europe Victoria Nuland dropped
an F-bomb over the European
Union last week, but the kerfuffle over
her wiretapped conversation should not
overshadow the laser-guided munition
delivered by her counterpart for Asia,
Danny Russel. In testimony before a
House subcommittee last Wednesday Mr.
Russel challenged Beijing to put up or
shut up on the issue of its disputed terri-
torial claims in the South China Sea.
There is a growing concern, Mr. Rus-
sel said after enumerating a long list of
Beijings provocative maritime actions,
that this pattern of behavior in the South
China Sea reflects an incremental effort
by China to assert control over the area
contained in the so-called nine-dash line,
despite the objections of its neighbors
and despite the lack of any explanation or
apparent basis under international law re-
garding the scope of the claim itself.
The nine-dash line Mr. Russel re-
ferred to is Beijings dubious deed of own-
ership for countless shoals and atolls, a
feature of Chinese maps that shows the
countrys historical waters. It is copied
from a map drawn up by the government
of Nationalist leader Chiang Kai-shek in
1947. The dashes enclose roughly 90% of
the South China Sea and overlap not only
with five other countries island claims,
but also with their exclusive economic
zones and continental shelves hundreds
of miles away from the Chinese coast.
Under maritime law,
historical waters can
only be claimed under rare
and limited circumstances,
none of which apply to
this vast sea. Mr. Russel
was more explicit than any
other U.S. official we know
of in calling Chinas claim
bogus: I want to reinforce the point that
under international law, maritime claims
in the South China Sea must be derived
from land features. Any use of the nine-
dash line by China to claim maritime
rights not based on claimed land features
would be inconsistent with international
law.
This was already enough to make Bei-
jing go ballistic, but the Assistant Secre-
tary of State went further. In the most
diplomatic language, he called on Beijing
to either come up with a better argument
for its claim or drop it: The international
community would welcome China to clar-
ify or adjust its nine-dash line claim to
bring it in accordance with the interna-
tional law of the sea.
Beijing always endeavors to negotiate
on a bilateral basis with each of the other
five South China Sea claimants, which
would allow it to skate over the sketchy
legality of its actions.
However, last year Manila
defied Chinas wishes and
applied to the United Na-
tions for a tribunal ruling
on the dispute after Chi-
nese forces seized Scar-
borough Shoal from the
Philippines in 2012.
Beijings next line of defense is to de-
cline to participate in or recognize such
proceedings. It keeps the basis of its
claims deliberately ambiguous, leaving its
rivals unable to challenge them and a tri-
bunal unable to definitively rule against
them.
The U.S., however, has seemingly de-
cided to debunk Beijings nine-dash line
argument in the court of international
public opinion. Mr. Russel devastatingly
pinpointed the key weakness of Beijings
expansive claims. Chinas purported own-
ership of all the land in the South China
Sea derives from a map showing its terri-
torial waters. Yet one of the most basic
principles of maritime law is that territo-
rial waters derive from territory, and not
the other way around.
Naturally Beijings spokesmen and
state-run media are furious that some-
body has dared to point out that the em-
peror has no clothes. They denounce U.S.
interference in Chinas domestic affairs
as irresponsible and not constructive.
Chinas neighbors have a different con-
cern: Will the U.S. back up its rhetoric
with action? At the beginning of this year
Beijing unilaterally imposed new rules on
fishing in the South China Sea, requiring
all boats to seek its permission first. The
Japanese newspaper Asahi Shimbun re-
ports that Beijing will soon announce an
air defense identification zone over the
South China Sea to effectively control the
airspace.
China is changing the status quo in the
South China Sea with force and the threat
of force. Philippine President Benigno
Aquino warned last week that the world
is appeasing a rising Chinas unreasonable
demands much as it did with Nazi Ger-
many in the 1930s. Its an analogy that is
gaining plausibility. Mr. Russels state-
ments are a small but important marker
that the U.S. still remembers its history
and wont let Beijings provocations go
unchallenged.
Fortress Switzerland
The Speech Regulators Get Mean
Calling Out Chinas Lawlessness
The Swiss vote
for isolationism,
narrowly.
The U.S. points out
that Beijings claims
to the South China
Sea dont stand up.
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 17
BUSINESS & FINANCE
If Nestl Sells LOral Stake...
A knot tying three of Europes
biggest corporations together could
soon be untangled with billions of
euros in share buybacks.
In late April, Nestl SA will be
free to unwind its 30% stake in
LOral SA, and, according to people
familiar with the matter, that is one
of the options the Swiss food giant
is studying. If Nestls stake is up
for grabs, LOral wants to buy at
least part of it, one of the people
said. That could trigger LOral sell-
ing its 9% stake in French pharma-
ceutical company Sanofi SA, accord-
ing to the person.
The outcome of the corporate
equivalent of a game of chess will
determine who controls LOral, the
worlds biggest cosmetics company
and home to brands including
Lancme, Garnier and Krastase.
Nestl and the Bettencourt family,
heirs of LOrals founder, have
jointly controlled LOral for four
decades.
Given the complexity and the
cost, it is possible that the compa-
nies will retain their shareholdings
in each other. In any case, a deal
could take years to conclude.
For Nestl, its decision on the
LOral stake will provide important
clues about its strategic future.
Three years ago, Chairman Peter
Brabeck-Letmathe said that Nestls
board had begun to reflect on its
LOral stake and would make a de-
cision in 2014. Nestl has sold in-
vestments in hotels, fast food and
wine, as well as U.S. eye-care busi-
ness Alcon Inc. to focus on health
and nutrition.
The future of Nestls participa-
tion in LOral is an important topic
for the Group which the Nestl
Board of Directors is addressing
with great attention in the frame-
work of the Groups global nutrition,
health and wellness strategy, said
Nestl spokesman Philippe Aeschli-
mann. Nestls 30% stake in LOral
is valued at more than 23 billion
($31 billion).
LOral, with its aisles of sham-
poos, face creams and perfumes,
doesnt fit that focus, some analysts
say. As a result, Nestl could gradu-
ally reduce its stake, selling at least
a chunk of it back to the cosmetics
giant. The opposite strategyex-
panding Nestls scope by launching
a takeover of LOralis unlikely be-
cause it would be expensive and
could spark political meddling by
the French government, eager to
keep LOrals jobs in France, ac-
cording to bankers and analysts.
Nestl will continue to take a
long-term strategic view in share-
holders best interest, and will,
when appropriate, make its deci-
sions in a way that is most condu-
cive to the long-term success of the
company, Mr. Aeschlimann said.
Buying back Nestls stake would
be a good deal for LOral, chief
executive Jean-Paul Agon told Le
Monde newspaper last month. The
shares would be canceled, so the
value of each LOral share would
increase, he said.
A LOral spokeswoman on Mon-
day confirmed Mr. Agons statement
and declined to comment further.
To buy back its shares, LOral
could cash in its stake in Sanofi,
currently valued at 9 billion. Mr.
Agon has long said that the com-
panys investment, which it inher-
ited when it sold it a pharmaceutical
business, is financial, not strategic.
Extending the ripple effect,
Sanofi Chief Executive Christopher
Viehbacher said the company would
consider buying back its own shares.
It would be clearly accretive,
he said.
One of the people familiar with
the matter said Sanofi wouldnt
likely buy all of the stake in one fell
swoop because of its size. It would
either buy it in several installments
or buy part of the stake, with
LOral releasing the rest on the
open market, this person said.
A sale would mark a major shift
in a long-standing corporate pact.
The Bettencourts invited Nestl
into their company in 1974, fearing
nationalization from the French
government. They became equal
partners, with each party holding
about 30% of the company and seats
on the supervisory board.
The Bettencourts and Nestl last
renegotiated their shareholding pact
10 years ago. They agreed that nei-
ther side could raise its stake during
the lifetime of Liliane Bettencourt,
the 91-year-old matriarch, or for six
months after her death. They also
committed to giving the other party
the first right of refusal if they
wanted to sell their shares. The lat-
ter pledge expires at the end of
April.
The Bettencourt clan is deter-
mined to hold on to its stake. Last
summer, the family said in a state-
ment that a sale is not in any way
under consideration.
Separately, LOral said sales in
the fourth quarter edged up just
0.6%, to 5.76 billion, because of ex-
change-rate fluctuations in some of
the markets. Full-year sales rose
2.3% to 22.98 billion. LOral
squeezed out higher bottom-line
growth by tightening production
costs. Net profit last year rose 3.2%
to 2.96 billion from 2.87 billion.
By Christina Passariello
and Nomie Bisserbe in Paris
and John Revill in Zurich
LOral is the worlds biggest cosmetics company. Above, LOral products at a mall in Chinas Jiangsu province in 2012.
I
m
a
g
i
n
e
C
h
i
n
a
Bitcoin
Exchange
Uncovers
Tech Glitch
Prices of bitcoin have recently
fluctuated on factors ranging from
government regulation to the virtual
currencys acceptance by real-world
retailers. Now add another driver:
perceived technical glitches.
Mt. Gox, a leading bitcoin ex-
change Monday blamed a long-unre-
solved technical issue for its deci-
sion to abruptly halt customer
withdrawals last week. Prices of bit-
coin were sent reeling to their low-
est level in two months Monday
quickly falling to below $550 from
Fridays close of $703.57, according
to an index compiled by CoinDesk, a
bitcoin-data provider based in Lon-
don. By midafternoon in London,
the index price had partly recov-
ered, to around $650.
However, that rebound was in
part explained by CoinDesk remov-
ing Mt. Goxs prices from its index,
which in recent days had been
weighed down by lower quotes from
the Tokyo exchange.
Mt. Gox said the software issue
could affect all bitcoin transactions
to third parties and needed to be
addressed in cooperation with the
core development team of the pay-
ment system. Mt. Gox had said Fri-
day an increase in withdrawal re-
quests has hindered our efforts on
a technical level. It said Monday it
wouldnt allow withdrawals to re-
sume until the issue was addressed.
In a statement Monday, Mt. Gox
described the problem as a defect
with a procedure used to identify
transactions in the giant digital led-
ger that records all bitcoin activity.
There is a delay between when a
transaction is initiated and when it
is confirmed in the ledger; during
the gap, someone could slightly al-
ter the transaction and thus change
its identifying number. Mt. Gox ap-
pears to have used those numbers
to keep track of its transactions
with customers.
Technical issues at Mt. Gox
shouldnt affect the broader use of
the virtual currency, said the chief
scientist of the Bitcoin Foundation,
a not-for-profit organization funded
by bitcoin-related businesses.
In an interview Monday, Gavin
Andresen, chief scientist at the Bit-
coin Foundation, said, Other ex-
changes may or may not have an is-
sue. I hope that Mt. Gox is the only
exchange that falls into this.
Mr. Andresen played down how
widespread the fallout may be from
Mt. Goxs issue.
Basically, we think they are
overstating it a bit, said Mr. An-
dresen. It is really an unfortunate
interaction between what is argu-
ably a flaw in the protocolI would
[call] it a quirk, not a flawand Mt.
Goxs [digital] wallet and their cus-
tomer support procedures.
Mr. Andresen said that the issue
of transaction malleability, which
Mt. Gox cited as a reason that it
halted withdrawals from its ex-
change on Friday, is well known.
Transaction malleability refers to
the capacity to make small altera-
tions in the digital signatures used
by computers inside the bitcoin net-
work to verify transactions. Those
shifts have the potential to alter the
way transactions are represented to
third-party entities such as ex-
changes.
BY NEELABH CHATURVEDI
European Lenders Weigh New Tactics to Parry U.S. Rules
gent capital rules, part of the Dodd-
Frank financial-overhaul law, will
apply to foreign banks with at least
$50 billion in assets in their U.S.
units.
The rules have been subject to
years of gamesmanship. In 2011,
Deutsche Bank irked federal regula-
tors by saying it would change the
status of its main U.S. vehicle, Tau-
nus Corp., so that it was no longer a
bank-holding company and there-
fore wouldnt be subject to the
Dodd-Frank provisions. Fed officials
subsequently said they would adjust
the rules to preclude banks from
skirting them.
Since then, European banks have
heavily lobbied the Fed to soften its
approach, according to disclosure
statements filed with the Fed fol-
lowing meetings with bank execu-
tives. That is because the new rules
are likely to force major European
banks to add billions of dollars of
loss-absorbing capital to their U.S.
units, according to analysts and in-
dustry officials.
Deutsche Bank, in particular, has
been under pressure to figure out
how to deal with the rules. Its U.S.
Continued from first page unit at times has operated with vir-
tually zero capital, drawing the ire
of regulators. Deutsche Bank likely
faces a capital shortfall of roughly
$7 billion under the new rules, ac-
cording to Citigroup analysts.
One option under consideration
by some banks with relatively small
U.S. presences is to sell enough as-
sets so they fall below the $50 bil-
lion threshold.
Utrecht-America Holdings Inc., a
unit of Dutch lender Rabobank, had
$52.3 billion in assets at the end of
2013, according to Fed data. Rene
Loman, a Rabobank spokesman, said
the bank currently is running off
parts of Utrecht-America, which
owns a variety of U.S. financing
businesses, and the total assets will
be about $45 billion by the end of
March. Rabobank separately has
roughly $40 billion in assets in
other U.S. operations, including a
California retail bank.
To reduce the amount of capital
they have to hold in their U.S. units,
Barclays and Royal Bank of Scot-
land Group PLC have considered
booking certain trades outside the
U.S. or moving businesses into legal
structures outside of the Feds re-
mit, according to people familiar
with their plans, which remain pre-
liminary.
Another idea gaining traction
among some European banks is hav-
ing the U.S. subsidiaries sell bonds
to their parents, according to the
people familiar with the banks
strategies.
As currently envisioned, the U.S.
units would issue to their parents a
type of bond that converts into eq-
uity if the U.S. businesss capital
falls below a certain level. Some Eu-
ropean regulators have allowed this
type of convertible bond to count as
capital, although it is regarded as
less helpful for absorbing losses
than simple equity.
The European parent companies
would finance the purchases of their
subsidiaries debt by issuing bonds
to investors, these people say.
While the strategy isnt finalized,
it is sufficiently advanced that some
bank executives have given it the
moniker of internal convertibles.
The tactic is appealing, execu-
tives say, because it would allow
them to recapitalize their U.S. arms
without issuing new stock to inves-
tors, which erodes the value of ex-
isting shares. Plus, the European
parents can collect a regular inter-
est payment on their subsidiaries
bonds, analysts say.
It isnt clear whether U.S. regula-
tors will sign off. They havent pre-
viously allowed convertible bonds to
be treated as capital, said Marc
Saidenberg a principal in Ernst &
Youngs financial-services office.
Regulators in countries like the U.K.,
where Barclays is based, are with-
holding judgment until the Feds fi-
nal rules are announced, according
to a person familiar with the matter.
Some critics say that while the
maneuver could insulate the U.S.
subsidiaries from losses, it will end
up saddling the overall banking sys-
tem with greater debt. That is
something regulators world-wide
have been trying to curb.
Its definitely not a good thing,
said Anat Admati, a professor at the
Stanford Graduate School of Busi-
ness. It would harm financial sta-
bility because the funding is ulti-
mately done by debt, thus
increasing the fragility of the sys-
tem.
Eyk Henning
contributed to this article.
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 13
OPINION
In the name of protecting
children, the United Nations is now
preaching to the Vatican. A report
on the Holy Seereleased by a U.N.
committee last week to much me-
dia fanfarealleged that tens of
thousands of children have been
abused by Catholic clerics, and that
the Vatican has helped cover it up.
The committee strongly urged
the Vatican: Ensure a transparent
sharing of all archives which can be
used to hold the abusers account-
able as well as those who concealed
their crimes and knowingly placed
offenders in contact with children.
Thats rich coming from the
U.N., which has still not solved its
own festering problems of peace-
keeper sex abuse, including the
rape of minors. Exposing abusers
and holding them to account is a
great idea. The Vatican has spent
years addressing the scandal of its
own past handling of such cases.
But the U.N. hardly engages in the
transparency it is now promoting.
The U.N. releases only generic
statistics on violations committed
by personnel working under its
flag. The U.N. doesnt share with
the public such basic information
as the names of the accused or the
details of what they did to people
the U.N. dispatched them to pro-
tect. Blue berets accused of sex
crimes are simply sent back to their
home countries, where in the ma-
jority of cases they drop off the ra-
dar.
Though the U.N. has been re-
cording a drop in sex-abuse cases
since it began releasing numbers in
2007, the number of alleged in-
stances of rape and exploitation
each year still runs into the dozens.
(This may understate the realities,
given the hurdles to victims coming
forward, often in societies in tu-
mult or at war.) From 2007-13, the
U.N. reported more than 600 alle-
gations of rape or sexual
exploitation, with 354 substanti-
atedmany of them involving
minors. The numbers do not convey
how ugly some of these cases get.
Details can occasionally be gleaned
when an incident seeps past the
U.N. wall of omerta and makes it
into the news, as with the peace-
keeper gang rape in 2011 of a Hai-
tian teenager, whose agony was
caught on video.
In such matters as sex abuse, it
is reasonable to hold the Vatican,
or any other organization, to stan-
dards higher than the low bar the
U.N. sets for itself. But hypocrisy is
just one of the problems with this
16-page report on the Holy See,
which further assails the Vatican
for not subordinating itself whole-
sale to a much broader U.N. agenda.
For example, the report calls for
the Vatican to drop its opposition
to adolescent abortion and contra-
ception, condone underage homo-
sexuality, and use its authority
and influence to disseminate
world-wide a roster of U.N. views
and policies that run counter to
those of the Catholic Church.
The real issue here is that what-
ever changes the Vatican and the
worlds 1.2 billion Catholics might
consider, the U.N. is supremely ill-
qualified to serve as a guide. The
body that produced this report is
the U.N. Committee on the Rights
of the Child. Its job is to monitor
compliance with the U.N.-engen-
dered Convention on the Rights of
the Child, a lengthy and intrusive
treaty that went into effect in 1990.
When the Holy See became one
of the early parties to this treaty, it
did so with explicit reservations
meant to safeguard its own author-
ity and religious character. Now the
committee, in its report on
Wednesday, is pressing the Vatican
to withdraw all its reservations
and to ensure the Conventions pre-
cedence over internal laws and reg-
ulations. The committees recom-
mendations are nonbinding but can
influence public opinion. In this re-
port the Vatican is shamedand
then urged to redeem itself by bow-
ing before the altar of the U.N.
The Committee on the Rights of
the Child consists of 18 panelists
advertised as independent ex-
perts, serviced by a secretariat
housed in Geneva under the um-
brella of the U.N.s Office of the
High Commissioner for Human
Rights. The committee members
are nominated for their posts by
the governments of their home
countries and elected by an assem-
bly of treaty members that reflects
the despot-heavy tilt of the U.N.
From 2009-13 the committee
included a member put forward by
the government of Syria, where in
2011 the Assad regime began mak-
ing world headlines for torturing
and murdering children. Currently,
the committee includes members
from such human-rights-challenged
countries as Saudi Arabia, Russia,
Ecuador, Ethiopia, Sri Lanka, Tuni-
sia, Bahrain and Egypt. This panel
issues reports via a process that in
practice entails neither uniform
standards of judgment nor urgent
attention to some of the worlds
most horrifying abuses of children.
Officially, all parties to the Con-
vention are supposed to self-report
every five years. The U.N. commit-
tee then responds with its own vol-
ume of concluding observations
which is what just hit the Vatican.
In practice, however, some treaty
members miss their deadlines by
years, and when they do clock in,
the committee is chronically slow
to respond. Iran has for years led
the world in juvenile executions,
yet the committee last reported on
Iran in 2005.
A stark example of selective
reporting can be found in the
committees most recent observa-
tions on Saudi Arabiaissued eight
years ago. That report mentioned
the case of a 2002 fire at a girls
school in Mecca, a disaster in which
15 girls died and dozens more were
injured. Expressing grave concern
that the school building did not
meet adequate safety standards for
children, the committee recom-
mended that school buildings be
made safer and that staff be trained
for such emergencies.
What the committee did not
mention was that when the school-
girls tried to escape the fire, Saudi
Islamic-morality police drove the
students back into the burning
building because they were not
covered head-to-toe in the scarves
and abayas required in public.
Saudi journalists had the courage
to report on this monstrous ele-
ment of the tragedy. The U.N. left it
out.
Or take North Korea, where
state policy has led to famines that
resulted in the stunting and mass
starvation of children, and where
disloyalty to the supreme leader
can be punished by sending three
generations of a family, including
children, to prison-labor camps. In
assessing North Korea, the U.N.
committee in its most recent report
released in 2009 expressed concern
about severe ill-treatment of chil-
dren and noted with deep con-
cern that the overall standard of
living of children remains very
low. But there was none of the fer-
vor with which the committee has
denounced the Vatican for failing to
explicitly forbid corporal punish-
ment. On that the committee was
more than merely concerned, scold-
ing the Holy See to ensure that all
forms of violence against children,
however light, are unacceptable.
The Vatican has responded to
this U.N. satrapy with a statement
that its headline-grabbing report
was unjustly harmful and went
beyond the committees competen-
cies to interfere in the very doctri-
nal and moral positions of the
Catholic Church. Pope Francis
might want to consider that it is
precisely to avoid gross intrusion
by unaccountable U.N. experts
that the United States has signed
but never ratified the Convention
on the Rights of the Child. This
treaty has less to do with children
than with political power plays, and
a fitting reform at the Vatican
would be to walk away from it.
Ms. Rosett is journalist-in-resi-
dence with the Foundation for De-
fense of Democracies and heads its
Investigative Reporting Project.
U.N. peacekeepers crossing into Israel for a vacation after serving in Syria, June
12, 2013.
G
e
t
t
y
I
m
a
g
e
s
The U.N. Assault on the
Catholic Church
BY CLAUDIA ROSETT
Its impossible to read Woody
Allens reply to charges that in 1992
he molested his and Mia Farrows 7-
year-old adopted daughter, Dylan,
without being struck by its haunting
echoes of the words of countless
people accused of such crimes. He
had thought that the charges were
so ludicrous he didnt think of hir-
ing a lawyer, he reported in an op-
ed for the New York Times on Sun-
day. He had believed that common
sense would prevail. He had na-
vely thought the accusation would
be dismissed out of hand.
It was a kind of navet evident
in virtually every person known to
me who had been falsely charged in
the high-profile sex-abuse cases that
had swept the country in the 1980s
and early 1990speople convicted
and sentenced to long prison terms
on the basis of testimony from chil-
dren coaxed into making accusa-
tions. Accusations made, at ages 5, 6
or 7, that many of them would con-
tinue to believe fervently were true,
into adulthood.
Though dazed when confronted
with such accusations in 1984, the
Amirault family of Massachusetts,
owners of the Fells Acres nursery
school, never doubted even when
they were arrested that everything
would soon be cleared up. Violet
Amirault, school head, marveled
that at age 60 she was suddenly
supposed to have turned into a sex-
ual molester of children.
It was said of Kelly Michaels, a
young New Jersey schoolteacher
convicted in 1987 of molesting 20
children, that it had done her no
good with jurors that she had
seemed calm, and lacking in ur-
gency, as she answered questions,
as though she were an onlooker at
the proceedings. But what the jurors
had seenand some resentedwas
typical of the falsely accused, who
had all led normal law-abiding lives.
Many were unable to absorb the re-
ality that they were suddenly ac-
cused of frightful crimes they could
never have imagined committing.
Like Woody Allen, Kelly Michaels
had willingly taken a lie-detector
test and passed. After a trial that
saw some famously memorable chil-
drens testimony much like that
given against the Amiraultsthat
Ms. Michaels had abused the chil-
dren in a tractor, turned one of
them into a mouse, etc.she was
sentenced to 47 years. Her convic-
tion would be thrown out. Not be-
fore she had spent five years behind
bars.
Violet Amirault and her daugh-
ter, Cheryl, would spend eight years
imprisoned before their convictions
were overturned in 1995. Violet died
the following year. Her son, Gerald,
would do 19 years before being re-
leased in 2004.
Whatever their state of amaze-
ment, these accused had all had, at
the outset, the confidence of people
certain that their innocence must be
obvious.
What they didnt know, what
Woody Allen didnt recognize in
1992, was the deadly power of a
child sex-abuse accusation.
In his commentary, Mr. Allen
takes bitter note of an observation
made by the judge in the custody
case amid the Allen-Farrow divorce.
It was an observation that rings
with a grim familiarity. After Mia
Farrow accused Mr. Allen of molest-
ing Dylan, Connecticut police called
on the Child Sex Abuse Clinic at
Yale-New Haven Hospital to investi-
gate. The investigators conclusion
was indisputably clear: Dylan had
not been sexually abused by Woody
Allen. She had made the accusation,
the investigators said, either as a
response to stress or because her
mother had coached her to do so, or
a combination of both.
Those earlier high-profile cases
had taught investigators a great
deal about childrens fabricated tes-
timony. Still, the straightforward
conclusion of the Yale-New Haven
investigators notwithstanding, the
judge in the custody case wrote in
his opinion that we will probably
never know what occurred.
Here was the insidious tagline
that accompanies even the most un-
equivocal media report or documen-
tary pointing to the innocence of
defendants in conspicuous molesta-
tion cases. Such was, such still is,
the sacrosanct status of the child
sex-abuse charge. Resorting to the
comfortable we will never know
remains the evasion of choice for
authorities in terror of acknowledg-
ing the innocence of anyone accused
of the charge.
To prosecutors bent on holding
on to convictions won, like the pros-
ecutors who kept Gerald Amirault
imprisoned, this sort of thing was of
course no problem. Such was Mar-
tha Coakleys determination, when
she was a district attorney in Mas-
sachusetts, to keep Mr. Amirault in
prison, that she tried to have him
committed elsewhereas a sexually
dangerous personwhen he was
paroled in 2004. An effort in which
she was thwarted. Ms. Coakley is
now the states attorney general.
For no one, perhaps, is the im-
portance of keeping alive the charge
of guilt greater than the person who
was, as a child, part of a famous
child sex-abuse case built on false
charges. These children, reinforced
again and again in the truth of the
accusation, would believe as adults
that their horrific victimization
early in life has caused them psy-
chic injury of untold depths.
Such was the predicament evi-
dent in one of the Amiraults child
accusers, grown to adulthood, who
arrived at a parole hearing for Ger-
ald Amirault in a state pitiable to
behold, afire with fury, tearful as
she recounted the terrors, the fail-
ures in her life, that she attributed
to his victimization of her. That this
was suffering brought on by a
lifetime educated in the belief of her
victimization, it would be hard to
dispute. It is similarly hard, now,
witnessing the public raging of Ms.
Farrows daughter Dylan, not to re-
call the sight and sound of that wit-
ness in the hearing room, and to
recognize, again, the costs exacted
by a lifetime of such belief.
Ms. Rabinowitz is a member of the
Journals editorial board.
On Woody Allen and
Echoes of the Past
BY DOROTHY RABINOWITZ
Those who are falsely
accused often navely believe
that their innocence is
obvious, that the allegations
will be dropped.
A high-profile sex-abuse
report is an attempt to bully
the church into bowing
before the altar of Turtle Bay.
16 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
INDEX TO BUSINESSES
Amazon.com...............................................16
American Express........................................7
Apollo Global Management ...................... 22
Apple.......................................................... 16
Axel Springer............................................. 15
Bajaj Auto.................................................. 28
Bank of America........................................22
Bank of England.......................................... 4
Barclays..............................................1,15,28
Bayerische Landesbank.............................18
BlackBerry..................................................22
BlackRock..................................................... 7
Carlyle Group............................................. 22
Centrica...................................................... 22
China Development Bank..........................19
China Gold Association............................. 20
Citigroup.......................................................7
Continental.................................................22
Credit Suisse................................................6
Danske Bank................................................ 3
Deutsche Bank........................................1,28
Elliott Management .................................. 19
Evergreen Holding Group.......................... 15
Export-Import Bank of China....................19
Facebook.......................................................9
Financial Guaranty Insurance................... 21
Ford Motor................................................. 18
Fosun International ................................... 15
General Motors..........................................18
Goldman Sachs Group............................... 22
Google...........................................................1
Gramercy Funds Management..................19
Hero Motorocorp........................................28
Honda Motor.........................................18,28
HSBC Holdings.............................................8
HTC............................................................. 22
Hyundai ...................................................... 28
J.P. Morgan Chase................................19,22
LOral ................................................... 17,22
Mahindra & Mahindra................................28
Maruti Suzuki India...................................28
Microsoft......................................................1
Mt. Gox.......................................................17
Nestle....................................................17,22
Nissan Motor............................................. 18
Nokia....................................................... 1,22
Pamlico Capital.......................................... 22
PFM Group................................................. 21
Rabobank....................................................17
Ridgemont Equity Partners...................... 22
Robert W. Baird & Co................................21
Royal Bank of Scotland.............................17
Samsung Electronics................................. 16
Sanofi ......................................................... 17
Siebert Brandford Shank & Co..................21
Spice Global ............................................... 15
Suzuki Motor ............................................. 28
Swiss Bankers Association.........................6
Toyota Motor............................................. 18
Twitter..........................................................9
UBS.......................................................1,8,21
Veyance Technologies................................22
Wells Fargo................................................22
Businesses
This index of businesses mentioned in
todays issue of The Wall Street Journal
is intended to include all significant
reference to companies. First reference
to the companies appears in bold face
type in all articles except those
on page one and the editorial pages.
Corrections
Amplifications
Readers can alert the London news-
room of The Wall Street Journal to
any errors in news articles by email-
ing wsjcontact@wsj.com or by call-
ing +44 (0)20 7842 9901.
BUSINESS & FINANCE
IcahnEnds Apple-BuybackPush
Activist Investor Cites Firms Recent Stock Repurchases and Proxy Advisers Opposition
Activist investor Carl Icahn said
he would drop his effort to force
Apple Inc. to increase its stock buy-
back plans, citing the tech firms re-
cent stock repurchases as well as a
call against Mr. Icahns plans from
an influential proxy adviser.
We see no reason to persist
with our nonbinding proposal, espe-
cially when the company is already
so close to fulfilling our requested
repurchase target, he wrote in an
open letter to Apple shareholders.
An Apple representative wasnt
immediately available for comment.
Mr. Icahns letter would seem to
end, for now, the battle between the
investor and tech company that in-
creased the focus on Apples cash
holdings and how the company
plans to use its money.
In the end, while Mr. Icahn ulti-
mately dropped his proposal,
months of his vocal agitating may
have contributed to Apples recent
push to buy back record amounts of
stock.
On Sunday, proxy-advisory firm
Institutional Shareholder Services
Inc. recommended that Apple share-
holders reject a proposal by Mr.
Icahn that the company buy back
$50 billion of its stock.
ISS said the proposal would mi-
cromanage the companys capital al-
location process. While the share-
holder advisory firm did critique
Apples failure to fully articulate its
long-term capital needs to share-
holders, it said the good-faith ef-
forts the board has already taken
and its historical stewardship war-
rant support.
Mr. Icahn noted in his letter that
ISS agreed with him on certain is-
sues.
The ISS report mentions that Ap-
ples board has been sluggish in
returning excess cash to sharehold-
ers, Mr. Icahn said, and described
the companys buybacks as a little
like bailing with a leaky bucket.
Mr. Icahn and Apple have been
sparring since last August over Ap-
ples roughly $160 billion cash pile
and the speed and size of its at-
tempts to return some of that capi-
tal to shareholders.
Last week, Apple CEO Tim Cook
told The Wall Street Journal that he
wanted to be aggressive and op-
portunistic in buying back shares,
saying the company repurchased
$14 billion of shares in the two
weeks since reporting financial re-
sults that disappointed Wall Street.
With the latest purchases, Mr.
Cook recently said Apple had
bought back more than $40 billion
of its shares over the past 12
months. Mr. Cook said that was a
record for any company over a simi-
lar span.
Mr. Icahn, who owns roughly $4
billion in Apple shares, on Monday
said he also supported that aggres-
sive posture in making repurchases.
It is our expectation that Tim
and the board continue to exhibit
this behavior as fiduciaries to the
shareholders since they clearly seem
to agree that our company contin-
ues to be extremely undervalued,
Mr. Icahn said to fellow sharehold-
ers.
Apple shares, which have risen
about 11% over the past year, rose
more than 1% in trading Monday.
BY BEN FOX RUBIN
Carl Icahn last July at a conference in New York where he was keynote speaker.
C
N
B
C
Springer CEO
Says He Is
Disciplined
About Prices
stressed the need for the company
to grow beyond Germanys borders
and transform the company to meet
challenges of the digital age.
The companys digital transfor-
mation has accelerated over the past
two years. It has reoriented its busi-
ness and made more than two dozen
acquisitions, mostly of small online
companies. Mr. Dpfner described
his strategy as getting back to the
roots of the newspaper business:
hard-hitting online news, financed
by digital subscriptions, online ad-
vertising and digital classifieds.
And thats our business model,
he said. Its old and boring and very
predictable. And it seems to work.
Springers revenue from digital
media rose to 1.1 billion in 2012
from 24 million in 2006. Operating
profit on digital businesses rose to
243 million from 1 million during
the same period. Digital businesses
account for nearly 60% of Springers
operating profit today, up from just
4% in 2008.
Last year Mr. Dpfner acceler-
ated the drive into digital by selling
a group of regional newspapers, in-
cluding the Hamburger Abendblatt,
the original title founded by Axel
Springer. The sales raised 920 mil-
lion that Mr. Dpfner now aims to
spend on digital acquisitions.
Mr. Dpfner also started charging
subscriptions for the digital versions
of the Bild Zeitung and Die Welt, be-
coming the first major German pub-
lisher to put online versions of flag-
ship publications behind paywalls.
Bild is Germanys largest online
news portal, reaching around 14 mil-
lion unique users daily. Within six
months, the company had more than
152,000 paying subscribers to
Bild.de.
Mr. Dpfners moves have
sparked criticism that he was aban-
doning journalism and selling the
company DNA. He calls the claims
an insult to every journalist.
Mr. Dpfner said content once
again will be king. Thats why it is
interesting now to invest in content
businesses that are still underval-
ued.
The question is whether tradi-
tional content companies will win
the game because they have learned
how to use technology or whether
the technology companies win be-
cause they learn how to create con-
tent, Mr. Dpfner said. That is the
great game today.
Kenan Machado
contributed to this article.
Continued from previous page
Nokia Prepares Android Phone Ahead of Sale to Microsoft
tya Nadellas key tasks is helping
the U.S. software company catch up
in mobile using its Windows
operating system. But as Androids
share of the global smartphone
market continues to climb, Nokias
new phone could signal that
Microsoft is willing to be pragmatic,
including relying on a bitter rivals
software to help boost sales volume.
That pragmatism has its limits.
The coming Nokia Android phone
wont promote Googles Play appli-
cation store, from which Google
takes a percentage of profit. Instead,
the phone will come installed with a
suite of services created by Nokia
and Microsoft, including Here maps
and Mix Radio, and a Nokia
application store with Android apps.
People familiar with the matter say
Nokia will show the phone at the
Mobile World Congress in
Barcelona, which begins February
24.
The strategy echoes the ap-
proach of Amazon.com Inc., which
has used a modified version of An-
droid for Kindle tablets that are
configured not to directly accept
Android apps. While Google backs
Android, the software can be modi-
fied and distributed by rival devel-
Continued from first page
opers and manufacturers.
One reason for the move is Mi-
crosofts need to increase handset
sales volume to support its vast
manufacturing capacity, and to help
cover the high cost of competing
and innovating in a smartphone in-
dustry dominated by Google, Apple
Inc. and Samsung Electronics Co.,
according to people familiar with
the plans. Part of that strategy is
taking a more dedicated approach to
developing Windows phones that
can better compete with high-end
Apple iPhones or Samsungs Galaxy
devices.
Another reason for the Nokia An-
droid phone is Microsofts Windows
Phonecurrently the only operating
system on Nokias higher-end Lumia
smartphonesdoesnt work on low-
cost phones because of the soft-
wares technical requirements.
The phone targets a retail price
below $100 excluding carrier subsi-
dies and taxes, people familiar with
the matter said, a vital segment for
smartphone vendors.
Francisco Jeronimo, a mobile
analyst at market researcher Inter-
national Data Corp., said that while
the smartphone market is set to
double in size this year, most of the
growth would come from low-end
phone sales in places such as India,
where more than a third of smart-
phones sold last year cost less than
$100.
To be able to grow in this mar-
ket, price is key, he said.
When it comes to mobile
software, Google has stepped into
the market leading position that
Nokia once held. While popular in
the U.S. and other mature markets,
Android has amassed a dominant
position in emerging economies
because it can be run on inexpensive
phones.
In India, for instance, Android
was installed on 93% of smart-
phones shipped in 2013, or 41 mil-
lion devices, according to an esti-
mate provided by IDC.
Dominant
Googles Android has steadily
increased its share of the
global smartphone market.
Share by operating system
The Wall Street Journal Source: Gartner
100
0
20
40
60
80
%
12 13 2011
Android
iOS
BlackBerry
Windows
14 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
OPINION
On Monday, more than 100
construction companiesmany of
whom are direct competitors
came together to announce that
they plan to hire more than
100,000 veterans within the next
five years. They made this com-
mitment not just because its the
patriotic thing to do, and not just
because they want to repay our
veterans for their service to our
country, but because these com-
panies know that its the smart
thing to do for their businesses.
As one construction industry
executive put it, Veterans are in-
valuable to the construction indus-
try. Men and women who serve in
the military often have the traits
that are so critical to our success:
agility, discipline, integrity and the
drive to get the job done right.
This is a sentiment I have
heard again and again since Dr.
Jill Biden and I first launched
Joining Forcesa nationwide ini-
tiative to honor and support our
veterans, troops and military fam-
iliesin 2011. Back then, we is-
sued a simple challenge to Ameri-
can businesses: Hire as many of
these American heroes as you
can.
Since then, we have been over-
whelmed by the response. From
household names like Disney,
Starbucks, UPS, Wal-Mart and the
Blackstone Group; to coalitions
like Veterans on Wall Street and
100K Jobs Mission; to regional
businesses and mom-and-pop
shops and restaurants in tiny
towns, American businesses have
hired nearly 400,000 veterans and
military spouses.
The CEOs weve spoken to have
been consistently impressed with
their hires, reporting that veterans
are some of the highest-skilled,
hardest-working employees
theyve ever had. Current research
supports these claims: A report
from the Institute for Veterans and
Military Families at Syracuse Uni-
versity states that veterans are re-
silient, adept at building and lead-
ing teams, comfortable with
diversity, and able to handle un-
certainty.
These traits come as no sur-
prise given the training and expe-
rience the members of our Armed
Forces get during their time in
uniform. They master some of the
most advanced information, medi-
cal and communications technolo-
gies in the world. They run com-
plex operations, from distributing
supplies to hundreds of locations
to moving tons of equipment
across the globe. They oversee
dozens, even hundreds of their
colleagues, inspiring servicemem-
bers from diverse backgrounds to
succeed.
Yet their qualifications arent
always obvious from their rsu-
ms. Take the example of Glenn
Tussing, who currently works at
Disney. Glenn is an Air Force vet-
eran who served as chief of future
joint manpower requirements. In
that role, he was responsible for
figuring out the exact numbers
and types of troopsfrom the pi-
lots, to the engineers, to the medi-
cal personnelneeded for a mis-
sion to succeed. He would then
locate those troops and help send
them where they needed to go.
When Disney was looking for
someone to oversee the menus at
Disney properties around the
world, it would have been easy
for them to overlook Glenn since
the link between manpower plan-
ning and menu management isnt
exactly intuitive. But Disney has
trained its HR specialists to trans-
late military experience into civil-
ian qualifications. So when they
were looking for someone who
could determine the exact quanti-
ties and types of ingredients for
every meal they servedand get
that information anywhere in the
world it needed to gothey knew
Glenn was their guy. In fact, today
at Disney, Glenn uses the same
types of databases and programs
he used in the military.
There are so many veterans
just like him. There are medics
whove saved lives on the battle-
field and could save lives as EMTs
in their communities. There are
tank commanders whove driven
armored vehicles through combat
zones and are more than capable
of driving semis down our high-
ways. There are engineers, weld-
ers, technicians and others who
have skills that our businesses
desperately need here at home,
particularly in fast-growing
industries like construction and
health care. And with the Iraq
war over and the war in Afghani-
stan winding down, hundreds of
thousands of these qualified vet-
erans are returning home, hang-
ing up their uniforms and looking
for good civilian careers.
My husbands administration is
working hard to connect these
veterans to good jobs by creating
an online veterans jobs bank; by
streamlining credentialing pro-
cesses so veterans can apply their
military training toward civilian
certifications; by providing
extensive career and education
counseling for veterans; by allow-
ing veterans to use their Post 9/11
GI Bill benefits to pay for training
and apprenticeship programs, and
more.
And while weve made some
progress on veterans unemploy-
ment, my husband and I wont
be satisfied until every single
veteran in this country who
wants a job has one. So in the
coming years, I hope that more
businesses will go the extra mile
to hire veterans. To get started,
businesses can turn to one of
the Labor Departments 2,600
American Job Centers across the
country where trained staff can
provide plenty of resources and
expertise.
By hiring veterans, businesses
wont just be giving American he-
roes the chances they deserve to
keep serving our country. And
they wont just be giving veter-
ans families the security that
comes with a steady paycheck.
These businesses will also be en-
suring that they have the quali-
fied employees they need to keep
growing and creating new jobs
and strengthening our economy
for decades to come. And they
will be sending a clear message
that we honor those whove sacri-
ficed for us, and are determined
to serve them as well as they
have served our country. Amer-
icas veterans deserve no less.
Mrs. Obama is the first lady of
the United States.
Tens of thou-
sands of cyber
attacks on the
power grid are
troubling, though
so far they have
rarely caused damage. More
alarming is news of an old-fash-
ioned armed attack on a physical
location that proved the vulnera-
bility of the grid.
Last April, a nighttime attack
destroyed a power substation in
San Jose, Calif., the center of Sili-
con Valley. The attackers had a
good understanding of the facility
and how to destroy it. They broke
into an underground vault off
Highway 101 and cut fiber-optic
cables. Then they fired on the sub-
station for almost 20 minutes, ap-
parently using AK-47s, and
wrecked 17 of 23 transformers.
News of the incident was sup-
pressed, with Pacific Gas & Elec-
tric Co. blaming vandalism. The
damage took a month to repair.
We now have a better under-
standing of what happened thanks
to an article last week in this
newspaper. Jon Wellinghoff, who
was head of the Federal Energy
Regulatory Commission when the
incident occurred, says this could
be a trial run for attacks to bring
down large parts of the electrical
grid.
In an interview, Mr. Welling-
hoff was careful to say he doesnt
know if a terrorist group was
responsible. But he called it a
purposeful attack, extremely well
planned and executed by profes-
sionals who had expert training.
He visited the scene with Penta-
gon experts who train Navy SEALs
how to destroy enemy infrastruc-
ture. They pointed to the precision
of the attack and evidence of its
careful preparation. Mr. Welling-
hoff said this was the only time
Pentagon experts have concluded
that damage to the grid in the U.S.
has been caused by professionals.
Coordinated attacks on just a
few substations could have a
devastating impact, Mr. Welling-
hoff warned. Destroying the right
targets could knock out power for
most of North America. Govern-
ment agencies keep classified
which combination of substations
would create the most damage if
attacked.
The FBI, which downplayed the
likelihood of terrorism, still has no
suspects. The bureau recently told
the Los Angeles Times: Until we
understand the motives, we wont
be 100% sure its not terrorism.
Former CIA director Jim Wool-
sey told the Commonwealth Club
in San Francisco in October that
three or four men operating in a
disciplined military fashion were
responsible for the attack. This
wasnt hooliganism, he said.
This was a systematic attempt to
take down the electric grid.
Mr. Wellinghoff, who came to
Washington as an advocate for
renewable energy, says physical
security became a focus for him
even before the San Jose attack. I
talked to anyone who would listen
in the administration to say that
physical security is key to the
grid, he recalled. He left office
late last year frustrated that few
officials seemed to care.
Terrorism and the Electric
Power Delivery System, a Na-
tional Academy of Sciences report
written in 2007 and declassified in
2012, detailed the risks of a physi-
cal attack on facilities. If it were
carried out in a carefully planned
way, by people who knew what
they were doing, it could deny
large regions of the country ac-
cess to bulk system power for
weeks or even months, the report
said. Terrorist attacks on multi-
ple-line transmission corridors
could cause cascading blackouts.
After Hurricane Sandy in 2012
we saw how much damage can be
caused even by short-term, iso-
lated outages. Areas of the North-
east lost access to the Internet,
commerce came to a halt, and
hospitals soon ran out of power
from generators.
The power grid is especially
vulnerable because many substa-
tions are in rural areas, protected
only by chain-link fences. Mr.
Wellinghoff urged power compa-
nies to take basic steps like build-
ing metal or concrete walls.
There are also new tools on the
Internet that can be deployed to
protect its source of power. Wire-
less digital sensors could alert
security services to intruders. Mr.
Wellinghoff says a Silicon Valley
firm contacted him to offer sen-
sors that can send alerts as soon
as gunshots are fired. Sensors
could automatically shut systems
down to minimize damage from
attacks.
Surveillance drones could be
deployed 24/7 around especially
sensitive facilities. The need for
cheap, reliable drones is another
reason the Federal Aviation Ad-
ministration should legalize com-
mercial uses of drones, which
would accelerate their develop-
ment.
Much of the discussion about
surveillance in recent months has
focused on the hypothetical risks
to privacy from telephone meta-
data collected by the National
Security Agency. Back in the phys-
ical world, no government agency
is accountable for safeguarding
the power grid. Power companies
fear legal liability if they change
their security systems, even to
shore up defenses.
The security of the electrical
grid is too important to be left to
chain-link fencing. By deploying
more Internet security technolo-
gies, the power grid can be
empowered to help defend itself.
[ Information Age ]
BY L. GORDON CROVITZ
Construction Companies Step Up to Hire Veterans
The Power Grid: Americas Achilles Heel
BY MICHELLE OBAMA
The power substation in San Jose, Calif., that came under attack last April.
R
e
u
t
e
r
s
Thorold Barker, Editor,
Europe, Middle East & Africa
Bruce Orwall, Senior Editor, Europe
Gren Manuel, Executive Editor, Europe
Terence Roth, Managing Editor, Europe
Brian M. Carney, Editorial Page Editor
Lauren Berkemeyer, Marketing
Kate Dobbin, Communications
Florence LeFevre, Institutional Sales Europe
Michael Lloyd, Institutional Sales U.K.
Jonathan Wright, Circulation Sales
Kelly Leach, Publisher
Published since 1889 by
Dow Jones & Company
2014 Dow Jones & Company. All Rights Reserved
Its not just the patriotic
thing to do. Its also a
smart move for businesses.
Chain-link fencing is all
that protects the U.S.
from a major disaster.
Comments? The Journal
welcomes readers responses to
all articles and editorials. It is
important to include your full
name, address and telephone
number. Please send letters to
the editor to: Letters@WSJ.com
Tuesday, February 11, 2014
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If Nestl Sells Its LOral Stake,
It Could Set Off a Chain Reaction
BUSINESS &FINANCE 17
Africa May Offer
Chance for Growth
HEARDONTHE STREET 28
Barclays Unveils Results Early, Yet Late
LONDONFor the second time in
as many days, British bank Barclays
PLC is under scrutiny over the han-
dling of sensitive information.
Barclays on Monday unveiled its
full-year results a day early, after a
newspaper and analysts published
figures that turned out to mirror
the banks headline profit numbers.
This came after a U.K. newspaper
published allegations Sunday that
information about thousands of Bar-
clays customers had been stolen and
sold to brokers.
The bank reported an underlying
pretax profit for 2013 of 5.2 billion
($8.52 billion), slightly lower than
the 5.4 billion expected by analysts
and marking a dismal performance
in the last three months of the year,
with an underlying fourth-quarter
profit of around 224 million. Other
European banks including Deutsche
Bank AG and Credit Suisse AG also
posted poor fourth-quarter figures
amid a pullback in fixed-income
trading and as a result of higher liti-
gation charges.
Barclays reported a 7.05 billion
underlying profit for full-year 2012.
It didnt detail Monday how it ad-
justed the underlying profit figure,
but last years number stripped out
fluctuations in the value of Bar-
clayss own debt, one-off gains and
provisions for compensating cus-
tomers for selling them products,
such as insurance, they didnt need.
Unadjusted pretax profit was
2.9 billion, up from 246 million in
2012, when the bank took a hefty
charge on the rising value of its own
debt.
The preannouncement was made
after the Financial Times on Mon-
day reported virtually the same un-
derlying profit numbers, without
saying where they came from. The
same figures appeared in a Morgan
Stanley note published on Thursday.
Analysts at Investec said Bar-
clays had been bounced into an
early results announcement appar-
ently due to a leak. A Barclays
spokesman declined to comment on
why the bank released the figures a
day early.
Earnings season for banks in Eu-
rope has been peppered by several
unscheduled releases and profit
warnings, mainly from banks adding
to litigation provisions in response
to actions by regulators in connec-
tion with their activities in the
years preceding the financial crisis.
Barclays is one of at least four ma-
jor European lenders to have prean-
nounced results this quarter.
Barclays on Tuesday will publish
full details of its 2013 performance,
as well as plans for further cuts to
its business. The bank said last
month that it has set aside an extra
330 million in provisions to cover
litigation and regulatory charges in
the fourth quarter.
On Sunday, Barclays said it is
working with the U.K. Financial
Conduct Authority to investigate al-
legations that information about
thousands of the banks customers
was stolen and sold to brokers. A
newspaper reported that the bro-
kers, who werent identified, used
the records to pitch financial prod-
ucts to Barclayss clients. The FCA
said it has received information
from Barclays over the alleged data
breach and is reviewing the matter.
Barclays Chief Executive Antony
Jenkins is trying to repair the
banks image with customers, inves-
tors and regulators, after a series of
scandals that included attempted in-
terest-rate rigging by some of its
traders and the improper sale of in-
surance products.
BY MARGOT PATRICK
AND MAX COLCHESTER
Springers Chief Spins Digital Dreams
BERLINEuropean newspaper
publisher Axel Springer SE is bid-
ding for Forbes magazine and wants
a foothold in the U.S. digital-publish-
ing market, but Chief Executive
Mathias Dpfner is hesitating at the
price of online assets.
Springer needs acquisitions to
continue expanding its digital busi-
ness but rarely pays a premium, Mr.
Dpfner said in an interview. He de-
scribed Springers approach as buy-
ing new-economy assets for old-
economy prices.
We are disciplined when it
comes to price, said Mr. Dpfner,
who declined to discuss Forbes. We
will definitely not go hunting tro-
phies in the U.S. seeking prestige.
He listed three criteria for pursuing
targets: a reasonable price, if we
can become a market leader and if it
fits with our core competencies.
Springer is vying with several
bidders, including two from Asia to
buy Forbes, according to people fa-
miliar with the situation. The dead-
line for final bids was Monday eve-
ning, New York time. The Forbes
family wants to retain a minority
stake and management control, ac-
cording to a document reviewed by
The Wall Street Journal. The family
is seeking as much as $400 million
for the company, a person familiar
with the talks said. Forbes declined
to comment.
The other Asian bidders are Chi-
nese conglomerate Fosun Interna-
tional Ltd. and Spice Global Pvt., a
Singapore-based holding company. It
wasnt clear what other bidders re-
mained in the race.
Springer has a record of walking
away from bidding wars. Last sum-
mer the company dropped out of the
running for Scout24 AG, a European
digital classified-ads business for
cars and real estate, when the price
topped 1.5 billion ($2 billion),
about 14 times the companys earn-
ings before interest, taxes, deprecia-
tion and amortization. Mr. Dpfner
balks at paying more than 12 times.
If Springer does nab Forbes, the
German company could keep the
family involved as shareholders and
in management. Springer typically
looks for companies with solid busi-
ness plans and good management
and prefers retaining managers to
cleaning house.
They are very entrepreneurial,
said Joern Nikolay, head of the Mu-
nich office of General Atlantic LLC.
The investment fund owns a 30%
stake in Axel Springer Digital Classi-
fieds, a growing holding of e-com-
merce sites. They give their man-
agement teams a lot of freedom and
the companies they acquire tend to
have very strong CEOs.
A relatively unknown competitor
in the U.S., Springer is the largest
newspaper publisher in Europe by
circulation. The company was
founded by publisher Axel Springer,
a staunch anticommunist, after
World War II. He built the com-
panys towering headquarters right
next to the Berlin Wall so he could
peer down into the streets of East
Berlin.
Springer is best known for the
Bild Zeitung, Germanys best-selling
daily newspaper and a force in do-
mestic politics. The target of left-
wing ire since the 1960s, Bild two
years ago reported that German
President Christian Wulff may have
traded favors for political influence
in his previous position as a state
governor. Mr. Wulff, who resigned at
the end of 2012, repeatedly has
stated his innocence.
Mr. Dpfner was born in 1963
and studied music, becoming a mu-
sic journalist before his eventual ap-
pointment as editor in chief of Die
Welt, Springers august but strug-
gling national daily. Inside Springer
he is often referred to as a
Schngeist, or aesthete, for his love
of classical music and art. Thin as a
rail and standing about 2 meters
tall, he has more of a global strate-
gic vision than many of his prede-
cessors did.
He was different than the oth-
ers, said Inge Kloepfer, author of a
biography of Friede Springer, the
founders widow. Ms. Springer ap-
pointed Mr. Dpfner as CEO in 2002.
She liked him because he was
young, untainted, and brought this
refined quality to the company, Ms.
Kloepfer said.
Starting with his first address to
Springer employees, Mr. Dpfner has
Please turn to next page
BY WILLIAM BOSTON
We are disciplined when it comes to price, says Springer CEO Mathias Dpfner.
A
s
s
o
c
i
a
t
e
d
P
r
e
s
s
Margin Call
Digital earnings have grown in importance for Axel Springer in recent years.
Operating margins
The Wall Street Journal Source: the company
Note: Margins on earnings before interest, taxes, depreciation and amortization *Through September
30
0
5
10
15
20
25
%
2008 2009 2010 2011 2012 2013*
Digital
Newpapers
(Germany)
Magazines
(Germany)
Print
(International)
Risks Mount
Within China
As Borrowing
Gets Costlier
SHANGHAIBorrowing costs for
Chinese companies are rising
strongly, a shift that could herald
weaker corporate profits, slower
economic growth and even the first
defaults by increasingly indebted
corporations on the mainland.
Driven by a surge in borrowing
in recent years, Chinese companies
amassed an estimated $12.1 trillion
worth of debt at the end of last
year, according to Standard &
Poors. That compares with an esti-
mated $12.9 trillion for U.S. busi-
nesses, now the worlds most in-
debted. The ratings company
estimates that debt at Chinese com-
panies is poised to exceed the U.S.
total this year or next.
The leverage in the corporate
sector is already very high and does
pose a latent risk to the entire econ-
omy, said Shuang Ding, an econo-
mist at Citigroup Inc. Challenges for
companies are mounting as the gov-
ernment tightens credit and inves-
tors demand higher yields to fund
borrowers.
Evergreen Holding Group Co., a
private shipbuilding and marine-en-
gineering company in eastern China,
exemplifies the challenges. Its bor-
rowing costs have more than dou-
bled in the past 20 months as prof-
its tumbled.
In June 2012, Evergreen paid
4.64% when it borrowed 400 million
yuan ($66 million) for one year.
Seven months later, issuing one-year
debt cost it 6.13%. In December, it
had to pay 9.90% to borrow the same
amount, giving Evergreen the dis-
tinction of paying the highest coupon
rate for any new short-term corpo-
rate bond since the government
launched the market in 2005, accord-
ing to WIND Info, a data provider.
Please turn to page 19
BY SHEN HONG
14 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
OPINION
On Monday, more than 100
construction companiesmany of
whom are direct competitors
came together to announce that
they plan to hire more than
100,000 veterans within the next
five years. They made this com-
mitment not just because its the
patriotic thing to do, and not just
because they want to repay our
veterans for their service to our
country, but because these com-
panies know that its the smart
thing to do for their businesses.
As one construction industry
executive put it, Veterans are in-
valuable to the construction indus-
try. Men and women who serve in
the military often have the traits
that are so critical to our success:
agility, discipline, integrity and the
drive to get the job done right.
This is a sentiment I have
heard again and again since Dr.
Jill Biden and I first launched
Joining Forcesa nationwide ini-
tiative to honor and support our
veterans, troops and military fam-
iliesin 2011. Back then, we is-
sued a simple challenge to Ameri-
can businesses: Hire as many of
these American heroes as you
can.
Since then, we have been over-
whelmed by the response. From
household names like Disney,
Starbucks, UPS, Wal-Mart and the
Blackstone Group; to coalitions
like Veterans on Wall Street and
100K Jobs Mission; to regional
businesses and mom-and-pop
shops and restaurants in tiny
towns, American businesses have
hired nearly 400,000 veterans and
military spouses.
The CEOs weve spoken to have
been consistently impressed with
their hires, reporting that veterans
are some of the highest-skilled,
hardest-working employees
theyve ever had. Current research
supports these claims: A report
from the Institute for Veterans and
Military Families at Syracuse Uni-
versity states that veterans are re-
silient, adept at building and lead-
ing teams, comfortable with
diversity, and able to handle un-
certainty.
These traits come as no sur-
prise given the training and expe-
rience the members of our Armed
Forces get during their time in
uniform. They master some of the
most advanced information, medi-
cal and communications technolo-
gies in the world. They run com-
plex operations, from distributing
supplies to hundreds of locations
to moving tons of equipment
across the globe. They oversee
dozens, even hundreds of their
colleagues, inspiring servicemem-
bers from diverse backgrounds to
succeed.
Yet their qualifications arent
always obvious from their rsu-
ms. Take the example of Glenn
Tussing, who currently works at
Disney. Glenn is an Air Force vet-
eran who served as chief of future
joint manpower requirements. In
that role, he was responsible for
figuring out the exact numbers
and types of troopsfrom the pi-
lots, to the engineers, to the medi-
cal personnelneeded for a mis-
sion to succeed. He would then
locate those troops and help send
them where they needed to go.
When Disney was looking for
someone to oversee the menus at
Disney properties around the
world, it would have been easy
for them to overlook Glenn since
the link between manpower plan-
ning and menu management isnt
exactly intuitive. But Disney has
trained its HR specialists to trans-
late military experience into civil-
ian qualifications. So when they
were looking for someone who
could determine the exact quanti-
ties and types of ingredients for
every meal they servedand get
that information anywhere in the
world it needed to gothey knew
Glenn was their guy. In fact, today
at Disney, Glenn uses the same
types of databases and programs
he used in the military.
There are so many veterans
just like him. There are medics
whove saved lives on the battle-
field and could save lives as EMTs
in their communities. There are
tank commanders whove driven
armored vehicles through combat
zones and are more than capable
of driving semis down our high-
ways. There are engineers, weld-
ers, technicians and others who
have skills that our businesses
desperately need here at home,
particularly in fast-growing
industries like construction and
health care. And with the Iraq
war over and the war in Afghani-
stan winding down, hundreds of
thousands of these qualified vet-
erans are returning home, hang-
ing up their uniforms and looking
for good civilian careers.
My husbands administration is
working hard to connect these
veterans to good jobs by creating
an online veterans jobs bank; by
streamlining credentialing pro-
cesses so veterans can apply their
military training toward civilian
certifications; by providing
extensive career and education
counseling for veterans; by allow-
ing veterans to use their Post 9/11
GI Bill benefits to pay for training
and apprenticeship programs, and
more.
And while weve made some
progress on veterans unemploy-
ment, my husband and I wont
be satisfied until every single
veteran in this country who
wants a job has one. So in the
coming years, I hope that more
businesses will go the extra mile
to hire veterans. To get started,
businesses can turn to one of
the Labor Departments 2,600
American Job Centers across the
country where trained staff can
provide plenty of resources and
expertise.
By hiring veterans, businesses
wont just be giving American he-
roes the chances they deserve to
keep serving our country. And
they wont just be giving veter-
ans families the security that
comes with a steady paycheck.
These businesses will also be en-
suring that they have the quali-
fied employees they need to keep
growing and creating new jobs
and strengthening our economy
for decades to come. And they
will be sending a clear message
that we honor those whove sacri-
ficed for us, and are determined
to serve them as well as they
have served our country. Amer-
icas veterans deserve no less.
Mrs. Obama is the first lady of
the United States.
Tens of thou-
sands of cyber
attacks on the
power grid are
troubling, though
so far they have
rarely caused damage. More
alarming is news of an old-fash-
ioned armed attack on a physical
location that proved the vulnera-
bility of the grid.
Last April, a nighttime attack
destroyed a power substation in
San Jose, Calif., the center of Sili-
con Valley. The attackers had a
good understanding of the facility
and how to destroy it. They broke
into an underground vault off
Highway 101 and cut fiber-optic
cables. Then they fired on the sub-
station for almost 20 minutes, ap-
parently using AK-47s, and
wrecked 17 of 23 transformers.
News of the incident was sup-
pressed, with Pacific Gas & Elec-
tric Co. blaming vandalism. The
damage took a month to repair.
We now have a better under-
standing of what happened thanks
to an article last week in this
newspaper. Jon Wellinghoff, who
was head of the Federal Energy
Regulatory Commission when the
incident occurred, says this could
be a trial run for attacks to bring
down large parts of the electrical
grid.
In an interview, Mr. Welling-
hoff was careful to say he doesnt
know if a terrorist group was
responsible. But he called it a
purposeful attack, extremely well
planned and executed by profes-
sionals who had expert training.
He visited the scene with Penta-
gon experts who train Navy SEALs
how to destroy enemy infrastruc-
ture. They pointed to the precision
of the attack and evidence of its
careful preparation. Mr. Welling-
hoff said this was the only time
Pentagon experts have concluded
that damage to the grid in the U.S.
has been caused by professionals.
Coordinated attacks on just a
few substations could have a
devastating impact, Mr. Welling-
hoff warned. Destroying the right
targets could knock out power for
most of North America. Govern-
ment agencies keep classified
which combination of substations
would create the most damage if
attacked.
The FBI, which downplayed the
likelihood of terrorism, still has no
suspects. The bureau recently told
the Los Angeles Times: Until we
understand the motives, we wont
be 100% sure its not terrorism.
Former CIA director Jim Wool-
sey told the Commonwealth Club
in San Francisco in October that
three or four men operating in a
disciplined military fashion were
responsible for the attack. This
wasnt hooliganism, he said.
This was a systematic attempt to
take down the electric grid.
Mr. Wellinghoff, who came to
Washington as an advocate for
renewable energy, says physical
security became a focus for him
even before the San Jose attack. I
talked to anyone who would listen
in the administration to say that
physical security is key to the
grid, he recalled. He left office
late last year frustrated that few
officials seemed to care.
Terrorism and the Electric
Power Delivery System, a Na-
tional Academy of Sciences report
written in 2007 and declassified in
2012, detailed the risks of a physi-
cal attack on facilities. If it were
carried out in a carefully planned
way, by people who knew what
they were doing, it could deny
large regions of the country ac-
cess to bulk system power for
weeks or even months, the report
said. Terrorist attacks on multi-
ple-line transmission corridors
could cause cascading blackouts.
After Hurricane Sandy in 2012
we saw how much damage can be
caused even by short-term, iso-
lated outages. Areas of the North-
east lost access to the Internet,
commerce came to a halt, and
hospitals soon ran out of power
from generators.
The power grid is especially
vulnerable because many substa-
tions are in rural areas, protected
only by chain-link fences. Mr.
Wellinghoff urged power compa-
nies to take basic steps like build-
ing metal or concrete walls.
There are also new tools on the
Internet that can be deployed to
protect its source of power. Wire-
less digital sensors could alert
security services to intruders. Mr.
Wellinghoff says a Silicon Valley
firm contacted him to offer sen-
sors that can send alerts as soon
as gunshots are fired. Sensors
could automatically shut systems
down to minimize damage from
attacks.
Surveillance drones could be
deployed 24/7 around especially
sensitive facilities. The need for
cheap, reliable drones is another
reason the Federal Aviation Ad-
ministration should legalize com-
mercial uses of drones, which
would accelerate their develop-
ment.
Much of the discussion about
surveillance in recent months has
focused on the hypothetical risks
to privacy from telephone meta-
data collected by the National
Security Agency. Back in the phys-
ical world, no government agency
is accountable for safeguarding
the power grid. Power companies
fear legal liability if they change
their security systems, even to
shore up defenses.
The security of the electrical
grid is too important to be left to
chain-link fencing. By deploying
more Internet security technolo-
gies, the power grid can be
empowered to help defend itself.
[ Information Age ]
BY L. GORDON CROVITZ
Construction Companies Step Up to Hire Veterans
The Power Grid: Americas Achilles Heel
BY MICHELLE OBAMA
The power substation in San Jose, Calif., that came under attack last April.
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Published since 1889 by
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Its not just the patriotic
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Chain-link fencing is all
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If Nestl Sells Its LOral Stake,
It Could Set Off a Chain Reaction
BUSINESS &FINANCE 17
Africa May Offer
Chance for Growth
HEARDONTHE STREET 28
Barclays Unveils Results Early, Yet Late
LONDONFor the second time in
as many days, British bank Barclays
PLC is under scrutiny over the han-
dling of sensitive information.
Barclays on Monday unveiled its
full-year results a day early, after a
newspaper and analysts published
figures that turned out to mirror
the banks headline profit numbers.
This came after a U.K. newspaper
published allegations Sunday that
information about thousands of Bar-
clays customers had been stolen and
sold to brokers.
The bank reported an underlying
pretax profit for 2013 of 5.2 billion
($8.52 billion), slightly lower than
the 5.4 billion expected by analysts
and marking a dismal performance
in the last three months of the year,
with an underlying fourth-quarter
profit of around 224 million. Other
European banks including Deutsche
Bank AG and Credit Suisse AG also
posted poor fourth-quarter figures
amid a pullback in fixed-income
trading and as a result of higher liti-
gation charges.
Barclays reported a 7.05 billion
underlying profit for full-year 2012.
It didnt detail Monday how it ad-
justed the underlying profit figure,
but last years number stripped out
fluctuations in the value of Bar-
clayss own debt, one-off gains and
provisions for compensating cus-
tomers for selling them products,
such as insurance, they didnt need.
Unadjusted pretax profit was
2.9 billion, up from 246 million in
2012, when the bank took a hefty
charge on the rising value of its own
debt.
The preannouncement was made
after the Financial Times on Mon-
day reported virtually the same un-
derlying profit numbers, without
saying where they came from. The
same figures appeared in a Morgan
Stanley note published on Thursday.
Analysts at Investec said Bar-
clays had been bounced into an
early results announcement appar-
ently due to a leak. A Barclays
spokesman declined to comment on
why the bank released the figures a
day early.
Earnings season for banks in Eu-
rope has been peppered by several
unscheduled releases and profit
warnings, mainly from banks adding
to litigation provisions in response
to actions by regulators in connec-
tion with their activities in the
years preceding the financial crisis.
Barclays is one of at least four ma-
jor European lenders to have prean-
nounced results this quarter.
Barclays on Tuesday will publish
full details of its 2013 performance,
as well as plans for further cuts to
its business. The bank said last
month that it has set aside an extra
330 million in provisions to cover
litigation and regulatory charges in
the fourth quarter.
On Sunday, Barclays said it is
working with the U.K. Financial
Conduct Authority to investigate al-
legations that information about
thousands of the banks customers
was stolen and sold to brokers. A
newspaper reported that the bro-
kers, who werent identified, used
the records to pitch financial prod-
ucts to Barclayss clients. The FCA
said it has received information
from Barclays over the alleged data
breach and is reviewing the matter.
Barclays Chief Executive Antony
Jenkins is trying to repair the
banks image with customers, inves-
tors and regulators, after a series of
scandals that included attempted in-
terest-rate rigging by some of its
traders and the improper sale of in-
surance products.
BY MARGOT PATRICK
AND MAX COLCHESTER
Springers Chief Spins Digital Dreams
BERLINEuropean newspaper
publisher Axel Springer SE is bid-
ding for Forbes magazine and wants
a foothold in the U.S. digital-publish-
ing market, but Chief Executive
Mathias Dpfner is hesitating at the
price of online assets.
Springer needs acquisitions to
continue expanding its digital busi-
ness but rarely pays a premium, Mr.
Dpfner said in an interview. He de-
scribed Springers approach as buy-
ing new-economy assets for old-
economy prices.
We are disciplined when it
comes to price, said Mr. Dpfner,
who declined to discuss Forbes. We
will definitely not go hunting tro-
phies in the U.S. seeking prestige.
He listed three criteria for pursuing
targets: a reasonable price, if we
can become a market leader and if it
fits with our core competencies.
Springer is vying with several
bidders, including two from Asia to
buy Forbes, according to people fa-
miliar with the situation. The dead-
line for final bids was Monday eve-
ning, New York time. The Forbes
family wants to retain a minority
stake and management control, ac-
cording to a document reviewed by
The Wall Street Journal. The family
is seeking as much as $400 million
for the company, a person familiar
with the talks said. Forbes declined
to comment.
The other Asian bidders are Chi-
nese conglomerate Fosun Interna-
tional Ltd. and Spice Global Pvt., a
Singapore-based holding company. It
wasnt clear what other bidders re-
mained in the race.
Springer has a record of walking
away from bidding wars. Last sum-
mer the company dropped out of the
running for Scout24 AG, a European
digital classified-ads business for
cars and real estate, when the price
topped 1.5 billion ($2 billion),
about 14 times the companys earn-
ings before interest, taxes, deprecia-
tion and amortization. Mr. Dpfner
balks at paying more than 12 times.
If Springer does nab Forbes, the
German company could keep the
family involved as shareholders and
in management. Springer typically
looks for companies with solid busi-
ness plans and good management
and prefers retaining managers to
cleaning house.
They are very entrepreneurial,
said Joern Nikolay, head of the Mu-
nich office of General Atlantic LLC.
The investment fund owns a 30%
stake in Axel Springer Digital Classi-
fieds, a growing holding of e-com-
merce sites. They give their man-
agement teams a lot of freedom and
the companies they acquire tend to
have very strong CEOs.
A relatively unknown competitor
in the U.S., Springer is the largest
newspaper publisher in Europe by
circulation. The company was
founded by publisher Axel Springer,
a staunch anticommunist, after
World War II. He built the com-
panys towering headquarters right
next to the Berlin Wall so he could
peer down into the streets of East
Berlin.
Springer is best known for the
Bild Zeitung, Germanys best-selling
daily newspaper and a force in do-
mestic politics. The target of left-
wing ire since the 1960s, Bild two
years ago reported that German
President Christian Wulff may have
traded favors for political influence
in his previous position as a state
governor. Mr. Wulff, who resigned at
the end of 2012, repeatedly has
stated his innocence.
Mr. Dpfner was born in 1963
and studied music, becoming a mu-
sic journalist before his eventual ap-
pointment as editor in chief of Die
Welt, Springers august but strug-
gling national daily. Inside Springer
he is often referred to as a
Schngeist, or aesthete, for his love
of classical music and art. Thin as a
rail and standing about 2 meters
tall, he has more of a global strate-
gic vision than many of his prede-
cessors did.
He was different than the oth-
ers, said Inge Kloepfer, author of a
biography of Friede Springer, the
founders widow. Ms. Springer ap-
pointed Mr. Dpfner as CEO in 2002.
She liked him because he was
young, untainted, and brought this
refined quality to the company, Ms.
Kloepfer said.
Starting with his first address to
Springer employees, Mr. Dpfner has
Please turn to next page
BY WILLIAM BOSTON
We are disciplined when it comes to price, says Springer CEO Mathias Dpfner.
A
s
s
o
c
i
a
t
e
d
P
r
e
s
s
Margin Call
Digital earnings have grown in importance for Axel Springer in recent years.
Operating margins
The Wall Street Journal Source: the company
Note: Margins on earnings before interest, taxes, depreciation and amortization *Through September
30
0
5
10
15
20
25
%
2008 2009 2010 2011 2012 2013*
Digital
Newpapers
(Germany)
Magazines
(Germany)
Print
(International)
Risks Mount
Within China
As Borrowing
Gets Costlier
SHANGHAIBorrowing costs for
Chinese companies are rising
strongly, a shift that could herald
weaker corporate profits, slower
economic growth and even the first
defaults by increasingly indebted
corporations on the mainland.
Driven by a surge in borrowing
in recent years, Chinese companies
amassed an estimated $12.1 trillion
worth of debt at the end of last
year, according to Standard &
Poors. That compares with an esti-
mated $12.9 trillion for U.S. busi-
nesses, now the worlds most in-
debted. The ratings company
estimates that debt at Chinese com-
panies is poised to exceed the U.S.
total this year or next.
The leverage in the corporate
sector is already very high and does
pose a latent risk to the entire econ-
omy, said Shuang Ding, an econo-
mist at Citigroup Inc. Challenges for
companies are mounting as the gov-
ernment tightens credit and inves-
tors demand higher yields to fund
borrowers.
Evergreen Holding Group Co., a
private shipbuilding and marine-en-
gineering company in eastern China,
exemplifies the challenges. Its bor-
rowing costs have more than dou-
bled in the past 20 months as prof-
its tumbled.
In June 2012, Evergreen paid
4.64% when it borrowed 400 million
yuan ($66 million) for one year.
Seven months later, issuing one-year
debt cost it 6.13%. In December, it
had to pay 9.90% to borrow the same
amount, giving Evergreen the dis-
tinction of paying the highest coupon
rate for any new short-term corpo-
rate bond since the government
launched the market in 2005, accord-
ing to WIND Info, a data provider.
Please turn to page 19
BY SHEN HONG
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 13
OPINION
In the name of protecting
children, the United Nations is now
preaching to the Vatican. A report
on the Holy Seereleased by a U.N.
committee last week to much me-
dia fanfarealleged that tens of
thousands of children have been
abused by Catholic clerics, and that
the Vatican has helped cover it up.
The committee strongly urged
the Vatican: Ensure a transparent
sharing of all archives which can be
used to hold the abusers account-
able as well as those who concealed
their crimes and knowingly placed
offenders in contact with children.
Thats rich coming from the
U.N., which has still not solved its
own festering problems of peace-
keeper sex abuse, including the
rape of minors. Exposing abusers
and holding them to account is a
great idea. The Vatican has spent
years addressing the scandal of its
own past handling of such cases.
But the U.N. hardly engages in the
transparency it is now promoting.
The U.N. releases only generic
statistics on violations committed
by personnel working under its
flag. The U.N. doesnt share with
the public such basic information
as the names of the accused or the
details of what they did to people
the U.N. dispatched them to pro-
tect. Blue berets accused of sex
crimes are simply sent back to their
home countries, where in the ma-
jority of cases they drop off the ra-
dar.
Though the U.N. has been re-
cording a drop in sex-abuse cases
since it began releasing numbers in
2007, the number of alleged in-
stances of rape and exploitation
each year still runs into the dozens.
(This may understate the realities,
given the hurdles to victims coming
forward, often in societies in tu-
mult or at war.) From 2007-13, the
U.N. reported more than 600 alle-
gations of rape or sexual
exploitation, with 354 substanti-
atedmany of them involving
minors. The numbers do not convey
how ugly some of these cases get.
Details can occasionally be gleaned
when an incident seeps past the
U.N. wall of omerta and makes it
into the news, as with the peace-
keeper gang rape in 2011 of a Hai-
tian teenager, whose agony was
caught on video.
In such matters as sex abuse, it
is reasonable to hold the Vatican,
or any other organization, to stan-
dards higher than the low bar the
U.N. sets for itself. But hypocrisy is
just one of the problems with this
16-page report on the Holy See,
which further assails the Vatican
for not subordinating itself whole-
sale to a much broader U.N. agenda.
For example, the report calls for
the Vatican to drop its opposition
to adolescent abortion and contra-
ception, condone underage homo-
sexuality, and use its authority
and influence to disseminate
world-wide a roster of U.N. views
and policies that run counter to
those of the Catholic Church.
The real issue here is that what-
ever changes the Vatican and the
worlds 1.2 billion Catholics might
consider, the U.N. is supremely ill-
qualified to serve as a guide. The
body that produced this report is
the U.N. Committee on the Rights
of the Child. Its job is to monitor
compliance with the U.N.-engen-
dered Convention on the Rights of
the Child, a lengthy and intrusive
treaty that went into effect in 1990.
When the Holy See became one
of the early parties to this treaty, it
did so with explicit reservations
meant to safeguard its own author-
ity and religious character. Now the
committee, in its report on
Wednesday, is pressing the Vatican
to withdraw all its reservations
and to ensure the Conventions pre-
cedence over internal laws and reg-
ulations. The committees recom-
mendations are nonbinding but can
influence public opinion. In this re-
port the Vatican is shamedand
then urged to redeem itself by bow-
ing before the altar of the U.N.
The Committee on the Rights of
the Child consists of 18 panelists
advertised as independent ex-
perts, serviced by a secretariat
housed in Geneva under the um-
brella of the U.N.s Office of the
High Commissioner for Human
Rights. The committee members
are nominated for their posts by
the governments of their home
countries and elected by an assem-
bly of treaty members that reflects
the despot-heavy tilt of the U.N.
From 2009-13 the committee
included a member put forward by
the government of Syria, where in
2011 the Assad regime began mak-
ing world headlines for torturing
and murdering children. Currently,
the committee includes members
from such human-rights-challenged
countries as Saudi Arabia, Russia,
Ecuador, Ethiopia, Sri Lanka, Tuni-
sia, Bahrain and Egypt. This panel
issues reports via a process that in
practice entails neither uniform
standards of judgment nor urgent
attention to some of the worlds
most horrifying abuses of children.
Officially, all parties to the Con-
vention are supposed to self-report
every five years. The U.N. commit-
tee then responds with its own vol-
ume of concluding observations
which is what just hit the Vatican.
In practice, however, some treaty
members miss their deadlines by
years, and when they do clock in,
the committee is chronically slow
to respond. Iran has for years led
the world in juvenile executions,
yet the committee last reported on
Iran in 2005.
A stark example of selective
reporting can be found in the
committees most recent observa-
tions on Saudi Arabiaissued eight
years ago. That report mentioned
the case of a 2002 fire at a girls
school in Mecca, a disaster in which
15 girls died and dozens more were
injured. Expressing grave concern
that the school building did not
meet adequate safety standards for
children, the committee recom-
mended that school buildings be
made safer and that staff be trained
for such emergencies.
What the committee did not
mention was that when the school-
girls tried to escape the fire, Saudi
Islamic-morality police drove the
students back into the burning
building because they were not
covered head-to-toe in the scarves
and abayas required in public.
Saudi journalists had the courage
to report on this monstrous ele-
ment of the tragedy. The U.N. left it
out.
Or take North Korea, where
state policy has led to famines that
resulted in the stunting and mass
starvation of children, and where
disloyalty to the supreme leader
can be punished by sending three
generations of a family, including
children, to prison-labor camps. In
assessing North Korea, the U.N.
committee in its most recent report
released in 2009 expressed concern
about severe ill-treatment of chil-
dren and noted with deep con-
cern that the overall standard of
living of children remains very
low. But there was none of the fer-
vor with which the committee has
denounced the Vatican for failing to
explicitly forbid corporal punish-
ment. On that the committee was
more than merely concerned, scold-
ing the Holy See to ensure that all
forms of violence against children,
however light, are unacceptable.
The Vatican has responded to
this U.N. satrapy with a statement
that its headline-grabbing report
was unjustly harmful and went
beyond the committees competen-
cies to interfere in the very doctri-
nal and moral positions of the
Catholic Church. Pope Francis
might want to consider that it is
precisely to avoid gross intrusion
by unaccountable U.N. experts
that the United States has signed
but never ratified the Convention
on the Rights of the Child. This
treaty has less to do with children
than with political power plays, and
a fitting reform at the Vatican
would be to walk away from it.
Ms. Rosett is journalist-in-resi-
dence with the Foundation for De-
fense of Democracies and heads its
Investigative Reporting Project.
U.N. peacekeepers crossing into Israel for a vacation after serving in Syria, June
12, 2013.
G
e
t
t
y
I
m
a
g
e
s
The U.N. Assault on the
Catholic Church
BY CLAUDIA ROSETT
Its impossible to read Woody
Allens reply to charges that in 1992
he molested his and Mia Farrows 7-
year-old adopted daughter, Dylan,
without being struck by its haunting
echoes of the words of countless
people accused of such crimes. He
had thought that the charges were
so ludicrous he didnt think of hir-
ing a lawyer, he reported in an op-
ed for the New York Times on Sun-
day. He had believed that common
sense would prevail. He had na-
vely thought the accusation would
be dismissed out of hand.
It was a kind of navet evident
in virtually every person known to
me who had been falsely charged in
the high-profile sex-abuse cases that
had swept the country in the 1980s
and early 1990speople convicted
and sentenced to long prison terms
on the basis of testimony from chil-
dren coaxed into making accusa-
tions. Accusations made, at ages 5, 6
or 7, that many of them would con-
tinue to believe fervently were true,
into adulthood.
Though dazed when confronted
with such accusations in 1984, the
Amirault family of Massachusetts,
owners of the Fells Acres nursery
school, never doubted even when
they were arrested that everything
would soon be cleared up. Violet
Amirault, school head, marveled
that at age 60 she was suddenly
supposed to have turned into a sex-
ual molester of children.
It was said of Kelly Michaels, a
young New Jersey schoolteacher
convicted in 1987 of molesting 20
children, that it had done her no
good with jurors that she had
seemed calm, and lacking in ur-
gency, as she answered questions,
as though she were an onlooker at
the proceedings. But what the jurors
had seenand some resentedwas
typical of the falsely accused, who
had all led normal law-abiding lives.
Many were unable to absorb the re-
ality that they were suddenly ac-
cused of frightful crimes they could
never have imagined committing.
Like Woody Allen, Kelly Michaels
had willingly taken a lie-detector
test and passed. After a trial that
saw some famously memorable chil-
drens testimony much like that
given against the Amiraultsthat
Ms. Michaels had abused the chil-
dren in a tractor, turned one of
them into a mouse, etc.she was
sentenced to 47 years. Her convic-
tion would be thrown out. Not be-
fore she had spent five years behind
bars.
Violet Amirault and her daugh-
ter, Cheryl, would spend eight years
imprisoned before their convictions
were overturned in 1995. Violet died
the following year. Her son, Gerald,
would do 19 years before being re-
leased in 2004.
Whatever their state of amaze-
ment, these accused had all had, at
the outset, the confidence of people
certain that their innocence must be
obvious.
What they didnt know, what
Woody Allen didnt recognize in
1992, was the deadly power of a
child sex-abuse accusation.
In his commentary, Mr. Allen
takes bitter note of an observation
made by the judge in the custody
case amid the Allen-Farrow divorce.
It was an observation that rings
with a grim familiarity. After Mia
Farrow accused Mr. Allen of molest-
ing Dylan, Connecticut police called
on the Child Sex Abuse Clinic at
Yale-New Haven Hospital to investi-
gate. The investigators conclusion
was indisputably clear: Dylan had
not been sexually abused by Woody
Allen. She had made the accusation,
the investigators said, either as a
response to stress or because her
mother had coached her to do so, or
a combination of both.
Those earlier high-profile cases
had taught investigators a great
deal about childrens fabricated tes-
timony. Still, the straightforward
conclusion of the Yale-New Haven
investigators notwithstanding, the
judge in the custody case wrote in
his opinion that we will probably
never know what occurred.
Here was the insidious tagline
that accompanies even the most un-
equivocal media report or documen-
tary pointing to the innocence of
defendants in conspicuous molesta-
tion cases. Such was, such still is,
the sacrosanct status of the child
sex-abuse charge. Resorting to the
comfortable we will never know
remains the evasion of choice for
authorities in terror of acknowledg-
ing the innocence of anyone accused
of the charge.
To prosecutors bent on holding
on to convictions won, like the pros-
ecutors who kept Gerald Amirault
imprisoned, this sort of thing was of
course no problem. Such was Mar-
tha Coakleys determination, when
she was a district attorney in Mas-
sachusetts, to keep Mr. Amirault in
prison, that she tried to have him
committed elsewhereas a sexually
dangerous personwhen he was
paroled in 2004. An effort in which
she was thwarted. Ms. Coakley is
now the states attorney general.
For no one, perhaps, is the im-
portance of keeping alive the charge
of guilt greater than the person who
was, as a child, part of a famous
child sex-abuse case built on false
charges. These children, reinforced
again and again in the truth of the
accusation, would believe as adults
that their horrific victimization
early in life has caused them psy-
chic injury of untold depths.
Such was the predicament evi-
dent in one of the Amiraults child
accusers, grown to adulthood, who
arrived at a parole hearing for Ger-
ald Amirault in a state pitiable to
behold, afire with fury, tearful as
she recounted the terrors, the fail-
ures in her life, that she attributed
to his victimization of her. That this
was suffering brought on by a
lifetime educated in the belief of her
victimization, it would be hard to
dispute. It is similarly hard, now,
witnessing the public raging of Ms.
Farrows daughter Dylan, not to re-
call the sight and sound of that wit-
ness in the hearing room, and to
recognize, again, the costs exacted
by a lifetime of such belief.
Ms. Rabinowitz is a member of the
Journals editorial board.
On Woody Allen and
Echoes of the Past
BY DOROTHY RABINOWITZ
Those who are falsely
accused often navely believe
that their innocence is
obvious, that the allegations
will be dropped.
A high-profile sex-abuse
report is an attempt to bully
the church into bowing
before the altar of Turtle Bay.
16 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
INDEX TO BUSINESSES
Amazon.com...............................................16
American Express........................................7
Apollo Global Management ...................... 22
Apple.......................................................... 16
Axel Springer............................................. 15
Bajaj Auto.................................................. 28
Bank of America........................................22
Bank of England.......................................... 4
Barclays..............................................1,15,28
Bayerische Landesbank.............................18
BlackBerry..................................................22
BlackRock..................................................... 7
Carlyle Group............................................. 22
Centrica...................................................... 22
China Development Bank..........................19
China Gold Association............................. 20
Citigroup.......................................................7
Continental.................................................22
Credit Suisse................................................6
Danske Bank................................................ 3
Deutsche Bank........................................1,28
Elliott Management .................................. 19
Evergreen Holding Group.......................... 15
Export-Import Bank of China....................19
Facebook.......................................................9
Financial Guaranty Insurance................... 21
Ford Motor................................................. 18
Fosun International ................................... 15
General Motors..........................................18
Goldman Sachs Group............................... 22
Google...........................................................1
Gramercy Funds Management..................19
Hero Motorocorp........................................28
Honda Motor.........................................18,28
HSBC Holdings.............................................8
HTC............................................................. 22
Hyundai ...................................................... 28
J.P. Morgan Chase................................19,22
LOral ................................................... 17,22
Mahindra & Mahindra................................28
Maruti Suzuki India...................................28
Microsoft......................................................1
Mt. Gox.......................................................17
Nestle....................................................17,22
Nissan Motor............................................. 18
Nokia....................................................... 1,22
Pamlico Capital.......................................... 22
PFM Group................................................. 21
Rabobank....................................................17
Ridgemont Equity Partners...................... 22
Robert W. Baird & Co................................21
Royal Bank of Scotland.............................17
Samsung Electronics................................. 16
Sanofi ......................................................... 17
Siebert Brandford Shank & Co..................21
Spice Global ............................................... 15
Suzuki Motor ............................................. 28
Swiss Bankers Association.........................6
Toyota Motor............................................. 18
Twitter..........................................................9
UBS.......................................................1,8,21
Veyance Technologies................................22
Wells Fargo................................................22
Businesses
This index of businesses mentioned in
todays issue of The Wall Street Journal
is intended to include all significant
reference to companies. First reference
to the companies appears in bold face
type in all articles except those
on page one and the editorial pages.
Corrections
Amplifications
Readers can alert the London news-
room of The Wall Street Journal to
any errors in news articles by email-
ing wsjcontact@wsj.com or by call-
ing +44 (0)20 7842 9901.
BUSINESS & FINANCE
IcahnEnds Apple-BuybackPush
Activist Investor Cites Firms Recent Stock Repurchases and Proxy Advisers Opposition
Activist investor Carl Icahn said
he would drop his effort to force
Apple Inc. to increase its stock buy-
back plans, citing the tech firms re-
cent stock repurchases as well as a
call against Mr. Icahns plans from
an influential proxy adviser.
We see no reason to persist
with our nonbinding proposal, espe-
cially when the company is already
so close to fulfilling our requested
repurchase target, he wrote in an
open letter to Apple shareholders.
An Apple representative wasnt
immediately available for comment.
Mr. Icahns letter would seem to
end, for now, the battle between the
investor and tech company that in-
creased the focus on Apples cash
holdings and how the company
plans to use its money.
In the end, while Mr. Icahn ulti-
mately dropped his proposal,
months of his vocal agitating may
have contributed to Apples recent
push to buy back record amounts of
stock.
On Sunday, proxy-advisory firm
Institutional Shareholder Services
Inc. recommended that Apple share-
holders reject a proposal by Mr.
Icahn that the company buy back
$50 billion of its stock.
ISS said the proposal would mi-
cromanage the companys capital al-
location process. While the share-
holder advisory firm did critique
Apples failure to fully articulate its
long-term capital needs to share-
holders, it said the good-faith ef-
forts the board has already taken
and its historical stewardship war-
rant support.
Mr. Icahn noted in his letter that
ISS agreed with him on certain is-
sues.
The ISS report mentions that Ap-
ples board has been sluggish in
returning excess cash to sharehold-
ers, Mr. Icahn said, and described
the companys buybacks as a little
like bailing with a leaky bucket.
Mr. Icahn and Apple have been
sparring since last August over Ap-
ples roughly $160 billion cash pile
and the speed and size of its at-
tempts to return some of that capi-
tal to shareholders.
Last week, Apple CEO Tim Cook
told The Wall Street Journal that he
wanted to be aggressive and op-
portunistic in buying back shares,
saying the company repurchased
$14 billion of shares in the two
weeks since reporting financial re-
sults that disappointed Wall Street.
With the latest purchases, Mr.
Cook recently said Apple had
bought back more than $40 billion
of its shares over the past 12
months. Mr. Cook said that was a
record for any company over a simi-
lar span.
Mr. Icahn, who owns roughly $4
billion in Apple shares, on Monday
said he also supported that aggres-
sive posture in making repurchases.
It is our expectation that Tim
and the board continue to exhibit
this behavior as fiduciaries to the
shareholders since they clearly seem
to agree that our company contin-
ues to be extremely undervalued,
Mr. Icahn said to fellow sharehold-
ers.
Apple shares, which have risen
about 11% over the past year, rose
more than 1% in trading Monday.
BY BEN FOX RUBIN
Carl Icahn last July at a conference in New York where he was keynote speaker.
C
N
B
C
Springer CEO
Says He Is
Disciplined
About Prices
stressed the need for the company
to grow beyond Germanys borders
and transform the company to meet
challenges of the digital age.
The companys digital transfor-
mation has accelerated over the past
two years. It has reoriented its busi-
ness and made more than two dozen
acquisitions, mostly of small online
companies. Mr. Dpfner described
his strategy as getting back to the
roots of the newspaper business:
hard-hitting online news, financed
by digital subscriptions, online ad-
vertising and digital classifieds.
And thats our business model,
he said. Its old and boring and very
predictable. And it seems to work.
Springers revenue from digital
media rose to 1.1 billion in 2012
from 24 million in 2006. Operating
profit on digital businesses rose to
243 million from 1 million during
the same period. Digital businesses
account for nearly 60% of Springers
operating profit today, up from just
4% in 2008.
Last year Mr. Dpfner acceler-
ated the drive into digital by selling
a group of regional newspapers, in-
cluding the Hamburger Abendblatt,
the original title founded by Axel
Springer. The sales raised 920 mil-
lion that Mr. Dpfner now aims to
spend on digital acquisitions.
Mr. Dpfner also started charging
subscriptions for the digital versions
of the Bild Zeitung and Die Welt, be-
coming the first major German pub-
lisher to put online versions of flag-
ship publications behind paywalls.
Bild is Germanys largest online
news portal, reaching around 14 mil-
lion unique users daily. Within six
months, the company had more than
152,000 paying subscribers to
Bild.de.
Mr. Dpfners moves have
sparked criticism that he was aban-
doning journalism and selling the
company DNA. He calls the claims
an insult to every journalist.
Mr. Dpfner said content once
again will be king. Thats why it is
interesting now to invest in content
businesses that are still underval-
ued.
The question is whether tradi-
tional content companies will win
the game because they have learned
how to use technology or whether
the technology companies win be-
cause they learn how to create con-
tent, Mr. Dpfner said. That is the
great game today.
Kenan Machado
contributed to this article.
Continued from previous page
Nokia Prepares Android Phone Ahead of Sale to Microsoft
tya Nadellas key tasks is helping
the U.S. software company catch up
in mobile using its Windows
operating system. But as Androids
share of the global smartphone
market continues to climb, Nokias
new phone could signal that
Microsoft is willing to be pragmatic,
including relying on a bitter rivals
software to help boost sales volume.
That pragmatism has its limits.
The coming Nokia Android phone
wont promote Googles Play appli-
cation store, from which Google
takes a percentage of profit. Instead,
the phone will come installed with a
suite of services created by Nokia
and Microsoft, including Here maps
and Mix Radio, and a Nokia
application store with Android apps.
People familiar with the matter say
Nokia will show the phone at the
Mobile World Congress in
Barcelona, which begins February
24.
The strategy echoes the ap-
proach of Amazon.com Inc., which
has used a modified version of An-
droid for Kindle tablets that are
configured not to directly accept
Android apps. While Google backs
Android, the software can be modi-
fied and distributed by rival devel-
Continued from first page
opers and manufacturers.
One reason for the move is Mi-
crosofts need to increase handset
sales volume to support its vast
manufacturing capacity, and to help
cover the high cost of competing
and innovating in a smartphone in-
dustry dominated by Google, Apple
Inc. and Samsung Electronics Co.,
according to people familiar with
the plans. Part of that strategy is
taking a more dedicated approach to
developing Windows phones that
can better compete with high-end
Apple iPhones or Samsungs Galaxy
devices.
Another reason for the Nokia An-
droid phone is Microsofts Windows
Phonecurrently the only operating
system on Nokias higher-end Lumia
smartphonesdoesnt work on low-
cost phones because of the soft-
wares technical requirements.
The phone targets a retail price
below $100 excluding carrier subsi-
dies and taxes, people familiar with
the matter said, a vital segment for
smartphone vendors.
Francisco Jeronimo, a mobile
analyst at market researcher Inter-
national Data Corp., said that while
the smartphone market is set to
double in size this year, most of the
growth would come from low-end
phone sales in places such as India,
where more than a third of smart-
phones sold last year cost less than
$100.
To be able to grow in this mar-
ket, price is key, he said.
When it comes to mobile
software, Google has stepped into
the market leading position that
Nokia once held. While popular in
the U.S. and other mature markets,
Android has amassed a dominant
position in emerging economies
because it can be run on inexpensive
phones.
In India, for instance, Android
was installed on 93% of smart-
phones shipped in 2013, or 41 mil-
lion devices, according to an esti-
mate provided by IDC.
Dominant
Googles Android has steadily
increased its share of the
global smartphone market.
Share by operating system
The Wall Street Journal Source: Gartner
100
0
20
40
60
80
%
12 13 2011
Android
iOS
BlackBerry
Windows
12 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
OPINION: REVIEW & OUTLOOK
S
wiss voters narrowly approved an
anti-immigration ballot measure
Sunday. The margin was thin,
50.3%, but the effects could be wide-
ranging and damaging. Switzerland is
not a member of the EU, but agreements
with Brussels allow for the free move-
ment of labor between the republic and
the union, along with passport- and visa-
free travel.
Now Bern has three years to translate
the will of the Swiss majority into law,
while at the same time working out with
the EU what Sunday's vote means for
EU-Swiss relations. The referendum
didnt spell out specific limits on immi-
gration, so it will be up to the govern-
ment, which opposed the referendum, to
set the caps in accordance with the vote.
EU officials are not pleased with the
Swiss, and at least some in the European
Parliament are threatening retaliation
through possible trade sanctions. Half of
Swiss exports go to the
EU, by which Switzerland
is almost entirely sur-
rounded.
Switzerland may ap-
pear to be a land of inter-
national bankers and tony
ski resorts. But its also a mountainous,
fiercely independent and sometimes-in-
sular country that, not very many gener-
ations ago, lived largely cut off from its
neighbors. Sundays votes reflected that
duality; there are still millions in Swit-
zerland who would prefer to be left
alone.
But the isolated Switzerland of the
relatively recent past was also a much
poorer country, and the nations current
prosperity is a product of its openness to
trade with Europe and the
rest of world. The multi-
nationals that call Swit-
zerland home could de-
camp if they cant employ
the people they need to
stay competitive, and
Switzerlands business-friendly reputa-
tion will be undermined if would-be em-
ployees cant get visas.
Meanwhile, anti-immigration politi-
cians in the rest of Europe will be watch-
ing closely what happens next in Swit-
zerland. Britain is not part of the
Schengen agreement that permits visa-
free travel in the union, but it is in the
EU and as such is required to allow free
movement of EU citizens who want to
work in Britain. The U.K. Independence
Party would like to see that change, and
if Switzerland can close its borders the
calls for Britain to follow suit will get
louder. The EU will have at least one eye
on all this as it weighs how to respond to
what the Swiss do next.
Its a credit to Swiss democracy that
the countrys leadership will feel bound
by the results of the vote, however close
it was and whatever side they were on
before the vote. But a more-open Swit-
zerland is also likely to be successful and
prosperous. We expect the Swiss in their
wisdom will eventually come around to
seeing the point.
W
hile the IRS is playing favorites
with tax-exempt groups in
Washington, state regulators
are also expanding their attempts to reg-
ulate political speech in America. Last
week the Ninth Circuit Court of Appeals
heard oral arguments in two Washington
state cases that will decide if legal repre-
sentation can be considered an in-kind
contribution to a political campaign.
In 2010, Puyallup resident Robin Far-
ris started a recall campaign against for-
mer Pierce County Treasurer Dale
Washam for alleged abuse of government
resources and other misdeeds. Under
Washington state law, contributions to
the effort, including free legal advice,
were capped at $800 (now $900), se-
verely restricting Ms. Farriss right to
free speech.
The Virginia-based Institute for Jus-
tice took up Ms. Farriss case, arguing
that organizations that dont coordinate
with a candidate cant be subject to cam-
paign-finance restrictions because they
dont raise a corruption problem. This is
the law since the Supreme Courts Citi-
zens United ruling in 2010. In recall elec-
tions, the opposition has no candidate to
coordinate with.
The Ninth Circuit agreed in 2012, but
by that time the recall campaign was
over, having been unable to collect
enough signatures thanks in part to the
fundraising restrictions. On Thursday,
the appeals court reconsidered whether
Washington states contributions cap can
be applied to any recall campaign.
Meantime, the state Public Disclosure
Commission turned on the Institute for
Justice (IJ), threatening to fine Ms. Far-
ris on grounds that the libertarian legal
groups pro-bono work on the recall caps
should count as an in-kind contribution.
IJs interest was the constitutional issue,
not the recall campaign itself, but the
regulators shrug off that detail because
their real goal is to control how much
political speech is allowed.
If this regulatory view prevails, politi-
cal groups would only be able to get a
few hundred dollars of legal representa-
tion if their civil rights are violated. This
would also pose a major threat to
501(c)(3) organizations like the Institute
for Justice, which could see its tax-ex-
empt status threatened if states like
Washington counted pro-bono work on
civil-rights cases as campaign contribu-
tions.
The state took a similar position in a
case argued last week involving Family
Pac, a conservative group that success-
fully challenged Washingtons ban on po-
litical-action committees collecting more
than $5,000 from a single contributor
within three weeks of an election. Family
Pac was eligible to be compensated for its
attorneys fees after the win, but the Pub-
lic Disclosure Commission claimed that
because Family Pac didnt disclose the
pro-bono work of its law firm as an in-
kind political contribution, it wasnt enti-
tled to the fees. Talk about sore losers.
While conservatives are the regulatory
target in these cases, the threat could en-
snare all kinds of political groups and
their attorneys. That explains why the
Center for Competitive Politics and the
American Civil Liberties Union of Wash-
ington Foundation have joined the Insti-
tute for Justice brief. The speech police
never rest, so we hope the judges put
them in their place.
U
.S. Assistant Secretary of State for
Europe Victoria Nuland dropped
an F-bomb over the European
Union last week, but the kerfuffle over
her wiretapped conversation should not
overshadow the laser-guided munition
delivered by her counterpart for Asia,
Danny Russel. In testimony before a
House subcommittee last Wednesday Mr.
Russel challenged Beijing to put up or
shut up on the issue of its disputed terri-
torial claims in the South China Sea.
There is a growing concern, Mr. Rus-
sel said after enumerating a long list of
Beijings provocative maritime actions,
that this pattern of behavior in the South
China Sea reflects an incremental effort
by China to assert control over the area
contained in the so-called nine-dash line,
despite the objections of its neighbors
and despite the lack of any explanation or
apparent basis under international law re-
garding the scope of the claim itself.
The nine-dash line Mr. Russel re-
ferred to is Beijings dubious deed of own-
ership for countless shoals and atolls, a
feature of Chinese maps that shows the
countrys historical waters. It is copied
from a map drawn up by the government
of Nationalist leader Chiang Kai-shek in
1947. The dashes enclose roughly 90% of
the South China Sea and overlap not only
with five other countries island claims,
but also with their exclusive economic
zones and continental shelves hundreds
of miles away from the Chinese coast.
Under maritime law,
historical waters can
only be claimed under rare
and limited circumstances,
none of which apply to
this vast sea. Mr. Russel
was more explicit than any
other U.S. official we know
of in calling Chinas claim
bogus: I want to reinforce the point that
under international law, maritime claims
in the South China Sea must be derived
from land features. Any use of the nine-
dash line by China to claim maritime
rights not based on claimed land features
would be inconsistent with international
law.
This was already enough to make Bei-
jing go ballistic, but the Assistant Secre-
tary of State went further. In the most
diplomatic language, he called on Beijing
to either come up with a better argument
for its claim or drop it: The international
community would welcome China to clar-
ify or adjust its nine-dash line claim to
bring it in accordance with the interna-
tional law of the sea.
Beijing always endeavors to negotiate
on a bilateral basis with each of the other
five South China Sea claimants, which
would allow it to skate over the sketchy
legality of its actions.
However, last year Manila
defied Chinas wishes and
applied to the United Na-
tions for a tribunal ruling
on the dispute after Chi-
nese forces seized Scar-
borough Shoal from the
Philippines in 2012.
Beijings next line of defense is to de-
cline to participate in or recognize such
proceedings. It keeps the basis of its
claims deliberately ambiguous, leaving its
rivals unable to challenge them and a tri-
bunal unable to definitively rule against
them.
The U.S., however, has seemingly de-
cided to debunk Beijings nine-dash line
argument in the court of international
public opinion. Mr. Russel devastatingly
pinpointed the key weakness of Beijings
expansive claims. Chinas purported own-
ership of all the land in the South China
Sea derives from a map showing its terri-
torial waters. Yet one of the most basic
principles of maritime law is that territo-
rial waters derive from territory, and not
the other way around.
Naturally Beijings spokesmen and
state-run media are furious that some-
body has dared to point out that the em-
peror has no clothes. They denounce U.S.
interference in Chinas domestic affairs
as irresponsible and not constructive.
Chinas neighbors have a different con-
cern: Will the U.S. back up its rhetoric
with action? At the beginning of this year
Beijing unilaterally imposed new rules on
fishing in the South China Sea, requiring
all boats to seek its permission first. The
Japanese newspaper Asahi Shimbun re-
ports that Beijing will soon announce an
air defense identification zone over the
South China Sea to effectively control the
airspace.
China is changing the status quo in the
South China Sea with force and the threat
of force. Philippine President Benigno
Aquino warned last week that the world
is appeasing a rising Chinas unreasonable
demands much as it did with Nazi Ger-
many in the 1930s. Its an analogy that is
gaining plausibility. Mr. Russels state-
ments are a small but important marker
that the U.S. still remembers its history
and wont let Beijings provocations go
unchallenged.
Fortress Switzerland
The Speech Regulators Get Mean
Calling Out Chinas Lawlessness
The Swiss vote
for isolationism,
narrowly.
The U.S. points out
that Beijings claims
to the South China
Sea dont stand up.
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 17
BUSINESS & FINANCE
If Nestl Sells LOral Stake...
A knot tying three of Europes
biggest corporations together could
soon be untangled with billions of
euros in share buybacks.
In late April, Nestl SA will be
free to unwind its 30% stake in
LOral SA, and, according to people
familiar with the matter, that is one
of the options the Swiss food giant
is studying. If Nestls stake is up
for grabs, LOral wants to buy at
least part of it, one of the people
said. That could trigger LOral sell-
ing its 9% stake in French pharma-
ceutical company Sanofi SA, accord-
ing to the person.
The outcome of the corporate
equivalent of a game of chess will
determine who controls LOral, the
worlds biggest cosmetics company
and home to brands including
Lancme, Garnier and Krastase.
Nestl and the Bettencourt family,
heirs of LOrals founder, have
jointly controlled LOral for four
decades.
Given the complexity and the
cost, it is possible that the compa-
nies will retain their shareholdings
in each other. In any case, a deal
could take years to conclude.
For Nestl, its decision on the
LOral stake will provide important
clues about its strategic future.
Three years ago, Chairman Peter
Brabeck-Letmathe said that Nestls
board had begun to reflect on its
LOral stake and would make a de-
cision in 2014. Nestl has sold in-
vestments in hotels, fast food and
wine, as well as U.S. eye-care busi-
ness Alcon Inc. to focus on health
and nutrition.
The future of Nestls participa-
tion in LOral is an important topic
for the Group which the Nestl
Board of Directors is addressing
with great attention in the frame-
work of the Groups global nutrition,
health and wellness strategy, said
Nestl spokesman Philippe Aeschli-
mann. Nestls 30% stake in LOral
is valued at more than 23 billion
($31 billion).
LOral, with its aisles of sham-
poos, face creams and perfumes,
doesnt fit that focus, some analysts
say. As a result, Nestl could gradu-
ally reduce its stake, selling at least
a chunk of it back to the cosmetics
giant. The opposite strategyex-
panding Nestls scope by launching
a takeover of LOralis unlikely be-
cause it would be expensive and
could spark political meddling by
the French government, eager to
keep LOrals jobs in France, ac-
cording to bankers and analysts.
Nestl will continue to take a
long-term strategic view in share-
holders best interest, and will,
when appropriate, make its deci-
sions in a way that is most condu-
cive to the long-term success of the
company, Mr. Aeschlimann said.
Buying back Nestls stake would
be a good deal for LOral, chief
executive Jean-Paul Agon told Le
Monde newspaper last month. The
shares would be canceled, so the
value of each LOral share would
increase, he said.
A LOral spokeswoman on Mon-
day confirmed Mr. Agons statement
and declined to comment further.
To buy back its shares, LOral
could cash in its stake in Sanofi,
currently valued at 9 billion. Mr.
Agon has long said that the com-
panys investment, which it inher-
ited when it sold it a pharmaceutical
business, is financial, not strategic.
Extending the ripple effect,
Sanofi Chief Executive Christopher
Viehbacher said the company would
consider buying back its own shares.
It would be clearly accretive,
he said.
One of the people familiar with
the matter said Sanofi wouldnt
likely buy all of the stake in one fell
swoop because of its size. It would
either buy it in several installments
or buy part of the stake, with
LOral releasing the rest on the
open market, this person said.
A sale would mark a major shift
in a long-standing corporate pact.
The Bettencourts invited Nestl
into their company in 1974, fearing
nationalization from the French
government. They became equal
partners, with each party holding
about 30% of the company and seats
on the supervisory board.
The Bettencourts and Nestl last
renegotiated their shareholding pact
10 years ago. They agreed that nei-
ther side could raise its stake during
the lifetime of Liliane Bettencourt,
the 91-year-old matriarch, or for six
months after her death. They also
committed to giving the other party
the first right of refusal if they
wanted to sell their shares. The lat-
ter pledge expires at the end of
April.
The Bettencourt clan is deter-
mined to hold on to its stake. Last
summer, the family said in a state-
ment that a sale is not in any way
under consideration.
Separately, LOral said sales in
the fourth quarter edged up just
0.6%, to 5.76 billion, because of ex-
change-rate fluctuations in some of
the markets. Full-year sales rose
2.3% to 22.98 billion. LOral
squeezed out higher bottom-line
growth by tightening production
costs. Net profit last year rose 3.2%
to 2.96 billion from 2.87 billion.
By Christina Passariello
and Nomie Bisserbe in Paris
and John Revill in Zurich
LOral is the worlds biggest cosmetics company. Above, LOral products at a mall in Chinas Jiangsu province in 2012.
I
m
a
g
i
n
e
C
h
i
n
a
Bitcoin
Exchange
Uncovers
Tech Glitch
Prices of bitcoin have recently
fluctuated on factors ranging from
government regulation to the virtual
currencys acceptance by real-world
retailers. Now add another driver:
perceived technical glitches.
Mt. Gox, a leading bitcoin ex-
change Monday blamed a long-unre-
solved technical issue for its deci-
sion to abruptly halt customer
withdrawals last week. Prices of bit-
coin were sent reeling to their low-
est level in two months Monday
quickly falling to below $550 from
Fridays close of $703.57, according
to an index compiled by CoinDesk, a
bitcoin-data provider based in Lon-
don. By midafternoon in London,
the index price had partly recov-
ered, to around $650.
However, that rebound was in
part explained by CoinDesk remov-
ing Mt. Goxs prices from its index,
which in recent days had been
weighed down by lower quotes from
the Tokyo exchange.
Mt. Gox said the software issue
could affect all bitcoin transactions
to third parties and needed to be
addressed in cooperation with the
core development team of the pay-
ment system. Mt. Gox had said Fri-
day an increase in withdrawal re-
quests has hindered our efforts on
a technical level. It said Monday it
wouldnt allow withdrawals to re-
sume until the issue was addressed.
In a statement Monday, Mt. Gox
described the problem as a defect
with a procedure used to identify
transactions in the giant digital led-
ger that records all bitcoin activity.
There is a delay between when a
transaction is initiated and when it
is confirmed in the ledger; during
the gap, someone could slightly al-
ter the transaction and thus change
its identifying number. Mt. Gox ap-
pears to have used those numbers
to keep track of its transactions
with customers.
Technical issues at Mt. Gox
shouldnt affect the broader use of
the virtual currency, said the chief
scientist of the Bitcoin Foundation,
a not-for-profit organization funded
by bitcoin-related businesses.
In an interview Monday, Gavin
Andresen, chief scientist at the Bit-
coin Foundation, said, Other ex-
changes may or may not have an is-
sue. I hope that Mt. Gox is the only
exchange that falls into this.
Mr. Andresen played down how
widespread the fallout may be from
Mt. Goxs issue.
Basically, we think they are
overstating it a bit, said Mr. An-
dresen. It is really an unfortunate
interaction between what is argu-
ably a flaw in the protocolI would
[call] it a quirk, not a flawand Mt.
Goxs [digital] wallet and their cus-
tomer support procedures.
Mr. Andresen said that the issue
of transaction malleability, which
Mt. Gox cited as a reason that it
halted withdrawals from its ex-
change on Friday, is well known.
Transaction malleability refers to
the capacity to make small altera-
tions in the digital signatures used
by computers inside the bitcoin net-
work to verify transactions. Those
shifts have the potential to alter the
way transactions are represented to
third-party entities such as ex-
changes.
BY NEELABH CHATURVEDI
European Lenders Weigh New Tactics to Parry U.S. Rules
gent capital rules, part of the Dodd-
Frank financial-overhaul law, will
apply to foreign banks with at least
$50 billion in assets in their U.S.
units.
The rules have been subject to
years of gamesmanship. In 2011,
Deutsche Bank irked federal regula-
tors by saying it would change the
status of its main U.S. vehicle, Tau-
nus Corp., so that it was no longer a
bank-holding company and there-
fore wouldnt be subject to the
Dodd-Frank provisions. Fed officials
subsequently said they would adjust
the rules to preclude banks from
skirting them.
Since then, European banks have
heavily lobbied the Fed to soften its
approach, according to disclosure
statements filed with the Fed fol-
lowing meetings with bank execu-
tives. That is because the new rules
are likely to force major European
banks to add billions of dollars of
loss-absorbing capital to their U.S.
units, according to analysts and in-
dustry officials.
Deutsche Bank, in particular, has
been under pressure to figure out
how to deal with the rules. Its U.S.
Continued from first page unit at times has operated with vir-
tually zero capital, drawing the ire
of regulators. Deutsche Bank likely
faces a capital shortfall of roughly
$7 billion under the new rules, ac-
cording to Citigroup analysts.
One option under consideration
by some banks with relatively small
U.S. presences is to sell enough as-
sets so they fall below the $50 bil-
lion threshold.
Utrecht-America Holdings Inc., a
unit of Dutch lender Rabobank, had
$52.3 billion in assets at the end of
2013, according to Fed data. Rene
Loman, a Rabobank spokesman, said
the bank currently is running off
parts of Utrecht-America, which
owns a variety of U.S. financing
businesses, and the total assets will
be about $45 billion by the end of
March. Rabobank separately has
roughly $40 billion in assets in
other U.S. operations, including a
California retail bank.
To reduce the amount of capital
they have to hold in their U.S. units,
Barclays and Royal Bank of Scot-
land Group PLC have considered
booking certain trades outside the
U.S. or moving businesses into legal
structures outside of the Feds re-
mit, according to people familiar
with their plans, which remain pre-
liminary.
Another idea gaining traction
among some European banks is hav-
ing the U.S. subsidiaries sell bonds
to their parents, according to the
people familiar with the banks
strategies.
As currently envisioned, the U.S.
units would issue to their parents a
type of bond that converts into eq-
uity if the U.S. businesss capital
falls below a certain level. Some Eu-
ropean regulators have allowed this
type of convertible bond to count as
capital, although it is regarded as
less helpful for absorbing losses
than simple equity.
The European parent companies
would finance the purchases of their
subsidiaries debt by issuing bonds
to investors, these people say.
While the strategy isnt finalized,
it is sufficiently advanced that some
bank executives have given it the
moniker of internal convertibles.
The tactic is appealing, execu-
tives say, because it would allow
them to recapitalize their U.S. arms
without issuing new stock to inves-
tors, which erodes the value of ex-
isting shares. Plus, the European
parents can collect a regular inter-
est payment on their subsidiaries
bonds, analysts say.
It isnt clear whether U.S. regula-
tors will sign off. They havent pre-
viously allowed convertible bonds to
be treated as capital, said Marc
Saidenberg a principal in Ernst &
Youngs financial-services office.
Regulators in countries like the U.K.,
where Barclays is based, are with-
holding judgment until the Feds fi-
nal rules are announced, according
to a person familiar with the matter.
Some critics say that while the
maneuver could insulate the U.S.
subsidiaries from losses, it will end
up saddling the overall banking sys-
tem with greater debt. That is
something regulators world-wide
have been trying to curb.
Its definitely not a good thing,
said Anat Admati, a professor at the
Stanford Graduate School of Busi-
ness. It would harm financial sta-
bility because the funding is ulti-
mately done by debt, thus
increasing the fragility of the sys-
tem.
Eyk Henning
contributed to this article.
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 11
IN DEPTH
Many of those people are clustered in the
South, living in states where income limits
for Medicaid coverage have historically
been among the lowest in the U.S.
Eugene Steuerle, an Urban Institute
economist and former Treasury Department
official who served under presidents in
both parties, said he couldnt recall a social
program that excluded beneficiaries be-
cause they earn too little.
In Alabama, Gov. Robert Bentley, a phy-
sician, said in his annual address last
month that Medicaid expansion carried
costs he doubted the federal government or
his state could afford. Medicaid accounts
for more than one-third of Alabamas bud-
get, the states costliest service after educa-
tion, and it would have to grow larger to
comply with the health-care law.
A spokeswoman for Mr. Bentley said his
position was clear in public statements.
One of Mr. Bentleys constituents, 27-
year-old Tanisha Fields, who is uninsured,
arrived at University of Alabama at Bir-
minghams flagship hospital on a recent
evening for treatment after a miscarriage.
Hospitals are obligated to treat emergency
room patients, regardless of their ability to
pay.
Ms. Fields, who has a 4-year-old son,
earned about $7,000 last year working at a
cleaning service. That is too little to qualify
for federal help buying coverage in new
health-law marketplaces, and too much for
coverage in Alabamas Medicaid program,
which has an income ceiling of $2,832 for a
family of two, after deductions. If Ms.
Fields could buy insurance for $50 a month,
she said, I definitely would.
Governors in some states that refused to
expand Medicaid now say the coverage gap
is hard to ignore. I am not a fan of the Af-
fordable Care Act, Utah Gov. Gary Herbert
said in an interview. But, he said, he is
working with state legislators on a plan to
expand Medicaid after advisers calculated
that about 60,000 of his constituents would
fall through the gap.
That is not fair, Mr. Herbert said.
When I say doing nothing is not an option,
Im talking about the 60,000 people in Utah
who live below the poverty line and dont
have access to health care.
Mr. Maiden, the hair stylist, learned in a
Dec. 23 letter from the federal government
that he wasnt eligible for help. The cheap-
est bronze-level insurance plan available
to Mr. Maiden, who is single and a smoker,
costs $437 a month. That plan, from Blue
Cross & Blue Shield of Alabama, has a
$6,350 annual deductible.
Mr. Maiden would have to spend about
$11,600 a yearmore than his entire annual
incomeon premiums and the deductible
before Blue Cross would begin paying for
most services. If he earned an extra $1,300
a year, he would qualify for about $470 a
month in federal subsidies under the
health-care law to pay premiums, and addi-
tional subsidies that would reduce the de-
ductible for certain plans to as little as
$100 a year.
Earning more, he said, is a challenge.
Demand in Birmingham for his styling serv-
ices is low, he said: These are difficult
times.
A Blue Cross spokeswoman said the in-
surer offered some of the most cost-effec-
tive health insurance premiums in the coun-
try and noted that Alabama has among the
lowest average rates of states using Health-
Care.gov, the federal insurance exchange.
But higher-wage families in some cases
pay less for coverage in Alabama. Cal Mor-
ris, 37 years old, opened Church Street Cof-
fee & Books with his wife, Heather, in a
wealthy Birmingham suburb nearly three
years ago.
The coffee shop and Mr. Morriss second
job as a church janitor yields about
$35,000 a year for the couple, who have
three children.
Under the law, the family qualifies for a
subsidy of as much as $439 a month. They
could pay as little as $83 a month for a
midlevelor so-called silverBlue Cross
plan that lists at $522.43 a month, accord-
ing to HealthCare.gov. The couples chil-
dren are covered by the states Medicaid
program.
Mr. Morris, who has severe and un-
treated psoriasis, said he looked forward to
seeing a doctor, now that he has coverage.
Federal census data show about two-
thirds of nearly 30,000 uninsured people
living in Jefferson County, which includes
Birmingham, would qualify for Medicaid if
the program was expanded to fit with the
health-care law.
While Birminghams unemployment rate
is low, many of its workers are poor. The
bottom 10% of local workers employed full-
time in 32 professionsincluding health-
care aide and hairdresserearn less than
$16,000 a year, according the Bureau of La-
bor Statistics.
Many of these people are only now
learning of the health-care gap. Shunteria
Taylor, 28 years old, lost a job as a per-
sonal-care aide in 2012. She lives on about
$10,500 a year in child support and disabil-
ity benefits for her 9-year-old son, Bran-
don. She said she was looking for work.
Based on her income, the cheapest in-
surance coverage would cost Ms. Taylor
$146 a month, with a $6,350 deductible. I
have a lot of health problems, she said,
but I just cant afford insurance.
Hospitals, including UAB Health System,
see the coverage gap as a threat.
All we see is our revenues going
down, said Will Ferniany, UABs chief exec-
utive. Like other hospitals, it faces deep
cuts in federal reimbursement for treating
uninsured patients under the health-care
law, he said, but wont see many new pay-
ing patients without the Medicaid expan-
sion.
On a recent evening, as a rare blizzard
struck Birmingham, dozens of uninsured
patients filed through the emergency room
at UABs main campus. Complaints ranged
from headaches and swollen feet to broken
bones. Such visits contribute to more than
$100 million in uncompensated care costs
at the hospital, according to 2012 Medicare
data.
Seneca Womack, age 38, arrived that
evening seeking treatment for an epileptic
seizure. A couple of hours later, he was dis-
charged but then slipped on a patch of ice
on his way home, breaking his leg.
Since losing his last two jobsas a ride
operator at an amusement park and restau-
rant cookMr. Womack has had no regular
income, leaving him below the threshold
for health insurance subsidies.
Before his latest mishap, Mr. Womack
had piled up more than $50,000 in hospital
bills for treatment of seizures and related
injuries. He said he borrows $130 a month
from his sister to buy drugs for high blood
pressure, depression and epilepsy.
I need insurance, he said.
Hospitals Take Hit in Failed Medicaid Expansion
State decisions to decline federal offers to
expand Medicaid are costing hospitals, in addi-
tion to lower-wage workers.
Hospitals backed the health-care law be-
cause it promised to create new, paying cus-
tomers. Instead, the failure to expand Medicaid
coverage by some states not only adds fewer
insured patients, it also eliminates the pay-
ments hospitals had long received to cover the
cost of uninsured people they treat free.
Shelby Baptist Medical Center, just outside
of Birmingham, Ala., pulled in about $1.6 million
after expenses in 2012, Medicare data show. It
was buoyed that year by more than $9 million
in disproportionate-share hospital payments
from the federal Medicare and state-run Medic-
aid programs.
Those funds are targeted for cuts that could
erase margins at hospitals like Shelby Baptist.
About 190,000 Alabama residents who were
initially expected to qualify for Medicaid will fall
into a coverage gap because the state didnt ex-
pand the government health-insurance program,
according to estimates by the Kaiser Family
Foundation.
Unfortunately in our state, without expand-
ing Medicaid, and with very limited enrollment
in the exchange, were not seeing the benefit,
said Greg Johnston, chief financial officer of the
four-hospital Baptist Health System that oper-
ates the Shelby facility. Were seeing more on
the cut side.
In 2012, almost 40% of the 84 dispropor-
tionate-share hospitals in Alabama were oper-
ating in the red, according to annual financial
reports provided by the hospitals to Medicare.
Rosemary Blackmon, executive vice president
of the Alabama Hospital Association, said the
industry group expected hospitals to absorb
about $40 million in health-law related cuts this
year. Congress in December delayed a portion
of the cuts to funds that reimburse hospitals
for treating uninsured people.
The financial woes of hospitals wont slow
the arrival of uninsured customers, They are re-
quired to treat people who arrive in emergency
rooms under federal law, regardless of ability to
pay.
Alabama hospitals that receive government
payments for uncompensated care provided
$602 million in such services in 2012, Medi-
cares data show. The hospitals were reim-
bursed for more than 60% of those costs
through the extra Medicare and Medicaid pay-
ments, the data show.
Christopher Weaver
Alabama resident
Shunteria Taylor,
with her son
Brandon, lives on
about $10,500 a
year and falls into
the health-care gap.
B
o
b
M
i
l
l
e
r
f
o
r
T
h
e
W
a
l
l
S
t
r
e
e
t
J
o
u
r
n
a
l
*Wisconsin's Medicaid threshold was already high enough to close the gap before the Affordable Care Act passed. Note: Some parents,
disabled adults and people receiving SSI may qualify for Medicaid in states that arent expanding the program. Michigans planned
expansion begins in April.
Source: Kaiser Family Foundation (number in coverage gap); Census; The Affordable Care Act The Wall Street Journal
Lef Out
Texas
Mont.
Idaho
Utah
Wyo.
Kan.
Neb.
S.D.
Fla.
Okla.
Wis.*
Ala. Ga.
Mo.
La.
Pa.
Ind.
Tenn.
N.C.
Va.
Miss.
S.C.
Maine
N.H.
Alaska
In 24 states that didn't expand Medicaid as of Jan. 1, 4.8 million people fall into a coverage gap:
They earn too little to qualify for health-law subsidies to buy private insurance, and arent eligible
for benets under existing state programs.
Health law coverage available for a single, adult worker, by income
States that havent expanded Medicaid
States that have expanded Medicaid
$46,680 $16,105 Annual income: $11,670
Gap No subsidy
No subsidy Medicaid
Federal subsidy
Federal subsidy
Less than 20%
20% to 25%
More than 25%
SHARE OF
UNINSURED
IN THE GAP
18 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
Nissan Plays Catch-Up on Global Goals
YOKOHAMA, JapanNissan Mo-
tor Co. said a weak yen combined
with booming sales and profit in Ja-
pan led to a 57% jump in net income
in the latest quarter.
Even so, the company said it
would be a stretch to hit its full-
year targets for global profit and ve-
hicle sales, citing weak profitability
in major markets abroad.
The contrasting results at home
and overseas show how Nissan, Ja-
pans second-largest auto maker by
sales volume, is continuing to strug-
gle to raise profit abroad, as it
pushes to meet ambitious global
targets set by its charismatic chief
executive, Carlos Ghosn.
We know its not easy to meet
the goals [for the full year] but its
not impossible, Nissan Corporate
Vice President Joji Tagawa said at
an earnings news conference on
Monday, adding that a series of new
cars will help the company catch up
with its targets by driving stronger
profit growth in the current, final
quarter of this fiscal year.
The Yokohama-based car maker
has been pulling out all the stops to
build and beef up factoriespartic-
ularly in emerging marketsto hit
an 8% operating-profit margin and
global market share by March 2017.
It has also been pushing hard to
bolster sales in the North American
market with incentives amid in-
creasing price competition.
But those efforts have eroded
Nissans bottom line, while sales in
many regions havent picked up
much yet. In Asia, vehicle sales ac-
tually fell slightly during the quarter
from a year earlier, as demand
slipped in Thailand.
Nine months into its fiscal year,
Nissan has achieved only 61% of its
full-year target for operating profit,
an important measure of the
strength of underlying business. As
of the end of December, it had sold
71% of the 5.2 million vehicles it is
aiming to sell by the end of March.
Plenty of hope is resting on new
models to lift performance in the fi-
nal quarter. Nissan recently
launched a redesigned Rogue small
sport-utility vehicle in North Amer-
ica and is set to introduce the Dayz
Roox minicar in Japan soon. More
new vehicles are to arrive in show-
rooms in other markets.
Surging sales in Japan during
the three months ended December
propped up the overall profit fig-
ures. Revenue in Japan was up 12%,
while operating profit in Japan
jumped fivefold to 87 billion
($849.9 million), helped by a rush of
buying ahead of a scheduled rise in
the sales tax rate to 8% from 5%.
A yen that was 24% weaker
against the dollar in the quarter than
it was a year earlier also pushed up
profit margins for exports. All of Ja-
pans auto makers have benefited
from a weaker currency, which
boosts overseas earnings when they
are converted into yen terms.
The strong Japan performance
pushed Nissans overall net profit up
to 84.3 billion in the quarter from
53.8 billion a year earlier. Overall
sales for the quarter rose 25% to
2.52 trillion yen.
But even with the tailwind of the
weaker yen, Nissans North Ameri-
can profit suffered in particular,
with operating income plunging 87%
to 3.4 billion during the quarter,
even as revenue rose 33% to 1.15
trillion. Mr. Tagawa said the startup
costs for a new plant in Mexico and
high sales promotions costs
squeezed profit in the region.
Globally, the company posted an
operating profit margin of only 3.1%
during the past quarterfar off
from its midrange target, and well
behind rivals Toyota Motor Corp.
and Honda Motor Co., where the
weak yen and strong sales led to
margins of 9.1% and 7.6%, respec-
tively, during the same period.
Nissan has blamed its weak
profitability in part on the large
costs of investing in factories and
equipment, with nine projects
moving simultaneously. It also has
cited weak demand in some emerg-
ing markets.
Increasing production capacity in
developing markets like Brazil is a
key part of its strategy to build mar-
ket share. Nissan had a 6.2% market
share world-wide in the past fiscal
year.
The car maker reshuffled its
management three months ago to
spot problems and deal with them
more quickly, amid its rapid busi-
ness expansion.
BY YOSHIO TAKAHASHI
Nine months into its fiscal year, Nissan has achieved only 61% of its full-year target for operating profit, an important
measure of the strength of underlying business. Above, a visitor at the companys headquarters in Yokohama, Japan.
A
s
s
o
c
i
a
t
e
d
P
r
e
s
s
Toyota Joins Exodus in Australia
Australia is poised to lose its
place among the ranks of auto-mak-
ing nations after Toyota Motor
Corp. said it would stop producing
cars in the country, the latest gear
change in the industrys pivot to-
ward emerging markets.
Toyota said Monday that the last
vehicle would roll out of its factory
at Altona, near Melbourne, in 2017,
resulting in the loss of at least 2,500
jobs. The Japanese company cited
factors including high production
costs and a strong Australian dollar.
Ford Motor Co. and General Motors
Co. are planning similar exits.
We did everything that we could
to transform our business, but the
reality is that there are too many
factors beyond our control that
make it unviable to build cars in
Australia, Max Yasuda, chief execu-
tive of Toyotas Australian unit, said
in a written statement.
Toyotas Australian unit swung to
a profit of 220.9 million Australian
dollars (US$197.9 million) in the fis-
cal year through March 2013 as the
company cut costs. Still, it faced
challenges as consumers shifted
away from large passenger vehicles,
such as the Camry, in favor of im-
ported sports-utility vehicles. Toy-
otas most popular vehicle in Austra-
lia, the Corolla, is shipped in from
overseas.
Toyota, which exports 70% of the
vehicles built at its Altona factory,
said it was no longer confident that
it would be able to count on having
enough suppliers in the country af-
ter Ford and GM leave. It was also
worried about the impact of Austra-
lia signing more free-trade agree-
ments, which could increase imports
of less-expensive cars. A long-dis-
cussed pact with Japan could be
sealed as early as July, when Japa-
nese Prime Minister Shinzo Abe may
visit Canberra.
The end of the road for auto
manufacturing would be a blow to
the $1.5 trillion Australian economy,
in which the sector has declined for
years as resources investment and
exports have grown. Australias eco-
nomic growth has slowed sharply in
recent months, hurt by falling con-
sumer confidence, soft business in-
vestment and a domestic currency
that remains stronger than its his-
torical average, which makes exports
less cost-competitive overseas.
Australias jobless rate has been
creeping up to levels not seen since
the global financial crisis in 2008.
Thousands of workers in the once-
booming resources sector have lost
jobs over the past year as companies
adjusted to lower commodity prices.
Flag carrier Qantas Airways Ltd. said
recently it would cut 1,000 jobs to
help stem losses. Experts estimate
that at least 6,600 jobs will be di-
rectly affected when auto manufac-
turing ends.
Australian Prime Minister Tony
Abbott, a conservative, has resisted
pleas from other manufacturers, in-
cluding in food processing, for aid
packages to help keep plants open
and resist competition from cheaper
imports. He has maintained that
companies need to get their busi-
nesses in order, rather than rely on
handouts. The stance has been criti-
cized by opposition lawmakers and
unions, which have warned of a A$21
billion hole in the economy and the
loss of up to 45,000 jobs, both direct
and indirect, if the auto industry
dies.
The job losses in the auto indus-
try are concentrated in the states of
South Australia and Victoria, which
have large concentrations of blue-
collar workers. Ford is closing plants
in Geelong and Broadmeadows, also
on the outskirts of Melbourne. GM
plans to close its operations in Mel-
bourne and in South Australias state
capital, Adelaide.
The first 300 workers from
Fords facilities were made redun-
dant this month ahead of a complete
shutdown of the two plants by 2016.
The risk to Mr. Abbott is that
there will be a backlash against the
conservatives at the state level, with
both Victoria and South Australian
voters due to head to the polls later
this year.
Rob Taylor in Canberra,
Ross Kelly in Sydney
and Yoshio Takahashi in Tokyo
contributed to this article.
By David Winning in Sydney
and Kana Inagaki in Tokyo
BUSINESS & FINANCE
Austrian
Lenders
Reject Hypo
Bad Bank
Austrias banks have refused to
participate in a bad bank carved
out of the wreckage of failed re-
gional lender Hypo Alpe Adria AG,
raising the risk that the government
may declare the bank insolvent.
Austrian Finance Minister and
Vice Chancellor Michael Spindeleg-
ger acknowledged Monday that he
had failed to persuade the countrys
largest private-sector banks to fund
a new institution that would wind
down the bulk of operations at the
bank, which was nationalized at the
end of 2009 after a disastrous ex-
pansion into southeastern Europe
during the boom.
That leaves the government ef-
fectively with two options: It can ei-
ther assume the bad assets itself,
and allow any further losses to hit
the public accounts, or it can put
the bank into an insolvency process.
Hypos estimated liabilities far ex-
ceed its assets, so insolvency would
almost certainly impose losses on
the banks creditors, the first time
since the financial crisis that a Eu-
ropean Union member states gov-
ernment had failed to honor debts
owed by a bank wholly under its
control.
The government in December
sold Hypos domestic operations to
a private investor, leaving only the
banks operations in the Balkans and
Italy. As such, there is no direct risk
to Austrian depositors any more,
only to the banks bondholders; its
owner, the government, and Bay-
erische Landesbank, its former
owner, which still has 2.3 billion
($3.14 billion) of deposits tied up in
the group as a result of the 2009
nationalization.
Talking to journalists after his
meeting with representatives from
the banks broke down, Mr. Spindel-
egger said the government will look
at the establishment of a state-
owned bad bank first, similar to the
model used in Germany since the
crisis. Mr. Spindeleggers predeces-
sor, Maria Fekter, had refused to
countenance such a step, fearing
that the extra debt load would cause
credit-ratings firms to cut Austrias
sovereign rating.
We have to look the facts in the
face, Mr. Spindelegger said.
Neither he nor any other Aus-
trian official was willing to venture
an opinion on how much could still
be lost on Hypos remaining assets,
which have shrunk to under 30 bil-
lion from a peak of 50 billion as a
result of successive write-downs
and asset sales.
However, Helmut Ettl, joint head
of banking supervisor Financial
Market Authority, told journalists
the only remaining models will all
be expensive but warned against ex-
perimenting with insolvency.
A bankruptcy scenario is clearly
a scenario where at the end of the
day no one knows exactly how large
the risks are, Mr. Ettl said.
The government and central
bank have also shied away from the
latter course for the past two years,
saying it would have far-reaching
consequences for the borrowing
costs not only of the government,
but for all government-controlled
entities and for the Austrian econ-
omy.
BY NICOLE LUNDEEN
AND GEOFFREY T. SMITH
Source: VFACTS The Wall Street Journal
Tough at the Top
Note: Figures dont add up to 100% due
to rounding.
Five largest auto sellers in
Australia by market share
Others
Ford
Hyundai
Mazda
Holden
Toyota
Others
Mitsubishi
Mazda
Ford
Holden
Toyota
2008
39%
6.0%
7.9%
10%
13%
24%
7.7%
8.5%
9.1%
9.9%
19%
46%
2013
10 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
Millions in U.S. AreTrapped
In Health-LawCoverage Gap
With 24 States Declining to Expand Medicaid, Some People Earn Too Little to Qualify for Subsidies
E
rnest Maiden was dumbfounded to
learn that he falls through the cracks of
the health-care law because in a typical
week he earns about $200 from the Happi-
ness and Hair Beauty and Barber Salon.
Like millions of other Americans caught
in a mismatch of state and federal rules, the
57-year-old hair stylist doesnt make
enough money to qualify for federal subsi-
dies to buy health insurance. If he earned
another $1,300 a year, the government
would pay the full cost. Instead, coverage
would cost about what he earns.
Its a Catch-22, said Mr. Maiden, an
uninsured diabetic. Without help, he said,
he must choose between paying the bills
and buying medicine.
The 2010 health law was meant to cover
people in Mr. Maidens income bracket by
expanding Medicaid to workers earning up
to the federal poverty lineabout $11,670
for a single person; more for families. Peo-
ple earning as much as four times the pov-
erty line$46,680 for a single personcan
receive federal subsidies.
But the Supreme Court in 2012 struck
down the laws requirement that states ex-
pand their Medicaid coverage. Republican
elected officials in 24 states, including Ala-
bama, declined the expansion, triggering a
coverage gap. Officials said an expansion
would add burdensome costs and, in some
cases, leave more people dependent on gov-
ernment.
The decision created a gap for Mr.
Maiden and others at the lowest income
levels who dont qualify for Medicaid cover-
age under varying state rules. The upshot is
that lower-income people in half the states
get no help, while better-off workers else-
where can buy insurance with taxpayer-
funded subsidies.
The federal government offered to pay
the full cost of the expansion for three
years, and then states would pay 10% of the
annual expansion costs. The Congressional
Budget Office estimates the current expan-
sion will cost the federal government nearly
$800 billion over the next 10 years.
Some GOP-led states are revisiting their
decision as complaints pile up over the cov-
erage gapand its consequences for busi-
nessesin such states as Utah and Florida.
The state senate in New Hampshire last
week reached a tentative deal to expand
Medicaid. In Virginia, newly elected Demo-
cratic Gov. Terry McAuliffe hopes to get
legislators to reverse his Republican prede-
cessors stance against expansion.
Lawmakers are also getting a push to
boost Medicaid rolls from hospitals that ex-
pected a vast new pool of paying customers
under the health-care law. Instead, the fail-
ure to expand Medicaid coverage by some
states not only adds fewer insured patients,
it also eliminates the payments hospitals
had long received to cover the cost of unin-
sured people they treat free.
Obama administration officials are tour-
ing some states that resisted the expansion,
including Texas. Expanding Medicaid will
significantly increase the number of pa-
tients with insurance, said Aaron Albright,
a spokesman for the Centers for Medicare
and Medicaid Services, the federal agency
overseeing the laws implementation. This
is a critical opportunity to help millions
more Americans gain access to quality, reli-
able health coverage.
For now, nearly five million people ages
18 to 64 get no financial help to buy cover-
age because of the gap, according to esti-
mates by the Kaiser Family Foundation.
BY CHRISTOPHER WEAVER
Birmingham, Ala.
IN DEPTH
Cal Morris is among the higher-wage earners in Alabama who qualify for federal subsidies. He and his wife make about $35,000 a year and qualify for a subsidy of as much as $439 a month.
Hair stylist Ernest Maiden, who earns about $200 a week, cant afford health insurance.
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THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 19
Hedge Funds Clash Over Argentine Debt
As Argentina struggles to stave
off a second debt default in 13 years,
two U.S. hedge funds are playing cen-
tral but opposing roles in the coun-
trys efforts to untangle itself from
the previous crisis.
The two firms, Gramercy Funds
Management LLC and Elliott Man-
agement Corp., have hundreds of
millions of dollars at stake as Argen-
tina tries to wrap up a saga that
dates back to its decision to give up
on its debt payments in December
2001. But the firms have taken con-
flicting tacks in trying to get their
money back.
Gramercy, which manages $3.9
billion, has been advising Argentina
behind the scenes on how to restore
its reputation with the international
community and regain access to capi-
tal markets.
In doing so, Gramercy has antag-
onized Elliott, a bigger firm that has
been doing battle with Argentina for
years.
Famous for its bare-knuckled tac-
tics with debtors, Elliott once tried to
seize the plane of Argentinas Presi-
dent Cristina Fernandez de Kirchner
during a fueling stop and impounded
an Argentine Navy vessel.
The clash between the two invest-
ment firms came to a head late last
month when Elliott called a compro-
mise proposal being pushed by Gra-
mercy beyond bizarre, entirely im-
practicable and a stunt in a letter
to Elliotts investors.
The skirmish shows how a sover-
eign default can have repercussions
for years to follow, with huge sums in
the balance. It also is a rare example
of two multibillion-dollar funds tak-
ing directly opposing strategies on a
big trade.
One has chosen overt coopera-
tion and the other has chosen overt
confrontation, says Anna Gelpern, a
professor at Georgetown Law and a
fellow at the Peter G. Peterson Insti-
tute for International Economics.
Im very curious to see how it
shakes out.
The dispute is rooted in Argen-
tinas December 2001 default on $80
billion of privately held debt. In 2005,
Argentina made bondholders an of-
fer: In exchange for the original
bonds on which it had defaulted, it
would issue them new, discounted
bonds coupled with warrants pegged
to its future growth. Worth about 27
cents on the dollar at the time, the
offer was accepted by bondholders
holding about 76% of the debt on
which Argentina defaulted. Elliott
and others held out for better terms,
while Argentina vowed not to extend
the offer again.
With $23.3 billion under manage-
ment, Elliott is run by 68-year-old
billionaire investor and Republican
Party donor Paul Singer.
Mrs. Kirchner has vowed never to
negotiate with Elliott and denounced
the firm as vultures.
An Elliott spokesman said the
firms position has been consistent
for years.
We look forward to Argentina
sitting down with its unpaid creditors
to forge a solution to the ongoing de-
fault, he said. Elliott encourages
other parties to urge the Argentine
government to negotiate directly
with us to ensure a successful resolu-
tion, he added.
Gramercy has played a less public
and more conciliatory role. There
have been sightings of Gramercy
founder Robert Koenigsberger at the
presidential palace in Buenos Aires.
Court documents show that El-
liotts claim against Argentina totals
about $2.5 billion, while Gramercys
exposure is at least $400 million.
Run by 48-year-old former invest-
ment banker Mr. Koenigsberger, Gra-
mercy became a major actor in the
story when it quietly approached Ar-
gentina in 2010 and persuaded it to
reopen the 2005 offer. By then, the
package of bonds and warrants Ar-
gentina had offered five years prior
had appreciated in value, as the
country returned to growth. But El-
liott, several other investment firms
and thousands of Italian pensioners
again declined the offer.
Since then, Gramercy has been
advising the Argentine government
on how to normalize its relations
with the international community.
Gramercy defends its efforts to
work with the Argentine govern-
ment. Elliott has the same access
to the Argentine government as Gra-
mercy does. Its just that they cant
reach common ground with it, says
a person familiar with Gramercys
thinking.
Gramercy has provoked Elliott at
times.
In a presentation to New Hamp-
shires retirement fund in September
2012, Gramercy outlined a multistep
plan to restore Argentinas standing
in capital markets while further iso-
lating the holdouts. The 47-page
slide show came to Elliotts attention
when it was posted on the Internet
by the conservative National Legal
and Policy Center, which said it ob-
tained it through a Freedom of Infor-
mation request.
Argentina has since followed
Gramercys playbook.
The hedge fund was able to
profit during that process by pur-
chasing some judgments issued
against Argentina by the World
Banks arbitration court at steep
discounts to their face value and
later settling them with the country
for more, people familiar with the
matter say.
While Gramercy has cozied up to
Argentina, Elliott has taken the coun-
try on in U.S. courts. In August, a fed-
eral appeals court in New York sided
with Elliott, ruling that Argentina
cant make interest payments on the
exchange bonds it issued in 2005 and
2010 unless it pays the minority
holdouts what it owes them on the
original bonds.
The ruling wont take effect until
the U.S. Supreme Court decides
whether to hear the case later this
year.
But it has rattled Gramercy: If it is
affirmed, Argentina could opt to de-
fault on the exchange bonds Gra-
mercy holds to avoid paying Elliott
and the other holdouts.
Gramercys response has been to
push the proposal that Elliott has
dismissed as unworkable. It would
have holders of the bonds Argentina
issued in 2005 and 2010 cede some
of their interest payments to the
holdouts.
In return, the holdouts would
drop their legal claims against Ar-
gentina. That would enable Mrs.
Kirchner to save face by not break-
ing her vow to never negotiate with
the holdouts.
As of two weeks ago, Gramercy
had rallied support from asset man-
agers who hold close to 30% of the
2005 and 2010 bonds, but it needs
85% for its proposal to have a chance.
BY JOHN CARREYROU
BUSINESS & FINANCE
Steep Slide
How many Argentine pesos one
U.S. dollar buys, weekly
The Wall Street Journal
Source: FactSet Note: As of Friday
0
8
6
4
2
pesos
2000 10
Scale is inverted to
show weakening peso
Rising Borrowing Costs Add to Risks for Chinese Firms
The double whammy of an eco-
nomic slowdown and rising borrow-
ing costs will cause problems for
companies already struggling with
sliding profit margins, Mr. Ding said.
Evergreen is in a particularly vul-
nerable position as Beijing moves to
contain the growth in debt. It is a pri-
vate company so it doesnt get the
preferential treatment, such as cheap
loans, that state-owned companies
receive. And it is in a sectorheavy
industrythat China is de-emphasiz-
ing as it tries to boost consumption
and reduce its dependence on invest-
ment as a source of economic growth.
The company, which promotes
its entrepreneurial passion, accu-
mulated its debt in a rapid expan-
sion that included acquiring MagIn-
dustries Corp., a Canadian mining
company that hopes to dig for pot-
ash in the Republic of Congo.
Chinas corporate debt has risen
more rapidly than its economy has
expanded over the past five years.
According to J.P. Morgan Chase &
Co., Chinas corporate debt was
124% of gross domestic product in
2012, up from 111% in 2010 and 92%
in 2008. J.P. Morgan economist Hai-
bin Zhu said the number likely rose
further in 2013.
Corporate debt in comparable
emerging economies is 40% to 70%
of GDP, while in the U.S. the figure
is 81%, according to J.P. Morgan.
While heavy debt loads can hurt
companies, there is also concern
about the impact on lenders. In
China, banks tend to hold loans on
their balance sheets and are the big-
gest buyers of corporate bonds.
High corporate debt is the big-
gest vulnerability for the Chinese fi-
nancial sector, followed by shadow
banking and local government debt
issues, Mr. Zhu said.
Continued from page 15 Rates have even risen for some
of Chinas most important borrow-
ers. China Development Bank, a
state-owned lender charged with
helping to develop the nations
economy, saw the rate it pays on
five-year bonds rise to 5.75% this
month from 4.97% in late October
and 4.16% in January 2013.
For the Export-Import Bank of
China, which helps finance the vast
flows of goods into and out of
China, the coupon rate on its three-
year bond rose to 5.44% in this
month from 4.80% in late October
and 3.62% in late February 2013.
The increase in borrowing costs
was driven in part by a rise in rates
on government bonds. The yield on
Chinas benchmark 10-year govern-
ment bond reached 4.75% in late No-
vember, the highest since January
2005 and up from 3.68% at the end
of 2012, according to WIND Info and
Thomson Reuters. The yield has
since fallen to 4.51%.
For short-term bonds like the
ones sold by Evergreen, the average
coupon rate on new issues now
stands around 6.26%, up from 4.38%
at the beginning of this year and
2.77% in 2005.
With a coupon of 9.90%, Ever-
greens latest debt issue is effectively
a junk, or speculative-grade, bond,
said Wang Ming, a partner at Shang-
hai Yaozhi Asset Management, which
oversees two billion yuan in assets.
If [Evergreens] bill coupon rate
rises above 10% next year, how will
they be able to honor repayment?
Mr. Wang said.
Evergreen declined to comment
on the interest rates it is paying or
its ability to repay its debt. The
bill sale was a market exercise. We
do everything according to the
rules of the market, said an official
at Evergreens finance department,
who declined to comment further.
Evergreen said in the prospectus
for its December bond issue that if
the shipbuilding industry stays weak
the companys profitability will
likely keep sliding, which will affect
the issuers repayment ability. Ev-
ergreens net profit dropped to
45.89 million yuan in the first nine
months of 2013 from 324.68 million
yuan a year earlier.
The slide has made Evergreens
debt situation worse. At the end of
2010, the firms earnings equaled
33% of its outstanding debt, while a
year later the figure fell to 12% of its
debt. At the end of 2012, Ever-
greens earnings equaled just 7% of
outstanding debt. Figures for 2013
arent publicly available.
No corporate bond in China has
ever failed to pay off, though some
issuers have been bailed out.
We keep guessing when we will
see the first bond default in China
and I think it might be possible to
see one or two cases this year, said
Yaozhis Mr. Wang. He declined to
comment on his own portfolio, but
advised investors to avoid bonds
issued by risk-prone small compa-
nies, especially those in sectors bur-
dened by overcapacity, such as the
shipping and solar industries.
Even if there are no defaults, if
many companies are forced to cut
spending to raise cash for debt re-
payment, that could cause the econ-
omy to slow.
Rising money-market rates and
bond yields have also translated into
higher rates on bank loans, which ac-
count for the bulk of corporate lend-
ing in China. Smaller, private firms
have been hit the hardest.
According to Lily Li, financial di-
rector of a medium-size, privately
owned pharmaceutical firm in
Shanghai, banks are now charging
at least 8% for a one-year loan, com-
pared with a little over 6% a year
ago. The cost of borrowing from
banks is becoming really unbearable
now. We wont die, but its really too
much pressure for us, Ms. Li said.
Jason Lee, who runs a Taiwan-
ese-owned electronics supplier
based in Jiangsu province, has kept
his costs low by borrowing in cur-
rencies such as the yen or by bor-
rowing from his bank in Taiwan, an
option not available to most Chinese
companies.
Ive been watching the credit
crunches very closely and I would
definitely lose money if I took yuan-
denominated loans, Mr. Lee said.
Amy Li
contributed to this article.
Chinese Companies Borrow More and Pay More for the Privilege.
Now Beijing is slowing credit
growth by driving up interest
rates that banks pay to one
another.....
Chinese corporate debt has risen
rapidly as banks boosted lending
to stimulate the economy during
the nancial crisis...
That has put a squeeze on
companies, which have to pay
higher interest rates even as
growth slows.
Sources: CEIC, J.P. Morgan estimate (corporate debt); WIND Info (seven-day repo rate and yields on corporate bills) The Wall Street Journal
Chinas corporate debt as percentage
of GDP
120
0
20
40
60
80
100
%
09 10 11 12 2008
Seven-day repo rate
12
0
2
4
6
8
10
%
14 2013
Yields on one-year AA-rated
corporate bills
12
0
2
4
6
8
10
%
14 2013
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 9
WORLD NEWS
Something New for Iranian TV: Music
TEHRANWhen Iranians tuned
into state television for a day of
special holiday programming re-
cently, they were treated to a re-
markable sightfor the Islamic Re-
public, anyway.
There, for all to see, was a per-
formance by Avaye Parsian, a tradi-
tional Persian music band. It was
the first time a full band had played
instruments on state TV since 1979,
when the Iranian revolution ushered
in an arch-conservative Islamist re-
gime that deemed such displays too
irreverent for television.
Before the day was out there was
more: The Pallett, a popular con-
temporary music band, appeared on
a late-night show called Radio 7 in
an equally daring way for a jazz or
rock band. They didnt actually play
instruments, but they did exuber-
antly pretend toair band style.
That appearance is becoming
something of a Beatles-on-Ed-Sulli-
van moment for contemporary mu-
sic in Irans tightly controlled public
sphere. Before the taped perform-
ance ended, The Palletts page on
Facebookamong the social media
banned in Iran but widely used by
everyone from the president on
downlit up with comments.
Reactions to the TV appearances
reflected the hopes many Iranians
feel after the election of a new pres-
ident, Hasan Rouhani, in June. He
succeeded the bellicose Mahmoud
Ahmadinejad. In subtle ways, Irani-
ans said Mr. Rouhanis government
has tried to ease the most zealous
enforcement of Islamic codes and
create space for more personal ex-
pression in public.
Some viewers were taken aback
by the musical broadcasts, others
thrilled.
I thought it was courageous,
said Nahal Mahzouf, 28, translator
and screenwriter.
Mr. Rouhani has yet to come
through on big-ticket campaign
promises such as releasing hundreds
of activists still detained after the
protests over disputed presidential
elections more than four years ago.
Two opposition presidential candi-
dates from that raceMir Hussain
Mousavi and Mehdi Karroubire-
main under house arrest. Nor has
the president managed to legalize
social-media sites such as Facebook
and Twitter as he talked about dur-
ing the electioneven though he is
an active user himself. But Mr. Rou-
hani has talked about expanding the
boundaries for personal freedoms.
That has created hope and support
from someanger, fear and opposi-
tion among others.
His new culture minister, Ali
Jannati, is the son of one of the Is-
lamic Republics most powerful
hard-line clerics. But he, nonethe-
less, is widely credited with helping
promote the new atmosphere of ten-
tative experimentation and cautious
envelope-pushing. Building on Mr.
Rouhanis small steps will be one
important measure of his ability to
maintain popular support while ne-
gotiating the removal of sanctions
in return for reining in Irans nu-
clear program.
Members of Avaye Parsian and
The Pallett said they never intended
to create a fuss, much less a Pussy
Riot-style protest.
Saman Alipour, the 25-year-old
founder of Avaye Parsian, said the
band wasnt even aware they would
be shown on television until their
live performance was over. Mr. Ali-
pour, who plays the Tar, a strummed
instrument featured mainly in tradi-
tional Persian music, said they had
assumed it would be the usual tele-
vision appearance where they
played in the studio while nature
photos and abstract designs are
shown on TV.
The producer who decided to
show Avaye Parsian declined to
comment. In the furor of headlines
and online debate after the show, he
was quoted in one online outlet say-
ing he showed the band by mistake.
We received both positive and
negative feedback, said Mr. Alipour.
But were hopeful. He said the
band, which he formed when he was
16 years old, has received a raft of
new invitations to play.
Mansour Zabatan, the 42-year-
old producer of Radio 7, where The
Pallett made its splash that day, said
having the group pretend to play in-
struments was an attempt to stay
within the rules yet still give young
fans what they want.
That is in line with the shows
mission, as he sees it, of bridging
massive gulfs between young and
old, conservative and liberal, sacred
and profane.
We want to help the two sides
talk to each other, he said.
He worked with the band to
make the appearance more about
having fun with the music than
making fun of restrictions on instru-
ments, he said.
BY BILL SPINDLE
Pallett band members pretend to play their instruments on Iranian state TV as the ban on musical performances eases.
R
a
d
i
o
7
Homs Tension Unsettles Talks
Syrias government and opposi-
tion refused to meet face-to-face on
Monday as weekend attacks on hu-
manitarian aid convoys overshad-
owed efforts to restart peace talks
in Geneva.
The two delegations met sepa-
rately Monday with United Nations
mediator Lakhdar Brahimi, who
shuttled between them at the start
of the second round of talks. In the
first round, the two parties met in
the same room in hopes that this
would build trust. But the constant
violence at home was having a chill-
ing effect on the diplomacy.
Mr. Brahimi was seeking to re-
kindle dialogue a day after U.N. con-
voys came under fire while deliver-
ing aid to thousands of Syrians who
have been trapped for more than 18
months by a government siege of
the historic old quarter of Homs,
Syrias third-largest city.
U.N. convoys rolled through
bursts of mortar shells and sniper
bulletsattacks that each side
blamed on the other. Valerie Amos,
who heads the U.N.s global relief ef-
forts, said 11 people have been killed
since the operation began.
U.N. officials in Homs said a total
of 1,160 people have been evacuated
from the old city in the four days
since the aid operation began on
Friday. On Monday alone, 460 were
brought out, they said.
Regime representatives have
blamed extremist rebels for the at-
tacks on the humanitarian convoys,
claiming they didnt want civilians to
leave. The regime has maintained that
the rebels are holding civilians as hu-
man shields, but U.N. officials who en-
tered the besieged area said they saw
no evidence to back up that claim.
We cannot talk about a real and
credible peace process before the
killing and terrorism stops, Syrian
Deputy Foreign Minister Faisal al
Mekdad told reporters on the steps
of the U.N. offices in Geneva.
Opposition delegate Louay Safi
alleged the regime was behind the
attacks on U.N. convoys.
It is not acceptable that the re-
gime will send its own delegation to
talk peace while it is killing our peo-
ple in Syria, he said.
Some U.N. employees and an aid
worker said forces loyal to President
Bashar al-Assads regime were be-
hind the attacks, though the U.N. of-
ficially didnt cast blame.
Ms. Amos said the sides agreed
to extend a partial cease-fire in
Homs for 72 hours to provide more
aid and bring out more people.
She said it was absolutely unac-
ceptable that U.N. and Syrian Arab
Red Crescent workers were deliber-
ately targeted during the operation.
I am deeply disappointed that
the parties were unable to hold
their cease-fire in Homs, she said.
This led to 11 people losing their
lives needlessly as the operations
were carried out.
The focus on Syrias besieged
communities has drawn attention
away from what was supposed to be
front and center at the second
round of talks: How to transition
away from Mr. Assads authoritarian
rule. With the talks losing momen-
tum, Russian Deputy Foreign Minis-
ter Mikhail Bogdanov proposed
broadening the conference to di-
rectly involve representatives of
Moscow and Washington who have
so far hovered on the sidelines.
Moscow, a major Assad regime
ally, is under pressure to show the
diplomacy isnt a waste of time.
Mr. Brahimis office said he
planned to meet with U.S. and Rus-
sian officials Friday. A U.S. official
welcomed the Russian proposal but
cautioned that all sides needed to
focus the talks on political transi-
tion. Many opposition members and
their Western backers fear the talks
are designed to buy the Assad re-
gime time to use siege tactics to
force rebels out of blockaded areas.
Last week, a resolution drafted
in part by Western powers was sub-
mitted to the five permanent mem-
bers of the Security Council, de-
manding all parties allow
humanitarian access to besieged ar-
eas. But Russia, which has veto
power in the council, rejected the
proposal, saying pragmatic negotia-
tions with the Syrian parties, rather
than pressure from the Council, is
the best way to get aid in.
French Foreign Minister Laurent
Fabius renewed the push for the
draft resolution, backed by the U.S.
We call for much stronger ac-
tion on the humanitarian field and
that cities be opened to medicines
and food, Mr. Fabius said. It is ab-
solutely scandalous that we are talk-
ing for so long while the population
is being starved.
Joe Lauria at the United Nations
and Inti Landauro in Paris
contributed to this article.
By Stacy Meichtry in
Geneva and Sam Dagher in
Homs, Syria
More than 1,000 have
been evacuated and 11
killed in the aid operation.
20 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
China Cements Role in the Gold Market
BEIJINGChinas output and con-
sumption of gold rose to records last
year, entrenching the countrys posi-
tion as the worlds largest producer
of the metal and an opportunistic
buyer of bargain-priced commodities.
The unprecedented level of Chi-
nese purchases came as the price of
the precious metal tumbled 28% to
end the year at $1,205.99 an ounce,
its lowest since September 2010, ac-
cording to data from investment ser-
vice BullionVault.
Chinese consumers bought 1,176.4
metric tons of gold in 2013, 41% more
than a year earlier, the China Gold
Association said in written com-
ments Monday. It is the first time
Chinese consumption has crossed
1,000 tons, the state-backed group
said.
By far the largest chunk of de-
mand came from gold jewelry, the
Chinese markets traditional main-
stay purchase, with consumption ris-
ing 43% from a year earlier to 716.5
tons.
Meanwhile, consumption of gold
barsusually regarded as a pure in-
vestment productrose 57% to 375.7
tons, the association said, which
could mark the beginning of a shift
in Chinese preferences.
This was a large magnitude of
increase for gold bars, and it might
show the Chinese peoples strong de-
sire for gold as an investment, said
Everbright Futures gold analyst Hu
Yanyan.
Middle-aged Chinese investors,
particularly female shoppers, took
advantage of low gold prices to snap
up bargains throughout 2013, espe-
cially during the summer. These
older ladies, affectionately called
damas, drove gold prices up 4% for
a week in August, although they
didnt succeed in reversing the global
markets broader slump, analysts
said.
Investors sold gold last year amid
concerns that the U.S. Federal Re-
serve would scale back stimulus mea-
sures, and tepid global inflation
didnt justify holding the precious
metal. Gold is seen as a hedge
against inflationary risks.
Chinese consumers account for
about a quarter of global gold de-
mand, according to the China Gold
Association.
But analysts say the bulk of its
buyers are budget-conscious shop-
pers who buy enough to ride on weak
prices but not enough to underpin a
prolonged price rise.
Local prices usually take their
cues from U.S. and European mar-
kets.
Still, Chinas rising purchases
have persuaded policy makers that
the country could gain greater price-
setting power in gold markets, which
it has pursued by widening trading
hours for gold and giving commercial
banks greater ability to trade.
Analysts say Chinese consump-
tion this year is likely to keep rising
amid weak global gold prices.
The U.S. dollar is likely to rise
more this year, which means that
gold prices will keep falling, Ever-
brights Ms. Hu said. Gold prices usu-
ally have an inverse relationship with
the dollar, as a substitute investment.
China also notched a record for
gold output in 2013, with production
increasing 6.2% from 2012 to 428.16
tons, the association said. China has
been the worlds largest gold pro-
ducer for the past seven years.
The World Gold Council will re-
lease global consumption data for
2013 later this week, which analysts
say could show China surpassing In-
dia as the worlds top consumer of
the precious metal.
Council data showed Indias con-
sumption in 2012 reaching 864.2
tons. The council said in November
that New Delhis imposition of higher
import taxes on gold, designed to
rein in its current-account deficit,
was likely to have the intended ef-
fect of substantially suppressing de-
mand.
But the strength of Indian de-
mand in the first half of the year
means that full-year consumer de-
mand is still on track to narrowly ex-
ceed the 2012 total, the council said.
BY CHUIN-WEI YAP
Chinas consumption of gold bars rose 57% in 2013, which could mark the beginning of a shift in Chinese preferences.
R
e
u
t
e
r
s
BUSINESS & FINANCE
Going for Gold
China's rising consumption of the
precious metal
The Wall Street Journal
Source: China Gold Association
1,200
0
200
400
600
800
1,000
metric tons
2002 04 06 08 10 1213
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(2I2) 20II824
8 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
WORLD NEWS
OECD Is Upbeat on First-Half Growth
Growth is set to pick up in most
large developed economies during
the first half of 2014 and to stabilize
in most large developing economies,
with the exception of India, accord-
ing to leading indicators published
Monday by the Organization for
Economic Cooperation and Develop-
ment.
The leading indicators suggest
that a rebalancing of global eco-
nomic growth is under way, with
large developing economies playing
less of a key role than they did in
the years following the onset of fi-
nancial crisis of 2008.
But with growth in developed
economies still modest and vulnera-
ble to setbacks, the stabilization of
growth rates at relatively weak lev-
els in large developing countries has
led to concerns about the strength
of the global economy as a whole
this year.
Composite leading indica-
torscontinue to show signs of an
improving economic outlook in most
advanced economies, the OECD
said.
The indicators are designed to
provide early signals of turning
points between the expansion and
slowdown of economic activity, and
are based on a wide variety of data
series that have a history of signal-
ing changes in activity.
According to the indicators
which are based on information
available in Decembereconomic
growth is set to pick up in the U.S.,
U.K. and Japan, and is also likely to
accelerate in the euro zone.
While the currency areas recov-
ery will continue to be led by Ger-
many, there are also signs that eco-
nomic growth is set to pick up in
France and Italy.
The leading indicator for France
rose to 100.5 in December from
100.3 in November, while the lead-
ing indicator for Italy rose to 101.3
from 101.2.
However, there was little sign of
a pickup in growth in either country
in figures for industrial production
released Monday.
Italys industrial output fell 0.9%
from November in seasonally ad-
justed terms, reversing three
months of gains, national statistics
institute Istat said, while Frances
statistics agency said output fell by
0.3% in December.
A reading of 100 for a leading in-
dicator means economic growth is
set to be at the trend rate, which it-
self varies widely among large econ-
omies.
Chinas trend rate of growth is
much higher than Germanys, for ex-
ample.
The leading indicator for the
OECDs 34 members rose to 100.9
from 100.8 in November.
While the leading indicators for
the Group of Seven leading nations
were all above 100 in December, the
indicators for large developing
countries were all stable below that
mark, with the exception of Indias,
which fell further below its trend
level.
The prospect of a period of rela-
tively muted growth, coupled with
the expectation that central banks
in developed economies will begin
to raise their interest rates in com-
ing years, has led to an outflow of
capital from a number of developing
countries in recent months.
In response, some central banks
in developing countries have raised
their interest rates to prevent an
overly sharp depreciation in their
currencies.
Many economists believe it will
take some time to restore growth
rates in developing countries to pre-
viously high levels, since that will
require politically difficult policy
changes.
The recent slowdown in the ma-
joreconomies has been driven
largely by structural factors, mean-
ing that a new wave of reforms is
needed if they are to regain their
vigor, said Neil Shearing, an econo-
mist at Capital Economics.
But, as things stand, the likeli-
hood of a big shift in policy over the
coming years looks slim. So far, only
China has announced the type of
comprehensive reform package that
is now needed, he added.
BY PAUL HANNON
Rebalancing
Index of leading economic indicators
The Wall Street Journal
Source: Organization for Economic Cooperation
and Development
102
96
98
100
13 2012
OECD: 100.9
India: 97.0
Kabul Car Bomb Kills Two
KABULThe Afghan militant
group Hezb-e-Islami carried out a
car-bomb suicide attack in Kabul on
Monday, killing two contractors for
the U.S.-led military coalition and
wounding several Afghan civilians.
While most recent attacks in the
Afghan capital have been the work
of the Taliban, Hezb-e-Islamia
separate group led by warlord Gul-
buddin Hekmatyarclaimed respon-
sibility for this one.
High-profile attacks by the group
are rare in Kabul, where many Hezb-
e-Islami members serve in senior
positions in the Afghan government.
But a militant wing of the organiza-
tion still pursues attacks against
foreign forces.
Haroon Zarghun, a spokesman
for Hezb-e-Islami, said the attack
was carried out by a would-be mar-
tyr named Hakimullah, who targeted
a U.S. convoy.
Mr. Zarghun said the attacker
was looking for an opportunity to
target the convoy, and not harm ci-
vilians. He added that: We only
carry martyrdom-seeking attacks on
foreigners. We dont conduct such
attacks against Afghan police, army,
and civilians.
Eyewitnesses said the blast oc-
curred around 2:30 p.m. near Pul-e
Charkhi prison, a facility in eastern
Kabul where prominent insurgents
and other detainees are incarcer-
ated. The force of the blast shat-
tered windows and scattered
twisted wreckage around the resi-
dential neighborhood.
Obaidullah, the owner of a mod-
est shop near the scene, said the ex-
plosion blew out his storefront win-
dows and knocked all of the goods
off his shelves.
The bomber was in a Toyota Co-
rolla that hit two armored SUVs of
the foreigners, said Mr. Obaidullah,
who goes by one name. I saw a
child in the nearby house who was
wounded.
The U.S.-led International Secu-
rity Assistance Force said two con-
tractors for the coalition were
killed. An Afghan security official on
the scene told reporters that seven
Afghan civilians were wounded.
Insurgents have targeted Kabul
several times in recent weeks with
suicide attacks as the country pre-
pares for presidential elections in
April. Hezb-e-Islami, however, also
has been engaged in peace talks
with President Hamid Karzais gov-
ernment.
Mr. Karzais chief of staff, Abdul
Karim Khurram, and several provin-
cial governors have been affiliated
with Hezb-e-Islami and Mr. Hekmat-
yar in the past. One of the 11 candi-
dates running for president in April,
Qutbuddin Hilal, is a Hezb-e-Islami
member, too.
In September 2012, Hezb-e Is-
lami claimed responsibility for a
suicide bombing that struck a mini-
van packed with employees of an
American aviation firm working for
the U.S. government.
That bombing, which killed 12
people, was one of the deadliest tar-
geting foreign civilians in Afghani-
stan before a January attack on a
Kabul restaurant that killed 21 peo-
ple, including senior representatives
of international groups.
Security has been stepped up in
Kabul over the past week as candi-
dates launched their campaigns for
president. The area around Pul-e
Charkhi had a heavy presence of Af-
ghan troops.
Mondays attack came amid a
standoff between the U.S. and Afghan
governments over a security deal
that would pave the way for a U.S.-
led force to remain in Afghanistan af-
ter 2014 to conduct limited training
and counterterrorism missions.
Mr. Karzai has thus far declined
to sign the deal, saying Washington
must meet his conditions, including
launching peace talks in earnest
with the Taliban.
Elsewhere in Afghanistan, local
officials confirmed an aircraft crash
in Deh Mirdad district of Wardak
province, a mountainous area that
borders east-central Ghazni prov-
ince. Coalition officials said they
were aware of the reports, but said
there were no reports of insurgent
activity in the area.
BY NATHAN HODGE
AND HABIB KHAN TOTAKHIL
NATO soldiers inspecting the scene on Monday in Kabul after a suicide car bomber targeted a NATO convoy.
E
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o
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e
a
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P
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e
s
s
p
h
o
t
o
A
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e
n
c
y
China Making Slow Start
To 2014, Say Economists
The first data of 2014, along with
projections by economists, suggest
the slowdown in Chinas economy
that began in December continued
into the new year.
China data buffs have to make do
with a meager crop of economic sta-
tistics at the start of the year. Most
economic indicators suffer from dis-
tortion around the Lunar New Year
holiday, which falls in January some
years and in February in others.
To avoid misleading signals,
China combines much of the data
for January and February, so the
numbers dont come out until
March. But most of the information
that is available points in one direc-
tion: down.
Purchasing managers indexes re-
leased by the Chinese government
and HSBC Holdings PLC suggest
that both manufacturing and serv-
ices lost momentum in January.
HSBCs manufacturing PMI slipped
into contractionary territory for the
first time since July, and the gov-
ernments equivalent indexwhile
positivewas only slightly stronger.
The weakness came in a month
when world markets tumbled, upset
by the U.S. Federal Reserves moves
to pare back its monetary easing, as
well as by weak data coming out of
China and the U.S. A currency deval-
uation in Argentina and a political
crackdown in Turkey also helped
spoil investors appetite for emerg-
ing-market currencies and stocks.
Chinas export figures for Janu-
ary, which are due out on Wednes-
day, will probably show a sharp
slowdown. But that isnt because of
a sudden drop-off in shipments as
much as it is because of a bloated
number in January of last year,
when the tally was likely bulked up
by overreporting.
With that distortion in mind, the
median forecast of 11 economists
surveyed by The Wall Street Journal
is for year-over-year export growth
of just 0.1%, after a 4.3% rise in De-
cember. Imports are also expected
to show measly 3% growth, down
from 8.3% a month before, leaving
Chinas hefty trade surplus intact.
Inflation probably ticked down,
with a year-over-year climb in the
consumer-price index of just 2.3%,
according to the Journals survey,
down from 2.5% in December.
Food prices climbed as usual
over the holiday period, but the ef-
fect was mild. The Agricultural
Wholesale Price Index for January
2014 came in 1.2% last years level.
Banks very likely got off to a
cracking start to the year, with new
lending quotas setting off the tradi-
tional January credit binge. They
probably made a net 1.1 trillion yuan
($180 billion) of new local currency
loans over the month, according to
the survey. That is way ahead of De-
cembers 481 billion yuan figure, but
is a very modest rise from 1.07 tril-
lion yuan in January 2013.
That would reflect changing pol-
icy, with market interest rates rising
and regulators curbing a lending
splurge that has kept Chinas econ-
omy humming while other countries
had years of weak growth.
Economists now say that debt
load threatens to overwhelm the fi-
nancial system if China doesnt find
a way to deal with it.
The central bank has been tight-
ening liquidity in hopes of bringing
down lending growth gently. Inter-
bank interest rates, which are af-
fected by the central banks regular
interventions in the money market
as well as banks demand for liquid-
ity, have been volatile for months.
The seven-day repo ratea key
barometer of lending conditions
peaked at 6.58% ahead of the holi-
day, as people withdrew cash for
gifts and travel and banks scram-
bled to meet the demand. Still, that
was tame compared with the severe
liquidity shortages that spooked
markets last year, when the Peoples
Bank of China was slower to step in.
The PBOC seems to have
learned from its recent lessons and
acted more quickly to provide li-
quidity support where necessary,
and improved its communications
with the market, said Harrison Hu,
an economist at UBS.
If China is to come through the
Feds tapering and the recent mar-
ket jitters in good shape, regulators
will have to keep up that balancing
actpushing up interest rates in the
market, without triggering the kind
of crisis they are trying to avoid.
BY RICHARD SILK
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 21
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Andfs. Japo JP EQ AND 02/07 JPY 647.32 -7.2 22.1 24.2
Andfs. Plus Dollars US BA AND 10/22 USD 9.66 2.3 3.0 6.2
Andfs. RF Dolars US BD AND 02/07 USD 12.20 0.4 -0.2 1.4
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Andorfons EU BD AND 02/07 EUR 15.76 0.6 3.1 3.0
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Citadele Eastern Europ Bal EU BD LVA 02/07 EUR 16.52 -0.4 1.2 6.7
Citadele Eastern Europ Bd EU BD LVA 02/07 USD 20.31 -0.4 1.9 6.6
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LuxPro-Dragon P AS EQ LUX 07/20 EUR 140.29 -8.8 4.4 7.0
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Wall Street has
many sins but is
Detroits historic
bankruptcy one of
them? Motor Citys
current leaders
seem to think so.
Some clear battle lines are
emerging in the fight over the
spoils of the largest municipal
bankruptcy in the U.S. Among
them: a tug of war between
Detroits emergency manager
Kevyn Orr and investors, insurers
and banks over two debt deals
dating back to 2005 and 2006 that
shored up the citys pension fund.
In a lawsuit filed late last
month, Mr. Orrs office called the
deals structure a sham and claimed
it was designed to circumvent rules
over Detroits indebtedness.
The banks, which were led by
UBS AG, persuaded the city to do
the deals and earned generous
fees for transactions that
contributed to Detroits downfall,
according to the document. A
series of swaps linked to the
debt sales led to further,
disastrous financial
consequences for the city, the
suit alleges.
UBS, the lead bank on both
deals, declined to comment. Siebert
Brandford Shank & Co., the bank
that co-led the 2006 transaction,
said in a written response: At that
time the transaction was fully and
completely reviewed, vetted and
approved by multiple experts and
stakeholders.
The banks arent accused of
wrongdoing, but the suit asks the
judge to invalidate the transactions,
which raised around $1.4 billion,
and cancel all outstanding interest
payments. Mr. Orrs office didnt
reply to requests for comment.
The dispute is relevant for two
reasons. First, investors and banks
are worried about being penalized
in favor of pensioners in the
bankruptcy process. And recent
comments by Michigan Gov. Rick
Snyder that taxpayer money
wouldnt be used to bail out Wall
Street have deepened what Amy
Laskey, a managing director at
Fitch Ratings Inc., in a recent note
called an us-versus-them
mentality. Mr. Snyders aides
dismiss the criticism. But the way
Wall Street is perceived to have
behaved in those debt sales will
go a long way to establishing or
dispelling such views.
More generally, the lawsuit
describes a type of financial
innovationnot unlike exotic
mortgage products and complex
derivativesthat hit banks
reputations during the 2008
crisis. So the case could be viewed
as either an example of financial
groups hoodwinking unsuspecting
clients into doing dubious deals or
a sign of the unfair blaming of
banks for transactions between
consenting adults.
Here is what isnt disputed: In
2005, facing a cash crunch that
crimped its ability to fund its
pension plans, Detroit sold
$1.44 billion in certificates of
participation, or COPs, to
investors. The sums didnt add to
Detroits indebtedness because of
a web of companies and trusts
that were interposed between the
city and the final payments.
For Mr. Orr, that was just
smoke and mirrors, because the
money to pay interest on the
COPs ultimately came from the
citys coffers. The bond insurer
Financial Guaranty Insurance Co.
disagrees. FGIC insured around
$1.1 billion of those COPs and will
be on the hook if the deals are
canceled. Derek Donnelly, a senior
managing director, told me that
the lawsuit presents a completely
flawed view of the deal.
The transaction didnt really
saddle the city with any
incremental financial obligations,
he said. In fact, Mr. Donnelly
estimates the COPs saved Detroit
about $500 million in financing
costs.
COPs are a common form of
municipal financing but they
normally are backed by revenue
from the lease of equipment or
facilities such as buses or a gas
plant, which would be used to pay
interest. What is unusual in
Detroits case is that COPs were
used to top up the pension system
and their interest was paid out of
city funds.
Does that mean the banks
behaved badly? Maybe not. A look
at the deals documents shows
that they were scrubbed by all
three major credit-rating
companies and two independent
financial advisers for the city:
Robert W. Baird & Co. and Scott
Balice Strategies LLC. R.W. Baird
didnt reply to a request for
comment and PFM Group, which
has since acquired Scott Balice
Strategies, declined to comment.
The fact that the deals were
vetted and reviewed by so many
external parties suggests the banks
werent a major driver of Detroits
bankruptcy and is something the
court will have to consider when
making a decision on the lawsuit.
SBS, however, added to the
controversy by hiring Sean
Werdlow, Detroits finance
director, in November 2005, a few
months after the first COP deal.
There is no suggestion of
wrongdoing, but the lawsuit does
highlight Mr. Werdlows job swap.
A spokesman for SBS said the
bank played a minor role in the
2005 deal, earning just $134,000
in fees. He added that Mr.
Werdlow recused himself from
any dealings with Detroit for a
year after joining SBS.
Even if Wall Street had only a
bit part in Detroits drama, it still
manages to hog the limelight.
Francesco Guerrera is The Wall
Street Journals financial editor.
Write to him at: currentac-
count@wsj.com and follow him on
Twitter: @guerreraf72
Wall Street Takes Spotlight in Motor City
[ Current Account ]
BY FRANCESCO GUERRERA
Some clear battle lines
are emerging in the fight
over Detroits bankruptcy.
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 7
U.S. NEWS
Fed Nominees Tenure
At Citi Is Grist for Senate
The nominee for Fed vice chair-
man is likely to face questions at his
confirmation hearing about whether
he would be a tough regulator of big
banks after earning several million
dollars at one.
While senators of both parties ex-
pect Stanley Fischer to be confirmed,
some Senate Banking Committee
members who will be grilling him
this month say they would like to
know more about his three years as
vice chairman of Citigroup Inc.,
which the Federal Reserve super-
vises.
We should examine what Mr.
Fischer learned from his time on
Wall Street and how he would apply
this experience to his new job, said
Sen. Sherrod Brown, an Ohio Demo-
crat. Some of the best watchdogs
have come from industry, while oth-
ers have been lap dogs. We must do
all that we can to ensure that our
regulators will work to protect the
public and break Washingtons long-
held bias towards Wall Street.
A spokeswoman for Sen. Eliza-
beth Warren said the Massachusetts
Democrat will look closely at the re-
cords of all of the presidents nomi-
nees for the Fed and will have a large
number of questions for themin-
cluding about how their prior experi-
ences might inform their views on
bank regulation and the risk too-big-
to-fail banks pose to our economy.
White House spokesman Eric
Schultz responded, Stanley Fischer
has spent the past four decades
managing economic policy in posts
at the World Bank, the Bank of Is-
rael, the [International Monetary
Fund], Citi, and the pre-eminent aca-
demic institutions in the world. He is
a leading thinker of this generation
and will bring experience, judgment
and deep knowledge of the financial
system to the Federal Reserve.
Mr. Fischer worked at Citi from
2002 to 2005, a period when the
bank profited greatly from financial
activities related to the credit and
housing booms that ended with the
financial crisis. From February 2004
to April 2005 he led the banks Pub-
lic Sector Group, which gives finan-
cial, technological and regulatory ad-
vice to governments. He was also
chairman of the banks Country Risk
Committee, a group of senior Citi of-
ficials who assess the potential pit-
falls of the firms international in-
vestments, determining where to
invest and where not to. And he was
president of Citigroup International,
which then managed the firms over-
seas businesses.
He said in a January letter to the
Feds assistant general counsel that
he would take several steps to avoid
any actual or apparent conflict of in-
terest if he was confirmed for the
Fed job. He said he would sell his
holdings in several financial firms,
including asset manager BlackRock
Inc. and American Express Co., and
in the Citigroup Employees Fund of
Funds I LP. He also said he wouldnt
participate in any Fed matter with a
direct and predictable effect on my
financial interests without a written
waiver.
Mr. Fischer is the latest in a
string of former Citi officials tapped
for top jobs by the Obama adminis-
tration, including Treasury Secretary
Jack Lew and U.S. Trade Representa-
tive Michael Froman. The Treasury
Department said last week that it
would hire Citigroup economist
Nathan Sheets to advise Mr. Lew.
Former Obama economic adviser
Lawrence Summers became a Citi-
group consultant after leaving the
administration.
Mr. Summerss work for financial
firms helped fuel opposition to his
candidacy for the top Fed job last
summer, but Citi experience wasnt a
major hurdle in the confirmation of
Mr. Lew or Mr. Froman to their
posts.
Mr. Fischer said in a 2011 inter-
view with a Massachusetts Institute
of Technology publication that he
was drawn to Citi years ago by Rob-
ert Rubin, who had been a member
of its board. They had worked to-
gether battling a series of global fi-
nancial crises during the Clinton ad-
ministration, when Mr. Rubin was
Treasury secretary and Mr. Fischer
was the IMFs first deputy managing
director.
At Citi, Mr. Fischer reported di-
rectly to Mr. Rubin, according to an
offer letter filed with the Securities
and Exchange Commission. The let-
ter shows Mr. Fischer was to receive
[twice-monthly] salary payments of
$20,833, annualized to $500,000. In
addition, he would be a paid a sign-
ing bonus of another half million
dollars, as well as $2 million in
yearly bonuses, the letter said.
Mr. Fischer won praise from Citi
colleagues who respected his wide-
ranging expertise and approachable
manner. Bob Annibale, Citis global
director of community development
and microfinance, said Mr. Fischer,
who was born in what is now Zambia,
took the time to be involved in some
of the banks programs targeting
some of the worlds poorest coun-
tries.
He spent his life somewhere
where the vast majority of people
dont have access to basic financial
services. Hes very committed and fo-
cused on that last mile, Mr. Annibale
said.
Shayndi Raice
contributed to this article.
BY PEDRO NICOLACI DA COSTA
Stanley Fischer, who served for three years as vice chairman of Citigroup, was nominated as vice chairman of the Fed.
A
g
e
n
c
e
F
r
a
n
c
e
-
P
r
e
s
s
e
/
G
e
t
t
y
I
m
a
g
e
s
LawmakersPressure
VeteransDepartment
Congress is poised to tighten its
leash on the Department of Veterans
Affairs over its response to what law-
makers say are management and
medical errors, just as VA facilities
are flooded with a new generation of
injured troops.
Top members of congressional
committees that oversee the VA are
frustrated with the agency in the
wake of incidents ranging from a pa-
tients death after an altercation with
a nursing assistant in Louisiana to a
deadly outbreak of Legionnaires dis-
ease in Pennsylvania. Lawmakers say
these episodes reflect a lack of ac-
countability at the 1,700 VA hospitals,
clinics and other facilities.
Congress now appears likely to
impose legislative penalties. The
House last week unanimously passed
a bill that included a five-year ban on
bonuses for senior VA executives.
The Senate is considering less severe
restrictions on performance pay. The
chairman of the House Veterans Af-
fairs Committee, Rep. Jeff Miller (R.,
Fla.), says he plans to introduce a
measure this week that would make
it easier to fire or demote executives
whose performance falls short.
VA needs to more directly and
explicitly measure each leaders con-
tribution, said Rep. Mike Michaud of
Maine, the top Democrat on the
House VA committee.
The VA cares for 8.75 million pa-
tients, from nonagenarian World War
II veterans to teenagers with brain
injuries from Afghanistan. Vietnam-
era vets are now heavy VA users.
In some ways, the agency is polit-
ically inviolate. Since the 2000 fiscal
year, its budget has tripled to $148
billion in the current fiscal year, with
no serious talk of cuts despite gen-
eral concern about government defi-
cits. But that windfall and the influx
of wounded vets have also drawn in-
creased congressional scrutiny.
The dispute has taken a testy
turn, with Mr. Miller and VA Secre-
tary Eric Shinseki swapping com-
ments about VA accountability prac-
tices. In a Jan. 31 letter to Mr. Miller,
the secretary defended the agencys
bonus and dismissal practices, even
going so far as to explain bonuses
given to particular employees. Re-
sults, or lack thereof, for which em-
ployees and executives are responsi-
ble and accountable, are factors when
evaluating performance, wrote Mr.
Shinseki, a former Army general.
Mr. Miller shot back Friday: Its
becoming more apparent by the day
that there seems to be just two types
of people who think VA is properly
holding its leaders accountable: VA
executives who have received huge
performance bonuses year after year
despite failing in their jobs and those
who work in VAs central office.
Lawmakers complain the VA
hasnt responded to more than 100
congressional requests for informa-
tion, some more than a year old. It
almost feels as if they see their job as
holding back information, said Rep.
Mike Coffman (R., Colo.), who is
pushing to give the Army Corps of
Engineers oversight of three troubled
VA construction projects.
VA officials say they have an-
swered more than 85,000 informa-
tion requests in the past four years.
They say the agency has spent less
on bonuses than allowed by law.
Any adverse incident for a vet-
eran within our care is one too
many, said VA spokesman Drew
Brookie. When an incident occurs in
our system we aggressively identify,
correct and work to prevent addi-
tional risks.
Sen. Bernie Sanders, a Vermont
independent who heads the Senate
VA oversight committee and is one of
the agencys biggest allies on Capitol
Hill, says most veterans are satisfied
with VA care. However, he expressed
some concern about the VAs re-
sponse when things go wrong. When
people are doing a bad job, we dont
want them staying in the job; when
they do a good job, we want to see
them rewarded, Mr. Sanders said.
Im not going to tell you thats al-
ways the case with the VA.
Among the incidents that have
become friction points:
A nursing assistant allegedly
killed a 70-year-old patient in an al-
tercation at a VA hospital in Alexan-
dria, La. VA officials deemed the
death accidental. The local coroner
thought otherwise and took steps
that led to manslaughter charges.
The nursing assistant pleaded not
guilty. His attorney didnt respond to
requests for comment. The VA said it
couldnt comment.
The VA inspector general said
the VA system in Pittsburgh didnt
follow standard procedures in man-
aging plumbing, leading to an out-
break of Legionnaires disease that
sickened at least 21 and contributed
to the death of five. In September,
the commission that accredits hospi-
tals said the Pittsburgh VA hadnt ad-
equately mapped its plumbing sys-
tem to identify areas at high risk. The
VA says Pittsburghs water-safety
regimen is now one of the most rig-
orous in the industry. The hospital
director has received performance
bonuses and remains in her job. The
VA had no further comment, and a
representative for the facility didnt
respond to requests for comment.
The inspector general found the
director of the Augusta, Ga., VA hos-
pital guilty of abuse of authority
for having hired a favored congres-
sional aide. Other problems beset the
hospital: It received only a condi-
tional accreditation from its inspec-
tion authority, and a backlog of gas-
trointestinal exams led to worsened
sickness in at least seven patients.
Three of those have since died, per-
haps as a result of those aggravated
illnesses, according to the VAs Mr.
Brookie. The director was briefly re-
moved from her post but was soon
put in charge of another VA hospital.
She retired in the fall and didnt re-
spond to requests for comment.
BY MICHAEL M. PHILLIPS
AND BEN KESLING
Paying the Bill
Veterans Affairs total spending,
including medical care and military
pensions, since 2000
The Wall Street Journal
Source: White House Ofce
of Management and Budget
Note: For scal years ending Sept. 30
$140
0
20
40
60
80
100
120
billion
2000 02 04 06 08 10 12 14
Est. $148.2
We should examine what
Mr. Fischer learned from
his time on Wall Street,
said Sen. Sherrod Brown,
an Ohio Democrat.
22 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
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Yellen in the Wings
European and U.S. stocks were
little changed Monday as investors
continued to digest Fridays disap-
pointing U.S. jobs report and looked
ahead to testimony this week from
Federal Reserve Chairwoman Janet
Yellen.
The Stoxx Europe 600 index
closed up less than 0.1% at 325.30,
its fourth straight
gain. The U.K.s FTSE
100 added 0.3% to
6591.55. Frances
CAC-40 tacked on 0.2% to 4237.13,
despite data released Monday show-
ing a sharper-than-expected slow-
down in French industrial produc-
tion in December. Germanys DAX
shed 0.1% to 9289.86.
The ability of stocks to push
higher late last week after the poor
jobs report, and to hold those gains
Monday, was an encouraging sign,
traders said.
Investors appear to be accept-
ing that the short-term volatility in
the data doesnt call into question
the gradually improving trend in the
U.S. economy, said Ian Williams,
economist and strategist at broker-
age Peel Hunt.
In the U.S., the Dow Jones Indus-
trial Average rose 7.71 points, or
0.05%, to 15801.79. The S&P 500 in-
dex gained 2.82 points, or 0.2%, to
1799.84. The Nasdaq Composite In-
dex climbed 22.31 points, or 0.5%, to
4148.17.
Some investors appeared com-
fortable taking modestly bullish po-
sitions before Ms. Yellens testi-
mony, said David Seaburg, head of
equity sales trading at Cowen & Co.
I think people are comfortable
being long ahead of it, he said. I
dont think people feel shes going
to hold off on [tapering the Feds
bond-buying program], but I dont
think people are concerned about
any surprises.
Many investors have been ex-
pecting more volatility in stocks this
year after last years relatively
smooth ride higher.
Joel Johnson, founder of John-
sonBrunetti Retirement & Invest-
ment Specialists, which oversees
$300 million, said the market could
remain volatile over the coming
weeks as uncertainty over the econ-
omy and Fed policy hang over inves-
tors minds. But he recommends in-
vestors not overreact to short-term
market weakness.
Were telling our clients pull-
backs can be expected, stay the
course and dont expect what you
saw last year, Mr. Johnson said.
The S&P 500 soared 30% in 2013.
Expect a little volatility. But over-
all, the economy will be in a better
spot and the markets will be mod-
estly higher this year, said.
Emerging-market currencies
were mostly lower against the dol-
lar, but remained well above their
weakest levels hit during the recent
selloff, having recovered some
losses last week. The Turkish lira,
South African rand and Hungarian
forint all fell against the dollar.
The euro edged up to $1.3637 in
late New York trading from $1.3616
late Friday.
In corporate news, Nokia gained
2.8% after announcing Friday it had
settled all pending patent litigation
with HTC Corp., while a collabora-
tion deal was also struck.
Shares in Centrica fell 1.7%. The
U.K.s energy secretary called on
regulators to scrutinize profits of
the companys British Gas unit as
part of their current review of com-
petition in energy retail.
In the U.S., Hasbro was up 4.8%
in late trade. The toy makers
fourth-quarter report fell short of
estimates, but analysts said the re-
sults were still good enough to put
Hasbro on positive footing for 2014.
Yelp gained 1.7% after The Wall
Street Journal reported that Yahoo
will incorporate Yelps listings and
reviews of local businesses into
search results. Yahoos was up 1%.
Gold for February delivery
gained $11.50 an ounce, or 0.9%, to
$1,274.80 on the Comex division of
the New York Mercantile Exchange.
Dan Strumpf
contributed to this article.
BY TOMMY STUBBINGTON
MARKET
REPORT
New Rules Put Buyout
Firms Out on Their Own
Most private-equity firms have to
raise funds by sending executives
around the world to drum up inter-
est from investors. For years, execu-
tives at Ridgemont Equity Partners
never had to leave Charlotte, N.C.,
home to both the buyout firm and its
lone backer: Bank of America Corp.
But in 2010, the bank spun off
Ridgemont. Since then, it has had to
raise money like other independent
firms do. This past summer, Ridge-
monts executives wrapped up 18
globe-trotting months in which they
gathered $735 million from new in-
vestors.
The fundraising, said Ridgemont
partner Travis Hain, was challeng-
ing and lengthy, but also galvaniz-
ing. It forced us to demonstrate
how and why we compare favorably
to the best investors in the indus-
try, he says.
The firm raised about 9% more
than its goal.
As banking rules are redrawn,
many other private-equity execu-
tives will earn more air miles. The
principal reason: A postcrisis provi-
sion known as the Volcker rule is
forcing financial institutions to shed
their buyout businesses.
The rulepart of the Dodd-Frank
lawaims to limit the risks big
banks can take with their own capi-
tal. Under the rule, approved by five
federal financial-regulatory agencies
last year, banks have to sharply re-
duce their stakes in their private-eq-
uity units, or shed them altogether,
by 2015.
Banks werent always in the buy-
out business. They piled in during
the boom years leading up to the
2008 financial crisis, taking part in
some of the eras biggest corporate
takeovers. Doing so sweetened their
bottom lines. Some bank executives,
who were able to invest in buyout
pools, got a chance to taste the huge
profits earned by their peers at pri-
vate buyout shops.
Now, those profits, and the risks
they brought with them, are being
curtailed due to the Volcker rule
and, sometimes, the banks own
business priorities. For newly inde-
pendent firms and their executives,
the shift offers a chance to see if
they can thrive on their own.
J.P. Morgan Chase & Co. is in
the process of spinning out One Eq-
uity Partners, a private-equity arm.
The bank, which had been the firms
only investor, wont put money into
a new fund One Equity Partners is
raising and is exploring a sale of its
stake in the buyout shops existing
investments, according to people fa-
miliar with the matter.
Goldman Sachs Group Inc. plans
to keep its private-equity businesses
but is reducing the amount of capi-
tal it holds in existing funds. To
comply with a Volcker requirement
that funds names dont evoke those
of their parent banks, it is replacing
the moniker GS Capital with Broad
Street on new funds.
As for Ridgemont, it was sepa-
rated from Bank of America in part
to free up capital on the banks bal-
ance sheet that was held against the
firms investments, as well as to com-
ply with the Volcker rule, according
to people on both sides of the split.
Losing a banks financial support
presents a challenge for private-eq-
uity firms that used to be nestled
within financial institutions. Out on
their own, they must vie for inves-
tors cash against big firms, such as
Apollo Global Management LLC and
Warburg Pincus LLC, that are coming
off hugely profitable stretches. In
general, newly independent firms
have raised less on their own than
when they had bank backing, even if
they are exceeding their own goals,
according to securities filings and
private-equity executives.
For example, Wells Fargo & Co.
four years ago spun out Pamlico
Capital. The firm last year capped
off a $650 million buyout pool,
which was 30% more than it set out
to collect. The total was far less
than the $1.1 billion it raised in
2007, when it was known as Wacho-
via Capital Partners.
Wachovia Capital became part of
Wells Fargo when Wells and Wacho-
via merged in 2008.
After dipping to as low as $670
million in the aftermath of the fi-
nancial crisis, the average size of
new private-equity funds rose to
$1.2 billion in 2013, according to
Preqin, a data provider.
Newly independent firms will
have to anticipate managing more
modest funds with more aggressive
return targets to cover new costs,
such as offices and support staff,
while competing with returns of-
fered by rivals, said Rolf Lindsay, an
attorney with the law firm Walkers
who helps private-equity firms cre-
ate investment funds.
Private-equity executives say
there are benefits to being on their
own. Freed from a big banks con-
straints, such as internal limits on
exposure to particular industries or
regions, and potential conflicts
around investments, like bidding on
companies being sold by bankers at
a funds parent company, the pri-
vate-equity firms can have greater
latitude in choosing investments.
BY RYAN DEZEMBER
Bank of America headquarters
B
l
o
o
m
b
e
r
g
N
e
w
s
TELECOMS
Vodafone Interested in Spain
Vodafone Group PLC Chief
Executive Vittorio Colao said he is
interested in having more exposure to
Spain as the company looks to expand
beyond wireless service.
In a meeting with reporters in New
York on Monday, Mr. Colao declined to
comment on reports that Vodafone is
exploring making a bid for Spanish
cable company ONO. But he said
Vodafone is focused on offering a
combination of services like wireless,
broadband Internet and television in
the markets where it operates, and
said that so-called convergence is
happening more quickly in Spain than
in other places.
It is one of the markets that
clearly we are looking at, he said.
Vodafone is looking at options for
its large store of cash as it wraps up
the $130 billion sale of its stake in U.S.
mobile operator Verizon Wireless to
joint venture partner Verizon
Communications Inc.
Acquisitions are part of the
calculation. Last year, Vodafone agreed
to buy Germanys biggest cable
operator, Kabel Deutschland Holding
AG, for about $10.6 billion. Vodafone is
also interested in expanding its
presence in business and emerging
markets, Mr. Colao said.
We are looking at acquisitions
which are sizable and would transform
the company, he said Monday.
Thomas Gryta
MATERIALS
Continental Acquires Veyance
Continental AG agreed to buy U.S.
rubber and plastics company Veyance
Technologies Inc. from private-equity
firm Carlyle Group for $1.9 billion, the
German car-parts and tire maker said
Monday.
Veyances business and geographic
presence compliment Continentals
existing global footprint, Continental
Chief Executive Elmar Degenhart said.
Veyance saw about $2 billion in
revenue last year. It produces conveyor
belts, industrial hoses, air spring
systems and power transmission belts
for industrial applications. Earnings
before interest, tax, depreciation and
amortization totaled $270 million in
2013. The transaction is subject to
regulatory approval.
Friedrich Geiger
TECHNOLOGY
BlackBerry BBM Chief Exits
The executive in charge of
BlackBerry Ltd.s instant-messaging
tool, BBM, has left the company,
creating a hole in one of the
smartphone companys core offerings.
Andrew Bocking, executive vice
president in charge of BBM, has made
the decision to leave the company,
according to a BlackBerry
spokeswoman.
BBM remains a separate unit
within the company, but now will fall
under the responsibility of John Sims,
who joined BlackBerry in December to
head its enterprise unit. Mr. Bockings
departure was first reported by the
technology website BGR.
Mr. Bocking declined to comment.
BlackBerry Chief Executive John
Chen has said that BBM would be one
of four key areas of focus for the
company.
Will Connors
Online
>>
For more breaking news, go to
WSJ.com/Business and follow
@wsjbusiness on Twitter.
6 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
EUROPE NEWS
Swiss Vote Rattles Industries
ZURICHSwiss industries began
assessing on Monday the potential
impact of a controversial referen-
dum to cap immigration that calls
into question future economic
growth.
Sectors ranging from banking to
construction could be affected by
the Stop Mass Immigration mea-
sure, which Swiss voters narrowly
approved on Sunday.
The measure requires the gov-
ernment to implement quotas on
foreign workers within three years,
but doesnt set explicit levels. The
introduction of quotas could jeopar-
dize Switzerlands relationship with
the European Union. Quantitative
controls on immigration violate a
Swiss-EU agreement that governs
immigration and market access.
The result is like a thunder-
bolt, the widely read Neue Zrcher
Zeitung said in an opinion piece
that argued voters may be risking a
relationship that has broadly bene-
fited them. The bilateral success
story has been stopped abruptly.
Passage of the measure has
raised concerns about the continued
health of the countrys robust econ-
omy, which has sidestepped the re-
cession and unemployment that
many of its European neighbors
have experienced.
Many Swiss companies, particu-
larly in the huge banking and phar-
maceutical industries, depend on
skilled executives from outside the
country.
Switzerlands manufacturing and
agricultural industries also rely on
the EU as a market, sending more
than half of the countrys 201 billion
Swiss francs ($224 billion) in annual
exports to the 28-country bloc.
Oliver Adler, head of research at
Credit Suisse, estimates that Swit-
zerlands economic output will likely
decline by 1.2 billion Swiss francs,
or 0.3% of gross domestic product,
over the three-year phase-in period.
The Swiss Bankers Association, a
lobby for the industry, said it re-
gretted the decision of voters to ap-
prove the measure, cautioning it
might hamper banks ability to find
the staff they need.
Banks need qualified employ-
ees, the SBA said in a statement,
adding that roughly a quarter of
Swiss banking employees come from
the EU. The SBA fears that the
available pool of trained staff will
decrease now.
A slim 50.3% majority of voters
approved measures to introduce
quotas on foreign workers.
The vote tapped into widespread
concerns that an increase in the
number immigrants is pushing up
housing prices and creating too
much competition for jobs for na-
tive Swiss.
The results showed immigration
driving a wedge between urban
Switzerland, where many highly
paid foreign professionals live, and
rural Switzerland. Voters in Zurich,
Geneva, Basel and Zugcities that
host the headquarters of both Swiss
and foreign multinational corpora-
tionsvoted against the measure,
while voters in rural and farming
communities in the mountainous
central and eastern parts of the
country approved the proposed
curbs for foreign workers.
The vote also split along lan-
guage lines, a common issue for the
multilingual country. Nearly 70% of
voters in the Italian-speaking Can-
ton of Ticino, where Italians regu-
larly cross the border for work,
voted in favor of restricting immi-
gration. The five French-speaking
cantons, which have traditionally
backed EU-friendly issues, voted
against the initiative.
Corporate Switzerland acknowl-
edged the decision of the voters but
urged caution as to how quotas are
introduced.
What is crucial now is the way
in which the quota system is imple-
mented and the need to avoid sub-
sequent damage to the bilateral
agreements as far as possible, said
Pascal Brenneisen, the president of
Novartis AGs operations in Switzer-
land.
John Letzing, Marta Falconi
and John Revill in Zurich
contributed to this article.
BY NEIL MACLUCAS
Opponents of the vote in Switzerland to set quotas for immigrants protested against the measure in Zurich on Sunday.
A
s
s
o
c
i
a
t
e
d
P
r
e
s
s
EU Warns of Consequences From Swiss Vote
relationship with the EU isnt a du-
rable strategy for dealing with Eu-
rope, said German Foreign Minister
Frank-Walter Steinmeier.
Michel Barnier, EU commissioner
for the single market, said in an in-
terview that the vote is likely to
have heavy consequences. Well
probably need to reconsider our ap-
proach with Switzerland in a gen-
eral way. Mr. Barnier said.
The European Commission, the
EUs executive arm, leads negotia-
tions with non-EU members like
Switzerland.
If that treaty is changed, six
other agreements negotiated after
the Swiss rejected EU membership
in 1992 would also be in jeopardy.
Those embed Switzerland into the
EU economy and cover free move-
ment of people, goods and services
as well as agriculture and public
procurement.
It is also unclear if talks planned
Continued from page 1 for Wednesday aimed at simplifying
the web of accords between the two
sides would take place. I fear that
all [these discussions] will be sus-
pended, Mr. Barnier said.
Sundays referendum came amid
simmering frustrations in Brussels
over what officials describe as the
Swiss desire to reap the rewards of
the single market of 500 million
people, while refusing make conces-
sions of its own.
One case in point is the issue of
banking secrecy, which Switzerland
has defended against pressure from
the EU to reveal details of account
holders resident in the EU to tax au-
thorities.
Around one-fifth of Switzerlands
population of 8 million is made up
of immigrants, two-thirds of whom
are highly trained workers, accord-
ing to the Organization for Eco-
nomic Cooperation and Develop-
ment in Paris.
The initiative doesnt specify the
level of quotas Switzerland needs to
introduce but directs the govern-
ment to limit residency permits
governed by Swiss economic inter-
ests.
The initiative also identified peo-
ple living in EU countries along
Switzerlands border but working in
the Alpine country as subject to the
quotas.
The granting of residency per-
mits will be based largely on the
needs of the employer and the abil-
ity of the employee to integrate and
earn his or her own living, the ini-
tiative read.
In a statement, the Federal
Council, Switzerlands cabinet and
collective head of state, said it
would submit a proposal on imple-
menting the quotas to parliament as
soon as possible.
The council acknowledged the
initiative was contrary to the princi-
ple of free movement of persons and
said it would begin discussions with
the EU on the next steps.
Anti-immigration parties in the
EU welcomed the vote. Nigel Farage,
head of the U.K. Independence
Party, congratulated the Swiss peo-
ple for taking advantage of their
position outside the European Union
to set their own immigration rules
in their own national interest. A
U.K. referendum on the issue would
have the same outcome, he said,
but by a landslide.
Heinz-Christian Strache, head of
the right-wing Austrian Freedom
Party, said the Swiss vote was a big
success against mass immigration.
He said a majority in Austria would
back immigration caps, adding the
recent opening of labor markets
across the EU to workers from Ro-
mania and Bulgaria should be re-
versed.
John Letzing and
Marta Falconi in Zurich
and Tom Fairless in Brussels
contributed to this article.
EU Targets
Better Ties
With Cuba
BRUSSELSEurope is set to tar-
get improved ties with Cuba after
the blocs foreign ministers ap-
proved negotiations with the island
nation aimed at deepening bilateral
political and economic dialogue.
While the European Union lifted
economic sanctions in 2008 and re-
mains Cubas biggest foreign inves-
tor and No. 1 trade partner, the 28-
nation bloc has long curtailed
political ties with the island, focus-
ing on Cubas human-rights and
democratic record.
European officials say they hope
negotiations could lead to a perma-
nent dialogue on human rights as
well as exploring ways to improve
trade ties, including by exploring
trade facilitation measures and a
mechanism for resolving disputes.
They also hope it will allow the EU
to engage more directly with citizen
groups.
The EU hopes to start negotia-
tions on a new bilateral agreement
in the coming months. They say Cu-
ban diplomats have privately wel-
comed the European overtures.
I am confident these negotia-
tions will help consolidate our en-
gagement with Cuba, said EU for-
eign-policy chief Catherine Ashton
on Monday. I hope Cuba can take
up this offer and that we can work
soon toward a stronger relation-
ship.
Led by Spain, the EU adopted a
common position on Cuba in 1996,
which made closer ties contingent
on a clear improvement in the re-
gimes human-rights record and
steps toward democracy.
Following a crackdown on dissi-
dents in Cuba, the EU imposed eco-
nomic sanctions and limited high-
level contacts with the Cuban
government in 2003.
However the blocs common po-
sition, which Cuba has long rejected,
has gradually been sidelined as
some governments have pursued
closer ties with Havana.
Dutch Foreign Minister Frans
Timmermans was the latest senior
official to visit Cuba last month as
he urged the EU to engage more ac-
tively with the government.
Nevertheless, some European
governments, including the Czech
Republic and Poland, remain cau-
tious on warming ties, meaning any
new agreement could face a hard
sell within the bloc.
EU officials say that the push to
revise policy comes at a time of sig-
nificant economic and political over-
haul by Ral Castros regime and
that, if negotiations produce a broad
new agreement with Cuba, the EU
could look again at its common po-
sition.
EU officials also insist they have
kept both the U.S. administration
and leading lawmakers informed of
their plans. One senior EU diplomat
said last week that there is full un-
derstanding in Washington for what
we are seeking to achieve.
But the official said Europe isnt
seeking to be a pathfinder to pave
the way for closer U.S.-Cuba ties.
BY LAURENCE NORMAN
Three Cantons in Focus
Many cantons that are home to big multinationals, which employ large numbers of
foreigners, voted against the quotas. But rural cantons and those with a high
number of cross-border day-workers voted for them.
Ticino, where a large number of Italians cross the border for work every day, voted strongly
in favor of the quotas.
Zurich, the seat of Switzerlands international banking sector, voted against quotas.
Basel-Stadt, home to pharmaceutical companies Novartis AG and Roche AG, had one of the
largest margin of votes against the measure.
The Wall Street Journal Sources: Swiss Federal Statistical Ofce; Staff reports
50%
68.2% Voted Yes (82,652 Votes)
47.3% (239,139)
39% (24,941)
31.8% Voted No (38,589)
52.7% (265,973)
61% (39,007)
Officials hope talks lead
to a permanent dialogue
on human rights.
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 23
Major stockmarket indexes Stock indexes fromaround the world, grouped by region. Showninlocal-currency terms.
PREVIOUS SESSION PERFORMANCE
Region/Country Index Close Net change Percentage change Yr.-to-date 52-wk.
EUROPE Stoxx Europe 600 325.30 0.21 0.06% -0.9% 13.2%
Stoxx Europe 50 2857.66 -2.16 -0.08% -2.1 8.8
Euro Zone Euro Stoxx 310.76 -0.09 -0.03 -1.1 17.8
Euro Stoxx 50 3032.53 -5.96 -0.20 -2.5 15.3
Austria ATX 2590.77 -3.62 -0.14 1.7 7.7
Belgium Bel-20 2913.54 4.11 0.14 -0.4 16.3
Czech Republic PX 1005.92 4.70 0.47 1.7 1.2
Denmark OMXCopenhagen 616.90 4.39 0.72 9.0 29.9
Finland OMXHelsinki 7352.08 66.96 0.92 0.2 18.7
France CAC-40 4237.13 8.95 0.21 -1.4 16.1
Germany DAX 9289.86 -12.06 -0.13 -2.7 21.4
Hungary BUX 18115.28 9.21 0.05 -2.4 -4.8
Ireland ISEQ 4804.82 -24.95 -0.52 5.8 33.2
Italy FTSE MIB 19682.82 -9.26 -0.05 3.8 18.4
Netherlands AEX 389.64 0.10 0.03 -3.0 12.9
Norway All-Shares 604.66 -2.71 -0.45 0.3 16.0
Poland WIG 52024.29 -113.61 -0.22 1.4 11.3
Portugal PSI 20 6921.80 -6.39 -0.09 5.5 12.9
Russia RTSI 1336.02 -5.47 -0.41% -7.4 -15.5
PREVIOUS SESSION PERFORMANCE
Region/Country Index Close Net change Percentage change Yr.-to-date 52-wk.
Spain IBEX35 9982.70 -89.70 -0.89 0.7 22.1
Sweden OMXStockholm 422.19 1.41 0.34% -0.3 15.4
Switzerland SMI 8324.85 6.25 0.08 1.5 12.4
Turkey BIST 100 64050.16 -564.2 -0.87 -5.5 -18.6
U.K. FTSE 100 6591.55 19.87 0.30 -2.3 5.2
ASIA-PACIFIC DJ Asia-Pacific TSM 1383.89 8.90 0.65 -4.5 2.2
Australia SPX/ASX200 5222.10 55.60 1.08 -2.4 5.3
China Shanghai Composite 2086.07 41.57 2.03 -1.4 -14.2
Hong Kong Hang Seng 21579.26 -57.59 -0.27 -7.4 -7.0
India S&P BSE Sensex 20334.27 -42.29 -0.21 -4.0 4.5
Japan Nikkei Stock Average 14718.34 255.93 1.77 -9.7 32.0
Singapore Straits Times 3017.20 4.06 0.13 -4.7 -7.7
South Korea Kospi 1923.30 0.80 0.04 -4.4 -1.4
AMERICAS DJ Americas 452.54 0.05 0.01 -2.8 14.8
Brazil Bovespa 47710.82 -362.78 -0.75 -7.4 -18.4
Mexico IPC 40166.88 -358.86 -0.89 -6.0 -10.9
Note: Americas index data are as of 3:00p.m. ET. Sources: SIXFinancial Information; WSJ Market Data Group
Cross rates U.S.-dollar and euro foreign-exchange rates inglobal trading
USD GBP CHF SEK RUB NOK JPY ILS EUR DKK CDN AUD
Australia 1.1182 1.8359 1.2469 0.1724 0.0322 0.1822 0.0109 0.3175 1.5257 0.2044 1.0120 ...
Canada 1.1050 1.8142 1.2321 0.1704 0.0318 0.1801 0.0108 0.3138 1.5077 0.2020 ... 0.9882
Denmark 5.4693 8.9799 6.0987 0.8435 0.1574 0.8913 0.0535 1.5531 7.4625 ... 4.9497 4.8912
Euro 0.7329 1.2033 0.8173 0.1130 0.0211 0.1194 0.0072 0.2081 ... 0.1340 0.6633 0.6554
Israel 3.5216 5.7820 3.9269 0.5431 0.1013 0.5739 0.0345 ... 4.8049 0.6439 3.1870 3.1494
Japan 102.1541 167.7247 113.9115 15.7542 2.9394 16.6484 ... 29.0083 139.3829 18.6779 92.4504 91.3581
Norway 6.1360 10.0745 6.8422 0.9463 0.1766 ... 0.0601 1.7424 8.3721 1.1219 5.5531 5.4875
Russia 34.7528 57.0599 38.7527 5.3596 ... 5.6638 0.3402 9.8686 47.4180 6.3542 31.4516 31.0800
Sweden 6.4842 10.6463 7.2305 ... 0.1866 1.0568 0.0635 1.8413 8.8473 1.1856 5.8683 5.7990
Switzerland 0.8968 1.4724 ... 0.1383 0.0258 0.1462 0.0088 0.2547 1.2236 0.1640 0.8116 0.8020
U.K. 0.6091 ... 0.6792 0.0939 0.0175 0.0993 0.0060 0.1730 0.8310 0.1114 0.5512 0.5447
U.S. ... 1.6419 1.1151 0.1542 0.0288 0.1630 0.0098 0.2840 1.3644 0.1828 0.9050 0.8943
Source: ICAPPlc.
MSCI indexes
Developed and emerging-market regional and country indexes
fromMSCI as of February 10, 2014
Price-to- LOCAL-CURRENCY
Dividend earnings PERFORMANCE
yield ratio MSCI Index Last Daily YTD 52-wk.
2.50% 16 MSCI ACWI* 394.88 -1.15% -3.3% 11.2%
2.50 17 World(DevelopedMarkets) 1,611.78 -1.19 -3.0 14.7
2.40 17 Worldex-EMU 196.34 -1.23 -3.1 14.5
2.40 17 Worldex-UK 1,624.76 -1.24 -2.9 15.4
3.10 16 EAFE 1,851.35 -1.04 -3.4 9.7
2.70 11 EmergingMarkets (EM) 937.30 -0.80 -6.5 -12.3
3.30 16 EUROPE 110.88 0.72 -1.1 12.1
3.20 18 EMU 193.02 -0.89 -2.4 16.0
3.20 18 Europe ex-UK 119.83 0.85 -0.4 14.5
4.20 13 Europe Value 112.68 0.80 -0.7 12.7
2.40 21 Europe Growth 105.01 0.64 -1.5 11.3
2.30 23 Europe Small Cap 264.37 0.64 1.4 28.6
3.70 6 EMEurope 262.26 0.17 -4.5 -16.1
3.60 13 UK 1,937.69 0.17 -2.8 4.2
3.30 17 Nordic Countries 203.30 0.85 0.8 11.8
3.70 4 Russia 764.53 0.67 -3.5 -4.8
3.00 18 SouthAfrica 1,092.33 0.77 -4.0 8.7
3.00 13 ACASIAPACIFICEX-JAPAN 443.65 -0.92 -5.2 -7.2
1.80 16 Japan 733.07 2.33 -9.0 26.3
3.40 9 China 57.98 1.54 -8.1 -11.4
1.50 16 India 789.01 0.20 -3.4 1.3
1.20 10 Korea 556.73 0.72 -5.5 -1.6
2.90 16 Taiwan 293.19 1.09 -3.1 4.0
1.90 19 USBROADMARKET 2,050.41 -1.29 -2.6 21.0
1.50 30 USSmall Cap 3,133.41 -1.17 -2.9 25.3
3.20 14 EMLATINAMERICA 2,930.48 -0.18 -8.4 -25.6
*Twenty-four developed and 21 emerging markets Source: MSCI
S&PDowJones Indices
Price-to-
Dividend earnings PERFORMANCE(euros) PERFORMANCE(U.S.dollars)
yield* ratio* S&PDowJones Index Last Daily 52-wk. Last Daily 52-wk.
2.45%18.52 Global TSM 3136.14 0.17% 12.4%
2.99 17.72 Global DOW 1660.33 -0.18% 12.2% 2405.51 -0.01 14.4
3.05 13.47 Global Titans 50 220.36 -0.07 8.5 224.51 0.10 10.7
3.17 19.15 DevEurope TSM 3334.04 0.28 17.3
2.39 19.37 DevelopedMarkets TSM 3163.63 0.20 15.3
2.99 13.07 S&PBMI EmgMarkets 238.98 -0.19 -11.6
3.33 18.44 S&PEurope 350 1325.49 0.10 13.9 1625.11 0.32 15.8
3.24 21.17 S&PEuro 1317.19 -0.05 18.5 1636.61 0.18 20.5
3.80 17.32 Europe Dow 1380.10 -0.26 13.7 2000.31 -0.05 16.0
3.61 8.55 BRIC50 355.26 -0.58 -16.2 462.05 -0.41 -14.6
1.93 19.85 U.S. TSM 18893.31 -0.02 19.3
Kuwait Titans 30 -c 204.94 0.41 5.2
Price-to-
Dividend earnings PERFORMANCE(euros) PERFORMANCE(U.S.dollars)
yield* ratio* S&PDowJones Index Last Daily 52-wk. Last Daily 52-wk.
TurkeyTitans 20 -c 653.08 -0.83% -16.8%
6.35%14.98 Global Select Div 244.06 0.34 8.6
6.71 14.35 Asia/Pacific Select Div 275.64 0.39% -7.8% 321.94 0.60 -5.9
U.S. Select Dividend -d 1198.83 -0.17 18.0
3.29 29.14 S&PGlbNat Resources 1944.66 0.24 -9.6 2635.74 0.41 -7.8
2.16 19.16 Islamic Market 2670.39 0.29 11.8
2.50 17.18 Islamic Market 100 2911.06 0.31 13.4
Islamic Turkey -c 3911.57 -0.82 -8.9
3.29 21.22 Sustainability Europe 107.06 0.00 12.9 160.61 0.21 15.1
3.97 22.93 S&PGlbInfrastructure 1471.85 -0.13 5.5 2267.92 0.04 7.6
1.94 13.55 Luxury 2013.61 0.65 13.8
DJ-UBSCommodity-p 113.31 -0.34 -9.1 128.05 -0.34 -8.9
*Fundamentals are based on data in U.S. dollar. Footnotes: a-in USdollar. b-dividends reinvested. c-in local currency. Note:All data as of 2 p.m.ET. Source: S&PDowJones Indices
GLOBAL MARKETS LINEUP
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Commodities Prices of futures contracts withthe most openinterest
EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.MDEX: Bursa Malaysia
Derivatives Berhad; LIFFE: London International Financial Futures Exchange; COMEX: Commodity Exchange; LME: London Metals Exchange;
NYMEX: NewYork Mercantile Exchange;ICE-EU: ICE Futures Europe
ONE-DAY CHANGE Year Year
Commodity Exchange Last price Net Percentage high low
Corn (cents/bu.) CBOT 443.50 -0.75 -0.17% 450.25 406.25
Soybeans (cents/bu.) CBOT 1325.00 -6.50 -0.49 1,340.00 1,260.50
Wheat (cents/bu.) CBOT 585.25 7.75 1.34% 612.75 550.00
Live cattle (cents/lb.) CME 140.125 -0.275 -0.20 143.200 135.375
Cocoa ($/ton) ICE-US 2,921 -19 -0.65 2,958 2,636
Coffee (cents/lb.) ICE-US 135.90 0.20 0.15 144.15 110.20
Sugar (cents/lb.) ICE-US 15.64 -0.09 -0.57 16.42 14.70
Cotton (cents/lb.) ICE-US 87.20 -0.27 -0.31 88.84 82.39
Rapeseed (euro/ton) LIFFE 374.00 -2.25 -0.60 385 349
Cocoa (pounds/ton) LIFFE 1,860 -7 -0.37 1,874 1,676
Robusta coffee ($/ton) LIFFE 1,788 21 1.19 1,883 1,575
Copper ($/lb.) COMEX 3.2210 -0.0150 -0.46 3.4245 3.1750
Gold ($/troy oz.) COMEX 1274.50 11.60 0.92 1,280.10 1,203.70
Silver ($/troy oz.) COMEX 20.035 0.099 0.50 20.660 18.970
Aluminum($/ton) LME 1,719.00 22.00 1.30 1,813.00 1,686.50
Tin ($/ton) LME 22,250.00 220.00 1.00 22,475.00 21,410.00
Copper ($/ton) LME 7,159.00 98.50 1.40 7,422.00 7,051.00
Lead ($/ton) LME 2,135.00 37.50 1.79 2,242.00 2,097.50
Zinc ($/ton) LME 2,021.50 48.50 2.46 2,090.00 1,964.00
Nickel ($/ton) LME 14,140 255 1.84 14,730 13,425
Crude oil ($/bbl.) NYMEX 99.94 0.06 0.06 100.55 91.47
Heating oil ($/gal.) NYMEX 2.9944 -0.0559 -1.83 3.0598 2.8905
RBOBgasoline ($/gal.) NYMEX 2.7248 -0.0241 -0.88 2.8043 2.5942
Natural gas ($/mmBtu) NYMEX 4.417 -0.099 -2.19 4.7620 3.8580
Brent crude ($/bbl.) ICE-EU 107.92 -0.93 -0.85 110.79 104.75
Gas oil ($/ton) ICE-EU 914.25 -1.75 -0.19 943.75 893.75
Sources: SIX Financial Information; WSJ Market Data Group
Currencies Londonclose onFeb. 10
Per In
AMERICAS Per euro In euros U.S. dollar U.S. dollars
Argentina peso-a 10.6509 0.0939 7.8061 0.1281
Brazil real 3.2654 0.3062 2.3933 0.4178
Canada dollar 1.5077 0.6633 1.1050 0.9050
Chile peso 757.67 0.001320 555.30 0.001801
Colombia peso 2795.26 0.0003577 2048.65 0.0004881
Ecuador US dollar-f 1.3644 0.7329 1 1
Mexico peso-a 18.1543 0.0551 13.3053 0.0752
Peru sol 3.8491 0.2598 2.8211 0.3545
Uruguay peso-e 30.175 0.0331 22.116 0.0452
U.S. dollar 1.3644 0.7329 1 1
Venezuela bolivar 8.66 0.115418 6.35 0.157480
ASIA-PACIFIC
Australia dollar 1.5257 0.6554 1.1182 0.8943
1-mo. forward 1.5285 0.6542 1.1203 0.8927
3-mos. forward 1.5348 0.6516 1.1248 0.8890
6-mos. forward 1.5443 0.6476 1.1318 0.8836
China yuan 8.2686 0.1209 6.0601 0.1650
Hong Kong dollar 10.5842 0.0945 7.7572 0.1289
India rupee 85.0453 0.0118 62.3300 0.0160
Indonesia rupiah 16420 0.0000609 12034 0.0000831
Japan yen 139.38 0.007174 102.15 0.009789
1-mo. forward 139.36 0.007176 102.14 0.009791
3-mos. forward 139.32 0.007178 102.11 0.009794
6-mos. forward 139.24 0.007182 102.05 0.009799
Malaysia ringgit-c 4.5475 0.2199 3.3329 0.3000
NewZealand dollar 1.6494 0.6063 1.2088 0.8272
Pakistan rupee 143.682 0.0070 105.305 0.0095
Philippines peso 61.413 0.0163 45.010 0.0222
Singapore dollar 1.7333 0.5769 1.2704 0.7872
South Korea won 1464.03 0.0006830 1073.00 0.0009320
Taiwan dollar 41.356 0.02418 30.310 0.03299
Thailand baht 44.756 0.02234 32.802 0.03049
Per In
EUROPE Per euro In euros U.S. dollar U.S. dollars
Euro zone euro 1 1 0.7329 1.3644
1-mo. forward 1.0000 1.0000 0.7329 1.3644
3-mos. forward 1.0000 1.0000 0.7329 1.3644
6-mos. forward 1.0000 1.0000 0.7329 1.3645
Czech Rep. koruna-b 27.541 0.0363 20.185 0.0495
Denmark krone 7.4625 0.1340 5.4693 0.1828
Hungary forint 311.39 0.003211 228.22 0.004382
Norway krone 8.3721 0.1194 6.1360 0.1630
Poland zloty 4.1783 0.2393 3.0623 0.3266
Russia ruble-d 47.418 0.02109 34.753 0.02877
Sweden krona 8.8473 0.1130 6.4842 0.1542
Switzerland franc 1.2236 0.8173 0.8968 1.1151
1-mo. forward 1.2233 0.8174 0.8966 1.1153
3-mos. forward 1.2227 0.8179 0.8961 1.1159
6-mos. forward 1.2216 0.8186 0.8953 1.1169
Turkey lira 3.0167 0.3315 2.2109 0.4523
U.K. pound 0.8310 1.2033 0.6091 1.6419
1-mo. forward 0.8312 1.2031 0.6092 1.6415
3-mos. forward 0.8316 1.2025 0.6095 1.6407
6-mos. forward 0.8322 1.2016 0.6099 1.6395
MIDDLE EAST/AFRICA
Bahrain dinar 0.5143 1.9443 0.3770 2.6528
Egypt pound-a 9.4998 0.1053 6.9625 0.1436
Israel shekel 4.8049 0.2081 3.5216 0.2840
Jordan dinar 0.9661 1.0351 0.7081 1.4123
Kuwait dinar 0.3854 2.5948 0.2825 3.5404
Lebanon pound 2055.32 0.0004865 1506.35 0.0006639
Saudi Arabia riyal 5.1170 0.1954 3.7503 0.2666
South Africa rand 15.1655 0.0659 11.1149 0.0900
United Arab dirham 5.0117 0.1995 3.6731 0.2722
a-floating rate b-financial c-government rate c-commercial
rate d-Russian Central Bank rate.
Source: ICAPPlc.
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 5
EUROPE NEWS
Commentators were left
scratching their heads after the
German Constitutional Courts
ruling on the legality of the
European Central Banks as-yet
unused bond-buying program.
The program, known as
Outright Monetary Transactions,
allows the ECB to buy sovereign
bonds from embattled euro-zone
member states that agree to
implement economic reforms, but
it has never been activated since
its creation in 2012. A loose
coalition of ECB critics had
challenged its constitutionality.
For some, the court washed its
hands of an awkward matter by
referring the question of the
programs legality to the
European Court of Justice,
Europes highest court.
For others, the referral was
close to disingenuous: The judges
made clear they thought the
program was in breach of EU law,
and after the ECJ issues its
opinion, the German court will
have the last word in its final
ruling.
It may take a long time to find
out whos right. The Karlsruhe-
based court took almost seven
months from the initial hearing to
issue Fridays decision. Based on
its past record, the ECJ could need
at least twice as long.
Yet the main practical
implication of the constitutional
judges decision may lie in the
unmistakable political message it
sends to the German government:
just say no.
This matters because the OMT
was remarkably successful in
reversing the spiraling increase in
sovereign-bond yields in the euro
zones periphery in 2012.
So why has an instrument that
has proved so effectivewithout
even being usedproved so
controversial in Germany?
The answer lies in a school of
economics unique to Germany. The
majority of German economists,
Adalbert Winkler of the Frankfurt
School of Finance and
Management wrote in an analysis
of the courts decision, hail from
the ordoliberalism school, which
stresses the importance of rules in
protecting markets from political
interference. This is neoliberalism
minus the laissez-faire.
The ordoliberals are suspicious
of the OMT because it appears
designed to interfere in how
markets set prices. By buying
bonds to keep yields low, the
central bank creates moral
hazard, they argue, weakening
governments resolve to improve
their economies performance, and
thus their solvency, through
structural and fiscal reforms.
Critics of this view argue that
markets often ignore, then
overreact to, changes in economic
fundamentals. Such
disproportionate reactions can, if
left unchecked, lead to self-
fulfilling prophecies and turn
liquidity shortages into
insolvencies, justifying
intervention in exceptional
circumstances.
A more intermediate view is
that it wasnt until the OMT was
introduced that investors started
giving Italy and Spain credit for
the structural reforms they had
been implementing for months.
The constitutional court has
now said where it stands, and that
is firmly in the ordoliberal camp.
The independence of the ECB may
be sacrosanct but, in the courts
eyes, it is also severely
circumscribed, it turns out.
As Mr. Winkler argues, the
courts view of what constitutes
monetary policyas opposed to
economic policy, which would be
outside its mandatewould
seem to rule out acting as a
lender of last resort, as the ECB
has been doing since 2008, when
it started fulfilling banks
liquidity needs in full in response
to the global financial crisis.
Of course, Karlsruhe makes a
legal argument too: By buying
unlimited stocks of bonds from
selected countries, the OMT could
generate vast losses for the ECB.
Under certain circumstances, the
German parliament could be
forced to absorb these losses by
tapping taxpayers, a breach of the
constitution, which states that
parliament, as the sovereign,
should dictate tax and budget
matters and never be dictated to.
Should the court find the ECB
in breach of the German
constitution whether or not it is
abiding by EU law in the eyes of
the ECJit could ban the
Bundesbank from participating in
OMT operations. It will take
months, perhaps years, to see
whether it comes to this.
But the courts decision has
immediate relevance too. Beyond
the legal and economic arguments,
it is a shot across the bow of the
government, a warning to ensure
that the OMT remains what it is
an unused policy.
One condition for the bond-
buying program to be triggered is
for the applicant country to
request and obtain a preliminary
program from the European
Stability Mechanism, the euro-
zone bailout fund. No such
program can be accepted without
the German government putting it
to parliament and parliament
endorsing it.
So while the ECB has full
discretion over whether it triggers
bond purchases once the
conditions are fulfilled, it is
hostage to Berlins nod.
Karlsruhe hasnt taken a knife
to the euro zones ultimate safety
net, but it has made it clear to
Berlins politicians that it
shouldnt be used.
German Courts Message to Berlin: Say No
[ Brussels Beat ]
BY BERTRAND BENOIT
How the world advances
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Condence to build
Thats what developers and their investors and lenders
can achieve when theyre smart about managing risk.
And smart managers work with CME Group, the worlds
leading derivatives marketplace. Businesses and nancial
institutions around the world partner with us to help them
manage every kind of risk. Interest rate uctuations, stock
market movements, changing currency valuations, energy
costs whatever the risk, we help the world advance
beyond it. Learn more at cmegroup.com/advance.
24 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
Major players & benchmarks
Credit derivatives
Spreads oncredit derivatives are one way the market rates
creditworthiness. Regions that are treading inroughwaters
cansee spreads swing toward the maximumand vice versa.
Indexes beloware for five-year swaps.
Markit iTraxxIndexes SPREADRANGE, in pct. pts.
Mid-spread, since most recent roll
Index: series/version in pct. pts. Mid-price Coupon Maximum Minimum Average
Europe: 20/1 0.77 101.08% 0.01% 1.04 0.69 0.82
Eur. HighVolatility: 20/1 1.16 99.24 0.01 1.61 1.01 1.24
Europe Crossover: 20/1 2.93 108.93 0.05 4.08 2.75 3.29
Asia ex-JapanIG: 20/1 1.46 97.92 0.01 1.57 1.24 1.38
Japan: 20/1 0.83 100.82 0.01 0.97 0.68 0.83
Note: Data as of February 7
Spreads
Spreads on
ve-year swaps
for corporate
debt; based on
Markit iTraxx
indexes.
In percentage points
3.00
2.00
1.00
0
1
t
Asia ex-Japan IG
t
Australia
2013
Aug. Sept. Oct. Nov.
2014
Dec. Jan.
Index roll
Source: Markit Group
BehindEurope's deals: Bank revenue rankings, Global (ex US)
Behind every IPO, bond offering, merger deal or syndicated loanis one or more investment banks. Here are
investment banks ranked by year-to-date revenues fromrecent deals.
PERCENTAGEOFTOTAL REVENUE
Revenue, Equity Debt Mergers &
in millions share capital markets capital markets acquisitions Loans
GoldmanSachs $236 6.9% 32% 27% 40% ...
MorganStanley 186 5.5 35 32 29 4%
Bankof America Merrill Lynch 167 4.9 23 50 26 1
Citi 167 4.9 32 55 12 1
JPMorgan 140 4.1 25 47 25 2
Barclays 136 4.0 12 51 30 8
Credit Suisse 133 3.9 23 40 37 ...
HSBC 133 3.9 35 60 1 4
Deutsche Bank 133 3.9 28 54 16 1
Source: Dealogic
Tracking
credit
markets &
dealmakers
Dow Jones Industrial Average P/E: 15
LAST: 15801.79 s7.71, or 0.05%
YEAR TO DATE: t774.87, or 4.7%
OVER 52 WEEKS s1,830.55, or 13.1%
Note: Price-to-earnings ratios are for trailing 12 months
16650
16300
15950
15600
15250
14900
15 22 29 6 13 20 27
Dec.
3 10 17 24 31
Jan.
7
Feb.
High
Close
Low
50day
moving average
t
StoxxEurope 50: Monday's best andworst...
Previous
close, in STOCKPERFORMANCE
Company Country Industry Volume local currency Previous session YTD 52-week
Sanofi SA France Pharmaceuticals 3,301,220 71.99 1.78% -6.7% 4.3%
AstraZeneca United Kingdom Pharmaceuticals 2,197,747 3,915 1.42 9.5 30.5
British American Tobacco United Kingdom Tobacco 2,117,041 2,967 1.42 -8.4 -9.6
Lloyds Banking Group PLC United Kingdom Banks 118,213,724 82.87 1.31 5.1 57.0
L'Air Liquide France Commodity Chemicals 931,959 97.74 1.28 -4.9 6.6
Banco Bilbao Vizcaya Argn Spain Banks 24,869,648 8.88 -1.86% -0.7 22.4
Banco Santander S.A. Spain Banks 34,474,947 6.44 -1.63 0.0 11.7
Telefonica S.A. Spain Fixed Line Telecommunications 14,976,512 11.28 -1.18 -4.7 12.0
Deutsche Bank Germany Banks 6,744,735 35.12 -0.88 1.3 -3.9
Deutsche Telekom Germany Mobile Telecommunications 7,845,653 11.66 -0.85 -6.2 36.4
...Andthe rest of Europe's blue chips
Latest,
in local STOCKPERFORMANCE
Company/Country (Industry) Volume currency Latest YTD 52-week
Barclays 51,659,722 275.00 1.21% 1.1% -7.9%
United Kingdom(Banks)
National Grid 4,993,131 800.50 1.07 1.6 16.0
United Kingdom(Multiutilities)
Tesco 9,554,172 323.70 0.87 -3.2 -10.7
United Kingdom(Food Retailers &Wholesalers)
Financiere Richemont 1,178,143 87.90 0.86 -1.0 18.1
Switzerland (Clothing &Accessories)
BGGrp 6,793,621 1,061 0.71 -18.3 -4.1
United Kingdom(Integrated Oil &Gas)
Diageo 3,024,857 1,829 0.61 -8.6 -3.1
United Kingdom(Distillers &Vintners)
BHP Billiton 6,394,959 1,815 0.55 -2.9 -15.8
United Kingdom(General Mining)
Unilever 1,632,959 2,375 0.51 -4.3 -5.6
United Kingdom(Food Products)
Telefon L.M. Ericsson B 5,706,117 80.50 0.44 2.5 4.1
Sweden (Telecommunications Equipment)
ENI 9,439,570 16.59 0.42 -5.1 -4.2
Italy (Integrated Oil &Gas)
Roche Holding Part. Cert. 1,195,170 254.80 0.31 2.2 26.1
Switzerland (Pharmaceuticals)
Unilever CVA 3,795,291 27.76 0.31 -5.2 -4.9
Netherlands (Food Products)
Royal Dutch Shell A 2,368,882 2,106 0.21 -2.7 -1.0
United Kingdom(Integrated Oil &Gas)
Glencore Xstrata PLC 14,062,508 326.05 0.20 4.3 -15.3
United Kingdom(General Mining)
UBS 7,367,255 18.45 0.16 9.0 20.1
Switzerland (Banks)
Standard Chartered 2,935,310 1,242 0.12 -8.7 -26.7
United Kingdom(Banks)
BP PLC 16,493,658 482.05 0.07 -1.2 5.8
United Kingdom(Integrated Oil &Gas)
Zurich Insurance Group 283,367 266.30 0.04 3.0 4.2
Switzerland (Full Line Insurance)
Anheuser-Busch InBev 1,284,883 71.37 0.03 -7.6 11.3
Belgium(Brewers)
Vodafone Group 78,457,027 222.00 ... -6.3 27.7
United Kingdom(Mobile Telecommunications)
Latest,
in local STOCKPERFORMANCE
Company/Country (Industry) Volume currency Latest YTD 52-week
Bayer 1,512,763 95.45 -0.01% -6.4% 36.0%
Germany (Specialty Chemicals)
Schneider Electric 1,065,056 60.80 -0.05 -4.1 10.9
France (Electrical Components &Equipment)
AXA 3,894,618 19.40 -0.05 -4.0 46.3
France (Full Line Insurance)
Nestle 5,592,337 67.55 -0.07 3.4 5.6
Switzerland (Food Products)
Reckitt Benckiser Grp 1,009,511 4,776 -0.15 -0.4 12.8
United Kingdom(Nondurable Household Products)
Siemens 1,448,672 93.24 -0.17 -6.1 20.8
Germany (Diversified Industrials)
SAP 2,339,230 55.97 -0.18 -10.2 -5.1
Germany (Software)
Credit Suisse Group AG 3,668,222 27.16 -0.22 -0.4 2.9
Switzerland (Banks)
Novartis AG 3,700,794 72.00 -0.28 1.1 15.3
Switzerland (Pharmaceuticals)
GlaxoSmithKline 7,076,502 1,608 -0.31 -0.2 11.4
United Kingdom(Pharmaceuticals)
Allianz SE 927,990 125.70 -0.32 -3.6 22.6
Germany (Full Line Insurance)
ABB 4,624,789 22.66 -0.35 -3.5 17.5
Switzerland (Industrial Machinery)
Moet Hennessy Louis Vuitt 763,341 133.50 -0.52 0.7 0.3
France (Clothing &Accessories)
Total 3,257,127 42.95 -0.53 -3.6 11.9
France (Integrated Oil &Gas)
Daimler 2,629,431 63.20 -0.54 0.5 40.5
Germany (Automobiles)
HSBC Hldgs 26,659,206 624.10 -0.59 -5.8 -12.9
United Kingdom(Banks)
INGGroep 11,039,867 10.06 -0.59 -0.4 47.3
Netherlands (Life Insurance)
BASF 1,795,281 78.32 -0.63 1.1 9.0
Germany (Commodity Chemicals)
Rio Tinto 3,688,630 3,382 -0.73 -0.8 -7.5
United Kingdom(General Mining)
BNP Paribas 3,551,340 59.01 -0.84 4.2 32.3
France (Banks)
Sources: SIX Financial Information
DJIAcomponent stocks
Volume, CHANGE
Stock Symbol in millions Latest Points Percentage
AT&T T 17.6 $32.41 0.12 0.36%
AmExpress AXP 4.7 88.19 1.19 1.37
Boeing BA 6.5 127.06 0.04 0.03
Caterpillar CAT 3.9 94.44 0.43 0.45
Chevron CVX 7.2 111.57 0.48 0.43
CiscoSys CSCO 39.6 22.84 0.16 0.73
CocaCola KO 18.2 38.57 0.62 1.63
Disney DIS 7.6 77.02 1.35 1.78
DuPont DD 3.5 63.47 0.02 0.03
ExxonMobil XOM 9.3 89.48 1.10 1.22
GenElec GE 26.7 25.03 0.16 0.64
GoldmanSachs GS 3.0 161.16 0.77 0.48
HomeDpt HD 5.4 76.36 0.09 0.12
Intel INTC 20.7 24.27 0.07 0.29
IBM IBM 3.2 177.17 0.08 0.05
JPMorgChas JPM 12.9 56.64 0.02 0.04
JohnsJohns JNJ 6.2 90.94 0.90 1.00
McDonalds MCD 6.0 94.87 1.05 1.10
Merck MRK 8.3 54.91 0.14 0.26
Microsoft MSFT 18.0 36.70 0.14 0.38
Nike B NKE 2.6 72.56 0.13 0.18
Pfizer PFE 19.3 31.43 0.21 0.67
ProctGamb PG 6.0 77.96 0.65 0.84
3M MMM 2.6 129.77 0.56 0.43
TravelersCos TRV 3.8 82.34 1.46 1.81
UnitedTech UTX 3.5 111.50 0.77 0.70
UtdHlthGp UNH 6.6 69.70 1.66 2.32
Verizon VZ 9.5 46.91 0.10 0.21
VISAClA V 2.0 220.01 1.77 0.80
WalMart WMT 5.2 73.71 0.04 0.05
Source: WSJ Market Data Group
Credit-default swaps: European companies
At itsmost basic, thepricingof credit-default swapsmeasureshowmuchabuyer hastopaytopurchase-and
howmuch a seller demands to sell-protection fromdefault on an issuer's debt. The snapshot belowgives a
sense whichway the market was moving yesterday.
Showing the biggest improvement...
CHANGE, in basis points
Yesterday Yesterday Five-day 28-day
ONOFinII 88 46 51 114
SOCIETEAIRFRANCE 320 28 39 17
FCEBk 88 6 7 8
Portugal Telecom 318 21 37 52
Lafarge 208 13 21 16
Renault 150 9 19 8
Holcim 118 6 16 12
Portugal TelecomIntl Fin 323 16 31 57
Stmicroelectronics 98 5 6 5
HeidelbergCement 176 8 21 10
Andthe most deterioration
CHANGE, in basis points
Yesterday Yesterday Five-day 28-day
BOCGROUP 26 1 ... 1
Grohe Hldg 60 1 ... 2
Novartis 24 ... ... 2
Kabel DeutschlandVertrieb
undService
46 1 1 1
IMPERIAL ChemInds 25 ... ... 1
SABMiller 61 1 3 12
Alliance Boots Hldgs 108 1 ... 4
CARLTONComms 135 1 2 5
StdCharteredBk 118 1 7 15
BkOFSCOTLAND 62 ... 3 3
Source: Markit Group
BLUE CHIPS & BONDS
WSJ.com
>>
Follow the markets throughout the day, with updated
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Also, receive emails that summarize the days trading in
Europe and Asia. To sign up, go to WSJ.com/Email.
Below, a look at the Dow Jones Stoxx
50, the biggest and best known
companies in Europe, including the U.K.
4 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
EUROPE NEWS
U.K. Criticized Over Flood Response
As Waters Keep Rising, Government Agencies Snipe at Each Other Over Whether Everything Was Being Done
LONDONHundreds of homes
west of London were at severe risk
of flooding after the River Thames
burst its banks Monday, the govern-
ment said, as England continued to
suffer from one of the wettest win-
ters in more than two centuries.
With waters predicted to rise
further this week, Prime Minister
David Cameron said the government
would do all it could to assist those
affected as he visited flood-hit areas
in the southwest of England.
However, his efforts to present a
coordinated response were under-
mined after parts of the govern-
ment blamed each other for not do-
ing more to protect communities.
The opposition Labour Party also
accused the government of being
slow to react.
The governments Environment
Agency, which manages flood de-
fenses, issued severe flood warn-
ingsmeaning there is a danger to
lifefor 14 areas in the southeast of
England and two in the southwest,
one of the hardest-hit regions. It
also warned that flooding was ex-
pected and immediate action re-
quired for 137 further areas across
England, with the highest risk seen
in the Midlands, southeast and
southwest of the country.
The agency said England had the
wettest January since 1776 and is
heading toward the wettest win-
terdefined as the months of De-
cember, January and Februaryin
250 years.
Despite the efforts of staff and
volunteers and the support of the
military, more than 600 homes were
flooded over the past week, it said.
Extreme weather will continue
to threaten communities this week,
with further severe flooding ex-
pected Monday evening into Tues-
day along the Thames in [the coun-
ties of] Berkshire and Surrey, Paul
Leinster, the chief executive of the
Environment Agency, said in a
statement. River levels are high
across southwest, central and
southern England and further rain
has the potential to cause signifi-
cant flooding.
Significant groundwater flooding
was also expected in the southeast,
including parts of London, the
agency said.
Eric Pickles, the minister respon-
sible for local government, told Par-
liament that the River Thames had
burst its banks in some locations
and police had declared a major in-
cident. There was also a high risk
that the Severn and Wye rivers, in
the west of England, would flood
this week, he said.
Some of the heaviest flooding
has been in the Somerset Levels, a
coastal plain farming area in south-
west England about 225 kilometers
from London. The government has
accepted that its decision to reduce
dredging of rivers there in the past
may have exacerbated the flooding.
Coastal areas have also been bat-
tered by heavy winds and high
tides. Last week the sea washed
away the ground under a section of
railway in the coastal town of Dawl-
ish, leaving it dangling in the air
like a rope bridge and knocking out
a vital rail link connecting the
southwestern counties of Devon and
Cornwall with the rest of Britain.
Train operators said services
were unable to run in parts of the
Thames Valley and southwest.
Im only interested in one thing
and that is making sure that every-
thing the government can do is be-
ing done and will go on being done
to help people through this difficult
time, Mr. Cameron told BBC televi-
sion. Last week he pledged an addi-
tional 100 million ($164 million) to
help households, businesses and
farmers cope with the severe
weather.
Nevertheless, a political fight
erupted after Mr. Pickles told the
BBC on Sunday that the government
had relied too much on the advice
of the Environment Agency and that
it had been a mistake to reduce
dredging of rivers in Somerset.
Asked whether the agencys chair-
man, Chris Smith, should resign, he
said that was a matter for Mr.
Smith.
Mr. Smith hit back in a radio in-
terview Monday, saying his staff
knew 100 times more about flood
management than any politician and
he had no intention of resigning.
Mr. Pickles was called on to help
coordinate the flood response after
Owen Paterson, the environment
minister, stood aside last week to
have an eye operation. Mr. Paterson
had faced criticism over his han-
dling of the floods.
Mr. Camerons spokesman said
there was no difference of opinion
between the two ministers follow-
ing local media reports that Mr. Pat-
erson disagreed with Mr. Pickless
assessment of the agency.
The center-left Labour Party said
it was unbelievable that officials
had embarked on a blame game
when homes were at risk.
Instead of blaming officials for
their decisions and now turning on
each other like ferrets in a sack,
ministers must get a grip on this
worsening situation, said Maria
Eagle, the center-left partys
spokeswoman on environmental
matters.
BY NICHOLAS WINNING
Bank of England Looks Ready to Change Policy Cues
Bank of England Gov. Mark Car-
ney is expected Wednesday to
change the U.K. central banks policy
guidance, only six months after set-
ting a new course when he took the
helm at the 320-year-old institution.
In the U.S., the Federal Reserve
has also altered its rate guidance,
underscoring the difficulties faced
by central banks preparing for a re-
turn to more normal policy settings
after half a decade of crisis mea-
sures.
In August, the U.K. had just em-
barked on an economic recovery. Mr.
Carney and his colleagues on the
Monetary Policy Committee wanted
to assure businesses, households
and investors that the bank was un-
likely to raise the benchmark inter-
est rate soon. That was intended to
ensure that businesses and house-
holds increased their spending, rein-
forcing the recovery.
But the MPCs pledgethat it
wouldnt consider a rate rise until
the unemployment rate fell to 7%
may have become a victim of its own
success. With the economy growing
rapidly in the second half of last
year, the unemployment rate fell to
7.1% in November, and now appears
likely to reach the threshold two
years earlier than the MPC had ini-
tially projected.
On Wednesday, the MPC will re-
lease its new forecasts for growth
and inflation. Mr. Carney has said
the committee would also make pub-
lic their thoughts on how they might
evolve guidance, although it isnt
clear that they will decide on a de-
finitive successor to their August
pledge.
The Bank of England is con-
cerned that without forward guid-
ance each data release pointing to a
continuing recovery could bring
closer the time at which business
and households expect the bench-
mark interest to rise.
A business factoring in a near-
term rate rise might hold back on in-
vestment, one of the weak spots of
the recovery.
Mr. Carney has said he wouldnt
favor a simple lowering of the unem-
ployment threshold, and would in-
stead prefer linking the central
banks future decisions on rates to a
wider range of economic develop-
ments.
There have been enough hints
from Governor Mark Carney and his
colleagues to suggest that single
state-contingent guidance will be
dropped in favor of a rather broader
form of guidance, perhaps involving
a number of labor market and eco-
nomic variables, said Jonathan
Loynes, chief European economist at
Capital Economics.
The BOE finds itself in a similar
position to the Fed, which it fol-
lowed in August. The Fed had said it
wouldnt raise its key rate as long as
the U.S. jobless rate was above 6.5%,
but as that threshold neared, altered
its guidance to say it will keep rates
near zero well past the time that
the jobless rate reaches 6.5%.
While a lowering of the unem-
ployment threshold may not be the
MPCs preferred option, some econo-
mists expect that a reference to vari-
ous measures of slack in the jobs
market may still play a part in guid-
ance. While the unemployment rate
has fallen sharply, wage growth is
still very weak, and therefore not a
source of inflationary pressure.
There is also evidence that many
Britons arent working as much as
they would like to, a phenomenon
known as underemployment. But
with the jobs market improving rap-
idly, and in a way that seems difficult
for the MPC to accurately forecast,
that may simply leave them in a sim-
ilar position six months from now.
The MPC may well lean on the
concept of underemployment to
keep rates on hold for a while even
once the jobless rate falls below
7%although, with the economy
growing strongly, we suspect that a
broad set of labor-market
guideswill signal pressure to hike
later this year, said Michael Saun-
ders, an economist at Citigroup.
Some economists believe the
MPC should take this opportunity to
radically alter its communications
strategy once more, and publish its
own forecasts for future interest
rates, alongside the assumptions
they have made about the way the
economy will change that underlay
those forecasts. That is a strategy
used by both Swedens Riksbank and
Norways Norges Bank.
BY PAUL HANNON
About 40 British Royal Marines were helping to reinforce flood defenses on Monday, laying sandbags and bailing water, around Somerset in southwest England.
A
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-
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s
s
e
/
G
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t
t
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I
m
a
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e
s
7%
Level the jobless rate must
fall to before the Bank of
England will raise rates
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 25
PERSONAL JOURNAL
Eric Heiden on Life After Sports Stardom
Eric Heiden, the former speed
skater who won five Olympic gold
medals in 1980, was back at the
Winter Games last week. But he
wasnt in Sochi, Russia, to com-
pete. He was there as the team
physician for the U.S. speed skat-
ing teamnone of whose current
members were yet born when Dr.
Heiden set his records.
Against a backdrop of threats
from terrorist groups and strained
relations between the U.S. and
Russia, these Winter Games will
have a different atmosphere from
the 1980 Olympics in Lake Placid,
N.Y., where Dr. Heiden famously
won all of the long track speed
skating races, a first in the sport.
Now 55, he has the same phi-
losophy about sports and politics
that he did back then. He says that
if he had qualified for the 1980
summer Olympics in Moscow in
cycling, his second sport, he would
have gone despite the U.S. boycott.
In general, I still feel that poli-
tics dont have a place in the
Olympics, he says. Look back tra-
ditionally at how the Olympics be-
ganit was an attempt to get rid
of politics and break down walls.
In a phone interview from in-
side the heavily guarded Olympic
Village, Dr. Heiden says that the
athletes seem unaffected by inter-
national differences. These guys
are not aware of whats going on
politically, he says. Theyre
tweeting each other and posting
on Facebook.
Most competitors have been
encouraged to stay within the vil-
lages secure perimeter. But behind
layers of fencing and screening
like an airport, Dr. Heiden says,
traveling between venues is actu-
ally more convenient than for past
Olympics, because the event loca-
tions are closer together. If you
stand in the parade area where the
torch is, its 100 yards from the
hockey, figure skating and speed
skating, he says.
As the U.S. teams doctor, Dr.
Heiden decided to stay with the
team for two weeks in Italy for
training, followed by four days
with them in Sochi. (He was eager
to get home to his family and left
before the Games officially
started.) From a physicians stand-
point, he says, the time before the
competition is the most critical for
preventing illnesses and injuries.
In speed skating, the most com-
mon afflictions result from over-
use, such as lower back and knee
pain.
In his own career as a skater,
Dr. Heiden says that his injuries
were minimal. I broke some
bones, my wrist and ankle, but
thats really about it, he says. I
had stress fractures. The team
hes working with now ranges
from teenagers to athletes in their
early 30s, about the time most
speed skaters retire.
Dr. Heiden retired from speed
skating early, at age 21. I kind of
had had enough of it, he remem-
bers. I lost that motivation to re-
ally focus on skating. After his
victories at Lake Placid, he decided
to focus on cycling. He didnt
reach the same level in his second
sport but excelled by American
standards, he says. When I had a
chance to race in Europe, I was an
average rider. In 1985, he won the
first U.S. Professional Cycling
Championship. A year later, he
competed in the Tour de France,
but he crashed a few days before
finishing the race.
Now that he cycles only for fun
and fitness, he is nostalgic for his
life as an athlete. When youre in
the midst of it, you dont appreci-
ate it as much as when you get out
of it and have a normal life, he
says. I miss the travel and the ca-
maraderie. Still, Dr. Heiden appre-
ciates being able to enjoy sports
events much more than before. I
get to explore, rather than being
focused and only being in the ho-
tel or at the rink.
He also misses his former phy-
siquethough not all of it. As a
competitor, he was famous for his
enormous muscular thighs, which
looked to be nearly the circumfer-
ence of his waist. (I have no clue
how big they were, he says; he
never bothered to measure them.)
Do they still look the same? No,
thank God, he says, laughing.
Nowadays I think Im pretty nor-
mal.
Growing up in Madison, Wis.,
Dr. Heidens athletic abilities were
anything but average. The son of
an orthopedic surgeon (his own
field of medicine) and a home-
maker, he started skating on the
lake behind his grandfathers
house at a young age and became
a club figure skater by age 5. By
the time he turned 8, he was also
playing hockey and was recruited
to Madisons speed skating team.
At age 16, he made it onto the
national speed skating team,
which invited him to compete with
them in Europe for three months.
I was like, I get to miss school
for three months! he says. I
was certainly surprised by how
quickly I became very good at it.
Two years later, he won the World
Championship.
Success in speed skating and
cycling doesnt pay as well as
more popular U.S. sports such as
football or basketball, and Dr. He-
iden says he and his teammates
were never motivated by money.
The most he made in a year as a
speed skater was less than $5,000,
he recalls. His parents supported
him during that time, and he made
money as a security guard at Os-
car Mayer, the meat purveyor. As a
cyclist, he was allowed to take
sponsorships, bringing in an in-
come in the low six figures. He
says that while some U.S. athletes
can make a good living through
sponsorships, others only receive a
small stipend (when he was an
Olympic athlete, about $6 a day,
he remembers) to compete.
Whats really important to
achieving success in sports is in-
nate motivation, says Dr. Heiden.
Motivation is a very hard thing to
teach an athlete. Working with so
many athletes over the years, he
has come to believe that most are
driven by a need to explore their
personal limits.
Theyre not so concerned
about the outcome, whether its a
win or a loss, but just want to
know they have challenged them-
selves and performed up to what
they consider acceptable, he ex-
plains. Most feel they have never
reached a perfect competition or
had a perfect game, and theyre al-
ways challenging themselves and
can always find fault in what
theyve done despite being victori-
ous.
That nagging dissatisfaction of-
ten drives them to be successful at
later endeavors, once their com-
petitive careers are over. He points
to two former Olympic athletes
Debi Thomas, a figure skater
turned physician, and Mike Plant,
a speed skater turned baseball ex-
ecutive.
Dr. Heiden considers his great-
est accomplishment to be his work
as a physician and orthopedic sur-
geon, rather than his Olympic
medals. He had always wanted to
go into the same field as his fa-
ther, so after getting his bachelors
degree from Stanford University in
1984, he went on to get a medical
degree there too.
After his residency and train-
ing, he returned to California as an
orthopedic surgeon, eventually be-
coming a team physician for the
Sacramento Kings. He and his wife,
also a surgeon, and their two chil-
dren, ages 10 and 12, relocated to
Park City, Utah, in 2006 to open
their own practice. Two years
later, he co-wrote a health and fit-
ness book, Faster, Better, Stron-
ger, and today he works primarily
on ACL and other joint-related in-
juries.
As a former athlete, Dr. Heiden
often faces pressure from the
pharmaceutical industry to spon-
sor new technologies and medica-
tions. Although sponsorships
helped him get through college
and medical school, he says that
he avoids endorsements now. But
he still brings his sports mentality
to his medical career. Its like be-
ing an athleteyoure only as
good as your last case, he says.
BY ALEXANDRA WOLFE
Former Olympic star skater Eric Heiden, who today is the U.S. speed-skating teams doctor, believes the time during training before the competition is the most critical for preventing illnesses and injuries.
A
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h
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r
f
o
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a
l
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J
o
u
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n
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Innate motivation is
the key to success in
sports, he says. Its
a very hard thing to
teach an athlete.
THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 3
NEWS
Israel, Turkey Near Repairing Alliance
Turkey and Israel are on the
verge of settling a four-year feud
that left their once-allied govern-
ments estranged, officials from both
countries said, a development that
would restore stability to a vital re-
gional relationship.
Negotiators from both countries
have intensified talks in the past
month, shuttling back and forth be-
tween Turkey and Israel with in-
creasing frequency, in an effort to
renew their alliance.
The countries downgraded diplo-
matic ties after an Israeli raid in
2010 killed nine Turkish activists
aboard a ship, the Mavi Marmara,
seeking to breach the Jewish states
economic blockade of the Gaza Strip,
which Israel imposed in response to
militant attacks.
We are living through a period
where our relationship is closest to
normalizing since Mavi Marmara,
Ahmet Davutoglu, Turkeys foreign
minister, told a Turkish television
station on Sunday.
Most matters, including the vital
point of compensation for victims
families, have been settled, said peo-
ple familiar with the talks.
But a deal could still falter on
sensitive issues including Israels de-
mand for immunity for Israeli gener-
als who oversaw the 2010 incident
aboard the ship.
Any immunity deal must be
passed by Turkeys parliament in
Ankara, people familiar with the
deal said. Prime Minister Recep
Tayyip Erdogans ruling Islamist-
leaning party has ramped up anti-Is-
raeli rhetoric in recent years, blam-
ing the country for a host of ills,
including Turkeys nationwide anti-
government protests in June and the
ouster of his ally President Moham-
med Morsi in Egypt.
Still to be settled in the talks are
also Turkish demands to open trade
access to Gaza.
It will require a good turnabout
under these circumstances, where Is-
rael is constantly blamed and named
in conspiracy theories, said Sinan
Ulgen, a former Turkish diplomat
and current visiting scholar at Carn-
egie Endowment for International
Peace. Certainly, the government
will undertake a political evaluation.
The foreign ministries from both
countries declined to comment on
the question of immunity.
Were in touch for a final meet-
ing, compensation will be another
step and there may be concrete de-
velopments to get aid to Gaza and
Palestine, Mr. Davutoglu said.
An agreement could help Mr. Er-
dogans electoral chances ahead of
local elections on March 30. Israels
leader, Benjamin Netanyahu, could
tout the deal to offset rising con-
cerns over economic and political
isolation should the current peace
talks with the Palestinians falter.
Turkey also stands to regain
some of the support it has lost
among U.S. lawmakers and improve
the balance sheet of its foreign pol-
icy by sending its ambassador back
to Israel, Mr. Ulgen said.
Rekindling ties between the two
U.S. allies, whose close security coop-
eration in the 1990s and early 2000s
was a cornerstone of Washingtons
Middle East policy, could also lead to
more economic cooperation, espe-
cially in energy, observers say.
The two countries can also lever-
age their alliance to resume their in-
fluential role in the Middle East dur-
ing a period of great turmoil, he
added, citing potential collaboration
against al Qaeda and Islamist ex-
tremists in Syria.
A deal would be a clear sign of
success for the Obama administra-
tion, which is in search of a concrete
milestone in its foreign policy. It
would also eliminate the uneasy bal-
ancing act U.S. had to do between
two of its allies, Mr. Ulgen said.
The two countries rapproche-
ment started in March, when U.S.
President Barack Obama cajoled Mr.
Netanyahu into calling and apologiz-
ing to Mr. Erdogan for the deaths.
Both Turkish and Israeli leaders
have come under mounting domestic
and international pressure.
Mr. Erdogans government, in
power since 2002, faces sporadic pro-
tests following demonstrations last
summer and was hit in December with
a corruption probe. The Turkish leader
has launched a charmoffensive, flying
fromTokyo to Brussels, Tehran, Berlin
and Sochi to refurbish his image be-
fore the March elections. The vote is
seen as a referendumon Mr. Erdogan,
who is expected to run for president
this summer.
On the other hand, Mr. Netan-
yahu was warned just last week
about rising boycott efforts by U.S.
Secretary of State John Kerry, who
is expected to unveil proposals to
guide the Jewish states peace talks
with Palestine within weeks. Den-
marks Danske Bank and Vitens, a
Dutch water company, have said
they would avoid activities with
some Israeli businesses because of
their West Bank operations.
In contrast, bilateral trade be-
tween Turkey and Israel rose to a re-
cord $5.1 billion last year, jumping
47% since the Mavi Marmara raid
even as the countries downgraded
diplomatic ties, according to Turkeys
Economy Ministry. With Israels natu-
ral gas finds in the Eastern Mediter-
ranean, businessmen are eager for a
restoration of good diplomatic rela-
tions that could also anchor energy
exports from the Jewish state and
turn Turkey into an energy hub.
By Emre Peker in Istanbul
and Joshua Mitnick
in Tel Aviv
Two countries whose ties
frayed after Israel killed
nine Turkish activists
step up talks to resolve
their four-year dispute.
26 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
THE WINTER OLYMPICS
U.S. Aims to End a 38-Year Drought
Kikkan Randall Is Poised to Win Americas First Olympic Medal in Cross Country Skiing Since 1976
Sochi, Russia
For eight long years, Kikkan Ran-
dall and her coach have been talking
about one three-minute ski race that
will take place Tuesday afternoon
here in the Caucasus Mountains.
Randall, a 31-year-old paragon of
fitness, and coach Erik Flora have
literally moved mountains of snow
to prepare. Randall has logged thou-
sands of hours on her roller skis on
the roads surrounding Anchorage
where she lives. She has done more
pull-ups with a 60-pound weight
strapped to her waist than most
people do in a lifetime with no
weight at all.
Already a world champion, Ran-
dall performs this self-torture with
the singular goal of winning some-
thing no American has won in four
decades: an Olympic medal in cross-
country skiing. It is a sport in which
barely 1% of the U.S. population par-
ticipates.
When I do school presentations
I tell the kids I hear this crying at
night, Randall said in a recent in-
terview. I check my husband and
its not him, I check my cats, its not
them. Then I realize its my world
championship medal. It really wants
an Olympic medal to hang out with.
An Olympic medal would really kind
of give a lot of validation to the
sport in our country.
Bill Koch was the last American
to win an Olympic medal in cross-
country. He took silver in the 30-ki-
lometer race in Innsbruck in 1976.
Flora, Randalls coach, said they
first began pointing toward Tues-
days race eight years ago, when she
was 23-years old and far from elite.
They couldnt focus on winning at
the 2010 Olympics because cross-
country skiing rotates each Games
between two sprint-competition
styles: classic and freestyle (or
skate). Randall is merely a good
skier at classic, the style staged at
the 2010 Games. But she is great at
freestyle, which is on schedule for
Tuesday.
On paper, she ought to win. For
two years running she has won the
womens sprint overall world cup
cross-country title. She won a world
cup race held last year on the
course here at the Laura Cross
Country and Biathlon Center.
But amid a 38-year drought since
America won its only cross-country
medal, Randall and her coaches have
taken nothing for granted. During
last years world cup test event
here, Randalls coaches skied the 1.5
kilometer course with a GPS track-
ing device. When they returned to
Alaska, where
Randall lives and
trains with her
hometown club, the Alaska Pacific
University Nordic Ski Center, they
combined that information with
maps and technical data about the
track, such as the location of the
turns and changes in altitude.
Using a snow-moving machine
called a PistenBully, they built a rep-
lica of the course on Eagle Glacier, a
45-minute drive and six-minute heli-
copter ride from Anchorage, where
the club is based.
During her summer training on
the glacier, Randall headed out on a
roughly 90-sec-
ond sprint,
turned onto a
sharp climb, followed by a short,
steep descent that ends with a hair-
pin turn, just like the course here.
Its one of the advantages of
owning a home training facility on a
glacier where there arent any trees
or existing trails, said Flora, a for-
mer teammate of Randalls at the
APU club, and her coach since 2006.
Across nearly every international
sport, whether skiing or soccer, the
stereotype of American athletes is
that they arent that technically
skilled, but they possess a relentless
work rate and a never-say-die atti-
tude that makes them hard to beat.
Randall, as conditioned as any ri-
val, also draws praise for her pow-
erful and exacting form.
She is very good technically
with the skating, one of the best,
said Egil Kristiansen, Norways
womens cross-country coach. Shes
going to be very hard competition.
When Randall is on, she perfectly
coordinates the contact her pole and
ski make with the snow, flexing her
core in the kind of upright crunch
her sport demands. After years of
following Flora on the snow, she has
figured out how to position her skis
to avoid her competitors and take
the right line around turns. That is
easier said than done, since cross
country skis are about 5 centimeters
wide and cut straight. They arent
meant to turn like downhill skis, and
skiers have been reaching 50 miles
an hour on the Olympic course.
It helps that Randall is a worka-
holic. In the off-season, she will do
a 2
1
/2--hour roller ski in the morning,
take a nap, warm up 30-60 minutes
on roller skis, head to a weight
training session, then go for a run
or ski some more.
Flora said Randalls training
schedule has its roots in two years
he spent in Norway in the early
1990s. An international skier as a ju-
nior, he realized how much harder
the Norwegians worked, and how
focused and intense their practice
sessions were. Everything was mea-
sured, everything was done for a
reason. When he became a coach at
APU, Flora increased Randalls work-
load about 30%. She could take it,
he said.
That meant more hours and
more intensity. APU has a recre-
ational course and a more challeng-
ing racing course. Randall began
spending most of her time on the
racing course, practicing in race
conditions.
Ahead of Tuesdays race, every-
thing appears to be setting up for
Randall, and for America, the poten-
tial end of a long winless streak. Not
only is it a skate-style race, she is in
her athletic prime and healthy. Here
in Krasnaya Polyana, she has been
alternating hard, simulated-race
training sessions with light recovery
days. Friday and Sunday were hard.
Saturday and Monday were sched-
uled to be light.
Race officials even did her a fa-
vor. Since last years World Cup
event, they added a 1.5 meter incline
on the final straightaway. It used to
be flat. That will favor the more
powerful skiers over the gliders.
Randall, queen of the pull-up with
the 60-pound weight, is as powerful
as they come.
The Olympics is the worlds big-
gest stage, she said. I would really
love to have that medal.
BY MATTHEWFUTTERMAN
Kikkan Randall, 31, is favored to win the first U.S. cross-country skiing medal since Innsbruck in 1976.
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When Bronze Trumps Gold
One of the loudest home crowds
of the Olympics so far raised the
roof of the Iceberg Skating Palace
Monday afternoon for Russian
skater Victor An, who claimed the
host nations fifth medal of the
Games. He took bronze in the short-
track 1,500 meters, behind winner
Charles Hamelin of Canada and
Tianyu Han of China.
Hamelin, now a five-time Olym-
pic medalist, finished in 2 minutes
14.985 seconds, 7 hundredths of a
second ahead of his nearest rival.
J.R. Celski was the top American in
fourth.
I just wanted to make sure I
didnt listen to the crowd cheering
for the Russian and stuck to my
[plan], Hamelin said.
Hamelin has been the dominant
figure in short-track this season,
finishing top of the World Cup
standings in two distances, the
1,000 and the 1,500 meters. The
only one he didnt own, the 500
meters, belonged to An. After the
first day of short-track competition,
their rivalry is shaping up to be one
of the most intriguing of these
Games. They are expected to square
off in at least two more finals.
Hamelin took control of the race
early on by heading straight to the
front of the group, while An tried to
position himself for an attack from
the back of the pack. But he left it
too late and couldnt quite catch the
leading pair on the final lap.
Maybe he could have done one
position better, Russia coach Se-
bastien Cros said of An. He wasnt
in a great spot early in the race.
Most of the pro-Russian crowd
stayed behind to celebrate Ans spot
on the podium anyway, which may
seem strange when you consider
that An wasnt Russian until three
years ago. In fact, his name wasnt
Victor until three years ago either.
Originally Korean, An won three
gold medals for South Korea in
2006 at the Torino Games under the
name Ahn Hyun-Soo.
After a long layoff due to a knee
injury and a falling out with the Ko-
rean Skating Union, he missed the
Vancouver Games and defected to
Russia. His new home had only ever
won a single medal in short-track,
and even that is largely forgotten
it was a bronze earned under the
flag of the Unified Team in 1992.
But the fans left no doubt that
they had fully adopted An as he
skated around the rink draped in a
Russian flag.
BY JOSHUA ROBINSON
Charles Hamelin of Canada celebrates his 1,500 meters gold medal on Monday.
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AM IM UK SW FR IT SP TK BR PL IS AE GR
THE WALL STREET JOURNAL.
PAGE TWO
The fate of
Democrats this
election year rests
in the hands of
Southern women.
Three Southern
women, to be specific. They are
seeking Senate seats in races that,
perhaps more than any others,
will answer the paramount
political question of 2014: Can
Democrats retain control of the
Senate?
Two of these womenMary
Landrieu of Louisiana and Kay
Hagan of North Carolinaare
trying to win re-election on
terrain no longer naturally
friendly to Democrats.
The third, Michelle Nunn of
Georgia, is trying to do something
harder, which is to break the GOP
hold in the Deep South. She seeks
to take back for the Democrats a
seat now held by retiring
Republican Sen. Saxby Chambliss.
A statewide victory in the South
would be a significant Democratic
breakthrough.
A look at the simple math of
the Senate shows why these three
races are key. Democrats now hold
55 seats, counting two
independents who tend to vote
with the Democrats. That means
Republicans need to pick up six
Democratic seats to take control.
Democrats have to defend 21
seats they currently hold, while
Republicans have to defend just 15,
meaning the GOP has more targets
of opportunity. Nine of the seats
Democrats are defending are very
competitive and could go either
way; only two Republican-held
seats really fit that description.
All three of the Southern
Democratic women are running in
such competitive races. The race
in Georgia is the one where the
Democrats have the best chance of
taking away a Republican seat,
which would help offset losses
elsewhere.
In each of these three races
there are distinct limits to the
amount of help President Barack
Obama can provide; to some
extent, he is a liability. But there
are three things the president can
do to help these women.
The first is to raise money. One
distinct bright spot for Democrats
so far this election cycle has been
their success at outraising
Republicans despite the
presidents rough political year in
2013, an advantage a sitting
president can help maintain.
Nationally, the Democrats
Senate campaign committee raised
$52.6 million during 2013, while
the Republicans committee raised
$36.7 million. Individually, each of
the three women outraised their
likely Republican opponents. Being
well-funded is a necessary, though
not sufficient, condition for
winning in a tough environment
particularly when well-heeled
outside groups are sure to lend
Republicans a hand.
Second, Mr. Obama can
generate excitement and pump up
turnout among the Democratic
base, especially minorities. The
African-American population is a
big factor in each of these states;
it represents more than 30% of the
population in Louisiana and
Georgia, and just over 20% in
North Carolina.
Third, the president could
approve the Keystone XL pipeline.
The pipeline, which would carry
Canadian tar-sands oil south
across the U.S. for shipment on to
refineries in the Midwest and
South, tends to be a popular idea
in red-tinged states, such as these
three, and among independent
voters of the kind these
Democratic women must woo. Its
particularly important to Ms.
Landrieu in energy-obsessed
Louisiana.
So what are the prospects for
these Southern women? Consider
their races in turn:
Louisiana: This state used to
elect Democrats regularly but has
moved steadily Republican. The
GOP holds the other Louisiana
Senate seat, and five of the states
six House seats, and Mr. Obama
won just 41% of the 2012 vote.
Offsetting those problems is
the Landrieu name, a venerable
one in Louisiana politics, and Ms.
Landrieus relatively moderate
voting record. Like other
Democrats, though, she appears to
have been dragged down by the
rough rollout of the Affordable
Care Act championed by the
president. Odds are shell face a
tough fall runoff against
Republican Rep. Bill Cassidy, a
solid contender.
North Carolina: This state is
more favorable territory for
Democrats; Mr. Obama won North
Carolina narrowly in 2008, though
he lost it narrowly four years
later.
Still, polls suggest Ms. Hagan
has her hands full. One advantage
she enjoys is the fact that she has
prepared for a tough race. She
raised $2 million in the fourth
quarter of 2013, compared with
about $700,000 for state House
Speaker Thom Tillis, her most
likely opponent. She has $6.8
million in the bank, while Mr.
Tillis has about $1 million.
Georgia: This state has become
tough sledding for Democrats, but
they hope there is enough magic
left in the Nunn name to reverse
their fortunes. Ms. Nunn has been
chief executive of the bipartisan
Points of Light Foundation and is
the daughter of former Sen. San
Nunn. Aside from that golden
family name, Ms. Nunn has one
other advantage: A crowded field
of seven Republican contenders,
who could well slice and dice one
another in both a primary election
and a likely runoff to determine
the GOP nominee.
Control of Senate Linked
To Three Southern Races
[ Capital Journal. ]
BY GERALD F. SEIB
i i i
Business & Finance
n Axel Springer CEO Mathias
Dpfner is hesitating at the
price of online assets as the
European newspaper publisher
bids for Forbes magazine. 15
n The BOEs Carney is ex-
pected to change the banks pol-
icy guidance, only six months
after setting a new course when
he took the helm at the 320-
year-old institution. 4
n Nestl is said to be studying
whether to unwind its 30%
stake in LOral when it is free
to in April, a sale that could
set off a chain reaction of buy-
backs, also involving Sanofi. 17
n Prices of bitcoin have fluc-
tuated recently on factors
ranging from government regu-
lation to its acceptance by real-
world retailers. Now add an-
other driver: perceived
technical glitches. 17
n Austrias banks have re-
fused to participate in a bad
bank carved out of the wreck-
age of failed regional Hypo
Alpe Adria, raising the risk
that the government might de-
clare the bank insolvent. 18
n Borrowing costs for Chinese
firms are rising strongly, a
shift that could herald weaker
profits, slower economic
growth and even the first de-
faults by corporations. 15
n Toyota said it would stop
producing cars in Australia. 18
i i i
World-Wide
n Europe will target better ties
with Cuba after EU foreign min-
isters approved negotiations
with the island nation aimed at
deepening bilateral political and
economic dialogue. 6
n Turkey and Israel might
clinch an agreement to settle a
four-year feud that left their
governments estranged, mark-
ing a significant step in bol-
stering U.S. interests and re-
storing a key security pillar. 3
n Syrias government and op-
position refused to meet as a
spate of attacks on humanitar-
ian convoys overshadowed ef-
forts to resume peace talks. 9
n Iranians say Rouhanis gov-
ernment, in subtle ways, has
tried to ease the most zealous
enforcement of Islamic codes
and create space for more per-
sonal expression in public. 9
n Afghan militant group
Hezb-e-Islami launched a car-
bomb suicide attack in Kabul,
killing two contractors for the
U.S.-led coalition and wounding
several Afghan civilians. 8
nU.S. lawmakers will tighten
oversight on the Department of
Veterans Affairs over its response
to what they say are manage-
ment and medical errors. 7
nAstronomers in Australia
identified what they say is the
oldest known star, estimating it
was formed 13.6 billion years ago.
Whats News
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Syria: The Evacuation of Homs
Hundreds of the sick and starving trapped in the Syrian city of Homs
were rescued this weekend. See their journey at blog.wsj.com/middleeast
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Senate candidate Michelle Nunn, center, is trying to win in Georgia and make inroads for Democrats in the Deep South.
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THE WALL STREET JOURNAL. Tuesday, February 11, 2014 | 27
THE WINTER OLYMPICS
Security Is Discreet
Inside Ring of Steel
Sochi, Russia
The roughly 40,000 Russian secu-
rity officials checking bags, scanning
water bottles and patrolling train
stations to safeguard the Olympic
Games are part of one of the worlds
fiercest security machines. They are
also dressed a bit like Barney.
Russia has re-
sponded to a ter-
rorist threat from
the neighboring North Caucasus that
brought two suicide bombings to the
city of Volgograd in late December
by rolling out whats likely the most
extensive security apparatus to
guard any modern Olympic Games.
But there is barely a Kalashnikov in
sight. Fearing that visitors first im-
pression of Russia would be that of a
militarized zone, Russian security
services have taken significant mea-
sures to make the operation seem
warm and fuzzy, a rarity in a place
where police often come across as
intimidating.
The main thesis that were oper-
ating under for the event is that se-
curity will be unnoticeable, Federal
Security Service official Alexei Lavr-
ishchev said last fall. It will not be
in your face, it wont interfere with
anyone in public spaces.
The effort is noticeableor unno-
ticeable, as it were.
Just about all of the Russian se-
curity forcesdrawn from the police,
the military, and other agenciesvis-
ible inside and at the entrances to
the Olympic Park wear purple pants
and athletics jackets decorated with
the Sochi 2014 logo and colorful tra-
ditional Russian patterns. A heavily
fenced-in building that appears to be
part of the security operationan
unmarked surveillance blimp is low-
ered into its parking lot at nightis
decorated with a colorful mural
showing a giant green tree and pur-
ple eggplant.
Its present but its not obtru-
sive, said Scott Hume, associate di-
rector of security operations with
Global Rescue, a security firm that is
providing support to the U.S. Ski
Team and to corporate clients in
Sochi.
That doesnt mean it isnt there.
Russian security forces have devel-
oped what officials describe as a
ring of steel with checks around
the perimeter of the city. People who
bought tickets to the games were re-
quired to submit their passport de-
tails and a photo, and they must scan
their photo-adorned badges at
checkpoints to get into the venues
and the Olympic Park.
Along the roads, railways and
even airport runways around Sochi
stand police sentries, sometimes just
a few hundred feet apart. The road
and railroad leading from the Olym-
pic Park on the Black Sea coast to
the cluster of ski resorts where the
outdoor events take place is lined
with surveillance cameras. Military
boats are visible off the coast.
But the Russian organizers ap-
pear to have concentrated on secur-
ing a large perimeter around Sochi
and keeping to a minimum any show
of force in the immediate vicinity of
Olympic venues.
Another part of the security ap-
paratus is surveillance. Andrei Solda-
tov, a Russian security watchdog and
editor of the Russian security web-
site Agentura.ru, says that surveil-
lance across the city includes com-
munications interception, drones,
sonars to identify hostile submarines
and a record amount of CCTV cam-
eras employed in an Olympic area.
He says that setup allows for a
lower-visibility physical security
presence.
Russian security forces didnt re-
spond to a request for comment re-
garding Sochis surveillance and se-
curity setup. The
I nt e r na t i o na l
Olympic Commit-
tee declined to comment.
When prompted, security forces
can emerge quickly from the back-
ground. When a private Wi-Fi net-
work was switched on during the
opening ceremony, which security
forces prohibited, a purple-clad
agent carrying a large electronic de-
vice showed up immediately to in-
vestigate.
The approach marks a contrast
from other large events that Russia
has guarded, including protest
marches in Moscow and the recent
G-20 summit in St. Petersburg,
where uniformed and at-times armed
security officers were prominent.
Soldatov says it is clear why
Russia would roll out intimidating
security officials ahead of a protest
in Moscow. At these events, you
dont have ordinary visitors, he
says. You dont have tourist. You
dont have visitors you want to im-
press with your civilized approach.
He says that actions against activists
ahead of the Games intimidated
many people into avoiding Sochi al-
together.
Fans and journalists entering the
Olympic Park or taking Sochis new
rail system undergo an airport-style
security check when entering one of
the train stations. On Saturday, the
check even included a device to test
whether or not the contents of a wa-
ter bottle were harmless.
But after that, there are few if
any checkpoints ahead of the sports
facilities, because security personnel
have created a connected clear
zone that allows people who have
already gone through security checks
to move fairly easily around the ven-
ues. The forces are confident enough
in the security to allow prominent
leaders to mingle close to the fans,
as when Russian Prime Minister
Dmitry Medvedev attended a biath-
lon event Saturday night.
Perhaps the most noticeable
change from past Olympics is the
relative lack of visible guns.
Im sure theyre not that far
away, Hume said.
Security has been a highand
usually highly visiblepriority at the
Olympics ever since terrorists mur-
dered 11 members of the Israeli
Olympic team at the 1972 Munich
Games. A bombing at the 1996 At-
lanta Games killed one and injured
111.
At the London Olympics in 2012,
the U.K. deployed army personnel in
camouflage who patrolled alongside
private security guards with machine
guns. At the Salt Lake City Olympics
in 2002, Utah deployed its National
Guard in uniform. News photographs
from those Games, which took place
months after 9/11, show soldiers in
military garb, guns hanging from
their shoulders, guarding a speed
skating practice session.
In Sochi, the most-visible guns
are those the biathlon racers carry
on their backs. The security is far
heavier in farther-flung areas of
Sochi outside the Olympic vicinity.
Terrorism experts have warned that
such soft targets are more vulnera-
ble than highly-guarded areas closer
to the Games themselves.
During the opening ceremony, se-
curity was intense in downtown
Sochi. Fans entering a downtown
live zone to watch the festivities
had to submit to searches and
metal detectors.
But nearly an hour away, nothing
so intense greeted visitors to the
seaside Olympic Park. Martin Sutter-
luetti, a 55-year-old visitor from Aus-
tria, said he felt certain security was
high around the Olympics. But you
dont feel it, he said.
A pair of German tour operators
complained about having to register
their passports for photographic ID
to receive tickets.
But Dina Galeyeva, 53, visiting
from central Russia, said that that
early screening probably explains
why public security seems subdued
at the Games.
They already know about every-
one who is here, anyway, she said.
As for the design of those special
purple outfits the security personnel
are wearing? Ms. Galeyeva is a fan.
So much so, she said, that she
planned to buy one if possible for
her son.
Joshua Robinson
contributed to this article.
BY PAUL SONNE
AND ANTON TROIANOVSKI
Purple-clad security patrolling the Rosa Khutor mountain cluster village.
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globe and around the clock, our dedicated journalists
cover the biggest developments in markets, nance
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VOL. XXXII NO. 8
TUESDAY, FEBRUARY 11, 2014
Inside Sochis Ring of Steel
THEWINTEROLYMPICS27
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EUROPE EDITION
WSJ.com
Nigel Gray refused to give in to the elements Monday, leaving home in a rowing boat after the river
Thames flooded Wraysbury, southern England. The U.K. is enduring one of its wettest winters in 250
years, with politicians blaming each other for lack of action to beat severe flooding. Article on page 4
Briton Rules the Waves as Thames Spills Over
Reuters
Swiss Vote
Stirs Concern
In Europe
Switzerland was warned
Monday of potentially serious
repercussions in its relation-
ship with its biggest trading
partner, the European Union,
after Swiss voters backed a
cap on immigration in a refer-
endum.
The outcome of Sundays
vote potentially undermines
close ties with the 28-nation
bloc that are crucial to the Al-
pine nations economic suc-
cess and that of its influential
financial-services sector.
Switzerland now is highly
unlikely to honor a pledge to
scrap quotas for migrants
coming from the EUs newest
member, Croatia, on July 1a
move that would in turn trig-
ger the suspension of other
accords by the EU.
Treaties governing rela-
tions between the two sides
contain a guillotine clause
that invalidates the entire
package if one of component
is terminated.
One cant have, on one
hand, a privileged access to
the internal market of the Eu-
ropean Union and on the
other hand, dilute the free
movement of people. The two
are linked, the Luxembourg
Foreign Minister Jean Assel-
born said in Brussels.
The vote was welcomed,
however, by anti-immigration
parties inside the EUeven
though any new restrictions
would ostensibly apply to all
EU citizens.
A slim majority of Swiss
voters approved the measures
to introduce quotas on foreign
workers, reflecting wide-
spread concerns that a flood
of immigrants is pushing up
housing prices and creating
too much competition for
jobs.
It calls for the government
to renegotiate the treaty with
the EU that guarantees free
movement of workers. About
64,000 EU citizens have set-
tled in Switzerland every year
over the past decade, accord-
ing to the Federal Office for
Migration.
It wasnt immediately
clear how the Swiss govern-
ment would implement the
new limitsthe referendum
calls for quotas within the
next three years.
But senior EU figures
made plain that Switzerland
wouldnt be able to dismiss
elements of the trade package
that it later decides it doesnt
like.
Cherry-picking from its
Please turn to page 6
By Vanessa Mock in
Brussels and Neil
MacLucas in Zurich
Opinion: The Swiss vote for
isolationism, narrowly........... 12
European Banks Parry U.S. Rules
LONDONEuropean banks
are considering new ways to
cushion the blow of U.S. fi-
nancial-safety rules set to
kick in as early as next year.
The moves are a reaction
to planned Federal Reserve
rules that will require the U.S.
arms of foreign banks to be
better capitalized and subject
them to annual stress tests.
European banks for years
have run the operations on
much thinner capital buffers
than their American rivals.
Among the tactics under
consideration, banks including
the U.K.s Barclays PLC, Ger-
manys Deutsche Bank AG
and Switzerlands UBS AG
could shore up their U.S. sub-
sidiaries by buying debt from
them, according to people fa-
miliar with the banks strate-
gies. Other banks are selling
assets or considering moving
businesses into legal struc-
tures outside the purview of
U.S. regulators.
The ideas are triggering
criticism from some banking
experts who say they wont
strengthen the overall health
of the banks and could draw
unfavorable scrutiny from
regulators, including the Fed,
which is responsible for over-
seeing U.S. banks.
Such moves shouldnt be
perceived as creating capital,
said Cornelius K. Hurley, di-
rector of the Boston Univer-
sity Center for Finance, Law &
Policy. I doubt the Fed will
fall for thisapproach, let
alone the foreign banks
home-country supervisors.
Bank executives say the
steps they are considering are
legitimate ways of adhering
to increasingly onerous regu-
lations, while minimizing
costs to shareholders. They
note that any steps will need
to win the support of regula-
tors in both the U.S. and the
banks home countries.
The Fed is expected to
publish the rules in final form
in coming weeks, but they
wont go into effect until next
year at the earliest. In addi-
tion to requiring banks to
thicken their capital cushions
and face yearly stress tests,
the rules will subject banks
to more-rigorous oversight
from the Fed. The more-strin-
Please turn to page 17
BY MAX COLCHESTER
AND DAVID ENRICH
Nokia
Readies
Android
Phone
Nokia Corp. plans to re-
lease this month a smart-
phone that runs a version of
Google Inc.s Android mobile
software, said people familiar
with the matter, as it con-
cludes the sale of its handset
business to Microsoft Corp.
Nokia engineers had been
developing the Android phone
when Microsoft was conduct-
ing due diligence on its 5.4
billion ($7.4 billion) deal to
buy the Nokia handset busi-
ness and license the com-
panys patents. The Android
phone was aimed at emerg-
ing-market customers, and
has been tailored in a way
that wont promote some of
the key Google-developed fea-
tures that a more traditional
Android-powered phone
might, these people said.
Three years ago, Nokia
agreed to abandon the home-
grown software used on most
of its smartphones in favor of
Microsoft Windows Phone
software after Microsoft of-
fered billions of dollars for
marketing and development.
Last year, the Finnish com-
pany agreed to sell its hand-
set business to Microsoft, ce-
menting that partnership.
One of newly appointed
Microsoft Chief Executive Sa-
Please turn to page 16
BY SVEN GRUNDBERG
AND SHIRA OVIDE
$1.75 (C/V) - KES 250 - NAI 375 - 1.70
Inside
After leaked earnings
data, Barclays was
again under scrutiny
Monday for how it
protects information
Business ...................15
Heard on the Street... 28
Millions of Americans are unable to buy
health insurance because of a mismatch
between federal and state rules on eligibility
In Depth..........................................................10-11
Investor Carl Icahn drops
push for Apple buybacks.... 16
28 | Tuesday, February 11, 2014 THE WALL STREET JOURNAL.
HEARDON THE STREET
Email: heard@wsj.com FINANCIAL ANALYSIS & COMMENTARY WSJ.com/Heard
U.K.s Barclays Is Failing the Trust Test
Barclays has a worrying
problem holding on to num-
bers.
The U.K. bank hastily an-
nounced its profit before tax
for 2013 on Monday along
with an adjusted measure a
day before schedule, after an
apparent early disclosure in
the Financial Times.
That followed weekend
news that details relating to
thousands of customers in its
now-closed financial-plan-
ning division had allegedly
been stolen and sold. That
matter has been referred to
U.K. regulators.
The two stories add to
the impression that Barclays
is too accident-prone an in-
stitution to be worthy of cus-
tomeror investortrust.
Chief Executive Antony Jen-
kinss strategy to regain con-
fidence is focused on cutting
back Barclayss controversial
investment bank. He should
be just as concerned with the
retail banking arm he ran for
three years from 2009.
In the near term, Bar-
clayss results show it had an
awful fourth quarter. The
banks 2013 adjusted profit
of 5.2 billion ($8.52 billion)
before tax is only 200 mil-
lion higher than it was at the
end of September. Its full-
year profit before tax of 2.9
billion showed no increase
over the first nine months of
2013.
Judging by its peers re-
sults, Barclayss investment
bank is likely to have strug-
gled in its once-lucrative
fixed-income trading busi-
ness.
Like other banks, Barclays
is facing more regulatory and
litigation costs: Last month
it said it would add 330
million to its legal provisions
in the fourth quarter. Banks
like to strip such so-called
below-the-line charges out of
their adjusted earnings.
That is an increasingly
untenable accounting cha-
rade. Rather than being an
exceptional item, litigation
costs are becoming a stan-
dard business charge for
banks.
In the last six years, Bar-
clays has taken more than 9
billion of one-off charges,
according to Deutsche Bank,
equivalent to nearly 40% of
its equity in 2007.
Restructuring costs ac-
count for over a quarter of
Barclayss one-offs since
then. The company also paid
a 290 million fine in 2012
for its role in the Libor-fix-
ing scandal. But its retail and
business bank has brought
Barclays plenty of grief, too.
It has so far expensed 4 bil-
lion relating to mis-selling of
payment protection insur-
ance, and 1.5 billion due to
mis-selling of interest-rate
swaps to retail customers.
The latest story of customer
data theft could lead to fur-
ther fines.
Mr. Jenkins has portrayed
himself as a kind of honest
broker, coming from the re-
tail bank to sort out Bar-
clayss investment-banking-
led reputational problems.
But Barclayss problems run
throughout the institution.
Arguably, it is now too big
and unruly to manage.
When Mr. Jenkins gives
more detailed 2013 results
on Tuesday, he must show
how he will get a grip on
Barclays.
Andrew Peaple
Africa May Offer Growth Chance
Investors snapped up
bonds from Africa last year: a
string of sovereigns including
Ghana, Rwanda and Nigeria
tapped the market as money
managers hunted for yield.
The yields on those bonds
are mostly higher now, rang-
ing between 6% and 9%, pro-
pelled by repeated bouts of
emerging-market turmoil. But
investors weighing Africas
potential opportunities must
navigate the two great threats
haunting markets: the U.S.
Federal Reserve and China.
Last summer, when the
Fed started talking about
reining in its quantitative-
easing program, emerging
markets wilted. African bonds
didnt escape the turmoil. Ul-
timately, however, the gradual
end of loose monetary policy
at the Fed shouldnt detract
from Africas big lure for in-
vestors: growth, powered by
good demographics, macro-
economic stability and eco-
nomic overhauls.
Since the lost decades of
the 1980s and 1990swhen
growth averaged 2.6% in sub-
Saharan Africa according to
the International Monetary
Fundthe acceleration has
been sharp. Growth between
2000 and 2012 averaged 5.5%
for the same region. The IMF
projects growth of 6.1% in
2014 and 5.8% in 2015. Debt
levels now are low as a share
of gross domestic product.
But China, the other big
factor worrying investors,
could yet cast a shadow on
the African outlook. Trade
with China rose to around
$200 billion in 2012 from $9
billion in 2000, according to
African lender Ecobank,
fueled by exports of commod-
ities. The recent drop in Chi-
nese growth indicators has
fanned investor fears, al-
though the move appears
modest. Still, a sharp slow-
down in China would be
bound to weigh on African
growth, and test African gov-
ernments ability to overhaul
their economies.
However, the market is
starting to discriminate be-
tween borrowers.
In last years selloff, bonds
issued by Ghana and Zambia
suffered. Now, with the Fed
cutting bond purchases, they
have been hit again.
Both countries have trou-
bling fiscal situations, with
swollen budget deficits.
Ghana was last week forced
to raise rates to 18% and in-
troduce foreign-exchange con-
trols to defend its currency.
Nigerias bonds have per-
formed relatively well, but
the country suffers from cor-
ruption and is vulnerable to
oil-price developments.
Others have fared better.
Take Rwanda, which sold a
$400 million bond with a
yield of just 6.875% in May
2013, drawing orders for
nearly eight times that
amount.
Rwandas bond price fell
sharply in last years turbu-
lence, reaching just under 85
cents on the dollar by Sep-
tember. But now, its bond
trades around 95.5 cents on
the dollarand has been rela-
tively stable so far this year.
Last summers move had
little to do with Rwandas
credit quality, and more to
the mass exodus from emerg-
ing-market bonds sparked by
the Fed. Indeed, Rwanda won
a positive rating outlook from
Fitch Ratings in August.
Bonds issued in December
by Gabon, which runs a large
current-account surplus, have
climbed even during the lat-
est emerging-market wobbles.
Africa isnt insulated from
worries about global growth
or Fed policy. But some coun-
tries may offer better shelter
than others.
Richard Barley
Africa Rising
Change in annual gross
domestic product
The Wall Street Journal Sources: International Monetary Fund; FactSet
8
2
0
2
4
6
%
90 83 00 10
Sub-Saharan
Africa
World
Price of government bonds,
percent of face value
105
80
85
90
95
100
%
14 2013
Zambia 5.375%,
due September 2022
Rwanda 6.625%,
due May 2023
How bad is the economy
in India? If it werent for the
farms, things would be a lot
worse.
Indias government proj-
ects the economy will ex-
pand 4.9% in the fiscal year
ending in March. Industrial
output is mostly flat, while
services growth has slowed.
The bright spot is agricul-
ture, which the government
figures will expand faster
than last year. If other parts
of the economy dont pick
up, this could leave Indias
growth rate more vulnerable
than many suspect.
Indian agriculture de-
pends on seasonal rains,
which were ample last year.
But next fiscal year, there is
some chance an El Nio cli-
mate effect may rob farm-
ers of water, says Citigroup.
For all of Indias efforts
the past two decades to
modernize and shake its
agrarian roots, growth this
year will still be hostage to
the whims of the weather.
OVERHEARD
Indias Maruti Suzuki
Faces a Smoother Road
Indias car market may be
going through some dark
days. But the leading passen-
ger-car maker, Maruti Su-
zuki, has a brighter road
ahead.
Maruti is the biggest play
on Indias auto industry, with
41% of the passenger-car mar-
ket last year, according to
LMC Automotive.
There are doubts its domi-
nance can persist, though. As
brands including Honda and
Hyundai aggressively expand,
analysts expect Marutis mar-
ket share to fall by 2020. This
comes amid a moribund In-
dian car market that shrank
last year for the first time in
more than a decade.
Yet Maruti is preparing for
a eventual rebound, and
doesnt have to tie up capital
to do it.
Japans Suzuki Motor,
which owns 56% of the car
maker, says it will build a
$500 million factory in the
western state of Gujarat. And
a Suzuki spokesman says the
company will provide capital
for expansion down the road.
Starting in 2017, Suzuki
will sell cars from this plant
to Maruti at zero profit, and
let Maruti market them.
The facility could eventu-
ally double Marutis capacity
from the current 1.5 million
cars a year.
The Japanese parent bears
the risks of the new plant
with its low-cost funds, while
Maruti can deploy its own
capital for marketing plus re-
search and development.
The $1.1 billion net cash it
had as of September is ample
firepower to boost its rural
network and market its prod-
ucts to choosy Indian buyers.
Investors bristled four years
ago when Maruti increased its
royalty payments to Suzuki
for the use of its technology,.
However, they now can enjoy
the new plant as a gift from
Japan.
Marutis enterprise value,
which adjusts for net cash, is
an attractive 7.9 times earn-
ings before interest, taxes, de-
preciation and amortization
for the next 12 months.
That is lower than its five-
year average, and cheaper
than peers. Indian two-
wheeler maker Hero Mo-
toCorp fetches 9.5 times and
Bajaj Auto 10.8 times, while
SUV maker Mahindra & Ma-
hindra gets 14.3 times.
Indias auto market will re-
main weak should interest
rates stay high, which many
expect. Three-quarters of In-
dian car buyers use loans.
Yet the cycle will turn at
some point. Marutis plans
should keep it in the fast lane
when it does.
Abheek Bhattacharya
Fine Mess
Barclays's below-the-line charges
The Wall Street Journal
Source: Deutsche Bank
3.0 billion
0
0.5
1.0
1.5
2.0
2.5
08 07 09 10 11 12 13
Antony Jenkins,
CEOof Barclays
Pole Position
Big brands share of the Indian
passenger-car market
The Wall Street Journal Source: LMC Automotive Photo: Associated Press
0 40% 10 20 30
Maruti
Suzuki
Hyundai
Tata
Mahindra
Toyota
2011
2013
Maruti Suzukis new Celerio
The Japanese parent bears the risks of the
newplant, while Maruti can deploy its own
capital for marketing and research.
Disappointing 2013
results and an
alleged data theft add
to the impression
Barclays is too
accident-prone to
merit investor trust.
B
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