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itself. Experience it now.
Book today at www.malaysiaairlines.com

P2HW181000-0-A00100-1--------AL

The Overworked
Modern Manager

Andrew Browne
A Great Wall
Of Confrontation

MANAGEMENT | B1, B5

CHINAS WORLD | A2
WEDNESDAY, JUNE 29, 2016 ~ VOL. XL NO. 211

DJIA 17289.91 0.87%

S&P 500 2021.89 1.07%

Whats
News

NIKKEI 15323.14 0.09%

STOXX 600 316.70 2.57%

OIL 47.30 2.09% GOLD 1314.80 g 0.58% EURO 1.1053 0.24%

Chinas Aviation Industry Finally Takes Off

Business & Finance

olkswagen agreed to
pay up to $14.7 billion
to settle emissions-cheating claims with U.S. regulators and owners of
nearly 500,000 dieselpowered vehicles. A1

BRUSSELSGerman Chancellor Angela Merkel warned

that Britain wouldnt be allowed to pick only the most
beneficial parts of European
Union membership once it
leaves the bloc, as EU leaders
gathered in Brussels for their
first summit since the U.K.s
historic vote to break away.
Speaking to the German
parliament ahead of the summit on Tuesday, Ms. Merkel
said that the U.K. wouldnt be
able to gain full access to the
single market of goods and
services unless it shared
some of the obligations of
membership.
Many who backed the U.K.
exit campaign have said they
want to put limits on EU mi-

China launched its first

passenger jet following delays that underscore Beijings struggle to becoming
a global aviation player. B1

The music industry is

battling with YouTube
over declining royalty
rates and the difficulty in
detecting copyright material on the site. B2

World-Wide
Merkel warned Britain
it wouldnt be allowed to
cherry-pick beneficial
parts of EU membership
once it leaves the bloc, as
leaders gathered for a
summit in Brussels. A1, B1
Treasury chief Osborne
ruled himself out of the
race to succeed Cameron
as leader of the ruling
Conservative Party. A3
The Australian leaders
election pitch to deliver a
more tech-savvy economy
is proving a hard sell. A4
China told foreign business leaders it will avoid
steps that upset its capital
markets. A4
The U.S. economy expanded more than previously thought in the first
quarter, but underlying
trends suggest that it remains vulnerable. A7
A House panels report
on the 2012 Benghazi attacks faults the Obama administration for the lack of
a coherent strategy. A7
Retired Pope Benedict
made a rare public appearance alongside Pope Francis, a reminder of the presence of two living popes in
the Vatican. A4
Draghi urged major central banks to better coordinate their policies to tackle
ultralow inflation. A3
CONTENTS
Arts & Ent............. A12
Business & Tech. B1-6
Chinas World...........A2
Crossword.............. A12
Heard on Street. B12
Markets Digest.. B10

Money & Inv.... B7-12

Opinion.............. A10-11
Personal Journal...... A9
Property Report... B8
U.S. News.................. A7
Weather................... A12
World News....... A2-6

China: RMB28.00; Hong Kong: HK$23.00;

Indonesia: Rp25,000 (incl PPN);
Japan: Yen620 (incl JCT); Korea: Won4,000;
Malaysia: RM7.50; Singapore: S$5.00 (incl GST)
KDN PP 9315/10/2012 (031275); MCI (P)
NO. 106/10/2015; SK. MENPEN R.I. NO: 01/
SK/MENPEN/SCJJ/1998 TGL. 4 SEPT 1998

s Copyright 2016 Dow Jones &

Company. All Rights Reserved

Global markets steadied on

Tuesday following two days
of losses after the Brexit vote
that wiped out $3 trillion. B7
grants coming into the U.K.
Freedom of movement for all
of the blocs citizens is a key
EU principle and obligation.
We will ensure that negotiations wont be conducted
according to the principle of
cherry-picking, she said.
Those wanting to leave the
family cant expect all obligations to become obsolete
while privileges would continue to exist.
EU leaders are meeting in
Please see EXIT page A3

LATE ARRIVAL: Chinas first home-built passenger jetthe ARJ21, or Advanced Regional Jet for the 21st
centuryentered commercial service in a long-delayed debut. Above, the jet upon arrival in Shanghai. B1

VW Reaches Settlement
Over U.S. Car Violations

BY SARA RANDAZZO
AND MIKE SPECTOR

Volkswagen AG agreed to pay

up to $14.7 billion to settle
emissions-cheating claims with
U.S. regulators and owners of
nearly 500,000 diesel-powered
vehicles, a step toward resolving a major portion of a crisis
that sparked litigation and investigations across the globe
and cost the German auto gi-

ants chief executive his job.

The total payout, detailed in
hundreds of pages of settlement
documents filed on Tuesday in a
San Francisco federal court, includes up to $10.03 billion for
owners of affected vehicles with
two-liter diesel engines. Volkswagen will also pay $2.7 billion
for an environmental remediation fund, and $2 billion to be
invested in promoting so-called
zero-emission vehicle technol-

ogy, court documents show.

Volkswagen reached the civil
settlement, the largest-ever for
an auto maker, with the U.S.
Justice Department, Environmental Protection Agency, Federal Trade Commission, California regulators, and consumer
plaintiffs lawyers. The settlement doesnt include other possible civil or criminal financial
penalties that could later be levPlease see VW page A2

BY HIROYUKI KACHI

TOKYOThe yield on
Japans 20-year government
bond is nearing negative territory for the first time, as a
scramble for safety after last
weeks Brexit vote has further eroded what positive
yields remain in sovereignbond markets.
The U.K.s vote to leave
the European Union has
heightened expectations that
the Bank of Japan will undertake additional monetary
easing, putting further pressure on government-bond
yields, said Masahiro Ichikawa, a senior strategist at
Sumitomo Mitsui Asset Management.
We expect downward
pressure on yields of JGBs
with longer maturities, Mr.
Ichikawa said, with the 20year yield likely to hit zero

HEDGE FUNDS
AND TEACHERS
IN PENSION WAR

Rare Sight
At the
Vatican:
Two Popes

Labor-union leader aims to pull money from

managers who promote retirement cutbacks
BY BRODY MULLINS
Daniel Loeb, Paul Singer
and dozens of other hedgefund managers have poured
millions of dollars into promoting charter schools in
New York City and into
groups that want to revamp
pension plans for government workers in the U.S., including teachers.
The leader of the American Federation of Teachers,
Randi Weingarten, sees some
of the proposals, in particular the pension issue, as an
attack on teachers. She also
has influence over more than
$1 trillion in public-teacher
pension plans, many of
which traditionally invest in
hedge funds.
It is a recipe for a battle
for the ages.
Ms. Weingarten started by
targeting hedge-fund managers she deemed a threat to
teachers and urged unions to
yank money from their funds.
Then she moved to Wall

Street as a whole.
Her union federation is
funding a lobbying campaign
to eliminate the carried-interest tax rate on investment income earned by
many money managers. It is
trying to defeat legislation
that would increase the
charitable deduction in New
York state for donations to
private schools. And it has
filed a class-action lawsuit
accusing 25 Wall Street
firms of violating antitrust
law and manipulating Treasury bond prices.
Some pension funds have
withdrawn money from
hedge-fund managers criticized by the teachers union.
And some hedge-fund managers stopped making donations to advocacy groups targeted by Ms. Weingarten.
Hedge funds, reluctant to
buckle to the pressure, say
Ms. Weingarten is doing a
disservice to the teachers she
represents, because funds
Please see PENSION page A8

by the end of July.

The yield on the 20-year
JGB touched a record-low
0.04% on Tuesday, while the
benchmark 10-year yield hit a
record of minus-0.23%.
Bank of Japan Gov. Haruhiko Kuroda reiterated
Tuesday that the central
bank remains ready to take
whatever action it deems
necessary after the Brexit
vote roiled global markets.
The central banks next policy meeting is scheduled for
July 28-29. Mr. Kuroda declined to comment on speculation that the central bank
might call an earlier emergency meeting.
The BOJ is widely expected to take action next
month after market turmoil
sent the yen, considered a
haven asset, to multiyear
highs. A weaker yen had been
Please see JAPAN page A2

LOSSERVATORE ROMANO/ASSOCIATED PRESS

LendingClub is cutting
up to 12% of its work force
as it deals with issues related to its former CEO. B7

Stock Markets
Begin to Stabilize

Japanese Yields
Hit Record Lows

PEI XIN/XINHUA/ZUMA PRESS

Hollywood studios Chinese partners are helping

boost the box-office tally
in China through big marketing efforts. B7

DLR 102.75 0.74%

Merkel Warns
U.K. It Cant
Cherry-Pick

BY LAURENCE NORMAN
AND NATALIA DROZDIAK

The yield on Japans 20year government bond is

nearing negative territory
amid a scramble for safety
after the Brexit vote. A1
Financial markets showed
signs of stabilizing following
sharp declines in global equities. The pound edged up
from its decades-low, gaining
1.1% against the dollar. B7, B11
The U.K. vote could slow
a record surge in acquisitions of European companies by Asian buyers. B7

ASIA EDITION

WSJ.com

EMBRACE: Retired
Pope Benedict XVI,
right, appeared with
Pope Francis on
Tuesday. The event,
which honored the
65th anniversary of
Benedicts
ordination as a
priest, highlighted
the uniqueness of
having two living
popes in the
Vatican. A4

Sweaty Soldiers Plead for Right to Keep Arms Bare

i

Long sleeves granted leave from U.S.s Fort Hood; rollback time?
BY PAUL SONNE
U.S. Army Specialist Cortne
Mitchell, originally from
Staten Island, N.Y., moved to
Texas for his assignment
at Fort Hood and learned the
meaning of hot.
Spc. Mitchell and his fellow
petroleum-supply specialists
labor in summer temperatures
that can hover around 100 degrees Fahrenheit. Humidity
can reach 90%.
Maybe it was the heat.

Rolled sleeves
Maybe it was the humidity.
But the transplanted New
Yorker and his colleagues had
a vision: If they could only roll
up their sleeves.

It has always been a conversation amongst me and my

buddies, Spc. Mitchell said.
How nice it would be.
When top Army officials
visited Fort Hood this month,
Spc. Mitchell saw his chance.
He raised his hand at a question-and-answer session and
suggested a summer uniform.
What do you want,
shorts? Spc. Mitchell recalled
the official saying.
No, he said, but what about
Please see ARMS page A8

P2HW181000-0-A00200-1--------AL

THE WALL STREET JOURNAL.

A2 | Wednesday, June 29, 2016

WORLD NEWS

Beijing Builds a Great Wall of Confrontation

cast in stone.

I
SHANGHAIAlthough the
Great Wall has become
Chinas pre-eminent national
symbol of pride and
strength, the construction of
its soaring watchtowers and
crenelated parapets actually
reflected a moment of dynastic weakness.
And it was, of course, a
colossal failure. The present
structure was mostly built
during the later Ming dynasty in the
16th century
to keep out
nomad tribes
to the north.
Early
Ming emperors had found other ways to
pacify these groups: royal
marriages, barter trade and
other inducements. But as
the dynasty crumbled, hardline factions pushed for an
impregnable barrier. It was
necessary, they argued, to
protect Chinese civilization
against barbarian hordes.
Echoes of this history reverberate today in the South
China Sea, where China is
building massive fortificationsartificial islands
dredged from the seabedto
help defend a nine-dash
line claim that encircles almost the entire waterway
and reaches almost 1,000
miles from Chinas coastline.
U.S. Adm. Harry Harris
rails against the man-made
islands as a Great Wall of
Sand. Defense Secretary
Ash Carter warns that China
risks building a Great Wall
of self-isolation through actions that have alarmed its
neighbors.
In a matter of days, a
United Nations-backed court
in The Hague is expected to

RAINER JENSEN/DPA/ZUMA PRESS

CHINAS WORLD
ANDREW BROWNE

Chinese soldiers in front of a painting of the Great Wall at the Great Hall of the People in Beijing.
rule on a challenge to
Chinas claim brought by the
Philippines. The decision will
address an issue that has
preoccupied Chinese dynasties since antiquity: Where
does China end?
This has infuriated Chinese leaders; the presumptuousness of foreign jurists sitting in judgment upon what
China regards as a matter of
Chinese sovereignty is intolerable. Beijing has boycotted
the proceedings.

et theres an even
more fundamental issue at play, one that
dominated the debate in the
old Ming court and that has
rumbled on ever since: How
should China conduct its relations with the world?
Now, as then, the question is inextricably wrapped
up with Chinas perceptions
of itself. The way China re-

sponds to the ruling in The

Hague will tell us a lot about
the mind-set of a country
that has alternated between
bouts of isolation and pragmatic engagement.
The West long perceived
the Great Wall to be an emblem of an inward-looking
people, a closeted Middle
Kingdom, smugly aloof.
The reality was always
more complex. As the

scholar Arthur Waldron argues in The Great Wall of

China: From History to
Myth, Chinas northern
frontier was wide open for
much of its imperial history.
The walls construction in
the Ming era didnt reflect
an innately shuttered empire; it was a political choice,
the result of a debate won
by a war faction with a
moral certainty about the su-

periority of Chinese culture

and tradition, what today
might be termed Chinese exceptionalism.
This way of thinking
clashed with a more open
cosmopolitanism embraced
by the rulers of the time.
Similarly today, its a
mistake to thinkas some
in the Pentagon evidently
dothat Chinas ambitions
in the South China Sea are

China, Vietnam Pledge to Cooperate Amid Disputes

HANOIVietnam and China,
despite differences over competing territorial claims in the
South China Sea, agreed to improve cooperation between
their coast guards and better
manage maritime disputes.
The countries signed a
memorandum of understanding
on Monday, Vietnams Ministry
of Foreign Affairs said, during

a visit to Hanoi by Chinese

State Councilor Yang Jiechi.
The two sides agreed that
there is a need to promote
friendly and comprehensive cooperation, the ministry said.
Mr. Yangs visit came ahead
of a verdict by an international
tribunal in The Hague on
Chinas claims over the South
China Sea. Beijing has boycot-

ted the proceedings and has

said it will ignore the ruling.
Vietnams foreign ministry
said the officials discussed
maritime issues, stressing the
importance of not letting disputes escalate.
Vietnam also said it will allow China to open a consulate
in the central coastal city of Da
Nang.
Vu Trong Khanh

Continued from Page One

ied by the Justice Department.
Separately, Volkswagen said
on Tuesday it has reached a
$603 million agreement with 44
U.S. states, the District of Columbia and Puerto Rico to resolve
consumer-protection
claims tied to the diesel cars.
Under the settlements
terms, U.S. motorists can either
sell back or terminate leases of
affected vehicles, or have the
cars made compliant with environmental regulations. Volkswagen will repurchase vehicles
at their September market value
before regulators disclosed the
auto makers emissions-cheating. Vehicle owners opting for a
fix must wait until the company
wins government approval of an
appropriate modification.
All consumers, regardless of
whether they keep their vehicle,
will receive additional compensation of between $5,100 and
nearly $10,000 each. Drivers
have more than two years to
make a decision, and Volkswagens tab will rise to $10.03
billion only if everyone opts for
a buyback, according to court
documents. The deal affects
482,000 diesel-powered vehicles with model years between
2009 and 2015, including Jettas,
Passats, Beetles, Golfs and Audi
A3s.
Settlement terms will go before U.S. Judge Charles Breyer
for preliminary approval July 26
as part of sprawling litigation
consolidated in a U.S. District
Court in San Francisco. If the
deal is quickly approved, Volks-

New Depths

Japanese government bond

yields hit record lows Tuesday.
40-year
30-year
20-year
10-year

1.5 %

1.0

0.5

0.5
J

Source: Thomson Reuters

THE WALL STREET JOURNAL.

PATRICK PLEUL/EUROPEAN PRESSPHOTO AGENCY

VW

A diesel-powered Volkswagen Golfs exhaust emissions tested in Frankfurt last year.

wagen could begin buying back
cars as early as October, court
documents show.
We know that we still have
a great deal of work to do to
earn back the trust of the American people, Volkswagen Chief
Executive Matthias Mller said
in a statement. We are focused
on resolving the outstanding issues and building a better company that can shape the future
of integrated, sustainable mobility for our customers.
Volkswagen still faces another potentially expensive settlement with U.S. vehicle owners and government officials
over similar problems linked to
some 85,000 vehicles with
three-liter diesel engines, most
of them Audi and Porsche luxury models.
In addition, federal prosecu-

JAPAN
Continued from Page One
a key element of Prime Minister Shinzo Abes economic
program.
The mostly likely options
for the central bank, according to analysts, are expanding its asset-buying program
and pushing an interest rate
on some bank reserves further into negative territory,
from minus-0.1% currently.
Growing concern that
global central banks are running out of options to stoke
growth has driven a search
for assets considered safe

tors are conducting a criminal

probe of the auto maker that
could result in a hefty financial
penalty. Other lawsuits and
probes remain ongoing, including in Europe, where 8.5 million
Volkswagen vehicles are affected.
Deputy Attorney General
Sally Yates, the No. 2 official at
the Justice Department, described Volkswagens conduct
Tuesday as one of the most flagrant violations of our countrys
consumer and environmental
laws in our countrys history.
Ms. Yates said a related criminal investigation examining
multiple companies and multiple individuals is continuing.
Investigators said they are reviewing roughly 1.5 million
Volkswagen documents as part
of that probe.
and returning positive yields.
With many shorter-duration
bonds already in negative
territory, this has pushed
yields on longer-duration
bonds sharply lower.
The rise of negative yielding JGBs helped send the total value of global sovereign
debt that now offers a negative yield to more than $10
trillion last month, an increase of 5% from April, according to Fitch Ratings.
Yields on benchmark 10year bonds in Germany, Australia and Switzerland have
hit record lows recently, with
Germanys 10-year bund yield
turning negative this month.
In Japan, all government

The Justice Department sued

Volkswagen in January on behalf of the EPA, alleging the
German company violated
clean-air laws by installing software known as defeat devices
on diesel-powered vehicles that
let them evade emissions tests.
The FTC filed its own suit in
March alleging the vehicles
were falsely advertised as
clean diesel. Consumers and
state attorneys general piled on
with suits alleging declining resale values and accusing the
auto maker of fraud.
EPA administrator Gina
McCarthy added that regulators
are now testing other companies cars for similar devices,
and will be releasing information as it becomes available.
A handful of U.S. states
with strict emissions stanbonds of 15 years and shorter
durations already offer negative yields.
The BOJs huge purchases
of Japanese government
bondsit now owns about a
third of all outstanding
JGBshas helped drive
yields lower, as did the central banks introduction of
negative interest rates earlier
this year.
If the BOJ undertakes additional easing next month
and investors remain risk
averse, the yields on 30- and
40-year Japanese government bonds may reach zero
soon after the 20-year yield
turns negative, Mr. Ichikawa
said.

dards are continuing to investigate the auto maker for violations of state environmental
laws, including New York,
whose Attorney General Eric
Schneiderman said his office
would seek substantial additional penalties.
Tuesdays settlement marks
an initial bookend to a crisis
that has gripped Volkswagen
since U.S. environmental regulators said in September the company knew it was using illegal
software that allowed vehicles
to dupe government emissions
tests. Volkswagen has set aside
more than $18 billion to deal
with the fallout.
The software lets vehicles
pollute more on the road than
during emissions tests, emitting
nitrogen oxides at up to 40
times the allowable standard,
according to the EPA. Chief Executive Martin Winterkorn resigned soon after the revelations and Volkswagen has faced
a barrage of criticism from government officials, consumers
and shareholders.
As part of Tuesdays deal,
Volkswagen must get 85% of the
affected two-liter vehicles off
the roads or make them environmentally compliant by June
2019, or risk facing substantial
fines, court filings show.
The Wolfburg, Germanybased auto maker is prohibited
from reselling any vehicles it
buys back, either in the U.S. or
abroad, unless it fixes their
emissions.
Several lawsuits have been
filed in Germany on behalf of investors, including large pension
funds such as Calpers, the Norwegian state oil fund, and Nordea, a Swedish investment fund.
German courts have yet to rule
on allowing class-action suits to
go forward, a stricter process
than in the U.S.
Volkswagen has repeatedly
said that it sees no reason to
compensate European custom-

CORRECTIONS
AMPLIFICATIONS
A photograph of the Kingston Trio with the Arts & Entertainments Playlist column
on Tuesday was taken in 1965.
The caption incorrectly said it
was taken in the 1950s.
Readers can alert The Wall Street
Journal to any errors in news articles
by emailing wsjcontact@wsj.com.

n Beijing, debate is alive.

On one side are hawks in
the military who want to
turn the waterway into a
Chinese lake on which to
float their navy. They are
backed by state energy firms
eyeing undersea oil and gas
reserves. The hypernationalists would probably like to
push other claimants, including the Philippines and Vietnam, off the rocks and reefs
they control. They might
even welcome a short war to
put these smaller countries
in their place.
Their counsel is opposed
by moderates in the foreignpolicy establishment, as well
as corners of academia, who
want China to assert itself to
reflect its great-power statusbut not in ways that
damage Chinas global image. They inherit a tradition
that stresses trade and diplomacy over military solutionsexchanges, not walls.
Chinas modern rulers,
like their Ming predecessors,
are in a bind. The ideologues
are defining national interest
in cultural terms, arguing for
an enforcement of the ninedash line on the grounds
that everything inside has
been Chinas since ancient
times and every inch of
Chinese territory is sacred.
Those who take them on risk
being branded as weak or,
worse, unpatriotic and even
traitorous.
The hawks arent just
pressing for physical defenses in the South China
Sea but ideological ones, too.
Increasingly, they see the
waters as an arena for political confrontation with America and the West.
In the end, the Great Wall
was futile. In 1644, Manchu
horsemen swept past the
fortifications and captured
Beijing, establishing Chinas
last imperial dynasty, the
Qing. These are the lessons
of the Great Wall: Strength
derives from compromise;
barriers provoke resistance.

ers, citing differences in U.S.

and European law and environmental standards. Under EU
rules, the company has said,
Volkswagens diesel vehicles
dont violate emissions standards.
Nevertheless, European officials, consumer groups and
plaintiffs attorneys say Volkswagen should compensate European victims to regain customers trust.
Consumers have been massively misled by Volkswagen
and this settlement in the U.S.
recognizes the damage suffered
by car drivers, said Monique
Goyens, general director of the
European Consumer Organization, a Brussels-based consumer
lobby. It is inconceivable that
consumers in the EU get treated
differently.
William Boston,
Aruna Viswanatha
and Devlin Barrett contributed
to this article.

THE WALL STREET JOURNAL.

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P2HW181000-0-A00300-1--------AL

THE WALL STREET JOURNAL.

Wednesday, June 29, 2016 | A3

WORLD NEWS
U.K. Treasury chief to
focus on stabilizing
British economy after
EU referendum result

BY JASON DOUGLAS
LONDONThe man long
seen as British Prime Minister
David Camerons natural successor pulled out of the running to succeed his ally, as the
U.K.s vote to leave the European Union sows turmoil in
the countrys leadership.
U.K. Treasury chief George
Osborne ruled himself out of
the race to succeed Mr. Cameron as leader of the ruling
Conservative Party, marking a
reversal for one of Britains
most powerful politicians.
Mr. Osbornes announcement Tuesday came as candidates prepared their bids for
the partys leadership contest
that will also determine Britains next prime minister. Mr.
Cameron on Friday announced
plans to leave Downing Street
in the coming months after his
defeat in the U.K.s referendum
on continued membership of
the European Union.
Mr. Osborne, writing in an
article published in the Times

newspaper Tuesday, said he

had fought hard for the U.K.
to remain in the EU and that
while he accepts the referendum result, he is not the person to provide the unity my
party needs at this time. He
added that he would instead
focus on the task of stabilizing
the British economy following
voters decision to take the
U.K. out of the EU.
The front-runners in the
Conservative leadership race
are widely seen as Boris Johnson, former mayor of London
and the figurehead of the successful campaign to exit the
EU, and Theresa May, the
home secretary. A survey by
pollster YouGov PLC on Tuesday suggested Ms. May was
slightly more popular among
the general public than Mr.
Johnson. A survey published
earlier this month by grassroots website ConservativeHome, however, suggested
that among Conservative supporters Mr. Johnson had an
edge over Ms. May.
The window for nominating
candidates opens Wednesday
evening in the U.K. and closes
on Thursday at noon. Potential
candidates need to be nominated by Conservative lawmakers, who will then hold a

series of ballots until the list

is whittled down to two candidates. The contest is then
opened up to the partys membership of some 150,000 people. Only those who have been
members for at least three
months can vote.
The Conservative Party says
it intends to announce the new
prime minister on Sept. 9.
Work and Pensions Minister
Stephen Crabb and Business
Secretary Sajid Javid are
sounding out Conservative
lawmakers for support to run
on a joint ticket as prime minister and treasury chief, respectively, a person with
knowledge of the matter said.
Speaking to the British
Broadcasting Corp. on Tuesday, in his first interview since
the referendum results, Mr.
Osborne said he thought
someone who had backed the
campaign to remain in the EU
could become party leader. He
added that the best candidate
will be the one who speedily
comes up with the clearest,
crispest proposals on the
U.K.s future relationship with
the EU, which he said should
include full access to the blocs
vast single market for goods
and services.
EU officials, though, have

HARD POHLE/PRESS POOL

Osborne Wont Run for Tory Leadership

U.K. Treasury chief George Osborne in London this week.

signaled such a deal may not
be compatible with Leave
campaigners pledge to restrict immigration from other
EU states.
Asked whether he would
have a role in the next cabinet,
Mr. Osborne said that was a
decision for the next prime
minister.
It isnt clear whose candidacy Mr. Osborne will support,
if any.
Mr. Osborne was also asked
in the BBC interview whether
he had tried to persuade Mr.
Cameron not to hold the vote

on EU membership. We had a
big and lively debate about it
within
the
Conservative
Party, said Mr. Osborne, adding that he saw the pluses
and minuses of having a referendum.
Mr. Osborne added that he
wasnt going in to the private
discussions I had with my
friends and colleagues in government, but that he ultimately agreed with the collective decision to hold it and
that the government stood by
that decision.
The pound has fallen

sharply and stocks have tumbled in the days since the referendum.
We are adjusting to life
outside the EU, and it will not
be as economically rosy as life
inside the EU, Mr. Osborne
told the BBC.
He said the U.K. financial
system is more resilient now
than it was in the past and the
nations public finances are in
better shape following six
years of belt-tightening, but
he warned that the next leader
is likely to need to raise taxes
and cut public spending before
the end of the year.
The political fallout from
the EU referendum is also roiling the main opposition Labour Party.
Labour leader Jeremy Corbyn lost a symbolic vote of
confidence among the partys
lawmakers on Tuesday by 172
votes to 40, ramping up pressure on him to resign.
Mr. Corbyn, who has faced
criticism for his lukewarm endorsement of the EU during
the campaign, has refused to
step down. His aides said
Tuesdays vote of no confidence wasnt binding.
Nicholas Winning
and Jenny Gross
contributed to this article.

Draghi Urges More

Global Coordination

Iceland Boots England Out of Europe

BRYNJAR GUNNARSSON/ASSOCIATED PRESS

BY TOM FAIRLESS

Icelandic soccer fans perform their now-famous Viking chant as they watch the Euro 2016 round of 16 match between Iceland and
England shown on a screen in Reykjavik, Monday. Iceland pulled off the biggest upset so far in the European Championship by
beating England 2-1 in the first knock-out round, continuing the improbable run of the smallest nation at the tournament.

speed with which monetary

policy can achieve domestic
goals inevitably becomes more
dependent on others.
The remarks indicate a
definite shift in Mr. Draghis
thinking, said Frederik Ducrozet, senior economist with
Banque Pictet & Cie SA in Geneva. It suggests that the ECB
is increasingly concerned
about those global factors
driving inflation that they cannot directly influence, he said.
The ECB has missed its inflation target for three straight
years, despite repeatedly expanding its bond-purchase
program in recent months and
cutting interest rates further
below zero. In a speech in February, Mr. Draghi said neither
global economic forces nor the
risk of side effects would prevent the ECB from hitting its
inflation goal.
I think the ECB does not
have a lot of ammunition left,
at least a lot that would really
make a difference, said Martin Lueck, chief German investment strategist at BlackRock
Inc., which manages assets
worth $4.7 trillion.

SINTRA, PortugalEuropean Central Bank President

Mario Draghi urged major central banks to better coordinate
their policies to tackle the
shared problem of ultralow inflation, in his first major
speech since Britain voted to
exit the European Union.
The comments, to an ECB
conference in Portugal, indicate a shift in emphasis for the
eurozones central bank, which
had until recently stressed its
ability to hit its near-2% inflation target regardless of the
side effects of its policy measures.
Mr. Draghi said central
banks should think about
whether their policies are
properly aligned with those
of their peers. He warned that
currency devaluations aimed at
boosting competitiveness are a
lose-lose for the global economy.
In a globalized world, the
global policy mix mattersand
will likely matter more as our
economies become more integrated, Mr. Draghi said. The

Obama Looks to Shore Up Trans-Atlantic Partnerships

WASHINGTONThe U.K.s
decision to leave the European
Union dramatically expands
the portfolio of foreign-policy
challenges the next U.S. president will inherit, complicating
critical decisions to address instability across the globe.
President Barack Obama is
unexpectedly embarking on a
high-stakes effort during his
last months in office to work
out what a senior administration official called alternative
pathways for Europe, an effort that accelerates during a

EXIT
Continued from Page One
Brussels after the U.K.s referendum vote last Thursday, in
which British voters chose to
leave the bloc. All 28 EU leaders held talks Tuesday. Prime
Minister David Cameron was
scheduled to leave in the evening, though, and the other 27
planned to hold further discussions
without
him
Wednesday.
On his way into the summit,
Mr. Cameron, who will leave
office within a few months,
said he wanted the U.K. to
have the closest possible relationship in the future in
terms of trade and cooperation and security.
Because of course while
were leaving the European
Union, we mustnt be turning
our backs on Europe, he told
reporters. These countries

trip to Poland next week.

But given the scant time remaining, it is Mr. Obamas successor who will have to navigate the new dynamic there
while also managing a confluence of crises from Syria and
Islamic State to relations with
Russia and China.
The next president is going
to inherit a world in considerable
disarray, said Richard Haass,
president of the Council on Foreign Relations, a think tank.
The White House is urging a
slow process for the U.K.s exit
from the EU while also pressing the blocs 27 other mem-

bers to address the concerns

that led to last weeks referendum and risks prompting a
cascade of similar votes across
the continent.
Administration officials say
the impact on U.S. foreign policy depends heavily on the
pace of separation. They would
prefer that the U.K. not officially start the process until
October, as Prime Minister David Cameron has signaled, and
that the exit play out over two
years, as expected, or more.
Mr. Obama will meet with
the leaders of the European
Commission and European

Counciltwo EU institutions
during a trip to Warsaw next
week for a North Atlantic
Treaty Organization summit.
They will discuss alternative pathways for the EU to respond to the message that was
sent by British voters and the
broader dissent across European electorates, the senior
administration official said.
As part of those discussions, Mr. Obama will encourage EU leaders to show
greater flexibility on the
economy to reduce unemployment and stimulate growth
and to further address the mi-

grant crisis, the official said.

One option under discussion
in Warsaw will be the creation
of a joint NATO-EU commission that would give the U.S. a
seat at the table when EU security issues are discussed,
U.S. officials said.
There are initiatives that
will be embraced in Warsaw
that have to do with NATO-EU
cooperation
on
multiple
fronts, the senior administration official said. The trend
line moving forward will be
more and more cooperation
between NATO and the EU.
Another issue that could be

affected during Mr. Obamas

remaining time in office is
trade. Mr. Obama has negotiated for several years with Europe on the Transatlantic
Trade and Investment Partnership, or TTIP, and said in April
that the window to strike a
deal would soon close.
White House spokesman
Eric Schultz said Monday that
Mr. Obama plans to press
ahead with negotiations to
complete TTIP this year. He
added that Britain could have
to negotiate a separate trade
agreement from a different
starting point.

are our neighbors, our friends,

our allies and our partners.
The EU leaders are expected to send a message of
unity after the gathering. But
under the surface, they are
sharply divided over how the
bloc should approach the exit
talks and the EUs future direction.
French President Franois
Hollande said the U.K. needed
to kick-start the procedure as
soon as possible. Mr. Hollande
said there was no time to
lose, everyone is looking at
us, adding that history
would continue for Europe after the U.K.
However, other EU leaders
have signaled they understand
the U.K. might need more
time. Mr. Cameron has said a
new prime minister should be
the one to formally trigger the
two-year negotiating process
on leaving the Union.
I would say: Give them
some space, Dutch Prime

Minister Mark Rutte said. The

U.K. has collapsed, politically,
monetarily, constitutionally
and economically. Its not reasonable to now demand that
they invoke Article 50.
Wednesdays discussions on

the future of the EU are unlikely to go in depth but will

begin addressing the myriad
proposals for how the bloc can
recover from the British vote
and other crises.
The German and French

foreign ministers pushed for

deeper economic policy integration in the eurozone and
closer cooperation on security
and immigration in a joint paper this week. But other, more
senior German officials close

to Ms. Merkel have reacted

with skepticism. German Finance Minister Wolfgang
Schuble has said that any
push to increase integration
now would spark a voter backlash.
In her remarks to the German parliament on Tuesday,
Ms. Merkel called on the European bloc to debate all proposals that would bring its members closer together, including
those that would return some
EU powers to its member
states.
Every proposal that can
help guide an EU of 27 members as a whole out of this crisis is welcome, she said. But
any proposal that strengthens
the centrifugal forces that are
pulling the EU apart would
have unpredictable consequences for all of us. It would
divide Europe further.
Andrea Thomas in Berlin
and Jenny Gross in Brussels
contributed to this article.

Knotty Divorce | Many details to be worked out

The EU and Britain must
address the significant financial
and structural questions of
Brexit, including:

should get to the single market

if the U.K. restricts immigration
from its EU neighbors

How to phase out

contributions to the EU budget
by the U.K.

How to determine the status

and rights of millions of EU
nationals in the U.K. and U.K.
nationals in the EU

What to do about British

nationals working in EU
institutions

Whether to enact some

measure of pooling budgets in
the eurozone

How to end EU programs like

joint research projects set up to
last beyond British membership

Whether to push for shared

security and defense assets
that could be deployed
independent of NATO, an idea
the U.K. has long opposed

How much access the U.K.

ODD ANDERSEN/AGENCE FRANCE-PRESSE/GETTY IMAGES

BY CAROL E. LEE

British flags hung along Oxford

Street in London this week.

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A4 | Wednesday, June 29, 2016

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KO ML

SI IN UK

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THE WALL STREET JOURNAL.

WORLD NEWS

Prime Minister Turnbull

pushes innovation
ahead of Saturday vote,
but some are skeptical

BY ROB TAYLOR
ROCKHAMPTON, AustraliaAt the intersection of Australias coal and cattle country,
Prime Minister Malcolm Turnbulls election pitch to deliver
a more tech-savvy economy is
proving a hard sell.
On a recent day here, vacant shops and for-sale signs
loomed large. No buyers
showed up for an auction of
six properties. And many were
skeptical of Mr. Turnbulls recipe to revive an economy
slammed by the global commodities rout.
When the prime minister
talks about the future, about
innovation, in a town this
small, people are scared of
new, said Chontelle Brown, a
delicatessen manager who
fields as many as 20 job applicants a day. They just want
things to be back like they
were.
On July 2, voters will
choose between Mr. Turnbulls
conservative coalition and opposition leader Bill Shortens
Labor Party, which advocates
higher public spending on
health and education. A closely
watched Newspoll survey on
Monday showed Mr. Turnbulls
side with 51% versus 49% for

Labor, within the surveys

margin of error.
Towns like Rockhampton
are emblematic of the electoral
struggle. Queensland state,
where it is situated, has 10
closely contested seats. That
means the state could yield
nearly half of the 21 seats Labor needs nationally to oust its
rival.
During the last election, in
2013, business was brisk in
Rockhampton and nearby cities, where now-completed LNG
projects worth tens of billions
of dollars were still under construction. Apartments and
swank cafes were springing up.
Optimism abounded.
Now, even as economic
growth continues, wages have
stagnated and anxiety has set
in here as Chinas slowing
economy drags down commodity prices.
Mr. Turnbulls Liberal-National coalition government
has signed free-trade deals
with China, Japan and other
countries that are aimed at
boosting Australias competitive edge in these areas. But
his message has struggled to
resonate here, with many people preferring to place their
hopes in Indian billionaire
Gautam Adani, who has longplanned a US$16 billion coal
mine.
In the last vote, Ms. Brown
said she backed the conservatives, who narrowly won the
district. Now, shes having difficulty relating to Mr. Turn-

TRACEY NEARMY/EUROPEAN PRESSPHOTO AGENCY

Australian Voters Divided Over Economy

Prime Minister Turnbull, center, visited a farm in Rockhampton recently during the election campaign.
bulls campaign refrain that
theres never been a more exciting time to be Australian
due to the countrys proximity
to Asias emerging economies.
Mr. Shorten recently spent
his first campaign week in the
region, hoping to pull off a victory that seemed unlikely
when the race kicked off in
May.
However, both leaders are
struggling to engage voters,
mirroring the disenchantment
that has hit Western democracies from Europe to the U.S.,
driven by immigration, eco-

nomic stagnation and joblessness. In Australia, veteran conservative political strategist

Mark Textor has called it the
austerity of hopea play on
President Barack Obamas election slogan. Half of voters surveyed in a recent poll said they
were largely uninterested.
I just tune out when I hear
politicians, said Angela Newton, 18, who recently closed
her nail-care business catering
to the wives of miners when
business soured. I dont think
any of them have any answers.

Australias problems pale

against those in Europe and
Japan: the economy grew by
3% in 2015, and gross government debt is projected to
reach 36.8% of GDP in 2015.
Growth in the eurozone last
year was just 0.3% and gross
debt amounted to 93%, according to the Organization for
Economic Cooperation and Development. Japan is grappling
with debt amounting to 248%
of GDP and growth of 0.7% this
year.
Australias debt load, however, is growing at among the

worlds fastest paces. Some

ratings firms have warned of a
possible downgrade of Australias prized AAA sovereigncredit rating unless the incoming government reins in
spending.
On a recent campaign stop
in Rockhampton, Mr. Turnbull
promised new funding for water infrastructure to help regional farmers. Agriculture is
one of the few industries still
prospering hereAustralian
beef prices are near record
highs. The government hopes a
dining boom centered on
Asias growing appetite for
protein will replace the mining
boom, adding to innovation in
new areas of the economy here
like tropical health and aquaculture.
Weve got great opportunities in agriculture, tourism,
and we can build on it, said
Matt Canavan, the minister for
Northern Australia, who resides in Rockhampton.
One person drawn to Mr.
Turnbulls innovation mantra
is Ben Rogers, who gave up a
lucrative coal-digging job as
the mining boom peaked. He
developed dry-ice storage
technology with potential use
in hospitals.
I just felt I was getting stupider driving a digger, said
Mr. Rogers, opening the door
to a portable fridge in a cloud
of condensation. Australians
should be looking at doing
other things. Maybe that time
has come now.

China Vows to Avoid Roiling Capital Markets Two Popes

TIANJINChina will avoid
steps that upset its capital
markets, Premier Li Keqiang
told foreign business leaders in
a closed-door meeting Tuesday,
said executives who attended.
His message, on the sidelines of the World Economic
Forum meeting in Tianjin, appeared aimed at reassuring foreign investors worried about
Chinas economic slowdown
and tentative progress on reform. It comes as private investment in China is decelerating and markets have been
rattled by Britains vote to
leave the European Union.
Economists expect Chinas
second-quarter growth to fall
below the first quarters 6.7%

World
Watch
SOUTH KOREA

Seoul Prepares
$17 Billion Stimulus

South Koreas government

cut its growth forecast for the
year and said it would prepare a
fiscal stimulus of more than $17
billion to support the economy.
The announcement by the Finance Ministry on Tuesday follows a decision from the central
bank earlier in June to lower its
main policy rate to a record low
and comes amid new worries
about the effects of the U.K.s
exit from the European Union on
South Koreas trade-dependent
economy.
The ministry said it now expects South Koreas economy to
grow 2.8% in 2016, down from a
3.1% expansion projected in December. It expanded 2.6% in
2015. South Koreas economy is
forecast to grow 3% in 2017, according to the outlook.
The export-led economy is
losing steam on sluggish global
trade. Shipments overseas continue to slump, domestic demand remains weak and corporate restructuring is weighing
heavily on growth.
The ministry said it was preparing a stimulus package valued at more than $17 billion that
includes extra budget spending.
The strategy focuses on creating
more jobs and reducing the negative effects of continued corporate restructuring in ailing industries such as shipping and
shipbuilding, it said.
Kwanwoo Jun
VIETNAM

Economic Growth
Picks Up Speed

Vietnams gross domestic

product in the second quarter
this year grew 5.55% from a
year earlier, faster than a 5.48%

level, already the slowest pace

since the global financial crisis
of 2007 and 2008.
Foreign companies operating in China have complained
of rising difficulties operating
in the nation, including loosely
defined laws, perceived protectionism and industrial overcapacity, with pessimism at an
all-time high in a recent survey
by the European Union Chamber of Commerce in China.
He said China will never do
anything to upset its capital
markets, will not let them go
through
a
roller-coaster
ride and will take every step
possible to prevent that, said
one executive about the meeting. Mr. Li didnt mention Beijings intervention last summer in the stock market after

expansion in the first quarter,

government data released Tuesday showed.
The industrial production sector expanded 7.09% in the second quarter from a year earlier,
while the services sector grew
6.68%, the General Statistics Office said in a statement. The agricultural production sector rose
0.36%.
Vu Trong Khanh
PAKISTAN

Clerics Promote
Transgender Rights

A group of over 50 Islamic

clerics in central Pakistan issued
a fatwa, or religious pronouncement, on Sunday, saying that
transgender men and women
have the right to marry in Islamic law, and that the state
must ensure equal rights and
treatment for them.
The fatwa was issued by the
clerics at the request of the Tanzeem Ittehad-i-Ummat Pakistan,
an Islamic organization. Its chairman Zia-ul-Haq Naqshbandi said
he wanted Islamic scholars to

shares plunged, nor the global

volatility unleashed in August after China introduced a
new
currency-management mechanism, the executive
added.

Premier Li tries to
reassure foreign
executives worried
about economy.
Speaking in Chinese interspersed with occasional English
phrases, Mr. Li told the meeting of over 100 foreign business leaders that China faces
two principal problems: its vulnerability to the global slowdown and various internal inefprovide a ruling to help prevent
discrimination against transgender citizens.
We need to accept them as
Gods creation too. Whoever
treats them badly, society, the
government, their own parents,
are sinners, Mr. Naqshbandi said
Monday. His organization isnt
among the countrys major Islamist groups and political parties,
but the fatwa was discussed on
TV by the head of an influential
group of clerics, who said the
rights were already outlined in
Islam.
The pronouncement said
transgender men with male
physical characteristics can
marry women or transgender
women with female characteristics, and vice versa. The fatwas
authors wrote that those not
physically identifiable as male or
female cant marry under Islamic
law. They didnt specify the criteria for determining male or female characteristics in transgender people. Mr. Naqshbandi said
the fatwa doesnt deal with the
rights of people who have undergone sex-change surgery.

ficiencies. Mr. Li stressed the

need for measures to improve
implementation of existing policies, the executives added.
Implementation of policies
is often difficult in China, said
an executive who said his company has had trouble getting
deals approved by local officials. Foreign businesses have
cited Chinas protracted anticorruption campaign as a factor that has held up decisions
by making many officials afraid
of unwelcome attention.
Mr. Li told the foreign executiveswho included representatives from heavy industry as
well as software, online learning programs and other hightech sectorsthat China will
reduce the role of state-owned
companies but this process will

be gradual.
The executives, who have
been in similar meetings with
Mr. Li in past years, said the
premier appeared less like he
was speaking from a script,
more relaxed and more willing
to acknowledge Chinas economic problems than in years
past. He was a lot more sober
than last year, an executive
said.
Flanked by over a dozen
Chinese officials, Mr. Li spoke
of the importance of embracing
innovation, cloud computing
and big data, and said China
needs to have more links between its internet and the rest
of the world but still maintain
controls because were at a certain level of development, said
one executive.

The fatwa said the Pakistani

state is responsible for protecting the transgender community,
and that they have rights to inheritance and Islamic burials.
The authors called on the Pakistani state to punish parents
who abandon or disown transgender children because of their
identity.
Qasim Nauman

returned to Egypt to extract and

analyze the stored data, Egyptian officials have said.
The cockpit voice and flightdata recorders might offer clues
to determine why Flight 804
crashed May 19, killing all 66
people on board. The plane was
headed to Cairo from Paris when
it deviated from its course while
cruising at 37,000 feet, first
turning left before rolling to the
right and completing a full circle,
investigators have said. The
plane broadcast a series of messages before all contact was
lost, though they havent proved
sufficient to determine what
happened.
Egyptian officials also said
they had taken wreckage recovered from the Airbus Group SE
A320 to a secure facility at
Cairo International Airport. Forensic experts from the countrys
prosecutor will examine the
items before they are handed
over to the crash investigators,
they said.
Egyptian officials havent
ruled out any cause for the
crash.
Robert Wall

EGYPT

Crash Black Boxes

Arrive in France

Egyptian officials Monday

said the black boxes from EgyptAir Flight 804 had arrived in
France to undergo repairs as investigators struggle to figure
out why the plane crashed more
than a month ago.
Egyptian officials also met
with their counterparts from the
French air-accident office, the
BEA, and other outside experts,
including black-box maker Honeywell International Inc. to discuss how to go about the repairs, they said. Once the
devices are fixed, they would be

RAFIQ MAQBOOL/ASSOCIATED PRESS

BY MARK MAGNIER

SPLASH DANCE: Schoolchildren in a flooded street in Mumbai, India, Tuesday. Monsoon rains started slowly but have picked up pace.

Appear
Together
At Vatican
BY FRANCIS X. ROCCA

ROMERetired Pope Benedict XVI made a rare public appearance Tuesday alongside
Pope Francis, in a vivid reminder of a unique circumstance: the presence of two living popes in the Vatican.
The pope emeritus, as he is
referred to, looked frail but
spoke without notes at a Vatican ceremony marking the
65th anniversary of his ordination to the priesthood. It was
one of a handful of times he
has appeared in public since he
made history in 2013 by stepping down, becoming the first
pope to do so in six centuries.
The event follows recent
comments by Pope Benedicts
private secretary suggesting
that leadership of the church
is now shared by the two men.
While Pope Francis dismissed
such speculation over the
weekend, it reflects the tension inherent in the situation
and dissatisfaction among conservatives with the direction
of the current papacy.
Pope Benedict, 89, has honored the pledge he made at his
resignation to withdraw from
the world and live a life dedicated to prayer.
He lives in former convent
on a hill in the Vatican gardens. On the few occasions he
has been seen in public, he has
appeared increasingly frail, using a walker. Yet the former
pontiff, a renowned theologian, continues to write, receive visitors and play the piano.
At Tuesdays ceremony,
Pope Benedict gave a newly
published collection of his
homilies to his successor. He
stood repeatedly without assistance during the hourlong
ceremony in the Vaticans frescoed Clementine Hall.
Pope Benedict has continued to dress in white, as is traditional for popes, and is addressed as Your Holiness.
There are major differences
between the two pontificates,
with the current pope taking a
more liberal line on everything
from liturgy to sexual morality.
Pope Francis himself acknowledged tension Sunday
when he told reporters accompanying him on a flight back
from Armenia that he had
heard rumors of disgruntled
people complaining about him
to Pope Benedict.
And he chased them
away! Pope Francis said, noting that the retired pope had
promised obedience to his successor. Thats the kind of man
he is. A man of his word. An
upright, upright, upright
man!

P2HW181000-0-A00500-1--------AL

THE WALL STREET JOURNAL.

Wednesday, June 29, 2016 | A5

Simple wins with device

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2016 Samsung Electronics America, Inc. Samsung, Samsung Galaxy S and Knox are trademarks or registered trademarks of Samsung Electronics Co., Ltd. Android and other marks are trademarks of Google Inc. Use
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P2HW181000-0-A00600-1--------AL

THE WALL STREET JOURNAL.

A6 | Wednesday, June 29, 2016

WORLD NEWS

Refugee Crises Spawn Health Threats

Years of conflict in the Middle East leave millions of displaced people vulnerable to communicable diseases

QAB ELIAS, Lebanon

Hundreds of thousands of
Syrian refugees scattered in
makeshift camps among the
farms in the fertile Bekaa Valley are facing an increasingly
worrisome threat: disease.
On a patch of land occupied four months ago by
about 150 Syrians after their
previous camp became too
crowded, there are only two
toilets that empty directly
into an irrigation ditch for an
adjacent potato field. Most of
the children have had diarrhea for months, and everyone has a constant itch
from insect bites in the sweltering heat, said Jumaa Sleiman, a refugee overseeing the
new settlement.
We are living in garbage,
in misery, he said, begging a
visiting aid worker for help in
setting up more tents and improving sanitation.
The maladies at that settlement, where children bathe
in the same ditch the toilets
empty into, are only the tip of
a dangerous iceberg.
Years of conflict in the
Middle East have collapsed
health-care systems and
strained government budgets
for public-health efforts. The
cumulative resultmillions of
people constantly on the
move, living in overcrowded,
unsanitary conditionshas
been the re-emergence of
deadly diseases.
Traditionally this region

MOHAMED AZAKIR/REUTERS

BY NOUR MALAS

A girl crossing a wooden plank over sewage water at a makeshift camp for Syrian refugees in Lebanons Bekaa Valley in March.
was free from many epidemic
diseases. But we have seen a
resurgence, said Mamun Malik, the World Health Organizations coordinator for
health security and regulations in a broad region that
includes the Middle East. We
have taken a step back and
our major focus is not elimination but just containment.
With renewed fighting in
parts of Syria and Iraq, ongoing clashes in Yemen and
Libya, and the start of the hot
and sometimes rainy summer

season, the risk is increasing

substantially, Mr. Malik said.
In Iraq, a month-old, U.S.backed offensive to retake
Fallujah from Islamic State
drove tens of thousands of
the remaining residents to
flee to already overcrowded
camps outside the city, where
water, food and shelter are already in short supply, according to aid agencies.
The WHO said June 16
that children in Fallujah havent been vaccinated since
the extremist group Islamic

State captured the city two

years ago. The government
claimed to have regained full
control of the city on Sunday.
Within Syria, millions of
people are also out of reach
for routine vaccinations because they are in areas controlled by Islamic State or besieged by the government.
Staffan de Mistura, the
U.N. special envoy on Syria,
said on June 9 that around
900,000 children were at risk
of missing their booster
shots, amid stuttering efforts

to deliver humanitarian aid.

The U.N. and its partners
carry out vaccine drives for
children in Syria against eight
infectious diseases.
The risks will always continue to be there as long as
there is conflict, as long as
there is displacement, said
Juliette Touma, chief regional
spokeswoman for Unicef.
A cholera outbreak last fall
in Iraq spread to Kuwait,
Oman, Bahrain and Iran before it was contained in December. It was traced to an

infected water-storage facility

in Baghdad, according to U.N.
and Iraqi officials. Iraqi officials said they had been unable to import enough chlorine gas to treat the water.
This is what happens
when countries at war have
mass displacement, said Lise
Grande, the U.N.s top humanitarian official in Iraq.
She and other officials
warned that a million people
could be uprooted within
days following the Iraqi militarys planned advance into
the city of Mosul, another Islamic State stronghold.
As a result of the war,
nearly five million Syrians
have fled to four neighboring
countries and 6.5 million are
displaced within Syria, according to U.N. estimates.
Lebanon, population about
four million, hosts the largest
number of Syrian refugees
about two millionin proportion to its size.
In the Bekaa Valley in the
countrys agricultural heartland, patches of ground between fields of potatoes, cabbage, cauliflower and peas
have filled with at least
400,000 refugees. Many have
been there far longer than
anyone expected.
The main problem with
contamination is the children, said Amjad Dawood, an
aid worker at the agency,
World Vision, who oversees
programs to improve water
and waste management. They
will play with anything.

Lebanon Raids Syria Migrant Camps Smugglers Raise Fees

BY RAJA ABDULRAHIM
AND NOAM RAYDAN

As Routes Grow Longer

Lebanons army raided Syrian refugee camps and politicians called for a border
clampdown, a day after a series of suicide bombings in the
predominantly Christian border town of al-Qaa.
Lebanese forces descended
on camps in the northeast on
Tuesday, arresting more than
100 people for not having legal
papers and confiscating motorcycles, state media said.
Several bombers had arrived
in al-Qaa on such vehicles on
Monday.
A curfew for Syrian refugees will be enforced there and
another mostly Christian town,
it said.
No group has claimed responsibility for the attacks, in
which eight bombers killed
five people. Two of the attackers blew themselves up near a
church.
The Sunni Muslim terror
group Islamic State has taken
responsibility for previous
bombings in Lebanon, mostly
targeting Shiite Muslim areas
in retaliation for the Shiite
militant group Hezbollahs military support of Syrian President Bashar al-Assad. Lebanese security forces have for
years battled Islamic State and
the al Qaeda-linked Nusra

BRUSSELS Prices for

smuggling migrants into Europe have as much as tripled
in the past six months compared with last year, according
to the European law-enforcement agency Europol.
At the end of last summer,
migrants were paying between
2,000 and 5,000 ($2,200 and
$5,600) for the entire trip from
their home country to the European Union, Europol said.
Migrants are currently paying up to 3,000 just for one
leg of their journey to Europe,
the agency said in a report
published Monday.
This trend is a consequence
of the closing down of the
main migration route via Turkey, Greece and the Balkan
countries after the EU and Turkey struck a deal in March and
countries north of Greece put
border restrictions in place.
The higher prices are also a
reflection of the much longer
journeys migrants embark on,
with lower chances of arriving
in their hoped-for destinationsusually Germany and
the Scandinavian countries
compared with last year.
Last year, the trips were
sometimes completed in a
week or two, but now a jour-

ney can last months, Europol

said.
The demand for smugglers
has increased as migrants
have been barred from crossing from one country to another: From January to June,
Europol received intelligence
on more than 7,000 newly
identified migrant smuggling
suspects, 95% of them male
and with an average age of 36.
Smuggling suspects from
Pakistan, sub-Saharan countries, Russia and Ukraine are
on the rise compared with last
year, Europol said.
Meanwhile, there are fewer
smugglers from North Africa
and Balkan and central and
eastern EU countries. The
smugglers often have links to
drug-trafficking networks and
burglars gangs.
In terms of future trends,
smugglers are likely to offer
new sea routes and travel
modes to bypass the Greek and
Italian islands where the EU
has set up registration centers.
An increase in pressure on
secondary movement routes is
expected, the agency said, referring to migrants seeking to
move out of Greece, Italy or
the Balkans toward wealthier
countries in the north of Europe. Prices are likely to go up
further, Europol said.

AGENCE FRANCE-PRESSE/GETTY IMAGES

BY VALENTINA POP

Lebanese soldiers patrolling the village of al-Qaa, near the Syrian border, on Tuesday.
Front in northern border areas
of Lebanon, where Islamic
State maintains some territorial control.
With more than one million
registered Syrians, Lebanon is
host to one of the largest Syrian refugee populations, according to the United Nations.
Many more live in the country
without official registration.
The influx has at times threatened to upset already fraught
sectarian tensions and destabilize the small, Mediterranean
nation.
The movement of the Syrian refugees should be con-

trolled and monitored through

permits given by the security
apparatuses after they are
gathered in one camp, Parliamentary Minister Walid Sukariyeh, who belongs to a Hezbollah political bloc, told local
radio.
Lebanese security forces
have since 2014 occasionally
clashed with Islamic State and
Nusra Front fighters in and
around Arsal, a northern Sunni
town.
Lebanese security officers
and soldiers were kidnapped
that year by the militants, and
some are still held.

Nadim Houry, Middle East

deputy director for Human
Rights Watch, said he was concerned about a potentially
harsh response to Mondays
attacks by Lebanons military.
That is a concern and it
comes amid a populist political
discourse that is trying to
present the refugees as the
source of all ill, he added.
Its not about whether the
army should be doing anything, of course they should do
something to protect the people. Its how they go about doing it, and are they being effective.

Brazilian Report Aids, Hurts Suspended Leader Rousseff

BRASLIAA nonpartisan
team of Senate budget analysts handed potential legal
ammunition both to opponents
and supporters of suspended
President Dilma Rousseff as
she tries to survive an impeachment trial.
Ms. Rousseff is charged
with using bookkeeping maneuvers to mask a ballooning
budget deficit, allegations that
she denies. Those accusations set in motion an impeachment process that has
shaken up the nations political system and culminated in
the mid-May start of a Senate
trial that has suspended and
could permanently remove Ms.
Rousseff from office.
In its 224-page report on
Monday, the three-member
group, comprised of career
Senate budget technicians,
concluded the leftist leader
had signed three budget decrees shifting around 2.3 billion reais ($683 million) without procuring the needed
approval of Congress.
The analysts also said the
presidents
administration
then took too long to transfer
repayment funds to a state
bank, a lapse congressional op-

ponents say breached fiscal

rules and justifies her removal
from office.
The group concluded that
delays by the National Treasury in transferring funds to
state bank Banco do Brasil, to
cover for subsidies paid to
farmers on behalf of the administration, amounted to
loans to the administration
from the bank. That is unlawful under the countrys fiscal
regulations, as the presidents
adversaries have contended.
But the group also said Ms.
Rousseff wasnt personally to
blame for the fund-transfer
delay.
There was not any identified act by the president that
would have contributed directly or indirectly to the delays, the report said.
The group also found no
fault with a fourth presidential
budget decree that had been
questioned by her accusers because it didnt affect fiscal targets and therefore wasnt illegal, the report said.
A spokesman for Ms. Rousseff couldnt be reached to
comment.
Those conclusions likely
will be seized on by Ms. Rousseffs defense team, which had
demanded the technical report

and is attempting to build a

case that the president committed no wrongdoing.
Still, it is unclear how the
report will affect the Senate
trial. Early tallies by local media indicate that a majority of
Brazils 81 senators will vote
against Ms. Rousseff, but as of
now their numbers arent high

enough to secure her impeachment. A minimum of 54 votes

is needed for impeachment.
On May 12, the Senate
voted 55-to-22 to launch the
impeachment trial, effectively
suspending Ms. Rousseff for
up to 180 days. She has been
temporarily replaced by Vice
President Michel Temer, who

would be confirmed as president if Ms. Rousseff is impeached. Mr. Temer would finish out his predecessors
second term, which runs
through the end of 2018.
Many political analysts say
the trials outcome is virtually
a foregone conclusion, and
that Ms. Rousseff will be top-

UESLEI MARCELINO/REUTERS

BY PAULO TREVISANI

Dilma Rousseff in Brasilia earlier this month. She is battling to survive an impeachment trial.

pled regardless of the evidence

presented for and against her.
The lawmakers already
have made up their minds,
said Andr Cesar, a political
consultant in Braslia. Those
who are against [Ms. Rousseff]
will keep their positions, he
said.
However, he said, the report will lend credibility to the
impeachment process, which
Ms. Rousseff has sought to
dismiss as a politically motivated coup dtat.
It is an important step
[that] reinforces the legality of
the process, Mr. Cesar said.
The report was presented
Monday to the 21 senators
who make up a special committee that is conducting the
first phase of the impeachment trial. The committee is
listening to witnesses and
gathering evidence, and then
will produce a report advising
senators to convict or acquit
Ms. Rousseff.
A vote is likely to occur by
late August or early September, according to Luiz Fernando Bandeira, a career Senate employee who advises the
chamber on process rules.
Reed Johnson
and Luciana Magalhaes
contributed to this article.

P2HW181000-0-A00700-1--------AL

THE WALL STREET JOURNAL.

Wednesday, June 29, 2016 | A7

U.S. NEWS

Alternative Candidates May Have Opening

Dissatisfaction with
Trump, Clinton could
affect presidential
race, new poll finds

Deep dislike for the two

leading U.S. presidential candidates is creating an opening
for third-party hopefuls, potentially scrambling the race
as voters cast about for alternatives, a new Wall Street
Journal/NBC News poll shows.
With majorities of registered
voters holding negative views of
Democrat Hillary Clinton and
Republican Donald Trump, two
other candidates notched a level
of support that could prove
meaningful in a tight race.
Libertarian Gary Johnson and
Green Party candidate Jill Stein
together drew backing from 16%
of the 1,000 people surveyed.
When voters had the option of
choosing the third-party candidates, Mrs. Clintons lead over
Mr. Trump dropped from five
percentage points to one point.
The presence of third-party
candidates on the ballot could
add a measure of unpredictability to the election. The Libertarian Party expects to be on
the ballot in all 50 states, the
Green Party in at least threequarters of states.
Mrs. Clinton led Mr. Trump
by 46% to 41% when voters were
asked which of the two they favored. Mrs. Clinton led by only a
single point, 39% to 38%, when
voters could also choose Mr.
Johnson or Ms. Stein.
On the four-candidate ballot,

PATRICK T. FALLON/REUTERS

BY PETER NICHOLAS

Libertarian presidential candidate Gary Johnson, wearing suit, in California on Saturday. The party expects to be on the ballot in all states.
some 83% of those who favored
Mrs. Clinton in a two-way race
stuck with her as their preference, while 13% split off and
threw their support to Mr.
Johnson or Ms. Stein.
Given the same choices,
89% of Trump voters stayed
loyal to him, while 9% moved
to Mr. Johnson or Ms. Stein.
The poll also shows that independent voters, who make
up about 11% of the total,
could play an outsize role in

the election. Polling in the fall

of 2012 found that only 11% of
independents favored thirdparty candidates in that presidential race, compared with
35% in the new Journal/NBC
News survey, which was conducted June 19-23. Indeed, Mr.
Johnson outpaced Mrs. Clinton
among independents, 23% to
15%, in the new poll.
Those whose views on the
race havent hardened seem
open to choosing Mr. Johnson or

Ms. Stein. These persuadable

voters made up nearly three in
10 of those surveyed. Of them,
28% leaned toward Mr. Trump
and 25% toward Mrs. Clinton.
Some 21% favored Mr. Johnson,
and 12% went for Ms. Stein.
Pollsters cautioned that voters are more apt in the summer before an election to say
they will back third-party candidates. When the race heats
up in the fall, they often revert
to the major-party contenders.

Yet the 2016 presidential

race has often defied conventional thinking. One difference
between this election and past
ones is the unpopularity of the
two main candidates.
Some 55% of voters said in
the new survey said they saw
Mrs. Clinton in a negative
light. For Mr. Trump, the figure was 60%. The ratings are
worse than those of any Republican or Democratic nominee dating to 1992. At the

start of 2016, 49% viewed Mrs.

Clinton negatively, while 58%
held such views of Mr. Trump.
When given the choice of
Mr. Trump or Mrs. Clinton in a
general-election matchup, 9%
told the interviewers that they
would vote for neither.
The poll suggests that voters
feel little personal connection to
either candidate. Asked if they
shared Mrs. Clintons values,
36% said yes, while 61% said no.
Only 30% said they shared Mr.
Trumps values, compared with
68% who said they didnt.
On this measure, Mrs. Clinton has lost ground compared
with her first presidential bid,
in 2008. In April of that year,
voters were evenly split on the
question of whether they
shared her values.
Fred Yang, a Democratic
pollster who conducted the
Journal/NBC News survey with
Republican Bill McInturff, said:
This really will be an election
in which voters will be holding
their noses.
Mr. McInturff said: Given
the historic dissatisfaction
with the two major-party candidates, theres an opening for
a larger share of the vote for
the third- and fourth-party
candidates than weve seen
since [Ross] Perot.
Running as an independent
in 1992, Mr. Perot captured 19%
of the vote, finishing behind Republican President George H.W.
Bush and then-Arkansas Gov.
Bill Clinton, who won the election. Mr. Perot ran again in 1996
and finished with 8% of the vote.
The poll had a margin of error of plus or minus 3.1 percentage points.

BY BYRON TAU

WASHINGTONA House
panels report on the 2012 terrorist attacks in Benghazi,
Libyawritten by the Republican majorityfaults multiple
agencies in the Obama administration for the lack of a coherent strategy toward the
country and for failing to recognize growing security risks.
The House Select Committee on Benghazi, formed two
years ago to investigate the
Sept. 11, 2012, attacks on two
American diplomatic and intelligence facilities, also claims
the U.S. government was slow
and disorganized in responding to the attacks once they
were under way.
The attacks in Benghazi
have lingered as a political issue given that Hillary Clinton,
who was secretary of state at
the time, is the presumptive
Democratic presidential nominee. Democrats have long
charged that the Republican
committees work was aimed at
damaging her political aspirations.
The 800-page report says
Mrs. Clinton and top State Department aide Patrick Kennedy

should have been aware the deteriorating security condition.

It is not clear what additional intelligence would have
satisfied either Kennedy or the
secretary in understanding the
Benghazi Mission compound
was at riskshort of an attack. The intelligence on which
Kennedy and the secretary
were briefed daily was clear
and pointedAl Qaida, al
Qaida like groups, and other
regional extremists took refuge in the security vacuum
created by the Libya government, the report says.
The committees report is
the last in series of congressional investigations into the
attacks, which killed U.S. Ambassador to Libya Christopher
Stevens, State Department foreign-service officer Sean
Smith and Central Intelligence
Agency contractors Tyrone
Woods and Glen Doherty.
The committees chairman,
Rep. Trey Gowdy, said the report fulfilled his promise to
conduct an impartial and fair
investigation that wasnt unduly focused on Mrs. Clinton.
When the Select Committee was formed, I promised to
conduct this investigation in a

J. SCOTT APPLEWHITE/ASSOCIATED PRESS

Report on Libya Attacks Faults Federal Agencies

Rep. Trey Gowdy (R., S.C.), left, chairman of the House Benghazi committee, conferred with Rep.
Elijah Cummings (D., Md.) during a committee hearing in January 2015.
manner worthy of the American peoples respect and worthy of the memory of those
who died. That is exactly what
my colleagues and I have
done, said Mr. Gowdy, a
South Carolina Republican.
But the committees final re-

port laid bare divisions. Two of

the panels seven Republican
members wrote an addendum
to the reports conclusion, arguing that the Obama administration misled the American people
about the nature of the attacks
for political reasons.

First-Quarter GDP Is Revised Upward

WASHINGTONThe U.S.
economy expanded more than
previously thought in the first
three months of the year, but
underlying trends suggest it
remains vulnerable in the face
of global economic turmoil.
Gross domestic product, the
broadest measure of goods and
services produced across the
U.S., grew at a seasonally adjusted annual rate of 1.1% in the
first quarter, the weakest pace
in a year, the Commerce Department said Tuesday. The
agency previously estimated the
economy grew at a 0.8% pace.
The main factors behind the
upward revision: The U.S. exported more goods and services than thought, and companies spent more than
initially estimated on software
and research and development.
But otherwise, the economy
appears to have lost steam as it
enters its eighth year of expansion. Total business investment
fell by the most in six years as
the energy sector continued to
suffer from depressed oil markets. Spending by everyday
Americansthe lifeblood of the
worlds largest economygrew
at the slowest pace in two years.
Economists expect the expansion to continue, but without the necessary vigor to lift

DANIEL ACKER/BLOOMBERG NEWS

BY JOSH MITCHELL

U.S. car sales have remained solid. Above, an Indiana Subaru plant.
long-term living standards.
The good news is that with
okay, but not great growth,
the economy has not developed imbalances that would
indicate a recession is coming
soon, Gus Faucher, deputy
chief economist at PNC, said
in a note to clients.
He said dangers loom, including the fallout from the
U.K.s vote to leave the European Union and a strong dollar
tied to investor jitters about
the global economy. Greater
uncertainty about the prospects
for global growth and increased
financial market volatility could
make U.S. businesses more cautious in hiring and investing,
and could make consumers less

willing to spend, he said.

The economy has made a
habit of stumbling in the early
months of the year only to rebound in the spring and summer, and this year appears no
different. Recent economic reports suggest gross domestic
product has grown at a rate of
between 2.5% and 3% in the
three-month period that ends
Thursday. Consumer spending
remains steady, with Americans buying cars at a solid clip
and home sales reaching a
nine-year high in May.
The available indicators
point to a noticeable step-up in
GDP growth in the second quarter, Federal Reserve Chairwoman Janet Yellen testified

before Congress last week. In

particular, consumer spending
has picked up smartly in recent
months, supported by solid
growth in real disposable income and the ongoing effects of
the increases in household
wealth. And housing has continued to recover gradually, aided
by income gains and the very
low level of mortgage rates.
The Fed is debating
whether to raise short-term
interest rates this year. The
central bank indicated earlier
this year that it could move
this summer, but the likelihood of an increase that soon
has diminished because of
fears that the U.K. move,
known as Brexit, and slower
job growth in the U.S. could
weigh on the overall economy.
The weak household spending in the first quarter represents a new red flag. Economists have expected consumer
spendingrepresenting more
than two-thirds of demand in
the economyto be stronger
as a result of cheap gasoline
and a slight pickup in wages.
Tuesdays report showed
consumer spending grew at a
1.5% annual pace in the first
quarter, compared with the
prior estimate of 1.9%.
The economy grew 2.1% in
the first quarter compared with
the same period a year earlier.

The five Democrats on the

panel also released their own
report on Monday, which argued that the investigation was
tainted by a partisan focus on
Mrs. Clinton.
We leave the Committee
much the same way we joined

U.S.
Watch

itknowing that Congress and

the American people did not
get every relevant fact from
this administration, wrote
Republican Reps. Jim Jordan
of Ohio and Mike Pompeo of
Kansas. They wrote that Mrs.
Clinton failed to lead.
State Department spokesman Mark Toner highlighted
the departments cooperation
with the investigation, saying
50 current and former employees had agreed to interviews.
He said the agency had handed
over more than 100,000 pages
of documents.
Clinton campaign spokesman Brian Fallon said in a
statement Tuesday: After more
than two years and more than
$7 million in taxpayer funds,
the Committee report has not
found anything to contradict
the conclusions of the multiple,
earlier investigations. This report just confirms what Majority Leader Kevin McCarthy and
even one of Trey Gowdys own
former
staffers
admitted
months ago: this Committees
chief goal is to politicize the
deaths of four brave Americans
in order to try to attack the
Obama administration and hurt
Hillary Clintons campaign.
that the court would be less
likely to second-guess legislative
decisions to regulate abortion.
The Supreme Court dashed
those hopes Monday.
Jess Bravin
OBITUARY

Ex-College Basketball
Coach
Summitt Dies
Justices Reject State
Pat Summitt, the former TenAbortion Restrictions nessee womens basketball
SUPREME COURT

The Supreme Court on Tuesday turned away efforts by Mississippi and Wisconsin to reinstate
laws requiring abortion doctors to
hold admitting privileges at local
hospitals, extending the reach of
Mondays ruling against Texas
rules for abortion clinics.
The brief, unsigned orders rejecting the state appeals reflected the first fallout of the
courts decision to strike down
Texas provisions that included
the admitting-privileges mandate
along with a requirement that
abortion clinics meet the strict
building standards of ambulatory
surgical centers. If implemented,
the Mississippi measure was expected to lead to the closure of
the states only abortion facility.
In separate cases, federal appeals courts in New Orleans and
Chicago had ruled against both
state measures. The laws were
part of a wave of regulations
approved by states after a 2007
Supreme Court decision upholding a ban on certain late-term
abortion procedures. Conservatives saw that ruling as a signal

coach who won more Division I

college games than any coach
man or womandied Tuesday.
She was 64 years old.
Ms. Summitts death came after a lengthy battle with Alzheimers disease. Ms. Summitt said
in 2011 that she had early onset
Alzheimers and stepped down
from her head-coaching position
eight months later, in 2012. She
retained the title of head coach
emeritus until her death.
Through her unrivaled success
and influence during her 38 years
at the University of Tennessee,
Ms. Summitt elevated womens
basketball from an afterthought
on most campuses into a cornerstone of collegiate athletics.
When she started coaching,
womens basketball wasnt yet an
official sport with the National
Collegiate Athletic Association.
Ms. Summitt won eight national championships, 16 regularseason Southeastern Conference
titles, 16 conference-tournament
titles and 1,098 games in total
during her career.
Max Cohen

P2HW181000-0-A00800-1--------AL

THE WALL STREET JOURNAL.

A8 | Wednesday, June 29, 2016

FROM PAGE ONE

ARMS
Continued from Page One
rolling up sleeves? Army Chief
of Staff Gen. Mark Milley met
with Spc. Mitchell and agreed.
Th service declared Fort Hood
would begin a 10-day trial to
evaluate the practicality of
sleeve-rolling across the
Army.
Spc. Mitchell rolled up and
rejoiced.
The 10-day trial ended
Monday, and now Gen. Milley
will decide two main things.
First, should sleeve-rolling be
allowed Army-wide. And, if so,
how and when soldiers
sleeves should be rolled up.
One idea is to follow daylight
savings.
Ive been getting a lot of
calls from my friends, Spc.
Mitchell said. They just say,
Thank you, and stuff.
For years, members of the
Air Force, Navy and Coast
Guard have enjoyed the privilege of rolled sleeves in accordance, of course, with uniform
protocols and permission from

One of two billboards that went up around New Yorks Times Square attacking American Federation of Teachers leader Randi Weingarten and the teachers union.
Street asset managers it says
donated to organizations that
support causes opposed by the
union. It wanted union pension
funds to use the list to decide
where to invest their money.
The Manhattan Institute for
Policy Research, a think tank
that supports increasing school
choice and replacing definedbenefit pension plans with
401(k)-type plans for future
government employees, is one
of the groups to which donations were viewed unfavorably.
Lawrence Mone, its president, says the tactics amount
to intimidation. I dont think
that its beneficial to the functioning of a democratic society, he says.
After KKR & Co. President
Henry Kravis made the list in
2013, Ms. Weingarten got a
call from Ken Mehlman, an
executive at the private-equity firm and former chairman of the Republican National Committee.
Mr. Mehlman said KKR had
a record of supporting public
pension plans, according to
Ms. Weingarten.
Ms. Weingarten agreed, removed Mr. Kraviss name from
the list and invited Mr. Mehlman to talk about the firms
commitment to public pensions at a meeting in Washington with 30 pension-fund
trustees representing 20 plans
that control $630 billion in
teachers retirement money.

When Cliff Asness of hedge

fund AQR Capital Management
LLC found out Mr. Kravis had
gotten off the list, he called
Mr. Mehlman, a friend. Mr. Asness also hired a friend of Ms.
Weingartens: Donna Brazile, a
vice chairwoman of the Democratic National Committee who
has been a paid consultant to
the American Federation of
Teachers.
Ms. Brazile arranged a lunch
meeting between Mr. Asness
and Ms. Weingarten, where
they discussed ways to work
together. Not long after, Mr.
Asnesss firm paid $25,000 to
be a founding member of a
group that KKRs Mr. Mehlman

was starting with Ms. Weingarten to promote retirement

security.
Mr. Asness was removed
from the list. A year later,
when Ms. Weingarten noticed
he continued to serve on the
Manhattan Institute board,
she considered putting him
back on.
In September of last year,
when the California State
Teachers Retirement System,
or Calstrs, considered increasing its hedge-fund investments,
Ms. Weingarten saw another
chance to apply pressure.
Dan Pedrotty, an aide to Ms.
Weingarten who runs the
hedge-fund effort, spoke to a
Calstrs official about Mr. Asnesss continued service on the
Manhattan Institutes board.
The Calstrs official then called
Mr. Asness.
In December, Mr. Asness
said he would step down from
the Manhattan Institute board.
His spokesman says he already
had made the decision at the
time of the call, after reassessing time spent on the boards
of several nonprofit groups.
Randi is committed to
helping hard working employees achieve the secure retirement they deserve, Mr. Asness said in a statement.
Mr. Loeb, founder of the $16
billion Third Point fund, has
been more combative. He is a
donor to the Manhattan Institute and chairman of the Success Academy, which operates
a network of charter schools in
New York City.
In a March 2013 letter to
Mr. Loeb, Ms. Weingarten
noted his support of a group
leading the attack on defined
benefit pension funds and
said she was surprised to
learn of your interest in working with public pension plan
investors. Seeking business
from union pension funds
while donating to the group,
she wrote, seem to us perhaps
inconsistent.
The two agreed to meet.
Mr. Loeb emailed Ms. Weingarten, noting his funds average annual return of 21% over
18 years. I completely respect
the political considerations
you may have and understand
if other factors dictate how
funds are allocated, he wrote.
A week later, Ms. Weingarten wrote back to reiterate
that unions were wary of investing with Mr. Loeb given

commanders.
The Air Force, for example,
allows airmen in battle-dress
uniform to roll sleeves only
when authorized by commanders. The rolled sleeve must
rest at, or within 1 inch of,
the forearm when the arm is
bent at a 90-degree angle.
Sailors have their own regimen. Sleeves may be worn
rolled up as directed by appropriate authority, the guide to
the Navy working uniform
reads, dictating a 3-inch-wide
sleeve band. The termination
point of the roll is approximately 2 inches above the elbow. This manner of sleeve
roll presents a short sleeve appearance and facilitates expeditious de-rolling and fastening
during
emergent
situations.
The Coast Guard, meanwhile, rolls its sleeves in accordion fashion. In 2014, the
Marines permitted sleeve-rolling after a yearslong prohibition of the practice, prompting
widespread elation.
The Army, though, kept a
ban on sleeve-rolling that accompanied the introduction of

a new uniform in the

mid-2000s. At the time, the
war in Iraq had begun, and
troops kept sleeves down anyway for protection in combat.
We said that since were in
the field, and were training
all the time and well be in
conflict, we just made a conscious decision not to roll
sleeves for that period, Sergeant Major of the Army Daniel Dailey said.
The 10-day sleeves-up trial
at Fort Hood has drawn some
attention. Some soldiers at the
base have shown off their bare
arms on social media, prompting envy among soldiers elsewhere.
I personally havent rolled
my sleeves up, so I cant tell
you personally how it feels,
Capt. Matthew Castiglione
said. He nonetheless approves
of the idea. The soldiers under
his command at Fort Hood
have taken advantage of the
change, he said, and as mechanics working outdoors,
they are thankful.
There also are holdouts.
My personal opinion is that it
looks very tacky in this new

The battles are

rooted in a fight
over how to improve
public education.

Getting Out of Hedge Funds

Public-employee pension funds have pulled billions of dollars from

hedge funds in recent years, sometimes with the encouragement of
the American Federation of Teachers.
Amount divested
California Public Employees
Retirement System (2014)

$4 billion

New York City Employee

Retirement System (2016)

$1.5 billion

Illinois State Board

of Investment (2016)

$1 billion

Public School Teachers' Pension &

Retirement Fund of Chicago (2015)

$175 million

Employees Retirement
System of Rhode Island (2014)

$75 million*

Oklahoma Fireghters Pension

and Retirement System (2016)

$75 million

Seattle City Employees

Retirement System (2016)

$60 million

New Jersey Public

Employees Retirement System

Vote this summer

*voted to divest from Third Point LLC

Source: Pension ofcials; published reports

THE WALL STREET JOURNAL.

her a member of the elite.

In September 2014, Mr. Berman sent a 10-page letter to
lawmakers, union officials and
opinion leaders charging that
Ms. Weingartens ineptitude
is a threat against America,
against hard-working teachers,
and especially against our nations children.
Lorretta Johnson, secretary-treasurer of the American
Federation of Teachers, responded in a letter to union
leaders that Mr. Berman represented a front group whose
mission is to vilify and destroy
unions.
After the billboards appeared,
Ms.
Weingarten
opened several new lines of
attack. Her union group
helped launch an advocacy
group, Hedge Clippers, that
lobbied against proposed New
York legislation to increase
the charitable deduction for
donations to public and private schools. The group publicized donations that it says
several Wall Street executives
made to the governor, who
supported the legislation, and
named the elite schools it says
their children attended. The
state senate hasnt acted on
the proposed legislation.
Last fall, Ms. Weingartens
union group published a report
criticizing hedge funds, called
All That Glitters Is Not Gold.
Among other things, the report
claimed that the high fees
charged by hedge funds made
them unattractive investments.
The report said that 11 big
pension funds it analyzed paid
an average of $81 million each
in annual fees to hedge funds.
Those pension funds, it said,
earned better returns on
money that wasnt invested in
hedge funds.
AQRs Mr. Asness, in a presentation to the Ohio pension
board in March, acknowledged
that some hedge funds charge
high fees, but said that didnt
mean the net deal for investors is a bad one, just that it
could and should be better.
Earlier this year, an Illinois
public-pension
fund
cut
its hedge-fund investments. In
April, one of New York Citys
public-pension funds voted to
dump its investments in hedge
funds. Ms. Weingarten tried to
get a big Ohio fund to follow
suit. It voted recently to remain invested in hedge funds,
including in Mr. Loebs.

the political attack on defined

benefit funds.
In response, Mr. Loeb asserted that it must be frustrating for unions to invest
with funds that have different political views or party affiliations. He added: At least
we can rejoice in knowing that
as Americans we share fundamental values that elevate individual opportunity, accountability, freedom, fairness and
prosperity.
The meeting was called off,
and Mr. Loeb was added to the
list.
At a fundraising dinner that
May for his charter-school
group, Mr. Loeb stood up and
said: Some of you in this
room have come under attack
for supporting charter-school
education reform and freedom
in general. He called Ms.
Weingarten the leader of the
attack and pledged an additional $1 million in her name.
Both Randi and I believe
Americas children deserve a
21st century education, and I
hope the day comes when she
embraces the positive change
created by public charter
schools, Mr. Loeb said recently in a statement.
In late 2013, state union officials pressed a Rhode Island
pension fund to fire Third
Point. The following January,
the pension fund did just that,
pulling about $75 million from
Mr. Loebs fund. A spokeswoman for the state treasurer
said at the time that Mr. Loebs

fund was too risky.

Roger Boudreau, a member
of the teachers union and an
elected adviser of the Rhode
Island fund at the time, says
the donations played a role.
Its fair to say that those
kinds of donations are going
to be looked at very critically,
he says.
Around that time, a giant
billboard appeared above
Times Square. Randi Weingartens Union Protects Bad
Teachers, it read above a picture of her scowling face.
Ms. Weingarten immediately assumed the hedgefunders were behind the attack. The entity listed as the
billboards sponsor is the Center for Union Facts, a Washington-based advocacy group.
The group declines to disclose
who paid for the billboard.
We all guessed it had to be
people like Dan Loeb, Ms.
Weingarten says. Mr. Loeb declined to comment.
The billboard kicked off a
campaign against Ms. Weingarten by the Center for Union
Facts, including radio and
newspaper advertisements.
Shes the head of the snake,
so it was appropriate to go after her personally, says the
groups president, Richard
Berman.
The ads directed people to
a website that said she oversaw a crusade to stymie
school reforms and protect the
jobs of incompetent teachers.
It listed her salary and called

uniform, Sgt. First Class Jye

Green said.
The unit looks unprofessional when some soldiers
have their sleeves rolled up
and others dont, Sgt. Green
said. I think everyone is kind
of shocked, he said, adding
that he wont roll up his own
sleeves unless Im forced to.
About 10% of the thousands
of soldiers who responded to a
poll by the Army Times disapproved of rolled sleeves, said
Sgt. Maj. Dailey.
Everybody has their personal biases, he said. We expect that of soldiers. Theyre
humans.
Gen. Milley will issue a directive as soon as this
week based on survey data, as
well as the Fort Hood experience and feedback from
across the Army.
Spc. Mitchell is confident
the Army will roll out the
change for all soldiers.
The victory may be harder
to savor in his next assignment. He is heading to Fort
Drum in upstate New York,
where soldiers train for arctic
warfare.

Specialist Cortne K. Mitchell, center, and Army Chief of Staff Gen.

Mark Milley, right, show off the sleeve-up, sleeve-down options.

STAFF SGT. JOHNATHAN HOOVER

Continued from Page One

should aim solely to earn the
highest possible return on
their assets. The personal beliefs or donations of hedgefund managers, they argue,
shouldnt be a factor in that
decision. At least one manager,
Mr. Loeb of Third Point LLC,
has increased his donations to
a charter-school group, citing
Ms. Weingarten.
Sander Read, chief executive
officer of Lyons Wealth Management, which hasnt been
targeted, likened what Ms.
Weingarten is doing to hiring
a dentist because of their political beliefs. You may see eye
to eye on politics, but you may
not have great, straight teeth.
None of the hedge funds targeted by the teachers unions
would discuss the matter publicly, a sign of how sensitive
the battle has become.
Ms. Weingarten said in an
interview: Why would you put
your money with someone who
wants to destroy you?
The battles are rooted in a
political fight over how to improve public education. Republicans have long sought major
changes, such as creating new
competition for public schools,
including charter schools.
Democrats largely have supported solutions backed by the
unions, particularly increased
spending for existing schools.
About a decade ago, some
liberals joined conservatives in
pushing to expand charter
schools. Those efforts received
financial support from hedgefund managers including Mr.
Loeb, Mr. Singer of Elliott
Management Corp. and Paul
Tudor Jones of Tudor Investment Corp., who together
kicked in millions of dollars.
Some of those involved in
the effort cast public-school
teachers and their unions as
obstacles to improving education. The reputation of the
teachers union took a beating.
When Ms. Weingarten was
elected president of the American Federation of Teachers in
2008, she aimed to restore
public trust in public-school
teachers and their unions.
As she rose in the union,
she got close to Bill and Hillary
Clinton. Last summer, the federation became the first union
group to endorse Mrs. Clintons presidential campaign.
Ms. Weingarten sat on the
board of the super PAC supporting her candidacy, and the
American Federation of Teachers has donated $1.6 million to
the Bill, Hillary and Chelsea
Clinton Foundation.
Ms. Weingartens federation
represents about two dozen
teachers unions whose retirement funds have a total of
$630 billion in assets, a big
chunk of the more than $1 trillion controlled by all teachers
unions. The federation doesnt
control where that money is
invested; the unions themselves do. But Ms. Weingarten
can make recommendations.
She instructed investment
advisers at the federations
Washington headquarters to
sift through financial reports
and examine the personal
charitable donations of hedgefund managers. She says she
focuses on groups that want to
end defined-benefit pensions.
Many of the same entities also
back charter schools and overhauling public schools.
In early 2013, the union federation published a list of
roughly three dozen Wall

LABORPAINS.ORG

PENSION

P2HW181000-0-A00900-2--------AL

THE WALL STREET JOURNAL.

Wednesday, June 29, 2016 | A9

PRESONAL JOURNAL

The Robocallers Havent Won Yet

Had enough of automated
calls on your smartphone?
The cloud offers ways to
block these intrusions

This is a final notice from the

IRS. The nature and purpose of
this call is to inform you we have
received legal petition notice concerning a tax fraud against you.
Before this matter goes to the federal claims courthouse or before
you get arrested please call immediately.
The first time I was greeted by
that uplifting automated call on
my iPhone I
shrugged it off.
The second time,
I actually worried
I might have unknowingly pulled
a Martha Stewart. The third,
fourth and 10th times, I was furious.
We are in the midst of a robot
apocalypse. Instead of wiping us
out with liquid metal lasers guns,
theyre crushing us with robocalls,
those unwanted, pre-recorded intrusions into our private lives.
Youre not safe anywhere, not even
on your once-sacred smartphone.
Im not talking about legal calls
from the pharmacy about a prescription, or the school announcing a snow day. Im talking about
illegal ones, often scams, that
promise free cruises, debt relief,
easy money and many more little
slices of the American Dream.
Over 10 billion robocalls have
been placed to U.S. phones since
the start of 2016, according to
YouMail, a provider of cloud-based
telecom services including call
blocking. Complaints to the Federal Trade Commission about them
are up nearly 50% since last year.
Tax scams like the one I received
are also up this year, according to
the real IRS, and have netted the
bad guys over $40 million since
October 2013.
Its easy to say the robots have
won and get angry at those who
dont seem to be doing enough
about it. Regulatory agencies
arent catching the bad guys fast
enough. Lawmakers say a lot but
dont do enough. Those sleeping
giants, the telecoms, dont seem to
be in a hurry to wake up and
squash the problem. Yet the rise in
robocall frequency is putting pressure on them. Meanwhile we mor-

Whos That Calling?

Scam or Fraud?

Dont Call Me Again

Incoming

Hiya allows you to look up a phone

number and see if it was from a
scammer.

When you look up that number,

Hiyas database of scammers numbers
can help you figure out if it was a
fraudulent call.

After youve received a robocall, report

it to the Federal Trade Commission and
put your number on the National Do
Not Call Registry.

Nomorobo, with its superior database,

shows you right on your smartphones
call screen when a robocaller is trying
to reach you.

tals are finding ways to fight back.

them that theres no such thing as

a free cruise!
The Call-Em-All software I used
asked me to confirm I was abiding
by the law. It is illegal to make
nonemergency robocallstelemarketing or informationalto a cellphone without the consumers permission. You are unlikely to be
thrown in jail for making the calls,
though; enforcement usually takes
the form of civil violations punishable by fines. Its an old-school
way to fight a high-tech menace,
and its hard to tell if it is working.

number placed on a more valuable

list of confirmed live humans. If
you dont recognize an incoming
number, let it go to voice mail. If
you pick up then realize its a robocall, just hang up.
Look up the number and report it. Copy the suspicious phone
number and do a reverse lookup
with an app like Hiya, which has a
large database of numbers used by
scammersmuch of it based on
community reports. If you know
its a scam number, report it in the
app, then file a complaint with the
FTC, which says this aids in investigations.
Use a call-blocking service.
Apps like Hiya, Truecaller and Nomorobo can alert you when a
scammer calls, checking the incoming number against databases
of phone numbers commonly used
by illegal robocallers. On an
iPhone, Hiya and Truecaller download their whole database to your
address bookannoyingly, this
might get synced across all your
devices. Thats why I prefer Nomorobo, even at $5 a month.
Currently in closed beta for
smartphones, Nomorobo creates a
separate address book that updates every 15 minutes with the
latest scammer digits. It has the
best answer to fighting spoofed
numbers as well. Previously only
available on land lines, the service

tracks when a chunk of its customers are getting calls from the same
number and bans it temporarily.
Its not perfect, but its creator
Aaron Foss says its 3% error rate
is improving over time.
Update your phone. Android
devices currently allow pretty
deep call blocking. The Galaxy S7
even has Hiyas spam detection integrated. This fall, Apples upcoming iOS 10 software will give
iPhones new powers. You can already block numbers, so that callers go straight to voice mail. Soon
apps will be able to block callers
in bulkwithout having to dump
numbers into your address book.

Weapons of Mass-Robocalling

Why my cellphone? I have

never shared my mobile number
online or handed it to a shady
shopping site or payday lending
service. Katherine Hutt, at the Better Business Bureau, suggested doing a Google search of my cell
number. You should, too. It appears on various siteswithout
my name, but alongside hundreds
of other phone numbers from the
same area code. Scammers and
telemarketers could have scraped
these number lists, Ms. Hutt says.
The real reason for the recent
robocall barrage? Technology. Its
so easy and cheap for scammers to
dial thousands of numbers that
theyre simply hitting more of us.
They plug lists of phone numbers
into software and fire off calls
over the internet. The software
also makes it easy to spoof numbers, falsifying caller-ID information so callers can disguise their
identity or location. Tax fraudsters
even spoof the IRSs own toll-free
number.
This past Sunday night at dinner time, eight of my friends and
family members all got the same
robocall. It was annoying. And it
was from me. All it took was a little googling to find a service to
blast the calls. At least I warned

Resistance Isnt Futile

Once upon a time, the FTC rode

to the rescue with its magical National Do Not Call list. Those of us
who put our numbers on the list
and you really shouldonly get
some respite from unwanted telemarketing calls, however. In my
own informal poll of about 400
Journal readers, three-quarters
said they still get calls despite being on the registry. Legitimate
companies keep away, but scammers couldnt care less.
Outsmarting the phone spamming robots isnt as easy as installing a spam filter, so heres
your best plan of action:
When robots call, dont answer.
Experts from the FTC and FCC told
me that letting the systems know
youre a real person may get your

The Ammo of the Future

What if scammer calls could be

intercepted at the network level?
The FCC and FTC are hoping thats
what wireless carriers will do. Last
June, the FCC said carriers could
legally block robocalls and automated text messages, if asked by a
customer.
The problem with network-wide
blocking is that you may miss calls
you actually want, says Scott Bergmann, vice president for regulatory affairs for CTIA Wireless Association, the industrys
consortium. Verizon, T-Mobile and
AT&T said they are constantly assessing new technology, but
wouldn't elaborate further.

Doctors Try to Avoid Doing Double Mastectomies

When Toni Staton Harris was
diagnosed with stage 1 cancer in
her left breast, she wanted to have
both her breasts surgically removed.
I am going to get a double
mastectomy and I am not going to
worry about breast cancer again,
Ms. Harris, a 50-year-old flight attendant who lives in Los Angeles,
recalls thinking after her 2013 diagnosis.
Her surgeon, Amy Kusske,
talked her out of it. Toni, let us
get the cancer out of you with the
lumpectomy and then if you want
to come back and do the mastectomy we will do it, Ms. Harris recalls the doctor saying.
Dr. Kusske, at UCLA Santa Monica Breast Center, says she often
advises patients to slow down
before making a major decision
like mastectomy, especially when a
cancer can be effectively treated
with more conservative methods,
such as lumpectomy. Ms. Harris
followed the doctors advice, getting a lumpectomy, along with radiation and chemotherapy, and
says she hasnt felt the need for
more surgery.
Cancer specialists at several
major hospitals are working to reduce the growing number of
women with breast cancer who
want to remove both their unaffected breast and the one with cancer. About 20% of breast-cancer
patients in the U.S. currently
choose to have a double mastectomy, says Steven Katz, a professor
of medicine at the University of
Michigan who has published numerous studies on the issue. That
compares with about 5% of women
10 years ago, he says. The rates
can be even higher for younger
women.
Some 300,000 women are diagnosed with breast cancer in the
U.S. each year.
Requests for double mastectomies have grown in part because
many women mistakenly believe it
will improve their odds of surviving the cancer and preventing it
from spreading and returning in

MICHAEL OWEN BAKER

BY LUCETTE LAGNADO

Toni Staton Harris, left, who had an aggressive stage 1 tumor, and Dr. Amy Kusske, a surgeon who persuaded Ms.
Harris not to get a double mastectomy. Ms. Harris decided to have a lumpectomy instead, along with other therapies.
the future, says Dr. Katz. Studies
have shown this isnt correct for
the majority of women, he says.
While lumpectomy is a small localized surgery to remove the tumor, double mastectomies are
more elaborate, with higher risks
of complications, doctors say. After
the surgery, breast reconstruction
can require multiple procedures.
And women are left with no sensation in their breasts. Only a small
percentage of American women
have a genetic predisposition for
breast cancer, or an extensive family history of the disease, that
could help justify radical surgery
to remove a healthy breast.
At Santa Monica Breast Center,
a team of breast-cancer specialists
works together to help guide new
patients, in an approach known as
multidisciplinary care. The specialists meet among themselves to discuss the best treatment option for
each patient. Later the same day,
the patient is seen one after another by an oncologist, a surgeon,
a radiation oncologist and sometimes a breast-reconstruction sur-

geon.
The center wont refuse to perform a double mastectomy if a
woman insists on it, physicians
there say. But the doctors will
present various reasons for the
woman to choose breast-sparing
surgery instead.
Dr. Kusske, who used to work as
a breast surgeon in private practice until she joined Santa Monica
Breast Center two years ago, says
regularly gathering with other specialists has made her a better doctor. She says that after patients
meet with the team of specialists,
they are encouraged to make follow-up appointments, or contact
them by phone or email, if they
have additional questions or concerns.
The ability to obtain information from the entire team at the
same time and the ability to ask
questions of multiple team members are enormous benefits for
patients, says Gabriel Hortobagyi,
a professor of medicine at the University of Texas MD Anderson Cancer Center, in Houston, which has a

longstanding multidisciplinary-care
system for breast cancer. I cant
imagine our going back to the previous system and saying it is perfectly OK for someone to be
treated by a single specialist, he
says.
Doctors at Santa Monica Breast
Center say they are encouraged by
anecdotal evidence that some patients are changing their minds
about double mastectomies. The
doctors say they are analyzing data
to learn whether multidisciplinary
care can help reduce rates of the
surgery.
Multidisciplinary care for breast
cancer has long been practiced
abroad. A 2015 study in England,
published in the European Journal
of Surgical Oncology, found the
team approach reduced doublemastectomy rates, apparently because it stimulated discussion of
treatment options among various
specialists that helped curtail unnecessary surgeries and ensured
evidence-based practice.
Double-mastectomy rates also
have increased because of inflated

fears of radiation therapy, which

normally accompanies a lumpectomy, says Susan McCloskey, a radiation oncologist and co-director
of Santa Monica Breast Center. She
says women diagnosed with breast
cancer often seek advice on the internet, which is full of misinformation about the dangers of radiation, including frightening side
effects such as possible damage to
the heart and lungs.
Concerns about high doublemastectomy rates were discussed
at the annual meeting of the American Society of Breast Surgeons in
April. A special panel was formed
to focus on when the procedures
arent necessary and to come up
with guidance to help surgeons
make treatment decisions. This is
a significant and growing problem,
without clear or easy solutions,
says Deanna Attai, the societys immediate past president and a UCLA
Health surgeon in Burbank, Calif.
Dr. Attai believes the growing
complexity of breast-cancer treatments increasingly requires that
patient care be multidisciplinary.
Still, she says specialists in separate private practices, not just in
hospitals, can work together effectively. Do you have to have every
specialist under one roof? No.
Ellen Ensher, a professor of
management, is another patient at
Santa Monica Breast Center who
was intent on a double mastectomy
after being diagnosed with breast
cancer in 2014. She says friends
and relatives also urged her to
have the radical surgery.
Sara Hurvitz, a medical oncologist at the center, told Dr. Ensher
her tumor was localized and she
was a perfect candidate for
lumpectomy, the patient recalls.
In another meeting, Dr. Kusske
gave Dr. Ensher her opinion of
double mastectomy. If you cut off
a tumor on your right knee, would
you cut off your left knee? the
surgeon said.
Dr. Ensher chose to keep her
breasts. So far, she has been completely fine, she says. No one
gives you an ironclad guarantee.
You have to make the decision and
live with it.

FROM THE LEFT: HIYA(2); FTC; NOMOROBO

BY JOANNA STERN

P2HW181000-0-A01000-1--------AL

THE WALL STREET JOURNAL.

A10 | Wednesday, June 29, 2016

OPINION
REVIEW & OUTLOOK

Brexit Goes to Brussels

uropean Union leaders had their first of- cade after the 2008 panic. Theyll struggle to
ficial opportunity Tuesday to consider cope with the fallout from reduced trade with
the U.K.s historic vote to leave the bloc. an economy Britains size, let alone the political
As they debate whether to acuncertainty arising from an
The EU missed one
commodate or punish the
acrimonious negotiation.
British for their choice, their
The best option for the EU
chance
to
reform.
It
overriding concern should be
is to offer London generous
shouldnt miss another. terms on trade, without the
to not miss another opportunity to reform the EU.
political, judicial and regulaPractical questions are
tory encumbrances that drove
likely to dominate this weeks meetings as the Britain out of the Union in the first place. That
EUs remaining 27 member states try to under- should bring a swift end to the economic uncerstand the mechanics of a British divorce. Prime tainty now surrounding Brexit, while proving
Minister David Cameron wont immediately in- that the EU is capable of accepting a democratic
voke the clause in Europes Lisbon Treaty that verdict without spite.
sets the clock running on a two-year negotiaThe EU should also see Brexit as an opportution over exit terms, leaving that task to his nitypossibly the last oneto prove itself casuccessor. German Chancellor Angela Merkel pable of reform. A growing number of Europeis right to say that the EU should wait for the ans already are shunning Brusselss bromides
British to act, which will allow passions to cool that more Europe is the solution to all the
and give European leaders a chance to think Continents problems. If Brussels doesnt offer
through the implications.
an alternative soon, the consequences of a new
Once negotiations begin, the remaining mem- anti-EU crack-up elsewhere will be even more
bers of the EU will have to decide on what terms serious than Brexit.
to keep trading with Britain. One view is to punSuch a liberal order will require the EU to
ish British voters in order to discourage other return to its original function as a common
countries from following London out the door: market, dedicated to the free movement of
high tariffs and long delays on a return to the goods, services and capital. It also will require
common market for products and services, and Britains Leave campaigners to stick to their
reduced freedom of movement for Brits.
most liberal ideals, especially on the free
This would be a mistake. Britain remains the movement of people. Although anxiety about
worlds fifth-largest economy and is a signifi- immigration motivated many Leave voters,
cant market for many European products. Britain will continue to need foreign talent and
Theres a reason German manufacturers are will also benefit from the ability of Brits to live
pressing for favorable terms for Britain.
and work in Europe. Free labor movement has
As for Britains exports, the last thing Euro- proved to be a crucial political safety valve for
pean leaders should want is to sock their own young people in particular when jobs are
fragile economies with higher import prices. scarce in some parts of the EU.
Britain became one of the EUs main business
A new burst of liberalism might help Euhubs because its laws and culture make it an ef- rope save the eurozone. The common currency
ficient provider of financial, information- is under strain as governments have struggled
technology and marketing services. Those ad- to make the labor-market, regulatory and tax
vantages wont disappear, and Europe still will reforms that are necessary for growth. The
need themdespite the inevitable French in- bloc needs an impetus for reform, which Brexit
stinct to try to boost Paris and Frankfurt as fi- can provide.
nancial hubs at Londons expense.
The EU can still thrive if it returns to its
Investors are making this case to anyone in founding liberal principles. Doing so will rethe political class who cares to listen. Mondays quire greater imagination and political will
sell-off in bank stocks across the Continent than weve seen in many years from European
prompting the Italian government to contem- leaders, but Brexit might be the spur they need
plate a 40 billion ($44.09 billion) capital injec- to change themselves and reform their union
tionis a warning that Europes economies and before other member states start following
its financial system remain weak nearly a de- Britains lead.

Spain to Europes Relief

mid so much post-Brexit gloom about Europe, Sunday brought some especially
welcome news in the unlikely vehicle of
a Spanish election. Voters increased support for
Prime Minister Mariano Rajoys center-right Popular Party (PP) while rejecting the bid for power
by the left-wing Podemos movement.
The election improves on the muddled results
of six months ago when no party won a majority.
This time the PP increased its seats in the new Parliament to 137 from 123. The Socialists retained
second place with 85 seats, blocking Podemoss
attempt to become the main party of the left. Markets responded with relief, pushing the Spanish
10-year government bond yield down 0.17 percentage points, the sharpest drop since 2014.
Mr. Rajoy is short of an absolute majority, but
this is nonetheless a case of sound policy rewarded. Since taking power in 2011, the PP has
ignored the Keynesian councils of Brussels and
Washington in favor of supply-side economic reforms. Mr. Rajoy has cut personal and corporate
taxes and simplified the tax system, trimmed
civil-service spending and made it easier to hire
and fire Spaniards.
And what do you know, faster growth has followed. Spains economy grew 3.2% last year and
about 3% over the past eight quarters, according
to the European Unions statistical agency, while
the jobless rate has fallen to 22.7% from a peak
of 26%. This Spanish revival is all the more re-

markable considering the lackluster growth in the

rest of Europe. Growth in Germany was 1.7% last
year and a mere 1.3% in France, where the jobless
rate continues to be above 10%.
These results no doubt helped to blunt the appeal of Podemos, which fancies itself a version of
Greeces hard-left Syriza party. Left-wing populism prospers amid economic stagnation. Some
credit also belongs to the Socialists, who have behaved like a responsible center-left opposition
that favors more government intervention but rejects Podemoss anticapitalist platform.
Spain still faces a period of uncertainty as Mr.
Rajoy tries to put together a governing coalition
in Parliament. The PP might have done even better if it werent burdened by corruption scandals,
and the PP and the center-right Ciudadanos party
lack the votes for a majority on their own.
The Socialists dont seem inclined to join a leftright coalition government. But perhaps they
could be persuaded to abstain on an organizing
vote in return for PP concessions. Those could include the resignation of Mr. Rajoy, who has already served his country well. More charismatic
PP leaders could help the center-right cause if they
would continue to push the Rajoy agenda.
The Brexit vote has triggered a new round of
pessimism over Europe, but the EU is composed
of individual countries whose fate is in their own
hands. Spain shows that its possible for Old Europe to get some new life.

A Missile-Defense Message for China

he free world got a boost Tuesday as and South Korea or partners like India. The excepAmerican, Japanese and South Korean tion is China, which was invited for the second
forces completed their first trilateral time despite its misbehavior at sea and support
missile-defense drill in waters
for North Korea.
A strong show of unity
off Hawaii. Deepening such coThe Obama Administration
operation is vital for defending
insists
Chinese participation in
by the U.S., Japan
America and its partners
Rimpac can help make Chinas
and South Korea.
against North Koreas nuclear
navy more professional while
capabilities, and for putting
soothing Chinas fears that the
China and Russia on notice that
U.S. wants to keep it isolated
the U.S. wont be muscled out of Asia.
and weak. Maybe. But at least Beijing, which has
A trilateral exercise would have been hard to berated Seoul for talking about deploying the U.S.imagine a few years ago, when relations between made Thaad missile defense system, will notice
Tokyo and Seoul were strained by territorial and this weeks drill. China staged its own joint mishistorical disputes. But an intensifying threat sile-defense drill with Russia last month.
from Pyongyang, Beijings aggressiveness in the
China knows that its North Korean client is
East and South China Seas, and some statesman- the reason U.S. allies in Northeast Asia are inship from Japanese Prime Minister Shinzo Abe vesting in better defenses, but Beijing remains
and South Korean President Park Geun-hye have unwilling to pressure Kim Jong Un. Last week the
transformed the relationship.
North Korean dictator fired another midrange
In 2014 the two sides agreed, after years of ballistic missile capable of flying 2,000 miles and
wrangling, to begin exchanging information hitting targets as far as the U.S. territory of
about North Korea through their U.S. friends. Last Guam. Thats the fifth midrange missile test since
year they settled years of disagreement over so- April, following Januarys nuclear test and Febcalled comfort women, the Koreans taken as sex ruarys launch of an intercontinental missile that
slaves by Japans imperial army in World War II. could threaten the mainland U.S.
Tokyo reiterated apologies and arranged paySouth Koreas security depends on an early
ments for victims, while Seoul deemed the resolu- decision to deploy Thaad. Japan needs to do the
tion final and irreversible.
same, augmenting its U.S.-made X-band radar,
This weeks drill was staged before the start of deployed in 2014, with Thaads powerful interthe Rim of the Pacific (Rimpac) naval exercise, the ceptors. As a South Korean official said recently,
largest in the world, hosted by the U.S. every other upgrading missile defenses in Northeast Asia is
year in Hawaii. This year a record 27 countries are a live-or-die matter. All the more reason to
participating, almost all U.S. allies such as Japan cheer this weeks drills.

Of Trumpkins
And Brexiteers
Ever since the U.K.
voted Thursday to
leave the European
Union, theres been no
end of commentary,
favorable and invidious, comparing the
GLOBAL
Leave campaign to the
VIEW
a n t i - e s ta b l i s h m e n t
By Bret
wave that swept the
Stephens
GOP this spring. In
one respect the comparison is apt. Both the Trumpkins
and the Brexiteers aimed their fire at
a toothless opponentand the wrong
one to boot.
I lived in Brussels at the turn of the
century and wrote about European politics for this newspaper. That the EU
can be meddlesome, unhelpful, self-important and self-deluded goes without
saying. Entire departments seem to
spend their days coming up with picayune but expensive rules that cry out
to be mocked. I once devoted a column
to an EU directive governing something
called the stream of household weee.
This stands for waste in electrical or
electronic equipment, not that anyone
in Brussels found it funny.
But pedantic Miss Mary Bennet of
Pride and Prejudice is not Big
Brother of 1984, and tedious directives on mind-numbing subjects do not
make the EU another Soviet Union.
The EUs bureaucratic armthe Council and the Commissionemploys
about 33,000 civil servants. The U.K.s
civil service has 410,000 employees,
not counting an additional four million
public-sector workers. The EUs budget
last year came to less than $160 billion, divided among 28 countries. Britains was $1.15 trillion.
If theres a superstate, its in Westminster, not Brussels. And the EU, despite its countless flaws, is not some
colossal squid crushing the U.K. in its
powerful tentacles. Britain will likely
get most of what it wants in its renegotiation with the EU. The Europeans
wont send in the tanks, Brezhnev-style,
to crush this English revolt.
And then what?
A British taxpayer making more
than 43,000 ($57,000) pays a crushing tax rate of 40%, along with a 20%
value-added tax on every item he purchases. The average wait time for an
operation with the National Health
Service is 10 weeks. The energy bill for
an average British household jumped
by 30% between 2011 and 2015, mainly
to support David Camerons green-energy fixation.
These problems are British, not EUmade. If the result of Brexit is to force
London to dial down its own big-state
tendencies, so much the better. The likelier result is that the next prime minister will have to spend his political capital trying to keep the United Kingdom
together and hoping a Brexit-related recession isnt pinned on him. American
conservatives who think Brexit will pave
the way for the return of Margaret
Thatchers spirit may find themselves

disappointed when the ghost of Ted

Heath shows up instead.
Something similar has happened in
the Republican Party, too. Right-wing
voters were stirred to frenzy into believing that John Boehner and his do-nothing Congress were the moral equivalent
of Nancy Pelosi. The GOP Establishment became the object of Mark Levins
very own Two Minutes Hate.
Lo, the Establishment was conquerednot least because it hadnt
really existed in the first place. Leading mainstream conservatives discovered previously invisible common
ground with Donald J. Trump, on the
optimistic assumption that he was an
empty vessel into whom they could
pour the sweet wine of standard GOP
ideology on entitlements, taxes and
foreign policy. To those conservatives
who see America approaching its end
of days, the vanity of Never Trump
quickly gave way to the exigency of
Never-Ever-Hillary.
And now what?
Like the Brexiteers, the insurgents
who foisted a hostile takeover on the
GOP and nominated the angriest candidate they could possibly find now face
a new kind of political reality. Its
called America.

Get what you thought you

wanted. Get the opposite
of what you really want.
A Wall Street Journal poll finds that
60% of registered voters have a negative view of the presumptive GOP
nominee. Thats 14 points worse than
Mitt Romney and Bob Dole, among
other past nonpresidents. Among nonwhite voters, only 10% take a positive
view of Mr. Trump. The latest Washington Post poll has Mr. Trump 12
points behind Mrs. Clinton, 51% to
39%. At this point in the 2012 race, Mr.
Romney was down by four.
Get what you thought you wanted.
Get the opposite of what you really
want. Every vote that was cast for Mr.
Trump in the primary becomes a vote
cast for Mrs. Clinton in the general.
i
i
i
One of the oddities of the Brexit
vote is that it is being portrayed by its
core supporters as Britains own Declaration of Independence. Its Jeffersonian. But the better English tradition
comes from Edmund Burke, who knew
something about the virtues of caution
and continuity in political life. Institutional arrangements should not be easily broken. Rebellions should not be
undertaken for light causes. Settled
questions of political life should not be
renegotiated every few years to soothe
the tantrums of the month.
For Trumpkins and Brexiteers, this
was supposed to be a moment of triumph. Funny how it doesnt feel that
way now.
Write bstephens@wsj.com.

LETTERS TO THE EDITOR

Icann and the Overrepresentation of the U.S.

Regarding L. Gordon Crovitzs A
Shadow Falls Over Silicon Valley (Information Age, June 21): The internets positive impact on society is virtually unparalleled in human history.
Its success has been a direct result of
the way it has been governed. From
its beginning, the plodding and bureaucratic ways of governments
werent allowed to interfere with creativity and innovation that characterizes this powerful engine of democracy and freedom.
While that has proved itself time
and again, there are many governments (and apparently Mr. Crovitz)
that dont understand how the internet actually operates. They somehow
equate the existence of a 20-year-old
contract with the U.S. Commerce Department to provide perfunctory ad-

ministrative oversight to a small number of the internets databases to the

actual control of the operation and
content of the internet. It does not.
But this contract has become a
powerful symbol to many of a perceived overrepresentation of the U.S.
government. Its existence encourages
those countries that would like to exert more governmental control over
internet content to turn to U.N. agencies to do just that. Continuation of
the contract would stifle internet freedom and innovation. Lets allow this
anachronism from the 1990s to expire
just as it was always supposed to.
BYRON HOLLAND
President and CEO
Canadian Internet
Registration Authority
Ottawa

Is It Abuse to Fund Someone Elses Lawsuits?

Lee Druckers Peter Thiel Isnt
Your Typical Lawsuit Funder (oped, June 20) suffers from a fatal
flaw. He states: If the fear is that
personally motivated billionaires will
back meritless suits to financially
drain their opponents, then deterrents and remedies already exist. Attorneys ethical rules already prohibit such behavior. See Kimberley
Strassels same-day Potomac Watch
column Exxons Inquisitors Feel the
Heat. I rest my case.
CHRIS NICHOLS
Fredericksburg, Va.
Mr. Drucker dismisses the major
concern that motivated billionaires
will back meritless suits to financially drain opponents. He states
that deterrents and remedies already
exist and that attorneys ethical behavior prohibits such behavior and
can result in sanctions for misconduct or pursuing frivolous litigation.
Oh, would this be the case.
Frivolous litigation is desperately
hard to prove, and attorneys strategies at many levels include instituting

legal action, hoping for settlement, as

the cost of defense and being found
innocent is staggering.
It would be better if Mr. Drucker
espoused the position that plaintiffs
be responsible for the cost of the defense if the suit fails. That surely
would be a more effective deterrent
than those he states exist now.
Level the playing field. The Thiel/
Gawker Media case isnt a situation of
a poorly funded individual litigating
against a large entity with unlimited
funds and legal resources to drain the
litigant, but exactly the opposite. As
it is now, the system is skewed toward draining the resources of defendants, who then lose even if they win.
MICHAEL M. ROMASH
Chesapeake, Va.
Letters intended for publication should
be addressed to: The Editor, 1211 Avenue
of the Americas, New York, NY 10036,
or emailed to wsj.ltrs@wsj.com. Please
include your city and state. All letters
are subject to editing, and unpublished
letters can be neither acknowledged nor
returned.

P2HW181000-0-A01100-1--------AL

THE WALL STREET JOURNAL.

Wednesday, June 29, 2016 | A11

OPINION

By Robert Pape
And Walker Gunning

he transcript of Omar
Mateens call to 911 during the Orlando, Fla.,
nightclub
shooting
paints a man on an unshakable mission of terror in the
name of Islamic State. While the
call is a chilling reminder of
Mateens horrible act, it isnt the
only window we have into the
killers mind. Equally disconcerting
are the selfies that have emerged
showing Mateen in poses more
common to a narcissistic teen than
an Islamic State operative.

Using Hollywoods methods

to make young Westerners
think theyre starring
in a Heros Journey.
How do we process seeing the
perpetrator of the deadliest mass
shooting in U.S. history preening
in an NYPD T-shirt, or smiling up
at the camera, shirtless? Which is
the true image of Mateen, the image-obsessed gym rat or deadeyed killer?
The answer is both, and together they solve a puzzle that
perplexes terror experts: Why is
Islamic State so successful at recruiting Westerners?
The terror group has moved
away from the old recruiting tactics of groups such as al Qaeda,
which sought to connect with
deeply observant Muslims. Instead,
Islamic State is looking for a new
type of recruit, one who spends as

much time in the multiplex as in

the mosque.
A recent study by one of the authors here, Robert Pape, and Dana
Rovang of the Chicago Project on
Security and Terrorism (CPOST)
shows that at the core of Islamic
States strategy is an appeal to the
individuals sense of selfnot his
duty to community. Islamic State
tells its recruits that they will be
recognized in ways they never
were before. Their special talents
will finally be noticed, and fighting
and dying for Islamic State will
make them heroes. The approach
lets angry men with oversize egos
identify with the group, and eventually use the tool kit of Islamic
State to carry out their own violent agendas.
Mateen was a perfect fit. He was
a man in his late 20s with a connection to the Middle East but not
necessarily Syria or Iraq where Islamic State is strongest; a practicing Muslim, who was not always
particularly devout. These characteristics dont make Mateen an outlier, they make him the norm.
An examination by CPOST of
Americans indicted for Islamic
State-related crimes from March
2014 to December 2015 reveals almost a quarter of those charged
were recent converts to Islam. A
further 23% did not identify as particularly religious, while at least
70% had no personal association
with Iraq or Syria.
How are these recruits being
made to feel they belong with Islamic State? The answer lies in the
groups complex and prolific video
operation.
While many Islamic State videos
dont rise above simple battlefield
films, the highest-end productions,

REUTERS

Islamic State and the Culture of Narcissism

Omar Mateen, who killed 49 people in Orlando, Fla., and praised Islamic State.
made by the groups al-Hayat Media Center, are glossy, carefully
scripted and designed to recruit
Westerners. One of the most prominent videosAl-Ghuraba (The
Stranger): The Chosen Few of Different Landsfollows a popular
12-step screenwriting technique
called the Heros Journey, first
formulated by a Disney executive
and familiar to any Star Wars
fan. After the films protagonist,
Andre Poulin, decides to give up an
idyllic life in Canada to follow the
call of adventure, the video tracks
his journey as he arrives in Syria,
takes the name of Abu Muslim,
joins Islamic State, and dies fighting for the group.
The video ends with a softly focused shot of Poulin talking, as if
from beyond the grave. Hes calm,

confident and satisfied with his

choice, urging others to heed the
call.
Propaganda like this is a far cry
from the martyr videos produced
by terrorist groups in the past. Al
Qaedas videos, best known for
featuring Osama bin Laden or Ayman al Zawahiri standing in front
of a static backdrop and staring
directly into the camera, used an
explicitly Islamic framework to attract recruits.
A massive gulf separates Islamic States video recruitment efforts from this old style, but
Western techniques for combating
them have not caught up. In a
highly publicized campaign, the
U.S. State Department produced a
series of videos and social-media
messages titled Think Again Turn

Away. The campaign, which

sought to paint Islamic State as
un-Islamic, was phenomenally unsuccessful. Widely derided for inadvertently giving Islamic State a
bigger platform, its reliance on al
Qaedas logic of messaging was
behind the times.
To catch up, the U.S. and its allies have to fight Islamic State on
its own terms. That means exposing Islamic States techniques and
revealing that Western Islamic
State fighters arent liberators but
foreign occupiers and murderers.
We need to hit Islamic State
where it hurtsits carefully curated identity.
To pierce that mystique, we
should tell the back stories of its
lauded foreign fighters. We should
publicize, in English, French, Arabic
and other languages, that Islamic
States Western heroes were petty
criminals in their home countries
and went to Syria and Iraq as thrill
seekers for their own benefit.
Those, like Omar Mateen, who
kill innocents in their home country, should be portrayed as disturbed outsiders fueled by a
twisted creed. Mateens posting
selfies, or checking to see if his
rampage was trending on Facebook, reveals the Islamic State recruits journey for what it was: a
narcissistic, demented quest. As
long as Islamic State can convince
recruits their deaths will lead to
individual glory, others will travel
the same path.
Mr. Pape is a professor of political science at the University of Chicago and the founding director of
the Chicago Project on Security and
Terrorism, where Mr. Gunning is
the executive director.

Whos the Xenophobe Now?

Post-Brexit,
the
blind are leading
the bigoted.
The blind are the
legions of politicos,
celebrities,
pollsters and opinion
MAIN
leaders
certain
STREET
Britain would vote
By William
to remain inside
McGurn
the
European
Union.
Notwithstanding their utter
shock that the results went the
other way, they are now equally
certain they know the reason: The
bigoted British people.
On air, in print and across social
media, the Remain camp continues
to slur all who disagree. It seems
not to have occurred to them that
their preference for slander over
argument may have backfired.
Nor do any seem to have access
to a thesaurus. Not only do they all
offer the same tired explanation,
they all invoke the same word: xenophobia.
At such moments its always illuminating to step back and take in
the reaction of the New York
Times. It does not disappoint. A
search of Brexit and xenophobia on the Times online turns up

nearly a dozen stories since the

vote.
In fairness, the Times is hardly
an outlier here and isnt even
among the most ridiculous. The Independent didnt even wait for the
vote. The day before, it carried a
headline declaring that Xenophobia is the new normal.
Over at CNN, meanwhile, Christiane Amanpour reported as the
voting took place that a lot of the
Leave movements are led by the
hard-right, very, very xenophobic,
anti-immigrant, very populist, nationalist, white identity politics.
On Monday, the Guardian offered up a twofer pegged to a vow
from soon-to-be-ex-Prime Minister
David Cameron vowing he will not
tolerate intolerance. Cameron condemns post-Brexit xenophobic and
racist abuse ran the headline, over
a story that later quoted the Muslim mayor of London as saying its
crucial not to demonise those
who voted for Brexit as xenophobic or racist.
Perhaps in recognition of the
contradiction, a later version deleted the mayors call not to demonize the anti-Brexit voters or
call them xenophobic.
Finally, in the sign that the word

has probably lost its punch, Joe Biden reached for it in a speech in
Ireland on Friday in which the vice
president reproached reactionary
politicians and demagogues peddling xenophobia, nationalism, and
isolationism.
Its un-American, Mr. Biden
said, meaning xenophobia rather
than the British vote, which of

The anti-Trump and

anti-Brexit forces share
a snobbery toward
ordinary voters.
course by definition would be unAmerican.
Its a fascinating exercise, and it
continues unabated. As this column
is being written it appears that every newsman in Britain has been
assigned to go out and record every anti-Muslim insult, every call
for some foreigner to go back
whence he came, every hate crime
in which, for example, a customer
in a restaurant demands he be
served by a British waiter instead
of a European one.

But xenophobia works both

ways. Without gainsaying that
some pro-Brexit voters may have
been motivated by an ugly jingoism, what does it say about the
tolerant class that so much of its
argument is based on the proposition that most British voters are
unregenerate troglodytes who had
no legitimate reason to vote as
they did?
Xenophobia, of course, comes
from the Greek for stranger and
fear. The idea here is that the
Britishin particular, the older,
more rural and working-class votersrejected an enlightened arrangement with Europe because
they are either too stupid or too
blinded by their own ignorance and
prejudice to understand how good
a deal this is for them.
A question: How does this view
of the majority of the British peopleas a form of alien life with
disgusting beliefs unfit for polite
societydiffer in substance from
the view a bigoted British bricklayer might have toward the immigrants living in his midst?
Another question: How different
is this portrait of the British as xenophobes from the picture of working-class Pennsylvanians presented

by Barack Obama back when he was

first running for president?
Speaking to his wealthy California patrons at a fundraiser in uberchic Marin County, the president in
2008 characterized them as folks
who get bitter, they cling to guns
or religion or antipathy to people
who arent like them. What could
be more xenophobic?
Right now, most of the reporting
on the American parallels to Brexit
has focused on Donald Trump. Its
a fair comparison, especially given
how the presumptive Republican
nominees calls to rewrite U.S.
trade agreements, reassess U.S.
foreign alliances and revise U.S.
immigration policies echo some of
the arguments advanced by the
anti-EU side in Britain.
But its not the only Trump parallel. Another is the undisguised
snobbery toward ordinary voters
the anti-Brexit and anti-Trump
sides have in common.
In Britain at least, the people
appear to have picked up on it, and
this helped push Brexit over the
top. Maybe theres a warning there
for the anti-Trump crowd about
the price of condescension in a society where the people are still
sovereign.

The Backlash That Became Brexit

By Josef Joffe

ne ballot, three funerals. After

Brexit, the cold eye sees only
losers. Two of them, the U.K.
and the European Union, are obvious. The third one deserves a more
complex reckoning.
Rule Britannia will sound like
Fool Britannia. Great Britain will
soon dwindle down to Little Britain
if Scotland secedes and Northern
Ireland insists on open borders with
the South, an EU member.
Robbed of the EU as the worlds
richest market, London instead will
now have to knock, hat in hand, on
the doors of the U.S. and China.
Chasing independence, Mini-Britain
will discover that it has squandered
its clout in a world of giants.

Europe loses close to 20% of its

gross domestic product, its most dynamic economy and a champion of
economic freedom against the dirigisme of Brussels. In the global
arena, the EU will have to fend without the one nation still willing to
use force against the malfeasants du
jour. In finance, pride of place will
slip from the City to Frankfurt.
The biggest loser, though, is the
New Class. Samuel Huntington
called this new global elite the Davos Man. He has little need for national loyalty, views national
boundaries as obstacles that thankfully are vanishing, and sees national governments as residues
from the past whose only useful
function is to facilitate the elites
global operations.

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On the left, Thomas Frank in his

new book, Listen, Liberal, changes
the label to Liberal Class. Unlike
yesterdays ruling class, this one
isnt defined by high birth or wealth
but by education and expertise.
These assets are their means of production, to borrow from Karl Marx.
Their Ivy League and Oxbridge degrees are their ticket to entitlement.
Economic security, social status and
cultural hegemony are their rewards.
The grandees of the zeitgeist are
professors and pundits, authors and
anchormen, university administrators and deans of diversity, school
principals and psychologists, Greens
and feminists, the gurus of the creative class and the guardians of correct thinking. Add the very rich who
have amassed billions not by making
stuff, but in global finance, entertainment and digital wizardry. Bill
Gates and Mark Zuckerberg have
never met a high-minded cause they
did not fund.
The experts and knowledge workers set the agenda and deliver the
truth. They are lifes officer class,
Mr. Frank quips. They give the orders and write the prescriptions for
whatever ails society: global warming, LBGT discrimination, MBA
women held back by the patriarchy.
They preach one world and multiculturalism. And like any ruling class,
they mobilize the state to enforce
correct language and demeanor.
Yet they do not speak for the hoi
polloithe worker bees and the
soft middle beset by globalization
and, more brutally, by technology.
Ages ago, Americas Democrats and
Europes Social Democrats did. Now
they talk workers rights in the
Third World.

Their defection explains the rise

of populism, which happens to be
both of the left and right, as Bernie
Sanders and Donald Trump show. In
Europe, it is Marine Le Pen, Nigel
Farage or Geert Wilders on the
right. On the left, Die Linke in Germany, Syriza in Greece and Podemos
in Spain are forging ahead. All of

Tired of being ignored in

favor of liberal grievances,
the middle clings to the
one thing that keeps
them relevant: their vote.
them were delighted to corner the
market where injured pride, fear
and frustration beckon.
Their common denominator is defensive nationalism. They want to
keep jobs in and immigrants out, be
they Poles or Muslims. The catechism of correct thinking is anathema to them.
The Great Unwashed have also
noticed the contempt the New
Class holds for them. Theyre considered foes of goodness by the
New Class: angry middle-aged
white men without college degrees
who wont keep up. They are on the
wrong side of history, to invoke
an Obama shibboleth.
Historys avant-garde knows how
to deal with the losers. Every economic problem, Mr. Frank writes,
is really an education problem.
To better themselves, the poor
must go to school. Thus, everybody could become a yuppie. Going for Brexit, 17 million Brits have
roared no.

How could they? Alas, these

beer-swilling souls can vote. Defying the Great and Good, they have
turned June 23 into Bastille Day II.
People have had enough of experts, snarled Michael Gove, a
Conservative member of parliament. So what now? Leave the insurgents to illiberal demagogues
like Mr. Trump and Ms. Le Pen with
their racist rhetoric?
Not at all. The rebellion of the
voiceless screams: Listen, liberal,
check your moral hauteur and accord us worth. Care as much about
us as about LBGT. Pride in the nation is not xenophobia. Dont bamboozle us by refusing to call terrorism Islamic.
Keep our gates open, but insist
on assimilation. Restore self-government, which has ebbed away to
Brussels and Obamas White House
as it drowns out Congress with torrents of executive orders. Dont
censor speech.
The New Class deludes itself
when it blames the revolt on economic inequality. If so, why has it
erupted in egalitarian Scandinavia,
in full-employment Germany, Britain
and America? This class war isnt
about income, but culture. Its about
the civic faith.
Liberals should listen for their
own sake. The middle is not the
mob. Ceding the forgotten to the
Mussolinis of the 21st century will
speed the victory of illiberalism, the
common enemy of us all, and a tragedy worse than Brexit.
Mr. Joffe is the editor of Die Zeit
in Hamburg and a fellow of the
Hoover Institution at Stanford University, where he teaches international politics.

P2HW181000-0-A01200-1--------AL

THE WALL STREET JOURNAL.

A12 | Wednesday, June 29, 2016

ARTS & ENTERTAINMENT

He Resolved to Be Modern

REVIEW
KAREN WILKIN

Stuart Davis: In Full Swing

New York
For lovers of American modernism, Stuart Davis (1892-1964) is a giantan inspired
colorist whose radiant, muscular paintings
translate French Cubism into an unmistakably American, richly varied, vernacular idiom. So Stuart Davis: In Full Swing, the
well-chosen survey of more than 80 significant works now at the Whitney Museum of
American Art, is reason for rejoicing.
Davis abandoned high school at age 16 to
join the art classes of the Ashcan School
painter Robert Henri, a family friend. Henri
urged his students to make the life of their
time their subject. Davis, his precocious star
pupil, enthusiastically embraced saloons,
vaudeville and gritty street lifeand along
the way discovered jazz. For the rest of his
life, Daviss art would embody the cacophony
of everyday modernity.
At 20, Davis showed Ashcan School-type
watercolors in the juried American section
of the legendary 1913 Armory Show. But the
exhibitions radical Gauguins, Van Goghs, Picassos and Matisses made the young painter
question his own approach. He resolved, he
said, to become a Modern Artist, and
spent the next decade or so in a self-imposed apprenticeship to the European vanguard, assimilating their intense color, simplified planar structure, and bold disregard
for the literal. By the early 1920s, he was
painting admirable, personal, Cubist still
lifes. Next came confrontational images
seemingly constructed from the labels and
packages of cigarettes, rolling papers and
loose tobacco, illusionistically painted but
larger than lifeturning the fact of Cubist
collage into a new type of fiction.
Stuart Davis: In Full Swing begins with
these tobacco still lifes, grouped with
over-scaled portraits of such objects as
light bulbs and mouthwash bottles. The exhibitions curatorsBarbara Haskell, of the
Whitney, and Harry Cooper, of the National
Gallery, Washingtonsee these innovative
improvisations on ordinary modern accouterments, with their shifts in scale and their
letters and words, as signaling the start of
Daviss maturity. They describe his work as a
synthesis of popular culture and abstraction
that anticipates both Pop art and geometric

VAGA, NEW YORK

Whitney Museum of American Art

Through Sept. 25

Davis translated French Cubism into an unmistakably American idiom; above: Fin (196264).
color painting. Yet, its worth noting that,
unlike the Pop artists, Davis presented his
experience of the vernacular in the language
of high modernism, not of advertising.
Daviss most adventurous early series, the
four Egg Beaters (1927-28), follows. Remarkable for their high-key palette, their unpredictable, abstracted shapes and their com-

pressed, stage-set-like space, they are

harbingers of the futurewhich included a
sojourn in Paris, beginning in 1928, funded
by sales to Gertrude Vanderbilt Whitney.
(Davis was a founding member and frequent
exhibitor at the Whitney Studio Club, the
museums ancestor.) The Paris pictures retain the Egg Beaters chalky color and gener-

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

Seoul

Riyadh
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Karachi
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Tokyo
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New D
Delhi
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Taipei
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Bangkok
k k

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Hong Kong
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10

11

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25

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3 Skin soother
4 Cause for
alarm?

26

5 Objective

30

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42

7 Pool units
9 His, to Henri

51

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processing

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64

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61

12 Show disdain
13 Brand pitched by
Michael Jordan

67

68

69

70

71

IM OUT! | By David Kwong

Ice
Tomorrow
Hi Lo W
29 14 s
21 15 pc
30 21 s
39 29 t
28 15 s
34 21 pc
27 13 s
26 19 pc
45 33 pc
30 19 s
32 20 t
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32 26 t
40 26 s
31 23 s
27 21 r
26 17 s
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30 22 s
23 14 t

Tomorrow
Hi Lo W
25 15 pc
34 27 t
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34 24 s
29 23 t
31 25 c
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42 30 s
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12 7 sh
22 13 t
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35 21 pc
27 15 s
25 14 c
30 27 r
31 18 pc
37 28 pc
33 25 c
30 21 s
30 16 c
34 24 t

Today
City
Hi Lo W
Ottawa
22 13 s
Paris
22 14 pc
Philadelphia
30 20 pc
Phoenix
40 30 t
Pittsburgh
25 13 pc
Port-au-Prince
34 22 t
Portland, Ore.
28 14 s
Rio de Janeiro
26 19 pc
Riyadh
45 31 s
Rome
30 19 pc
Salt Lake City
36 21 pc
San Diego
27 20 pc
San Francisco
22 13 s
San Juan
32 26 s
Santiago
16 4 s
Santo Domingo 31 22 pc
Sao Paulo
24 14 pc
Seattle
27 14 s
Seoul
30 21 pc
Shanghai
28 24 r
Singapore
32 25 pc
Stockholm
21 13 pc
Sydney
18 8 s
Taipei
32 26 pc
Tehran
39 26 s
Tel Aviv
31 24 s
Tokyo
25 21 sh
Toronto
25 13 pc
Vancouver
23 15 s
Washington, D.C. 29 20 pc
Zurich
25 15 t

Across
1 Leia strangles
him in Return of
the Jedi
6 Spam sent to an
entire mailing list
11 Shovel handle
material
14 Millipede
maker
15 Raring to go
16 Protein synthesis
facilitator
17 Contentious
point of view?
20 Literary
matchmaker
21 Brand with a Grill
Mates variety
22 With it
23 Quantity of
40-Down

55 Onetime Volvo
rival
One with an
56 Wanted poster
underground
word
sense of humor?
Backup strategy 57 Sounds of
comprehension
Gut reaction?
58
Shimmery
Kids racer
stone
Distress
62 New York
Rap battle
Yankees call up
winners act, and
Mantle?
what the long
66 Spouse of
answers in this
52-Down
puzzle need
67 TV host Gibbons
Spectral quality
68 Ping producer
11-Down, usually
69 I love her ten
Felix Saltens
times more
Faline, e.g.
than ___ I did:
Kasbah residents
Petruchio
Soft cells?
70 Audio mixer
knob
Everglades
swimmer
71 1941 Bogart role

25 Makes sense of
27
31
32
33
37
38

42
43
45
46
48
52

11 Met highlights

65

66

Today
Hi Lo W
28 16 t
35 26 t
31 22 t
33 28 t
30 24 pc
34 23 pc
29 22 t
31 23 c
19 2 s
26 18 t
42 30 pc
22 16 pc
16 14 r
32 17 pc
35 18 t
34 25 c
14 9 pc
23 9 t
32 25 t
30 21 pc
27 18 pc
35 23 pc
19 17 pc
25 14 pc
30 27 r
30 16 s
37 29 pc
31 24 t
29 20 pc
28 19 t
34 24 t

6 Sequel to Get
Shorty
8 Back

47

55

56

Down
1 Bit of mockery
2 Speck

22

24

44

53

13

19

32

52

12

16

18 Gran Canaria,
por ejemplo
19 Shake a can?
24 Warhead
weapon
25 Maker of Jadore
fragrance
26 Dope
27 IRS experts
28 Potpourri
29 Gap setting,
often
30 DSL need
34 Character with a
whalebone leg

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

2016 Dow Jones & Co. Inc. All rights reserved. 6DJ3313

Flurries

Melbourne
b

If you cant
nd six more

18

37

Snow

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

17

43

T-storms

Tomorrow
Hi Lo W
19 14 sh
17 12 sh
32 23 s
30 21 t
48 31 s
30 19 s
30 25 t
35 22 pc
24 16 c
17 10 r
37 18 t
27 19 s
19 14 sh
16 11 r
36 24 s
27 14 s
31 25 pc
31 20 t
27 16 pc
36 25 s
23 13 t
28 16 s
41 33 pc
16 10 r
15 9 pc
23 15 pc

31

Rain

Today
Hi Lo W
19 14 c
21 13 c
31 23 pc
33 21 pc
47 30 s
29 17 pc
31 26 t
32 20 c
24 14 pc
18 10 pc
37 19 s
26 19 pc
19 14 pc
16 10 pc
37 24 s
26 14 s
31 26 pc
32 19 pc
26 15 s
36 24 pc
31 15 t
27 13 s
43 33 s
17 9 r
16 9 r
24 14 sh

15

27

Showers

Sydney
ydney
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23

Cold

Jakarta
k

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

Stationary

Singapore
g p

s...sunny; pc... partly cloudy; c...cloudy; sh...showers;

t...tstorms; r...rain; sf...snow flurries; sn...snow; i...ice

14

Warm

Kuala
la Lumpur
L p

Global Forecasts

Ms. Wilkin is the author of Stuart Davis

(Abbeville).

The WSJ Daily Crossword | Edited by Mike Shenk

Weather

iji
j
Beijing

ous geometry, overlaid with drawn railings,

signs, shutters and the likerecognizably
French particulars that Davis found irresistible. After returning to the U.S., in 1929, he
began painting New York and Gloucester,
Mass., with a similar fusion of abstract
structure and specific details. More remarkable, though, are reprisals of the over-scaled
portraits of household objectshere brilliantly patterned riffs on radio tubes and a
salt shakerinflected by Picasso and Mir,
but brashly personal and American.
Davis was deeply involved in social activism and artists organizations during the Depression, which limited his studio time. But
he also received commissions for ambitious
mural-size paintings, most notably, the dazzling 14-foot-wide Swing Landscape
(1938). An all-over tapestry of Gloucester
harbor motifs, playfully dissected and recombined, with a nod at Lger, Swing Landscape is an edge-to-edge explosion of brilliantly orchestrated color and syncopated
shapes. Its energy and authority make us
wish Davis had been able to paint more
monumental canvases.
After about 1940, Davis almost always
used his own early works as starting points,
reinventing and embellishing the motifs.
(The exception is a series based on an ad for
Champion spark plugs that goes toe-to-toe
with Matisses Jazz prints.) Drawings
configurationsDavis believed, could encapsulate his entire experience: visual, auditory, emotional. The best were not exhausted
by a single use. Color intensified configurations and animated them spatially, according
to what Davis called color space logic.
Configurations were stable; color and
smaller elements, including letters, words,
invented signs, and patterns, could be endlessly variedlike jazz riffs.
Strangely, the catalog essays ignore the
importance of drawing to Daviss repetitions,
but the paintings with recycled motifs,
which he likened to his beloved jazz musicians fluid improvisations on familiar tunes,
illustrate the point. We can see how a sedate
1927 portrait of a percolator is transformed into the full-throttle Owh! In San
Pao (1951), with its teasing words, floating
shapes and offbeat rhythms.
In his last years, Davis restricted color to
saturated reds, greens and orange-yellows,
sparked with black and white, without any
diminution in intensity or liveliness. His
fresh, vigorous last painting with its prescient Fin, left on the easel the day before
his death, ends the exhibition with a bang.

35 Unsophisticated
sort
36 Julias Oceans
Eleven role
39 Pointless
40 Dealers drug
41 Start for medic
or meter
44 Wicked Game
singer Chris
47 Cyborg built by
Omni Consumer
Products
49 Last word of a
famous FDR
quote
50 Goddess of
fertility
51 It may be taken
into account
52 Spouse of
66-Across
53 Cut from the
same cloth
54 More
courteous
57 Seep
59 Fruta tropical
60 Just barely
61 Strings for
Orpheus
63 Roll call call
64 Williams in
Cooperstown
65 Twisty shape

Previous Puzzles Solution

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this ad isnt for you.

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P2HW181000-0-B00100-1--------AL

BUSINESS & TECH.

YouTube vs. Music Industry

Fights over copyright tracking, royalty rates BUSINESS | B2

2016 Dow Jones & Company. All Rights Reserved.

More in Markets

Out of turmoil., a bonanza

for lawyers............................ B7
Ailing online lender is
cutting staff.......................... B7
There is just one problem:
politics.
Investors half-hoped after
Friday that this was just a little local difficulty. When markets reopened after the weekend, it was clear that
investors had looked at the
politics, and decided they
didnt like what they saw.
The Brexit campaign spent
much of the past four months
trashing Europes bureaucracy
for not acting in the best interests of its citizens. Its leading lights think that same bureaucracy will now act in the
best interests of its citizens
by striking a quick trade deal.
Worse, they refuse to recognize that Europe has the whip
hand in the negotiations, with
Britain more reliant on Europe than Europe is on it.
Despite drastic falls in
bank stocks, the Brexit ripples
arent a repeat of the financial crunch. Stocks are quite
rightly pricing in that future
earnings will be much weaker
because the British and European economies will be
weaker than had been
thought, and interest rates
lower. Banks are the most
geared to growth and hit
hardest by lower rates.
Please see STREET page B4

A Brexit Boon
For VIX Traders
MARKETS | B7

Chinese-Built Jet Starts Service

BY CHUN HAN WONG

Chinas first home-built passenger jet entered commercial

service on Tuesday in a debut
that is already a decade late
and underscores problems in
Beijings bid to become a
global aviation player.
Aviation officials, executives
and journalists were among
the first passengers aboard the
ARJ21 regional jet on the
Chengdu Airlines flight, which
departed the central city of
Chengdu after fanfare that included ribbon-cutting and
panda mascots. The plane
landed in Shanghai just over
two hours later, according to
state media, which declared
the flight a success.
The ARJ21, or Advanced Regional Jet for the 21st century,

Passengers board an ARJ21 jet at Shuangliu airport in Chengdu.

can carry between 78 and 90
passengers more than 2,200
kilometers, according to its
state-owned
manufacturer,
Commercial Aircraft Corp. of
China Ltd. Officials originally
set a 2006 deadline for the
jets commercial rollout, but
its debut was repeatedly de-

layed by production setbacks.

The delays, industry experts
said, mean that the ARJ21 is
entering a more crowded regional-jet market dominated
by the likes of Canadas Bombardier Inc. and Brazils Embraer SA. Russias Sukhoi Civil
Aircraft Co. also makes a re-

gional jet, while Japans Mitsubishi Aircraft Corp. will

pose a challenge with a new
70-to-90 seater.
Chengdu Airlines took delivery of the ARJ21 in November
and hoped to start operations
in February. Regulatory approval to launch commercial
services finally came through
Friday. The carrier didnt offer
specific reasons for the delays,
though executives say they
racked up nearly 140 hours of
flight trials to make sure the
aircraft is safe and ready.
There have been various
minor problems. This is unavoidable for all aircraft types
and they have been dealt with
properly, the government
news agency, Xinhua, quoted
Chengdu Airlines Deputy General Manager Shuai Zhiyong as

saying Tuesday. Currently, the

aircraft is safe.
Though touted as a homegrown Chinese product, the
ARJ21 is influenced by the McDonnell Douglas MD-90 and
relies heavily on foreign technology, including avionics from
Rockwell Collins Inc., engines
from General Electric Co. and
a wing designed by Ukraines
Antonov State Co.
Industry observers say the
lengthy approval process reflects cautiousness on the part
of the Civil Aviation Administration of China, or CAAC. An
earlier Chinese passenger
plane, the MA60 twin-turboprop that is based on an old
Soviet design, has had tepid
sales and a service record
marred by a number of acciPlease see JET page B2

Hollywoods Latest Stars Hail From China

Big marketing efforts

from Chinese partners
give box-office edge to
Warcraft, other films

BEIJINGIt was hard to

avoid Warcraft in China in
recent weeks.
Bus stops in the countrys
big cities and shelves in its
grocery stores advertised the
film based on the Warcraft
videogame franchise. Warrior
images popped up on popular
ride-hailing apps and web
browsers. A 6-meter-high
Doomhammer weapon was
erected in Beijings upscale
Sanlitun shopping district.
The movieproduced by
Legendary Entertainment, the
Hollywood studio purchased
by Chinese conglomerate Dalian Wanda Group Co. this
yearhas racked up more
than $210 million from Chinese moviegoers so far. This is
about five times its U.S. boxoffice tally, hammering home
the audience numbers that a
Hollywood movie can unlock
in China with the help of the
right Chinese partner.
Another Chinese-backed
Hollywood movie, the Lionsgate comedy Now You See
Me 2, took in about $43 million in its first weekend after
opening Friday, compared with
$22.4 million in its opening
weekend in the U.S. earlier in
June. The movie, backed by
Hunan TV & Broadcast Intermediary Co., set an opening
record for a Lionsgate title in
China.
At a time of ramped-up
competition in Chinas movie
sector, whose box office is set
to overtake its U.S. counterpart next year, and with Chinese regulators limiting the
number of foreign movies and
blocking them from opening
during peak periods, Hollywood studios are increasingly

NG HAN GUAN/ASSOCIATED PRESS

ere is the positive case

for Brexit, Britains
exit from the European Union:
The EU acts in its own
best interests and comes up
with a decent
trade deal for
the U.K., perhaps similar
to Norways.
Londons
STREETWISE banking sysJAMES
tem would
MACKINTOSH have to accept EU rules
with no say
in how they are made, and the
British would keep paying
into the Brussels budget. Germany would recognize the reality of the growing opposition to uncontrolled migration
and allow some (high) limit
on free movement of workers.
A quick compromise would
make sense for both sides. It
would minimize pressure on
the British economy and provide certainty to investors everywhere in Europe while being unappealing enough to
deter copycat moves from
other EU countries.

MONEY &
INVESTING

Wednesday, June 29, 2016 | B1

PEI XIN/XINHUA/ZUMA PRESS

Wait for
Hope to Die
Before a
Brexit Buy

THE WALL STREET JOURNAL.

INSIDE:

A youngster posed with a Warcraft character in Beijing earlier this month. The movie is performing better in China than in the U.S.
looking for an edge in China.
Having Chinese partners
on board brings the level of
support to a Hollywood film
that those without cannot
compete with, said Fu Yalong,
research director of EntGroup,
a film data company based in
Beijing.
For Warcraft, almost everything about how it was
marketed was a study in contrast with the usual obstacles
Hollywood films face in China.
Warcraft was allowed to
open at an opportune time,
right after national college-entrance exams and during the

three-day Dragon Boat Festival. That made it a prime holiday destination for a generation of videogamersoften
with their dates.
Wanda helped make sure
that anyone who wanted to
see the movie could. Its theater chain, Chinas biggest, offered nearly 80% of its scheduling slots to Warcraft on its
opening day, and more than
70% later that weekend.
Other chains in which
Wanda has interests also overwhelmingly showed Warcraft on its screens.
Lin Hao drove across Bei-

jing to take a look at the

Doomhammer, a legendary
weapon used by orc-warrior
leaders. For the 30-year-old
engineer, Warcraft struck a
nostalgic note, evoking days
and nights of fighting for the
horde in dorm rooms.
I like special effects and
reminiscing about the game,
said Mr. Lin, who took his
wife, a nongamer, to watch the
movie.
When Warcraft started
flagging at the box office in its
second weekenddropping
nearly 63% compared with its
Please see MOVIE page B2

Finding Favor

First-weekend box ofce

for Warcraft' and
Now You See Me 2'
China

U.S.

Warcraft
June 1012

$65.1 million
24.2

Now You See Me 2

$43

June 2426
June 10-12

22.4

Source: Box Ofce Mojo

THE WALL STREET JOURNAL.

Russian Oil Tycoon Makes a Comeback New Push for Teamwork

MOSCOWThe celebration
was a flashback to Moscows
boom years: Russian oil tycoon
Mikhail Gutseriev presided
over a wedding party for his
son that featured Jennifer Lopez, Sting and a six-and-a-halffoot tall cake.
The March nuptials sparked
tabloid speculation about the
outrageous cost and put Mr.
Gutseriev, whose family is the
majority owner of one of Russias top oil producers, OAO NK
Russneft, back in the spotlight.
The flamboyant tycoon, a
prolific songwriter for some of
Russias most famous pop
stars, has been expanding his
oil, real estate and banking
empire despite Russias downturn.
After earning what he has
said is $700 million by hedging
falling oil prices, he is looking
to do an initial public offering

CHRIS RATCLIFFE/BLOOMBERG NEWS

BY LAURA MILLS

Russneft CEO Mikhail Gutseriev is planning an IPO for the company.

for Russneft.
It is an unlikely comeback
for Mr. Gutseriev, who spent
three years in exile in London
after Russian authorities
opened a criminal case against
him in 2007. Those charges,
which he denied, were eventually dropped and he regained

full control over Russneft, now

the seventh-largest oil company in Russia, in 2013.
But that experience hasnt
diminished his appetite for
risk: Mr. Gutseriev has taken
advantage of the crisis to snap
up businesses from banks to
radio stations on the cheap,

though some analysts say that

move has left him stuck with
questionable assets.
At an investor conference in
June, Mr. Gutseriev said Russneft plans to conduct an IPO of
up to 10% of the company this
year, with further sales pending demand. The company is
currently owned 54% by the
Gutseriev family and 46% by
Swiss mining-and-trading firm
Glencore PLC. Mr. Gutseriev
declined requests for an interview.
In the summer of 2014,
Neftisaa smaller oil company
created in 2008 and owned by
Mr. Gutserievreached out to
Sberbank, Russias biggest
state bank, for a loan, people
familiar with the matter said.
Mr. Gutseriev had ambitions to
rapidly expand its business of
producing and selling oil, but
needed funds to do so: By the
end of 2014, Neftisas liabilities
almost tripled to 106.3 million
Please see RUSSIA page B2

Overloads Managers
BY RACHEL FEINTZEIG

The poster child for the

overloaded modern manager
looks a lot like Hugh Welsh.
The executive at the North
American arm of conglomerate
Royal DSM
MANAGEMENT has more
than
100
direct and
indirect reports and several
job titles, including general
counsel. So jam-packed is his
calendar that Saturday meetings arent unusual, and employees sometimes line up
seven deep outside his office
for a moment of face time.
Even his assistant, weary of
juggling his schedule, recently
left him to work with a
smaller group in the company.
Mr. Welsh, who is 50 years
old and married, says he is exhausted. I just cant be all
these different places at the

same time.
Plenty of managers feel like
Mr. Welsh these days. As companies flatten hierarchy and
preach collaboration among
their ranks, a growing share of
bosses time is spent coordinating, directing traffic and
overseeing employees who
may or may not report directly to them. Managers and
executives complain that the
push for teamwork, innovation
and speed has left them little
time to do real work.
Researcher Rob Cross has a
name for the phenomenon:
collaborative overload. Often
top performers, these overloaded workers are put on
high-value projects and sought
by co-workers, but they can
become bottlenecks when too
many projects run through
them. Companies like General
Motors Co. and health insurer
Please see WORK page B5

P2HW181000-0-B00200-1--------AL

THE WALL STREET JOURNAL.

B2 | Wednesday, June 29, 2016

INDEX TO BUSINESSES
Etihad Airways...........B6

Fitbit............................B4

Qatalyst Partners.......B3
Qatar Airways.............B6

B
Baoneng Group.........B12
BlackRock, Inc.............A3
B&N Bank....................B2
Bombardier..................B1

C
Charles Schwab .......... B4
Chengdu Airlines ........ B1
China Vanke..............B12
C.H. Robinson
Worldwide.................B4
Cigna............................B5
Commercial Aircraft
of China.....................B1

D
Dalian Wanda Group .. B1
Davis Polk &
Wardwell...................B7
Delta Air Lines ........... B6
Deutsche Bank..........B12

E
Electrolux....................B6
Elliott Management...A8
Embraer.......................B1
Emirates Airline ......... B6

G
General Electric .......... B1
General Motors...........B3

H
Herbalife ..................... B2
Home Depot................B4
Hunan TV & Broadcast
Intermediary.............B1

K
KKR ............................. A8
Koninklijke...................B1

L
Lionsgate
Entertainment..........B1
Lippo............................B6
Liquid Telecom............B6
Lyft.........................B2,B3
Lyons Wealth
Management ............ A8

ProShares....................B7

R
Red Hat.......................B4
Rockwell Collins..........B1
Royal Bafokeng
Holdings....................B6
Russneft......................B1

S
Sony Music
Entertainment..........B2
SunTrust Banks ........ B12

T
Tata Steel....................B7
Tencent Holdings........B2
Third Point..................A8
Tudor Investment.......A8

Uber Technologies ...... B3

United Continental
Holdings....................B6

McDonnell Douglas.....B1
MDM Bank..................B2
Microsoft.....................B3
Mitsubishi Aircraft.....B1

VelocityShares............B7
Vodafone Group..........B6
Volkswagen.................A1

Naver...........................B9

Warner Music Group..B2

PayPal Holdings..........B2

ZTE..............................B3

INDEX TO PEOPLE
A

Gutseriev, Mikhail......B1

Adornato, Paul............B8
Asness, Cliff...............A8

Haupt, Henry .............. B7

Bullard, James............B9
Burns, Clif.................B12

Ichikawa, Masahiro....A1
Ireland, Peter..............B9

Calderoni, Frank..........B4
Clarke, Andrew...........B4
Cooper, Steve..............B2
Cryan, John...............B12

Jones, Paul Tudor.......A8

D-F
Draghi, Mario..............A3
Duy, Tim......................B9
Faucher, Gus...............A7

K
Kocher, Karen..............B5
Kravis, Henry..............A8

McDaniel, Gary ........... B8

Mehlman, Ken ............ A8

N
Newell, Angela ........... B4
Nouvel, Jean...............B8

Q
Quattrone, Frank ........ B3

S
Singer, Paul.................A1

Tom, Carol.................B4
Turnbull, Malcolm.......A4

Levine, Derek..............B2
Loeb, Daniel................A1
Lutz, Dave.................B12

Welsh, Hugh ............... B1

White, Mary Jo...........B4

Gurley, Bill .................. B3

Mancini, Eric.............B12

Zerella, Bill..................B4

Icahn Aide Gets Seat

At Post-Split Xerox
BY DAVID BENOIT

Xerox Corp. has agreed to

appoint a top lieutenant of
Carl Icahn to its board as the
company prepares to split into
two.
The new agreement with
the activist, the companys
largest shareholder with a
9.8% stake, will leave him with
a say on the boards of both
companies being created, according to a person familiar
with the matter.
In January, when Xerox had
announced the split, it already
agreed to give Mr. Icahn three
seats on the board of the business-services company, which
is to be called Conduent Inc.
Xerox is now appointing
Jonathan Christodoro to its
board of directors effective
immediately. Mr. Christodoro
is a managing director of Mr.
Icahns firm and regularly
named to the board of his investments, including Herbalife
Ltd., Lyft Inc. and PayPal
Holdings Inc. The Norwalk,
Conn. company has been pre-

JET
Continued from the prior page
dents at home and abroad.
Chinas goal at this point is
to prove to the world that its
homegrown aircraft is reliable,
competitive and safe, said
Derek Levine, an adjunct professor at the City College of
New York and author of The
Dragon Takes Flight. He
added: The CAACs reputation
is on the line.
The civil-aviation administration didnt respond to a request for comment.
Chinas commercial-plane
makers have struggled to close
the gap with Western aerospace companies, despite state
largess for a project of national prestige. Analysts estimate the ARJ21 project racked
up billions of dollars in costs
since development began in
2002. The ARJ21 made its first
flight in late 2008, three years
behind schedule.
Commercial Aircraft Corp.
of China, also known as Comac, has faced similar problems in its development of a
larger jetliner, the C919. A prototype of that 158-to-174 seater
was completed in November,
years behind schedule.
Another stumbling block for
the ARJ21 is its lack of U.S.
and European certification,
which means it cant be exported or flown to major
Western markets. Chinese regulators certified the jet in late
2014, allowing it to operate
domestically and in certain de-

paring to separate the legacy

printing and copying business,
which had about $11 billion in
2015 revenue, from its business services operations,
which had about $7 billion in
revenue last year. It expects
the work, unraveling a 2010
deal for Affiliated Computer
Services Inc., to be done by
the end of the year.
It had already announced
that longtime Chairman and
Chief Executive Ursula Burns
wouldnt take an executive
role at either company, though
she will remain chairman of
the board of the legacy hardware business.
Last week, Xerox selected
insider Jeff Jacobson to lead
the copier and printing business, which will retain the Xerox name. Two weeks ago it
hired Ashok Vemuri to be the
CEO of Conduent.
Mr. Icahn disclosed a stake
in Xerox in November. In January, the company announced
the split and the agreement to
give the activist three seats on
the services companys board.
veloping countries in Asia, Africa and South America that
recognize the Chinese certification.
The U.S. Federal Aviation
Administration last year ended
a shadow evaluation of the
Chinese aviation authoritys
ability to assess airworthinessa process industry insiders said was fraught with discord over bureaucratic and
technical matters. Comac is
developing an ARJ21 variant
with design changes that will
bring the plane in line with
U.S. standards.
Delays in the ARJ21s development mean Comac faces an
uphill task in upgrading the
plane to compete with Western-made rivals that boast superior fuel efficiency and operational performance.
The news agency, Xinhua, in
reporting on the debut voyage
cited complaints from the
planes pilot about noise and
vibration in the cabin.
The manufacturer has
plans to make improvements
and we hope that they can resolve the noise and vibration
issues,
Xinhua
quoted
Chengdu Airlines Capt. Zhang
Fangjie as saying.
Still, Comac can be assured
of sales to Chinese airlines,
whose aircraft purchases are
controlled by the government.
The company has received
more than 300 orders for the
ARJ21, the majority placed by
Chinese airlines and leasing
firms. Chengdu Airlines has
another 29 ARJ21s on order
and expects to take delivery of
its second plane in August.

YouTube System Irks Artists

Kinks in the sites ability

to identify copyrighted
music in user videos
upsets music industry
BY HANNAH KARP

The music industry is

locked in an epic battle with
YouTube, the most popular ondemand service, over the declining royalty rates the site
pays and the difficulty in detecting copyrighted material
from the mass of videos uploaded on the site.
The site voluntarily offers
record labels a system to automatically block, monetize or
mute their music on the site,
matching audio files with
99.7% precision, the service
says, and a chance for labels
to cash in on user-uploaded
content instead of merely resorting to sending takedown
notices. But many music rights
holders say the YouTube system isnt foolproof and requires them to conduct a laborious, manual search daily to
track content and collect royalties. They worry that YouTube gains an unfair advantage with the lower rates it
pays for music over other ondemand streaming services
such as Spotify and Apple Music, which pay far more per
play but together have relatively fewer paying subscribers at 68 million, according to
the International Federation of
the Phonographic Industrys
latest report.
The music industry believes
its future lies with these
streaming services rather than
YouTube, which they fret is
conditioning fans to not pay
for on-demand tunes.
But YouTube, a unit of Alphabet Inc., with its more
than 1 billion users, packs
clout and reach that the industry cant ignore. YouTube says
it has paid about $3 billion to
music companies since it
launched a decade ago, and today half its payout comes from
user-generated content identified by its system called Content ID. Although the Alphabet
unit pays out more overall
each year, it now pays an average of eight one-hundredths of

MATT SAYLES/ASSOCIATED PRESS

A
Alibaba Group.............B2
Alphabet......................B2
American Airlines
Group ........................ B6
Apple...........................B4
AQR Capital
Management ............ A8

Artists like Taylor Swift have urged Congress to change law that protects sites such as YouTube.
a penny ($0.0008) per play,
and less than six one-hundredths ($0.0006) of a penny
for user-generated content,
down roughly 20% from a year
ago, people familiar with the
matter said.
The free tiers from SoundCloud and Spotify, by contrast,
pay at rates up to six times
the rate YouTube offers for

The industry says

its future is with
streaming services
like Apple Music.
user-uploaded videos, one
rights holder said. Another
said it gets an average of 35%
more per play ($0.0011) from
these free services than it
does from YouTube videos.
At the core of the dispute is
the Content ID system that
YouTube built nine years ago
in an attempt to turn videos
uploaded by users into a business opportunity for copyright
owners, while boosting its
own advertising revenues.
YouTube says Content ID

works nearly perfectly to help

record labels protect their music and make money from it,
and keeps getting smarter.
But many in the music industry say the system isnt automatically identifying many
of their recordings when users
have altered or combined
themor occasionally for no
apparent reason at all.
Furthermore, labels charge
that Content ID doesnt scan
the YouTube channels managed by major TV networks
and smaller networks such as
Fullscreen and AwesomenessTV, many of which feature
amateurs covering popular
songs.
Some label executives say
the system only detects about
50% of their music, forcing
them to search manually for
user-uploaded videos that slip
through the cracks. On average, the music industry submits 2,000 claims a day on
manually discovered videos,
YouTube said.
Sony Corp.s Sony Music
Entertainment said that since
December
2012,
manual
searches have led it to claim
1.5 million infringing copies of

its recordings on YouTube that

werent identified by Content
ID. Had it not discovered
these, Sony said it would have
lost $7.7 million in revenue.
Harris Cohen, YouTubes senior product manager of Content ID, said that its system
has to strike a balance between the interests of content
owners and users, who generate most of its advertising revenue and who may be using
the copyrighted works fairly in
their videosfor instance, as
incidental background music
or in some other creative context.
Before Content ID, record
labels couldnt make any
money from user-uploaded
videos on YouTube featuring
their recordingsthey could
only send takedown notices
to YouTube to have such videos removed.
Music executives such as
super manager Irving Azoff
and artists from Taylor Swift
to U2 are asking Congress to
change the law that protects
sites such as YouTube from liability when they host music
uploaded by users who havent
obtained permission.

RUSSIA
Continued from the prior page
rubles ($1.8 billion at the time)
from 37.7 billion rubles.
There were tough conditions in 2014, said one person
familiar with the deal with
Sberbank. The ratio of debt to
Ebitda [of Neftisa] was about
five or six, referring to debt
to cash flow.
Mr. Gutseriev asked Sberbank for a ruble loan, one person said. The bank offered him
a loan in U.S. dollars instead,
but German Gref, the longtime
CEO of Sberbank, personally
requested that Mr. Gutseriev
hedge those risks against a
possible drop in oil prices, according to a banker.
The hedge allowed Neftisa
to sell millions of barrels of its
oil at $85 a barrel. It was completed in July, but by November that year oil prices dipped
well below $85, and Mr. Gutseriev started raking in cash.
A representative for Mr.
Gutseriev told the Moscowbased RBC news agency that
the hedge earned $700 million.
A person familiar with the deal
said the profit was closer to $1
billion. While most Russian
billionaires have taken a hit as
commodities prices suffer, Mr.
Gutseriev jumped 20 places in

MOVIE
Continued from the prior page
opening weekendWanda offered free or discounted movie
tickets at its theaters. The
campaign filled 1.71 million
seats in its theaters over three
days, Wanda said.
State regulators usually
give Hollywood studios only
about a months notice when
they set a movies release
date, leaving little time for
marketing campaigns. In the
case of Warcraft, Legendary
said
26
well-established
brands committed to creating
commercial campaigns before
the release date was set, from
Ping An Insurance to dairy giant Mengniu.
A person familiar with the
matter said such sponsors

Russias Forbes list in 2016; his

net worth leapt $5.9 billion
from $2.4 billion.
The oil tycoon also is expanding his banking group,
B&N Bank, which he co-owns
with his nephew. According to
credit ratings company Standard & Poors, B&N Bank
ranked about 30th among Russian banks by size in early
2014 but jumped to eighth
place by 2016 after buying the
nations 23rd largest bank,
MDM Bank, and dozens of

other assets.
While B&N isnt the only
one consolidating, its growth
has been particularly fast compared with most competitors.
However, analysts say some of
those assets could prove more
trouble than they were worth.
Most of these [banks]
werent in very good condition, and what they are trying
to do is revitalize them and
put them in a single entity
but when you do this so rapidly its hard to succeed, said

S&P analyst Irina Velieva.

The recent windfall is one
of many career turns for Mr.
Gutseriev, who went into business in the late 1980s and became a member of parliament
in the 1990s. He quickly moved
from state-owned oil company
executive to oil tycoon.
After
law-enforcement
agencies announced criminal
charges against him in 2007,
Mr. Gutseriev fled to London,
where he spent the next three
years dabbling in business, issuing his poetry and funding
Hollywood films.
But Mr. Gutseriev had
friends in the right places.
Banking sources said Mr. Gref,
a longtime ally of President
Vladimir Putin, lobbied for Mr.
Gutserievs return, primarily
because another tycoon who
had bought Russneft in 2007
was struggling with its debts.
Mr. Gutseriev returned to Russia in 2010 after charges were
dropped. He bought back Russneft and then sold a 49% stake
in the company to AFK
Sistema, an investment group
controlled by billionaire Vladimir Yevtushenkov.
Despite his turbulent past,
Mr. Gutseriev says he intends
to remain in Russia and only
has plans to expand. Im not a
rat running from a sinking
ship, he told RBC in an interview last year.

contributed about $200 million in brand support, a sizable lever for Legendary,
whose typical marketing budget is about $6 million or $7
million a movie, the person
said.
Hunan TV, which has co-financed a series of films with
Lionsgate, has already promoted Now You See Me 2
for months, running footage of
the films lead characters during a satellite-television Lunar
New Year extravaganza in February, one of the countrys
most-watched shows.
With about 80% of movie
tickets bought online in China,
the backing of one of Chinas
internet giants represents
something of a Holy Grail for
Hollywood studios.
Alibaba Pictures Group Ltd.,
the film arm of Alibaba Group
Holding, an investor in Para-

mounts comic-book adaptation Teenage Ninja Turtles:

Out of the Shadows, is pushing ads for the movie across
Alibabas network, including
ticketing platforms, the Taobao online store and the
Weibo social-media platform.
Leveraging its reach, Alibaba is using big data from its
ticketing platform and Taobao
to send digital discount codes
to a targeted audience and is
working with more than 100
brands, in areas such as food
delivery, popcorn and supermarkets, to use images from
the Turtles in ads across
Chinas cities.
Tencent Holding Ltd., an
investor in Warcraft, promoted it on its social-media
platforms QQ and WeChat,
each with hundreds of millions
of active users, and ran ads
with its exclusively streamed

videos of National Basketball

Association
championship
games to tens of millions.
Legendary has yet to decide
whether there will be a sequel
to Warcraft, but is now
working on sequels to the scifi film Pacific Rim, which
grossed more in China than
stateside, and the monster
film Godzilla. The company
said it aims to develop these
two sequels as China-U.S. coproductions.
For the Chinese partners,
besides sharing in the box office, there are other advantages to the Hollywood ties.
Working with the best foreign production companies
will help us to bring our own
Chinese content to the outside
world in the future, said Zhou
Shixing, chief content officer
of Hunan TV.
Lilian Lin

MAXIM ZMEYEV/REUTERS

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

BUSINESS NEWS

Mikhail Gutseriev is expanding his banking group, B&N Bank.

P2HW181000-0-B00300-1--------AL

THE WALL STREET JOURNAL.

Wednesday, June 29, 2016 | B3

TECHNOLOGY

Brexits Implications for Tech

Sanctions Relief
For ZTE Extended
HONG KONGThe U.S. government decided to extend the
temporary lifting of sanctions
on ZTE Corp. through Aug. 30,
as the Chinese maker of telecommunications equipment
tries to rebuild its reputation
after being accused of violating trade rules.
The U.S. Commerce Department announced the decision
in a statement posted online
Monday. It didnt cite specific
reasons for the decision. The
extension of temporary relief
is good news for ZTE,
which has been scrambling to
cope with the potential damage on its global operations
and brand image from its alleged export-control violation. In April, the company replaced
three
executives,
including its chief executive.
The U.S. imposed trade
sanctions on ZTE in early
March, alleging the company
violated rules restricting exports of U.S. technological
goods to Iran. The move hindered the Chinese companys
ability to procure U.S. components and software and created tension between Beijing
and Washington.
But in late March, just two
weeks after announcing its

sanctions, the U.S. Commerce

Department temporarily lifted
the restrictions through June
30. At the time, the department said the temporary license it was granting ZTE
would be renewable if the Chinese company fully cooperated
with Washington.
This extension of relief reflects ZTEs continuing efforts
to fulfill its commitments to
create a best-in-class compliance program. It also recognizes ZTEs determination to
cooperate with authorities, resolve the continuing investigation and share information as
requested, ZTE Chairman and
President Zhao Xianming said
in a written statement. Mr.
Zhao assumed his current
roles in April when ZTE replaced its management team.
In late April, ZTE hired a
team of U.S. export-control experts at consulting firm PricewaterhouseCoopers to advise
the company, according to a
person familiar with the matter. ZTE, which is based in the
southern Chinese city of Shenzhen, is a major manufacturer
of mobile phones and telecomnetworking equipment such as
base stations. In the U.S. last
year, the company was the
fourth-largest
smartphone
vendor, according to Canalys.

he world economy is
again being tested by
an unexpected shock
following Britains vote to
exit the European Union. The
pound sterling and stock
markets globally have been
hammered. What does it
mean for technology startups
and venture capital, which
can sometimes appear virtually immune from macroeconomic forces?
On one level, it is simple:
the Brexit vote means companies large and small are in
for a period of uncertainty.
And such times are bad for
the kinds of speculative investments that are the lifeblood of startups.
In some respects, the tech
industry has been preparing
itself for an event like this
for a while. Scarred by the
big crash of
2000, many
who were in
the industry
then have a
muscle memKEYWORDS
ory for what
CHRISTOPHER can follow.
MIMS
Venture investors like
Benchmarks
Bill Gurley have been sounding the alarm for some time
on outsize valuations, clearly
trying to tap the brakes on
an overly exuberant funding
environment.
If large institutional investors become more risk averse
and flee to safe, low-yielding
investments, theyll devote
less money to venture-capital
firms. That would constrain
the availability of capital for
startups.
Most at risk will be multibillion-dollar late-stage funding rounds, like those that
Uber Technologies Inc. seems
to score every few months.
That is what happened during last decades financial crisis, when money for latestage startups fell most
precipitously.
But the pain would be felt
more broadly. Fewer new

Startup Lyft Hails Deal Makers

BY DOUGLAS MACMILLAN
Ride-hailing startup Lyft
Inc. hired Qatalyst Partners
LP, the boutique investment
bank best known for helping
tech companies find a buyer,
according to people familiar
with the matter.
Frank
Quattrone,
the
founder and executive chairman of Qatalyst, has contacted
companies including large auto
makers about acquiring a stake
in Lyft, the people said. It isnt
clear whether Lyft is aiming to
sell itself or raise new funding.
Lyft, the largest U.S. rival to
Uber Technologies Inc., has
tried to keep up with its larger
competitor as both companies
burn through capital to expand
their ride-hailing services.
The two San Francisco
companies pour millions of
dollars into subsidizing lowprice rides and giving cash bonuses to new drivers, and both
Uber and Lyft have said such
spending has put them on a
path to profitability.
Lyft has raised about $2 billion in funding, or less than
one-sixth the total funds
raised by Uber. Lyft was last
valued at $5.5 billion by investors including auto maker
General Motors Co.
Hiring Qatalyst, one of the
most active Silicon Valley deal
makers, may signal Lyft is open
to a sale. Qatalyst ranks fourth
this year among banks advising

on U.S. acquisitions, working on

deals totaling $33.7 billion, according to data provider Dealogic. Those deals include a coveted role advising LinkedIn
Corp. on its $26 billion sale to
Microsoft Corp., announced two
weeks ago.
One potential buyer may be
General Motors, which paid
$500 million for a 10% stake in
Lyft earlier this year and indicated that the ride-hailing ser-

$5.5B

Valuation of the ride-sharing

service during its last round of
funding.
vice could be crucial to the future of automobiles. The two
companies have since agreed
to develop self-driving cars
and to offer deals on rental
cars to Lyft drivers.
Technology M&A may be
due for an uptick this year, as
highly valued startups find it
more difficult to raise funds
from venture capitalists.
Marc Andreessen, whose
firm Andreessen Horowitz is
an investor in Lyft, said at the
Bloomberg Technology Conference earlier this month that
more firms are considering or
negotiating a merger than any
time in the past four years.
So far this year, there have
been at least $260 billion of

tech deals announced globally,

according to Dealogic data.
That is the second-fastest
pace ever for the period, after
2000. Technology is the busiest sector for M&A this year, as
it was in 2015, the data show.
The growing popularity of
ride-hailing has attracted several of the biggest auto makers
and tech companies.
In May alone, Apple Inc.
said it invested $1 billion in
Chinese startup Didi Chuxing;
Volkswagen AG bet $300 million on Israeli company Gett;
and Toyota Motor Corp. made
an investment in Uber. Alphabet Inc., a leader in self-driving cars, is testing its own carpooling service with its
employees in San Francisco.
Lyft has in recent months
joined with Didi Chuxing and
two other Asian ride-hailing
services in an effort to help
each other compete with Uber
in their respective countries. Both companies share a
common investor in Chinese
internet company Alibaba
Group Holding Ltd.
Mr. Quattrone, one of the
prominent IPO bankers during
the dot-com boom, started
Qatalyst in 2008. In January,
Mr. Quattrone stepped down
from his role as chief executive, handing that title to his
partner, George Boutros.
Maureen Farrell
and Gautham Nagesh
contributed to this article.

ERIC RISBERG/ASSOCIATED PRESS

SHEPHERD ZHOU/EUROPEAN PRESSPHOTO AGENCY

ZTE ranked as the No. 4 smartphone vendor in the U.S. last year.

BY JURO OSAWA

@wsjd | wsjd.com

Uber Technologies and others cash-hungry tech firms could soon face fund-raising uncertainties.
companies will be funded,
and others will be unable to
grow from seed stage to
profitable enterprise. The
herd of highly valued startups, the so-called unicorns,
would be thinned.
Still, nothing will happen
overnight. Venture firms
raised record amounts of
capital in the first quarter of
this year, and will need to
deploy it one way or another.
Moreover, tech isnt
nearly as exuberant now as
at the peak of startup-investment mania a year ago. Even
before Brexit, the funding environment had cooled.
There is another mitigating factor. Many unicorns
have for some time been in a
unique bind: too valuable to
be acquired by an established
tech giant, but not yet confident enough to conduct an
initial public offering.
A global economic slowdown, and declining equity
values, could prompt more
M&A activity. Tech has already been the busiest sector
for mergers this year, and
potential acquirers are sitting
on record piles of cash. Witness Microsoft Corp.s recent acquisition of LinkedIn
Corp., at $26.2 billion its

largest ever and yet still just

a fraction of its more than
$100 billion cash hoard.
Such consolidation could
help in another way. Arguably, techs most precious resource is the constrained talent pool, which has been
fragmented across startups
with deep pockets as they
compete with each other for
employees.
As Khosla Ventures partner Keith Rabois told me in
April, You can throw all the
capital you want at people,
but there are maybe only 50
people in the world who are
capable of being amazing
founders, so youre just wasting that money. Without a
critical density of talent at
the right companies, argues
Mr. Rabois, we could actually
be inhibiting the creation of
companies as transformative
as Facebook Inc.
Lean times can inspire
discipline in startups. Famously, Facebook was started
in 2004, during the dark
years after the tech bubble of
the late 1990s burst. Similarly, enterprise-communications-software maker Atlassian Corp. was founded
during what its co-founder
Scott Farquhar described as

the nuclear winter of tech

investment, in 2002. Lean
from the beginning, the company eschewed venture capital and bootstrapped itself to
a successful public offering in
December 2015.
Because they are smaller,
and tend to be disrupting established players, some
young companies can grow
through economic turmoil.
Indeed, as belts tighten, new
entrants that can help companies save money can prosper.
That is what happened at
Atlassian during the financial
crisis and the recession that
followed. With its cloudbased applications for corporate communication, including Hipchat, it was one of the
first entrants in a category
that has since grown explosively.
Maybe if we have another correction in the markets youll see more companies like Atlassian in two to
three years who also take advantage of the downturn in
the markets to build the next
great thing, says Atlassians
Mr. Farquhar.
All I can add to that is:
This industry better hope
hes right.

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THE WALL STREET JOURNAL.

B4 | Wednesday, June 29, 2016

BUSINESS NEWS

Accounting Blurs Profit Picture

Benchmarks devised
to supplement
financial reports can
overstate success

U.S. companies that rely

solely on standard accounting
to report their financial results
are in the minority, and their
numbers are shrinking fast.
Just 29 companies in the
S&P 500 indexor 5.7% of the
totalclosed their books for
2015 exclusively using U.S.
Generally Accepted Accounting
Principles, or GAAP. Thats a
sharp decline from 25% in
2006, according to research
firm Audit Analytics.
The purists are dwindling as
companies struggle to increase
their earnings in the wake of
the 2008 financial crisis, analysts and accountants say, and
regulators are taking notice.
The adjusted, or customized,
figures many finance chiefs use
to supplement their companys
standard financial reports inflate income by an average of
44% at profitable companies,
according to new research by
financial-data provider Calcbench Inc. Adjustments can
exclude the effects of such factors as currency swings, noncash charges like restructuring
costs and one-time charges.
That can help mask the impact of tepid global economic
growth, which has left many
businesses unable to raise
prices and hindered sales
growth.
In many cases these companies have exhausted cost-cutting options.
As the economy slows or
grows companies are incentivized to provide more or less
[customized] metrics, said Angela Newell, partner at accounting firm BDO USA LLP.
If everything is rosy and
GAAP looks great, there is no
need to include a non-GAAP
metric, she added.
Finance chiefs who dont use
adjusted figures say they are

JAMES KACZMAN

BY TATYANA SHUMSKY
AND THEO FRANCIS

furnishing investors with a

candid snapshot of their companys financial performance.
U.S. companies are allowed
to report non-GAAP metrics so
long as they are labeled, justified and reconciled with comparable standard accounting
figures, but there is little oversight of how these adjusted figures are calculated.
What one company says is
adjusted might be different to
what another company says is
adjustedIt lends itself to inconsistency, said Andrew
Clarke, finance chief at logistics services company C.H.
Robinson Worldwide Inc. We
believe in providing [stakeholders] with a clean number as to
how we perform so that they
can make an informed decision.
C.H. Robinson is one of the
few S&P 500 companies that
reports results using only standard accounting. That group
includes retailer Home Depot
Inc., financial-services firm
Charles Schwab Corp. and
technology giant Apple Inc.
Home Depot relies on stan-

Adjusting Earnings

The number of companies ling

nancials using only standard
accounting is falling.
Companies using...
GAAP only
non-GAAP

29

500 companies
119

400
300

123

200

351

172

100
0

482

1996

2006

2015/2016

Note: Tracks S&P 500 constituents over time

including companies removed from the index
during 2015. Source: Audit Analytics

THE WALL STREET JOURNAL.

dard accounting measures not

only for earnings reports, but
also to guide stakeholders on
sales and earnings growth, according to finance chief Carol
Tom. By doing this, there is
never any confusion about the
starting point, Ms. Tom said
in an email.
The common practice of
tweaking financial figures has

contributed to the ballooning

disparity between earnings calculated using standard and
non-GAAP accounting, according to Calcbenchs analysis of
the 816 U.S. public companies
disclosing adjusted financial
results in their most recent fiscal years. That analysis is set
for release Tuesday.
For profitable companies,
common adjustments yielded a
$94 billion improvement on
top of the combined $214 billion in GAAP net income they
reported for the year, according to additional analysis by
Calcbench and The Wall Street
Journal.
Unprofitable companies got
a bigger boost than profitable
ones, the joint analysis showed.
Among 328 companies reporting net losses for the year,
the adjustments improved nonGAAP results by a combined
$65 billion, or about 70% of
their aggregate net losses of
$93.5 billion.
Adjustments varied widely
by sector, Calcbenchs study
found.
Financial firms made the

STREET

biggest adjustments, at $40

billion, more than two-thirds of
which related to acquisitions.
Tech firms made the most adjustments, about 1,500 among
196 companies totaling $34 billion, 61% of which related to
stock-based compensation.
Restructuring dominated
energy- and industrial-sector
adjustments.
The widespread use of adjusted accounting figures has
drawn scrutiny from the Securities and Exchange Commission. SEC Chairman Mary Jo
White has warned against giving adjusted earnings more
prominence than standard
numbers, because it might mislead investors. In May, the
agency issued new guidance on
using and publicizing nonGAAP measures and signaled it
may issue new rules to curtail
the practice.
Proponents say that supplementing standard accounting
with customized figures benefits investors. One-size-fits-all
accounting can overlook industry-specific information like
funds from operations, a common term for real-estate investment trusts that zeroes in
on cash flow. They argue that
adjusted figures can strip out
the impact of one-time events,
like an asset sale or sharp currency swing, allowing investors
to see underlying business
trends.
I think non-GAAP can be
valuable for investors, as long
as its not abused by management, said Bill Zerella, CFO at
Fitbit Inc. Fitbit breaks out the
impact of stock compensation
and amortization of intangibles, he said.
Analysts and investors can
use it to better understand the
business, Mr. Zerella added.
Other CFOs, like Red Hat
Inc.s Frank Calderoni, say they
report customized accounting
figures because analysts or
stakeholders request it. Companies that do use non-GAAP
have to be very clear in discussing what the differences
are, he said.
Vipal Monga
contributed to this article.

Continued from page B1

There are weak points in the
financial system, especially Italy. And moves of this scale can
cause upsets. But banks are generally better placed than during
the past few European crises.
This doesnt make it a nobrainer to buy in now. Markets
are being driven by politics, and
the politics is badly broken. Yet,
hope still lives on among many
that a deal can be done.
Here are three ways for investors to play the political
game:
The first is to become an
instant expert on the internal
politics of Britains ruling Conservative party, which will
choose its new leader to be
prime minister in September.
Deal or no deal, call it right and
there is money to be made: The
pound and banks will soar if
trade is fixed quickly.
The second is to wait for
investors to give up hope of
some form of semidetached EU
membership for the U.K. This
requires no expertise in what
will happen, but only in how

Investors half-hoped
after Friday that
this was just a little
local difficulty.
others feel. Given the chaos in
London and anger in many European capitals, there is likely to
be a moment when a deal seems
impossible, which is sure to hurt
the pound and everything linked
to it even more. It doesnt feel
like we are there yet.
The third is to ignore the
daily politics. Drip-feed money
into the market, and dont
worry about timing the exact
low. Stock markets tend to go
up over time, so those who can
take a long view can afford to
ignore even major crashes just
as long as they dont panic. The
problem is that even the heavily
U.K.-exposed FTSE 250 stocks
still dont look that cheap by
historical standards. There will
be plenty of short-term bounces,
but fear could get a lot more intense before this is done.

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2016 Dow Jones & Co., Inc. All rights reserved. 6DJ3753

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THE WALL STREET JOURNAL.

Wednesday, June 29, 2016 | B5

MANAGEMENT

A Fireworks Boss
On How to Hire
For a Big Show
How Amy Kule, executive
producer of Macys Fourth of
July Fireworks and Macys
Thanksgiving Day Parade in
New York, hires people to put
on a big show, as told to
Lindsay Gellman:
I manage hundreds of staff,
volunteers and partners for each
event. I also work closely with
local law enforcement to make
sure spectators stay safe.
Since Im not an engineer
just as Im not an expert in pyrotechnics or giant balloonsan
important part of my job is finding specialists in a given field
who can help shape and execute
our vision.
I look for an expert who is
steeped in the details of his or
her specialty, and has experience
working with large-scale events.
But the litmus test for me is
communication style. A specialist should be able to express
ideas clearly and succinctly to a
layperson without getting stuck
in technical minutiae.
Once I find the right person
for the job, I tap his or her
imagination to generate not only
new ideas for fireworks displays
or parade floats, but also solutions to unanticipated challenges
that inevitably pop up.

M.B.A. Grads Get

Robust Welcome
To the Workforce

2016 Dow Jones & Co., Inc. All rights reserved. 6DJ3890

The M.B.A. class of 2016 is

having a very good year.
Business schools wont release career-placement and salary numbers for their M.B.A.
graduates for several months,
but a survey of corporate recruiters suggests that this years
business-school grads have been
welcomed into the workforce.
Some 88% of corporate recruiters said they planned to
hire recent M.B.A. graduates this
year, up 8 percentage points
from last year, according to a report from the Graduate Management Admission Council. GMAC
surveyed 842 employers representing more than 530 companies in 40 countries.
U.S.-based companies said
they planned to offer recent
M.B.A. graduates a median starting base salary of $105,000, up
from a median of $100,000 last
year, according to the survey.
Globally, more than half of employers said they would increase
M.B.A. starting salaries at or
above the rate of inflation.
The survey was conducted in
February and March, well before
last weeks Brexit referendum,
which could change recruiters
plans for this fall and beyond.
Lindsay Gellman

While some work-visa policies likely will change,

specifics could take years to work out

BY LAUREN WEBER
AND RACHEL FEINTZEIG
Brynne
Herbert,
the
founder and chief executive of
employee-relocation
firm
MOVE Guides, was boarding a
red-eye flight from San Francisco to Boston as Thursdays
Brexit results were coming in.
While she was discussing the
vote with fellow passengers,
one said, This is one heck of
an HR problem.
Ms. Herbert gets that firsthand. The American-born executive founded her company
in London while she was in
business school there in 2011.
MOVE Guides employs about
50 engineering and product
professionals there, and more
than half hail from European
Union countries beyond the
United Kingdom.
Corporate bosses with large
workforces in Britain have
been urging calm in the wake
of U.K. voters decision to
leave the EU, asking employees to continue as usual until
more details emerge about the
countrys exit plans. While it is
likely that certain policies will
change, such as work-visa re-

quirements for non-U.K. Europeans, employers caution that

it could take two years or
more for politicians to work
out the specifics.
Though a boom in staff relocations could benefit Ms. Herberts business, its quite concerning as a CEO to think of
what the future looks like from
a recruitment perspective, she
said. She is telling both employees and customers that the firm
is monitoring the situation
closely and will communicate
when we have full clarity.
More than two million EU
nationals work in Britain, accounting for about 6.8% of the
workforce, according to the
countrys Office for National
Statistics, and employers and
workers alike are bracing for
disruptions in careers, recruitment and staffing.
Workers in industries like
banking and manufacturing
could be laid off or remain in
limbo as deals are placed on
hold while trade treaties are
worked out and the current
turmoil sorts itself out. In a
memo to employees Friday,
J.P. Morgan Chase & Co. chief
James Dimon tried to reassure

ANDREW MATTHEWS/PA WIRE/ZUMA PRESS

The Macys fireworks last year

Big Employers
Are Urging Calm
After U.K. Vote

J.P. Morgan Chase CEO James Dimon tried to reassure staff but said some changes may be needed.
staff but also said the bank
may need to make changes to
our legal entity structure and
the location of some roles.
Theoretically, many jobs
can be done remotely, said
Raghav Singh, an expert in recruiting technology. But in reality, anyone whos doing
business seriously with the
European Community will
have to be moved out of London to another European city.
Audit and consulting firm
EY has 14,500 employees in

the U.K., many of whom are

European nationals.
Theyre all wondering,
what does this mean to
them? said its global chairman and chief executive, Mark
Weinberger, adding that his
team has been in touch with
staff members about Brexit
implications, reminding them
that the firm has weathered
natural disasters and geopolitical unrest. He said EY managers are urging U.K. staff to
take a deep breath.

His firm will need as many

people in the U.K. now as we
did before, although it is not
yet clear what Thursdays vote
will mean for trade and the
mobility of people across European borders, he said.
The uncertainty could also
prompt worried employees to
jump ship. Talented people
already have the tendency to
look elsewhere, said Johan
Aurik, the global managing
partner of management consulting firm A.T. Kearney.

WORK
Continued from page B1
Cigna Corp. are surveying employees to figure out who is at
risk of burnout, and some are
making changes in the way
work gets done.
Managers and knowledge
workers, such as consultants,
now spend 90% to 95% of their
working hours in meetings, on
the phone and responding to
email, according to Mr. Cross,
a University of Virginia professor who has studied network
connections in about 300 organizations; 10 years ago,
managers spent around 60% to
65% of their time on those
tasks, he said. The sliver of
time left for focused work just
isnt enough, said Mr. Cross,
who added that a huge crisis
awaits companies that dont
rethink managers workloads.
Research and advisory firm
CEB Inc. has found that 35% to
40% of managers are so overloaded that its actually impossible for them to get work
done effectively, said Brian
Kropp, a CEB leader who
works with chief HR officers.
Years ago, people just kind
of did their tasks in front of
them. Work was much more
about what I did to accomplish
something, Mr. Kropp said.
Now its much more about
who did I work with so we
could accomplish things together?
GM and Cigna have begun
collecting data on connections
among employees to figure
out who might be overloaded.
Telltale signs of an overcon-

BRYAN ANSELM FOR THE WALL STREET JOURNAL

JASON DECROW/ASSOCIATED PRESS

JASON DECROW/ASSOCIATED PRESS

WORKAROUNDS

Hugh Welsh, an executive at the North American arm of conglomerate Royal DSM, has several job titles, including general counsel.
nected manager, according to
GM, include when 25% of individuals in a network say they
want more access to that manager. Cigna found that trouble
starts when more than 40% of
the connections in a network
run through one person.
When technology company
Juniper Networks Inc. analyzed employee networks to
untangle a clients complaints
about
miscommunications
with the firm, it found that the
bulk of communication about
the account was going through
a small group of employees,
according to Chris Ernst, a

network analysis expert who

helped Juniper. When that
small group grew overloaded,
service to the client suffered,
he said. Rather than doing
their work, the so-called superconnectors spent too much
time sharing information with
co-workers trying to bring
them up to speed, trying to
manage this giant hairball,
Mr. Ernst said.
The trouble went beyond client matters. Juniper said overconnected employees were 16%
less likely to report having time
to develop new skills and scored
21% lower on a measure of vital-

CORNER OFFICE

MANAGEMENT MATTERS

ityhow energized and focused

they were at work.
Some GM executives complete an assessment to measure overload, responding to

Some executives
at GM complete
an assessment
to measure overload.
questions like, Are people
waiting at your office when
you arrive? and Is your
schedule booked three weeks

out for a 15-minute meeting?

GM has restructured some
groups, creating roles dedicated to dispersing information so that others can focus
on getting work done. Also, it
is training executives to manage their networks.
Cigna is analyzing ties
among thousands of its 37,000
employees to identify those
who are so central to the network that its almost dangerous, said Karen Kocher,
Cignas chief learning officer,
especially as it plans to combine with Anthem Inc. in a
proposed acquisition.

Take the lead

from todays leaders
Wherever you are on the corporate ladder,
The Wall Street Journals expanded Management
coverage delivers the insights you needbecause
ambitious leaders never stop learning.

Learn to lead at WSJ.com/management

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THE WALL STREET JOURNAL.

B6 | Wednesday, June 29, 2016

BUSINESS NEWS
Business
Watch
TATA COMMUNICATIONS

Emirates Airlines planes at the Dubai International Airport. The three Persian Gulf airlines deny they have distorted the global air market.

U.S. Engages Gulf Carriers

Talks with U.A.E.,Qatar

toaddresscomplaints
fromU.S.airlines about
governmentsubsidies
BY SUSAN CAREY

The U.S. State Department

intends to hold informal, technical discussions with the
United Arab Emirates and Qatar next month about a dispute
over Persian Gulf airlines
funding and access to the U.S.
market, according to people familiar with the matter.
But the State Department
isnt planning to move to formally renegotiate its liberal,
open skies air treaties or
freeze new flights to the U.S.
by Emirates Airline, Etihad
Airways or Qatar Airways,
these people said.
Those are steps American
Airlines Group Inc., Delta Air
Lines Inc., and United Continental Holdings Inc. have
sought since early 2015 as a
way to battle what they claim

are multibillion-dollar subsidies the Persian Gulf carriers

receive from their state owners.
Another group of U.S. carriers that opposes the position
of those three airlines has been
invited to meet State Department officials on Wednesday to
discuss the governments
plans. That group, which includes FedEx Corp., Alaska Air
Group Inc., JetBlue Airways
Corp. and Hawaiian Holdings
Inc., has expressed concerns
that rolling back liberal air
treaties could cause economic
damage and possible retaliation.
The State Department on
Monday said it takes seriously
the competition claims raised
by some U.S. airlines. But it
also remains committed to its
open skies aviation policy,
under which liberal air treaties
are struck to boost passenger
choice and help the broader
economy through increased
travel, trade and job growth, a
spokeswoman said.
The three Gulf airlines have

been adamant that they dont

receive subsidies and say they
serve parts of the world, including Africa and South Asia,
where big U.S. airlines mostly
dont choose to fly.
The Gulf carriers filed
lengthy rebuttals on U.S. regulatory dockets and have given
numerous speeches denying
that they are distorting the
global air market.
U.S. Travel Association,
which also opposes the position of the largest U.S. carriers
in this trade dispute, confirmed that it was invited to
the Wednesday meeting.
This was the result that we
hoped and expected for a
year, said Jonathan Grella, executive vice president of public
affairs for the trade group,
which supports growth in
flights to the U.S. and the attendant tourism and economic
activity it brings.
Mr. Grella said it is hard to
know if informal talks with the
U.A.E. and Qatar will lead to
anything. He said the State Departments approach is the

least of the token gestures that

could be tossed at the big
three U.S. carriers.
Those carriers, who are supported in their position by several airline labor unions, were
heartened by the State Departments disclosure last Friday in
a meeting that it plans to talk
to the Persian Gulf states, according to people familiar with
their thinking. The Friday
meeting was earlier reported
by Politico.
Talks with the U.A.E. are
planned for July 18 and 19 and
with Qatar on July 25. Our
perspective is this is a good
development, said one person
with knowledge of the thinking
of the largest U.S. carriers.
Were pleased. The government focused on this issue and
theyre taking an action.
On the other hand, this person added, the talks with the
Gulf states seem kind of openended. But this isnt a dispute
that can be resolved in court,
said another person. Weve always known this is a diplomatic process.

Tata Communications of India said Tuesday that it has

agreed to sell its South African
unit Neotel to closely held Liquid Telecom and investment
group Royal Bafokeng Holdings
for about $428 million.
As part of the deal, Royal Bafokeng will get a 30% stake in
Neotel, one of the largest telecommunications operators in
South Africa, Tata Communications said.
The deal needs regulatory approval and is expected to be
completed this financial year,
Tata Communications said.
Earlier this year, Vodacom, a
unit of Vodafone Group,
dropped its plan to buy Neotel.
Tata Communications said in
March that the deal failed because of regulatory complexities
and certain conditions not being
fulfilled.
Debiprasad Nayak
ELECTROLUX

Appliance Company
Buys Cabinet Maker

Swedish household-appliance
maker Electrolux AB said it has
agreed to acquire Vintec, an
Australia- and Singapore-based

SIEMENS

Startups to Receive
$1.1 Billion Infusion

Siemens AG plans to invest

1 billion ($1.1 billion) into startups over five years via a new entity aimed at staying on the edge
of technological developments
and fending off possible competition from new companies.
The entity is set to take off
on Oct. 1 and would pool the
German engineering groups
startup activities, said Siemens
executive board member Siegfried Russwurm, who will temporarily head next47, as it will
be called.
The first project would be the
development of an electric plane
with Airbus Group SE, Siemens
said Tuesday.
The companies want to demonstrate by 2020 the technical
feasibility of hybrid-electric propulsion systems for small planes
to midsize passenger aircraft.
The name next47 is a reference to Siemenss founding year,
1847.
Archibald Preuschat

SCOTT OLSON/GETTY IMAGES

ASHRAF MOHAMMAD/REUTERS

Telecom Firm Sells

South Africa Unit

company that supplies climatecontrolled wine cabinets in the

Asia Pacific region.
The value of the acquisition
wasnt disclosed.
Vintec sells products under
the brand names Vintec and Transtherm for residential and professional customers. The company has annual revenue of
more than A$22 million, or over
US$16 million, with about twothirds of its sales coming from
Australia, Electrolux said.
Dominic Chopping

Appliances firm Electrolux is buying wine-cabinets supplier Vintec.

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INTERCONTINENTAL HONG KONG
www.hongkong-ic.intercontinental.com
ISLAND SHANGRI-LA HONG KONG
www.shangri-la.com
JW MARRIOTT HOTEL
www.marriott.com/hkgdt
KOWLOON SHANGRI-LA HONG KONG
www.shangri-la.com
LANGHAM HOTEL HONG KONG
www.hongkong.langhamhotels.com
MANDARIN ORIENTAL HOTEL
www.mandarinoriental.com
SHERATON HONG KONG HOTEL & TOWERS
www.starwoodhotels.com
THE EXCELSIOR HONG KONG
www.excelsiorhongkong.com
THE LANDMARK MANDARIN ORIENTAL HOTEL
www.mandarinoriental.com/landmark
THE RITZ CARLTON HONG KONG
www.ritzcarlton.com/HongKong
THE UPPER HOUSE HOTEL
www.upperhouse.com

INDONESIA
JAKARTA
THE RITZ-CARLTON JAKARTA, PACIFIC PLACE
www.ritzcarlton.com
GRAND HYATT JAKARTA
www.jakarta.grand.hyatt.com
HOTEL BOROBUDUR JAKARTA
www.hotelborobudur.com
HOTEL INTER-CONTINENTAL MID PLAZA
JAKARTA
www.intercontinental.com
LE MERIDIEN JAKARTA
www.starwoodhotels.com
DHARMAWANGSA HOTEL
www.the-dharmawangsa.com
THE ASCOTT JAKARTA
www.the-ascott.com

THE RITZ-CARLTON, JAKARTA

www.ritzcarlton.com
HOTEL MULIA, SENAYAN
www.hotelmulia.com
CROWNE PLAZA HOTELS - RESORTS JAKARTA
www.crowneplaza.com
SHANGRI-LA JAKARTA
www.shangri-la.com
JW MARRIOTT JAKARTA
www.marriott.com

JAPAN
TOKYO
THE PRINCE PARK TOWER TOKYO
www.princehotels.co.jp/parktower
COURTYARD BY MARRIOTT TOKYO GINZA
HOTEL
www.marriott.com/hotels/travel/
tyocy-courtyard-tokyo-ginza-hotel
PALACE HOTEL
www.palacehoteltokyo.com
HOTEL CHINZANSO TOKYO
hotel-chinzanso-tokyo.jp
THE STRINGS BY INTERCONTINENTAL TOKYO
www.intercontinental-strings.jp
ROYAL PARK HOTEL
www.rph.co.jp/index.html
HOTEL OKURA
www.hotelokura.co.jp/tokyo
THE WESTIN TOKYO
www.westin-tokyo.co.jp
PARK HYATT TOKYO
www.tokyo.park.hyatt.com
IMPERIAL HOTEL TOKYO
www.imperialhotel.co.jp
GRAND HYATT TOKYO
www.tokyo.grand.hyatt.com
THE PENINSULA TOKYO
www.peninsula.com
HYATT REGENCY TOKYO
www.hyattregencytokyo.com
TOKYO MARRIOTT HOTEL
www.tokyo-marriott.com

KOREA
CONRAD SEOUL
www.conradseoul.com
GRAND HYATT SEOUL
www.grandhyattseoul.co.kr
GRAND INTERCONTINENTAL SEOUL PARNAS
www.seoul.intercontinental.com
INTERCONTINENTAL SEOUL COEX
www.seoul.intercontinental.com
JW MARRIOTT HOTEL
www.jw-marriott.co.kr
LOTTE HOTEL
www.lottehotel.com
MILLENNIUM SEOUL HILTON
www.hilton.co.kr
PARK HYATT SEOUL
www.seoul.park.hyatt.com
THE PLAZA SEOUL
www.hoteltheplaza.com
THE RITZ-CARLTON SEOUL
www.ritzcarltonseoul.com
THE SHILLA
www.shilla.net
THE WESTIN CHOSUN
www.echosunhotel.com

MALAYSIA
MANDARIN ORIENTAL KUALA LUMPUR
www.mandarinoriental.com
SHANGRI-LA HOTEL KUALA LUMPUR
www.shangri-la.com
SAMA-SAMA KUALA LUMPUR INTERNATIONAL
AIRPORT
www.samasamahotels.com

SINGAPORE
THE FULLERTON HOTEL SINGAPORE
www.fullertonhotel.com
THE FULLERTON BAY HOTEL SINGAPORE
www.fullertonbayhotel.com
THE RITZ-CARLTON MILLENIA
www.ritzcarlton.com
FAIRMONT SINGAPORE
www.fairmont.com/singapore
SHANGRI-LA HOTEL
www.shangri-la.com
GRAND HYATT SINGAPORE
singapore.grand.hyatt.com

For more information about this program, please email to customer services at
service@wsj-asia.com or visit www.wsj-asia.com to subscribe.
2016 Dow Jones & Co., Inc. All rights reserved.

P2HW181000-0-B00700-1--------AL

MARKETS DIGEST B10 | HEARD ON THE STREET B12

Feds Market Mover

Keeps Changing Mind

Singapore Wealth Fund

Negotiating U.S. Deal

CENTRAL BANKS | B9

THE PROPERTY REPORT | B8

THE WALL STREET JOURNAL.

2016 Dow Jones & Company. All Rights Reserved.

As of 12 p.m. ET

EUR/GBP 0.8310 g 0.34%

YEN/DLR 102.75 0.74% GOLD 1314.80 g 0.58%

Wednesday, June 29, 2016 | B7

OIL 47.30 2.09%

3-MONTH LIBOR 0.63110%

10-YR TREAS 1/32 yield 1.458%

Ailing
Online
Lender to
Cut Staff

European
Markets
Bounce Up
BY CHRISTOPHER WHITTALL

BY PETER RUDEGEAIR
AND AUSTEN HUFFORD

BY VIPAL MONGA
AND TATYANA SHUMSKY

The U.K.s decision to leave

the European Union means
years of uncertainty for bankers and investorsand years
of extra work for lawyers.
Members of the bar and their
colleagues at accounting and
consulting firms are shaping up
as the big winners after the U.K.
vote, which promises a timeconsuming overhaul of treaties,
contracts and regulations.
The London office of Davis
Polk & Wardwell LLP was
buzzing with calls Friday, as
clients with operations in the
region grappled with the potential implications, said
Thomas Reid, the firms New
York-based managing partner.
There will be plenty of clients, as weve found out, who
want to understand what could
change, Mr. Reid said.
Untangling the complex relationship between the U.K.
and the remaining 27 coun-

Traders work in the volatility options pit at the Chicago Board Options Exchange. The volatility index hit a four-month high Monday.

Profiting From Volatility

BY BEN EISEN

The havoc unleashed by

Britains vote to leave the European Union has benefited
some investors: volatility traders.
The U.S. stock markets
swoon Friday and Monday, after Thursdays Brexit vote,
sent the CBOE Volatility Index,
or VIX, to a four-month high.
Who knows if its going to
keep going? said Henry Haupt
of Cooper City, Fla., who works
in waste management, runs an
investing newsletter and
trades investments tied to the
VIX.
He said he bought shares of
one exchange-traded fund
based on volatility on Thursday and sold them on Monday.
You never know if you are going to wake up and the futures
are going to be down substantially, Mr. Haupt said.
The Brexit-generated burst
of market action tops a strong
month for trading the VIX,
which is known as Wall
Streets fear index.
ProShares Trust Ultra VIX
Short-Term Futures exchange-traded fund, known
by the ticker UVXY, was up
36% this month through Monday. The VelocityShares Daily
2x VIX Short-Term exchangetraded note, which, like UVXY,
seeks to track twice the change
in an index of VIX futures con-

Swing Trade

Volatillity-linked ETFs have been gathering more assets.

$6 billion

$5.28B

5
4
3
2
1
0
2015

16

Note: Weekly data, through June 15, on 21 exchange-traded products

Source: Morningstar

tracts, was up 34%.

Assets in 21 exchangetraded products linked to VIX
futures rose to a record $5.28
billion for the week ended
June 15, though they fell to
$4.69 billion in the following
week, according to Morningstar.
The strong performance
comes as periodic stock swings
are returning to markets after
near-zero interest rates for
years helped suppress volatility. The recent jump in the VIX
is the third such bout of activity in the past year after Chinese growth concerns roiled

THE WALL STREET JOURNAL.

markets last August and U.S.

recession fears led to a stock
selloff in the beginning of the
year.
Volatility products arent
the only investments rising in
the wake of the Brexit vote.
The prices of developed-market government debt and gold,
which investors tend to buy
when they seek safety, have
been among the best-performing assets as stocks have
fallen. On Monday, the VIX
reached its highest level since
February before ending 7.4%
lower on the day.
VIX products have an un-

usual construction. These and

other products based on the
trading of futures contracts,
such as for oil and natural gas,
can have costs that over time
erode profits.
The issue concerns the buying and selling of futures contracts, which are agreements
to buy or sell an asset at a
later date.
In the market for futures
tied to the VIX, nearer-term
contracts are usually cheaper
than the ones expiring a
month later because investors
often expect volatility to climb
from current levels. Products
that track the futures may
need to sell cheaper frontmonth contracts and buy more
expensive second-month contracts. The erosion of value
can hurt the performance of
exchange-traded products that
seek to follow indexes of the
futures contracts.
If people invest short term,
namely a few days at a time,
the costs typically wont accumulate fast enough to significantly dent returns.
The problem arises for investors who want to make longer-term bets that use futures
contracts, because costs add
up over time as contracts are
rolled from one month to the
next.
Retail investors, especially
those moms and pops who dePlease see VIX page B12

Brexit Could Slow M&A

BY ALEC MACFARLANE
AND KANE WU
FRANK AUGSTEIN/ASSOCIATED PRESS

U.K. Vote
Is Boon for
Lawyers

TANNEN MAURY/EUROPEAN PRESSPHOTO AGENCY

Online lender LendingClub

Corp. said Tuesday that it is
cutting up to 12% of its work
force in response to more
muted investor demand for its
loans and that it had discovered additional issues related
to its former chief executive
officer.
Several money managers
slowed purchases of LendingClub loans following the surprise ouster of then-Chief Executive Renaud Laplanche in
early May after the companys
board discovered that he
failed to report errors related
to a sale of loans as well as a
personal investment. As a result, LendingClub said it expected second-quarter loan
volume to be around one-third
less than the $2.75 billion it
reported in the first three
months of 2016.
Meanwhile, the company
said an ongoing review of
LendingClubs business practices found that in the companys early days, Mr.
Laplanche and family members
borrowed
around
$722,800 in what the company
characterized as an attempt to
inflate monthly loan volume.
LendingClub
generated
$25,000 in revenue off these
32 loans, which were taken
out in December 2009, the
company said. All but three
were repaid in full by February 2010.
A spokesman for Mr.
Laplanche declined to comment on Tuesday. Last month,
the former lawyer and entrepreneur said that, while there
are disagreements as to the
characterization of facts that
led to his exit, events occurred on my watch where we
failed to meet our high standards.
The company also said the
review uncovered that a family
of funds controlled by a LendingClub subsidiary that invests
in its loans didnt follow accounting standards when valuing the funds assets. It will
reimburse its limited partners
affected by the adjustments
around $800,000.
LendingClub also said that
Scott Sanborn, who assumed
the role of acting chief executive after Mr. Laplanches exit,
will become the companys
Please see CEO page B12

Financial markets showed

signs of stabilizing Tuesday
following sharp declines in
global equities and the British
pound after the U.K. voted to
leave the European Union last
week.
The Dow Jones Industrial
Average gained 156 points, or
0.9%, to 17296 by late morning. The S&P 500 added 1.1%,
and the Nasdaq Composite
rose 1.6%. The gains follow
two days of losses that wiped
out $3 trillion from global
stock markets.
The Stoxx Europe 600 rose
2.6%, having tumbled nearly
11% over the previous two
trading sessions. Financial
stocks led the gains in Europe
after two days of big losses.
The pound rose 1.1% against
the dollar to $1.338, though it
remained near a three-decade
low reached Monday after a
steep selloff following the
vote.
Everyones dipping their
toe back into the water. After
you see two drastic days as
you did, people start saying
its time to buy, said Frank
Ingarra, head trader at NorthCoast Asset Management.
Even as the stock market leveled off, he added that the
rhetoric around the U.K.s departure from the European
Union is likely to create more
volatility in the coming weeks
and months.
Volatility is here to stay,
but I think well find some
buying opportunities in this
more-volatile period, he said.
Investors continued to
weigh the ramifications of
Britains unexpected referendum result for the global
economy and European politics as U.K. Prime Minister David Cameron traveled to Brussels on Tuesday to discuss the
so-called Brexit with EU leaders.
In the U.S., the Commerce
Department said the economy
expanded more than previously thought in the first
three months of the year.
Gross domestic product, the
broadest measure of goods
and services produced across
the U.S., grew at a seasonally
adjusted annual rate of 1.1% in
the period, the weakest pace
in a year, while the agency
previously estimated the economy grew at a 0.8% pace.
After two sessions of heady
gains, demand for havens
eased Tuesday. Gold fell 0.6%
Please see STOCKS page B11

The vote promises an overhaul of contracts and regulations.

tries in the EU will be an unprecedented exercise. The
move will demand a re-examination of everything from intellectual property and trademarks to competition rules,
data protection and labor.
Then there will be the lineby-line reworking of the regulatory framework for the financial sector. Banking laws
applied directly from Brussels
could fall away, requiring substitutes to be written and debated in the U.K. British financial regulations may need to be
amended to remove their dependence on EU banking or securities watchdogs.
The effort could be as all-

encompassing as the one that

followed the introduction of
the Sarbanes-Oxley Act in
2002, said Fiona Czerniawska,
co-founder of Source Global
Research. That rewriting of
laws on accounting, corporate
governance and financial reporting led to tens of billions
of dollars in compliance and
consulting fees.
Banks and companies may
cringe at reliving that enormous
headache. But it may be the fullemployment act for lawyers, accountants and consultants.
In the short term, professional-service firms will earn a
great deal of money through
Please see LAW page B12

Britains vote last week to

leave the European Union
could slow what has been a record surge in acquisitions of
European companies by Asian
buyers.
Bankers and lawyers say
they expect Asian bidders to
take a wait-and-see approach
to acquisitions in the coming
weeks, while some deals in the
works could get delayed.
Britains vote to exit the EU,
dubbed Brexit, raises uncertainty over how the country
will free itself from trade relationships, immigration rules
and other policy ties with the
bloc. That could complicate
the efforts of Mumbai-based
Tata Steel Ltd. to sell its British operations, analysts say.
Fragile financial markets and
potential political fallout in
Europe could affect Asian bids
for companies in other parts
of Europe as well, bankers
warn.
Deal making in the U.K. has
already slowed this year, pressured by economic headwinds,
high price tags for assets and

Cooling Appetite

Asian buyers appetite for U.K.

assets has cooled this year and
could be further curbed after the
Brexit vote.
$25 billion
20
15
10
5
0
2010 11 12 13 14 15 16*
*2016 data through June 27
Source: Dealogic

THE WALL STREET JOURNAL.

uncertainty over the referendum on EU membership, according to bankers and lawyers. The volume of U.K.targeted M&A deals has fallen
more than 64% so far in 2016
from the same period last
year, according to Dealogic.
Still, other deal watchers
say lower stock prices and a
cheaper British pound, which

has declined 10% versus the

U.S. dollar since the Brexit
vote, could make U.K. assets
more attractive for Asias
more aggressive bidders.
Chinese buyers desire to
invest money outside of China
will remain strong, said Alison Harding-Jones, head of
M&A at UBS Group AG for
Asia-Pacific. They will potentially, when the clouds lift, see
this as a buying opportunity.
The question of how Brexit
will affect Asian buyers appetite for European assets is an
important one for the EU and
U.K. economies. M&A activity
by Asian buyers in Europe ballooned this year in the run-up
to the referendum, with Asian
buyers snapping up 298 European companies valued at a
record $102.3 billion, a 68%
increase from the same period
in 2015, according to Dealogic.
Chinese buyers have been the
most active and account for
21.8% of European acquisitions
during the period.
Brexit proponents have argued that investment in Britain will ultimately benefit
from an ability to negotiate inPlease see DEALS page B12

P2HW181000-0-B00800-1--------AL

THE WALL STREET JOURNAL.

B8 | Wednesday, June 29, 2016

THE PROPERTY REPORT

GIC in Talks on U.S. Deal

Singapore fund looks

to acquire owner of
manufactured-home
communities

BY WEI GU, ESTHER FUNG AND

DOMINIQUE FONG

GREG SORBER/ALBUQUERQUE JOURNAL/ZUMA PRESS

BY PETER GRANT
Singapores
sovereignwealth fund is negotiating to
acquire Yes Communities, an
owner of manufactured housing, in a deal that would value
Yes at more than $2 billion,
according to people familiar
with the matter.
GIC is in talks to buy Denver-based Yes from private-equity firm Stockbridge Capital
Group, the people said. Yes
owns or operates 178 manufactured-housing communities in
17 U.S. states, according to the
companys website.
The deal hasnt been finalized, and the talks still could
break down, the people said.
If completed, the deal
would highlight the appeal of
manufactured housing, a niche
residential real-estate business
that has been stigmatizedto
an extreme, according to some
investorsby its association
with trailer parks. While some
communities resemble trailer
parks, most consist of prefabricated housing units that are
set in place but many have
wheeled chassis that make
them transportable.
Gary McDaniel, chief executive of Yes Communities, declined to comment. Executives
with GIC and Stockbridge
didnt return calls seeking
comment.
Portfolios of manufacturedhousing communities have
never been as attractive to big
investors as office buildings or
regional shopping malls. But
the asset class is beginning to
gain more attention as investors increasingly look to find
sources of higher yield in a
world of low interest rates.

Chinese Buyers
Look to London

A manufactured home on an assembly line. Manufactured-home communities have drawn investors.

If GICs purchase of Yes
goes through at the price being negotiated, GIC would get
an initial yield from the company of slightly more than 6%,
people familiar with the matter said. Investors who are
buying trophy properties in
top markets today generally
are getting less than a 5% return.
Other recent deals in the
sector include the sale of
Carefree Communities Inc.
earlier this year by private-equity firm Centerbridge Capital
Partners for $1.68 billion to
Sun Communities Inc.
NorthStar Realty Finance
Corp. last month agreed to sell
its 135 manufactured-housing
communities to a property
fund managed by Brookfield
Asset Management Inc. in a
deal valued at $2.04 billion.
Centerbridge spent more
than $1 billion to buy and expand Carefree starting in 2013,
according to people familiar

with the matter. At the time of

the Sun deal, Carefree owned
103 manufactured-housing and
recreational-vehicle communities with 27,554 total sites.
The combined company will
have 337 communities with
about 117,000 developed sites.
Demand among investors
for
manufactured-housing
communities has been increasing partly because supply constraints keep a damper on
competition. Local governments are reluctant to give
new communities permits because of the stigma attached
to them and because they
dont produce as much as
other types of real-estate development in property taxes.
Meanwhile, residents tend
to stay in manufactured-housing communities for a long
time. And costs are limited,
especially in the communities
in which the owner simply
rents pads and leaves upkeep
of the homes to the renter.

Well-capitalized privateequity and publicly traded

REITs are eager to acquire
these properties, invest capital
on cosmetic or deferred maintenance items, and realize improved performance [of] the
properties typically within the
first two years of ownership,
Paul Adornato, an analyst with
BMO Capital Markets, said in
an email.
Investors from Singapore
have had a growing appetite
for U.S. real estate in recent
years. For example, the Kwee
family is helping finance a
Jean Nouvel-designed luxury
condominium rising next to
Manhattans Museum of Modern Art.
GIC has been especially active. In late 2014, for instance,
the sovereign-wealth fund cut
a deal to acquire IndCor Properties, one of the largest owners of industrial space in the
U.S., from Blackstone Group LP
for $8.1 billion.

As turmoil continues to
grip U.K. markets, some in
China are starting to look at
the British market for potential bargains.
Zhu Mei, a wealthy investor
from Shenzhen in the countrys southeast, has been looking to buy a home in Japan for
a while. But after Fridays surprise referendum result sent
the pound plunging and the
yena haven currencysoaring, she is having second
thoughts.
Buying in London seems to
be a better opportunity now,
said Ms. Zhu.
If people like Ms. Zhu now
start looking at the U.K. property market, it will represent a
turnaround from the trend so
far this year. Foreign interest
in British real estate has been
declining thanks mainly, analysts say, to the uncertainty
surrounding the referendum
as well as already-high property prices.
A combination of the referendum and pricing have
started to weigh on volume,
said David Green-Morgan, research director at Jones Long
LaSalle Global Capital Markets.
London house prices rose
by 14.5% year on year in April,
taking the average home value
to 470,025 ($621,640), according to the U.K.s Land Registry.
Yet the pounds drop since
Fridayit was near a threedecade low against the dollar
on Tuesday despite a small reboundcould now encourage
bargain-hunters.
The number of so-called
leads from Chinese homeseekers for U.K. properties last
week doubled from the week

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Foreign investment into London's

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$9.2 billion

China
Qatar
Taiwan
Singapore

5.8
3.3
2.9
2.6

Source: Jones Lang LaSalle

THE WALL STREET JOURNAL.

before, according to Juwai.com, a real-estate website

that allows Chinese buyers to
browse residential and commercial properties around the
world. Leads indicate that a
buyer was interested enough
in a property to contact a realestate agent or developer.
One Juwai.com listing popular among Chinese buyers is
a three-bedroomcondo in Londons Canary Wharf financial
district. Listed for 899,950,
since last Thursday it has become more than 10% cheaper
in yuan terms thanks to the
weaker pound.
Chinese companies already
are significant buyers of office
space in the U.K. From the
start of 2014 to the first quarter of 2016, Chinese entities
ranked behind only buyers
from the U.S. in terms of acquisitions of London commercial property, with a total
transaction value of $5.8 billion, according to JLL.
China Vanke Co., the nations biggest developer of residential property, which has
invested in London since 2015,
said on Friday it is still positive about the citys prospects.

P2HW181000-0-B00900-1--------AL

THE WALL STREET JOURNAL.

Wednesday, June 29, 2016 | B9

MONEY & INVESTING

BY MICHAEL S. DERBY

In a world of hawks and

doves, U.S. central banker
James Bullard has made it
quite clear which one he is.
And then, on a number of occasions, he has made it equally
evident that he is the other.
The president of the Federal
Reserve Bank of St. Louis has
developed an unrivaled reputation for changing his mind on
the central question of
whether the Fed should raise
interest rates. He surprised
markets again by declaring on
June 17 that he now favors
raising the Feds benchmark interest rate just once this year,
by a quarter of a percentage
point, then holding it steady
through 2018.
Those comments, which
made him the single most dovish voting member of the Fed,
came just weeks after he told
audiences in Asia that he saw
more reasons to gradually
raise interest rates over the
next several years than to hold
them steady.
Mr. Bullards abrupt shifts
echo the Feds own challenges
as it haltingly pursues its first
rate-raising campaign in a decade. But they also have puzzled the investors and analysts

who scrutinize central bankers

remarks and have marked Mr.
Bullard as a flip-flopper.
He has picked up that reputation, somewhat deservedly,
said Tim Duy, an economics
professor at the University of
Oregon.
In an interview, Mr. Bullard
acknowledged a willingness to
change his mind. Id like to
think Im data dependent, he
said.
The Fed veteran said he has
a strong interest in the often
volatile way markets assess the
future of inflation, which he
said can lead him to change his
views on the interest-rate outlook more quickly than his colleagues do.
A lot of times Im asked
about very short-term things
like about the upcoming meeting and what do I think about
the most recent data, and Ill
give my opinion, he said. He
added his longer-term views
tend to change much more
slowly.
That openness to weighing
in has made Mr. Bullard one of
the U.S. central-bank officials
most likely to move markets.
Research firm Macroeconomic
Advisers, which has done an
annual survey, said last year
that only Chairwoman Janet

Yellen had a bigger impact on

bond yields.
On the other hand, Mr. Bullards fast-changing positions
have cost him influence among
his colleagues, some within the
Fed said.
Some academics said officials need to hone a message
that can be broadly understood.
Perception does matter,
said Peter Ireland, a Boston
College economics professor.
Someone could say theyre
misinterpreted or misquoted
or the audience is not looking
closely enough at the details.
But in a policy-making environment, the headlines matter.
Mr. Bullard earned his doctorate in economics from Indiana University, joined the St.
Louis Fed in 1990 and has led
the institution since 2008.
The Minnesota native is
known for an academic style
and a tendency to publicly
weigh complicated and even
speculative ideas that can be
hard to communicate clearly.
One memorable episode
came in October 2014. As the
Fed edged toward ending its
bond-buying program, Mr. Bullard unexpectedly suggested it
should be extended for longer,
helping drive stocks higher.
Then, after the Fed said it

CHRIS GOODNEY/BLOOMBERG NEWS

Feds Market Mover

Keeps Shifting Tack

James Bullards changes of opinion have puzzled analysts and investors.

would end the purchases as
planned, he praised the decision and talked up the prospects of raising rates.
Mr. Bullard said in a November 2014 interview that his
stances were driven by the
data and that he felt there
were misinterpretations of his
viewpoint.
As a voting member of the
Feds policy-setting committee
this year, his views attract extra attention.
Mr. Bullard published a research paper on the St. Louis
Feds website on June 17 unveiling a new theory that the
economy had settled into an
extended period of modest
growth, stable unemployment

and low real-world borrowing

costs. In that environment, he
said, one more modest rate
rise is likely to be all that will
be needed.
The position put him at
odds with his peers at the Fed.
Four times a year, the Fed publishes its voting members interest-rate projections via
anonymous dots on a chart.
Mr. Bullard acknowledged that
he was the sole official who
believed that only one rate increase will be needed over the
next two years.
The Fed voters median projection is to raise rates twice
this year and keep lifting them
gradually in 2017 and 2018.
Progress has been halting,

however, as officials wrestle

with volatile markets and the
limited effects of their policies.
Officials raised the prospect of
a summer rate increase in repeated comments this spring,
only to take it off the table at
their last meeting this month
following a weak May jobs report.
Some analysts said Mr. Bullards new stance reflects a
larger struggle by Fed officials
to understand, and explain,
why economic growth hasnt
taken off and inflation remains
too low despite aggressive
stimulus efforts.
As they are groping
around, Mr. Duy said, you are
getting this mixed message.

HITOSHI YAMADA/NURPHOTOZUMA PRESS

Line Sets Range for IPO in Tokyo, New York

BY ALEC MACFARLANE
AND ALEXANDER MARTIN

A Line character in Tokyo.

TOKYOJapanese messaging-app operator Line Corp.

said it had set its price range
for an initial public offering in
Tokyo and New York next
month at 2,700 to 3,200
($26.47 to $31.37) a share.
This sets the stage for an

IPO that could raise as much as

112 billion ($1.1 billion), making it the biggest technology
listing so far this year.
Line is offering 13 million
new shares to the public in
Japan on July 15, and an additional 22 million new shares in
New York on July 14. A further
5.25 million shares could be
sold through a green-shoe

option. Such a clause allows for

the issuance of additional
shares if there is exceptional
demand.
At the top end of the price
range, the offering could be
valued at as much as 129
billion, if all additional shares
are sold. The range gives Line
a valuation of 20 to 24 times
earnings, a person familiar

ADVERTISEMENT

Business Real Estate & Auctions

AUSTRALIA

with the matter said.

In setting its price range,
Line cited investors evaluating
the companys monetization efforts in Japan, Thailand and
Taiwan, where it holds top
market shares, and steady user
growth in Indonesia. The company also said investors expected future growth from new
services, while acknowledging

the intense competition Line

faced in different markets. Line
also considered other factors,
including the market environment and recent IPOs.
Owned by South Korean internet company Naver Corp.,
Line currently boasts 218 million monthly active users and
operates Japans most popular
mobile messaging app.

P2HW181000-0-B01000-1--------AL

THE WALL STREET JOURNAL.

B10 | Wednesday, June 29, 2016

MARKETS DIGEST
Nikkei 225 Index

STOXX 600 Index

S&P 500 Index

Year-to-date
15323.14 s 13.93, or 0.09%
t 19.49%
52-wk high/low20841.97 14952.02
High, low, open and close for each
trading day of the past three months. All-time high 38915.87 12/29/89

316.70 s 7.95, or 2.57%

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

DOWN
Session open

Close

Last

2022.64 s 22.10, or 1.10%

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

Year-to-date
t 13.43%
52-wk high/low 406.80 303.58
All-time high
414.06 4/15/15

Year ago

Trailing P/E ratio * 24.22 21.52

P/E estimate *
17.93 17.81
Dividend yield
2.17
2.00
All-time high: 2130.82, 05/21/15

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

Session high

65-day moving average

Data as of 12 p.m. New York time

UP 17500
Close
Open

360

2160

350

2120

16500

340

2080

16000

330

2040

15500

320

2000

15000

310

65-day moving average

17000

Session low

65-day moving average

1960

Bars measure the point change from session's open

Mar.

Apr.

May

14500

June

Apr.

International Stock Indexes

Region/Country Index

World

The Global Dow

MSCI EAFE
MSCI EM USD

Close

2223.75
1545.88
805.85

25.84
24.94
11.29

1.18
1.64
1.42

2033.03
1471.88
691.21

5.59
706.11
151.67
510.59
18.55

1.16
1.43
1.11
1.15

433.38
37046.07
11531.22
39256.58
2730.24

% chg

Low

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

486.42
49951.64
13841.46
44792.62
3071.74

U.S.

DJIA
Nasdaq Composite
S&P 500
CBOE Volatility

17289.91 149.67
4664.43 69.99
2021.89 21.35
19.82 4.03 16.90

0.87
1.52
1.07

15370.33
4209.76
1810.10
10.88

Stoxx Europe 600

Stoxx Europe 50
France
CAC 40
Germany
DAX
Israel
Tel Aviv
Italy
FTSE MIB
Netherlands AEX
Russia
RTS Index
Spain
IBEX 35
Switzerland Swiss Market
South Africa Johannesburg All Share
Turkey
BIST 100
U.K.
FTSE 100

316.70
7.95
2700.18 63.47
4088.85 104.13
9447.28 178.62
1392.25
9.91
15601.62 498.04
417.51
5.89
905.36 16.58
7835.00 189.50
7773.80 179.31
51141.14 1054.46
76929.34 1768.10
6140.39 158.19

2.57
2.41
2.61
1.93
0.72
3.30
1.43
1.87
2.48
2.36
2.11
2.35
2.64

303.58
2556.96
3892.46
8699.29
1378.80
15017.42
378.53
607.14
7579.80
7425.05
45975.78
68230.47
5499.51

Asia-Pacific
Australia
China
Hong Kong
India
Indonesia
Japan
Malaysia
New Zealand
Pakistan
Philippines
Singapore
South Korea
Taiwan
Thailand

1330.24
5103.30
2912.56
20172.46
26524.55
4882.17
15323.14
1634.04
6716.58
37076.63
7666.69
2756.53
1936.22
8505.51
1437.42

DJ Asia-Pacific TSM
S&P/ASX 200
Shanghai Composite
Hang Seng
S&P BSE Sensex
Jakarta Composite
Nikkei Stock Avg
Kuala Lumpur Composite
S&P/NZX 50
KSE 100
PSEi
Straits Times
Kospi
Weighted
SET

0.60

0.58
0.27
0.46
0.95
0.09
0.28
0.44
0.10
0.64
0.98
0.49
0.55
0.92

1532.30 4.3
5706.70 3.6
4277.22 17.7
26282.32 7.9
28504.93 1.6
4982.91 6.3
20841.97 19.5
1744.19 3.5
7039.41 6.2
38776.94 13.0
7767.23 10.3
3373.48 4.4
2107.33 1.3
9379.24 2.0
1504.55 11.6

Commodities

15%

Europe

10

WSJ Dollar index

s

sYen

0
s Euro

5
10
2015

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

Country/currency

Americas

Argentina peso-a
0.0668 14.9630 15.6
Brazil real
0.3020 3.3112 16.4
Canada dollar
0.7630 1.3106 5.3
Chile peso
0.001497 668.20 5.7
Colombia peso
0.0003286 3042.93 4.1
Ecuador US dollar-f
1
1 unch
Mexico peso-a
0.0529 18.9054 9.9
Peru sol
0.3035 3.2950 3.5
Uruguay peso-e
0.0323 31.000 3.6
Venezuela bolivar 0.100150
9.99 58.4

Asia-Pacific

Australia dollar
China yuan

0.7351 1.3604 0.9

0.1504 6.6474 2.4

Key Rates

Latest

52 wks ago

Libor
One month
Three month
Six month
One year

0.46030%
0.63110
0.89815
1.20475

0.18650%
0.28320
0.44485
0.77150

Euro Libor
One month
Three month
Six month
One year

-0.35886%
-0.29000
-0.18186
-0.05657

-0.08071%
-0.01214
0.05786
0.16929

Euribor
One month
Three month
Six month
One year

-0.36100%
-0.28100
-0.17600
-0.04900

-0.06400%
-0.01400
0.05000
0.16400

-0.06471%
-0.02964
-0.01421
0.06900
Offer

0.05857%
0.09929
0.13929
0.24257
Bid

0.5000%
0.6500
1.0000
1.3000
Latest

0.4000%
0.5500
0.9000
1.2000
52 wks ago

3.50%
2.70
1.475
5.00

3.25%
2.85
1.475
5.00

0.00%
0.50
0.50
1.75
1.00
0.25
2.25

0.05%
0.50
0.50
2.00
0.75
0.00
2.00

Yen Libor
One month
Three month
Six month
One year
Eurodollars
One month
Three month
Six month
One year
Prime rates
U.S.
Canada
Japan
Hong Kong
Policy rates
ECB
Britain
Switzerland
Australia
U.S. discount
Fed-funds target
Call money

Overnight repurchase rates

U.S.
0.54%
Euro zone
n.a.

0.14%
n.a.

Sources: WSJ Market Data Group, SIX

Financial Information, Tullett

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

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

0.1289
0.0147
0.0000758
0.009732
0.002950
0.1252
0.2463
0.7026
0.0096
0.0212
0.7375
0.0008546
0.0067700
0.03085
0.02836

7.7590 0.1
67.8652 2.5
13189 4.7
102.75 14.6
339.01 0.1
7.9904 0.2
4.0600 5.6
1.4233 2.7
104.650 0.2
47.118 0.6
1.3559 4.4
1170.11 0.5
147.71 2.4
32.418 1.5
35.260 2.1

Bulgaria lev
0.5649 1.7702 1.7
Croatia kuna
0.1470 6.801 3.0
Euro zone euro
1.1053 0.9048 1.7
Czech Rep. koruna-b 0.0408 24.540 1.4
Denmark krone
0.1486 6.7307 2.1
Hungary forint
0.003485 286.95 1.2
Iceland krona
0.008062 124.04 4.7
Norway krone
0.1174 8.5180 3.7
Poland zloty
0.2496 4.0061 2.1
Russia ruble-d
0.01546 64.667 10.1
Sweden krona
0.1171 8.5405 1.1
Switzerland franc
1.0183 0.9820 2.0
Turkey lira
0.3450 2.8983 0.7
Ukraine hryvnia
0.0402 24.8815 3.7
U.K. pound
1.3300 0.7519 10.8
2.6508
0.1126
0.2580
3.3121
2.5969
0.2747
0.2666
0.0657

HK$

AU$
AU$
HK$
HK$
HK$

HK$
HK$
HK$
AU$

TW$

KRW
HK$

AU$

HK$
HK$
$
AU$
KRW

HK$
TW$

Sym

Last

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

44.45
1610.00
23.29
18.03
2.97
82.00
9.17
2861.00
18020
4.95
16.28
85.50
73.10
9313.00
15915
410.50
82.50
2523.50
139000
4.41
4147.00
3074.00
1728.00
448.70
1184.50
146.50
2742.50
24.63
1861.00
4784.00
909.40
352.30
853.20
5.06
33.35
28.35
44.20
1399000
4381.00
5668.00
2869.50
88.05
157.00

-0.11
0.94
0.09
-0.28
-1.33
-1.80
-0.11
-0.37
-0.39
...
-0.25
...
0.41
0.22
1.53
-2.08
0.61
-0.14
-1.77
...
1.82
1.02
-0.23
-1.58
-0.50
-1.88
0.37
0.49
0.81
1.36
-1.14
-1.67
-1.59
-0.78
...
0.89
0.29
0.07
0.69
0.23
-1.56
-0.79
0.96

100.2
63.7
-115.0
-123.8
-109.6
-113.0
-124.6
-154.5
-58.3
-1.0
-88.8
-163.7
-117.9
-139.2
-0.4
185.1
-62.4
1.8
-125.6
-106.4
-44.3
-49.8
...

71.4
41.8
-141.7
-148.2
-135.0
-137.3
-141.7
-170.8
-95.8
-49.0
-115.3
-196.8
-144.5
-162.5
-70.7
118.0
-100.0
-35.5
-133.8
-108.0
-45.1
-41.3
...

134.1
59.3
-85.1
-115.9
-87.3
-118.3
-89.5
-154.8
-41.9
-32.2
-71.5
-200.3
-90.1
-131.9
-68.7
22.9
-43.1
-36.4
-96.2
-139.3
15.2
-27.4
...

...

...

...

1.600
2.071
-0.552
0.196
-0.498
0.304
-0.649
-0.111
0.015
1.424
-0.290
-0.203
-0.582
0.042
0.594
3.285
-0.027
1.453
-0.658
0.371
0.155
0.937
0.598
1.434

Year ago

1.628
2.269
-0.502
0.369
-0.435
0.478
-0.503
0.143
-0.043
1.361
-0.238
-0.117
-0.530
0.227
0.208
3.031
-0.086
1.496
-0.424
0.771
0.464
1.438
0.915

2.057
3.068
-0.136
1.316
-0.158
1.292
-0.180
0.926
0.296
2.152
0.001
0.472
-0.185
1.156
0.029
2.704
0.285
2.111
-0.246
1.082
0.868
2.200
0.716

1.851

2.475

12 p.m. New York time

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

395.00
1123.75
461.00
112.975
3,001
141.00
19.94
65.66
1698.00

5.75
19.00
2.75
0.950
15
4.95
0.30
1.28
34.00

2.1765
1318.00
17.880
1,603.00
16,980.00
4,705.00
1,705.00
2,004.50
9,040.00
153.00

0.0510
-6.70
0.094
-7.50
-70.00
34.50
6.00
6.50
85.00
0.20

2376.00
47.24
1.4650
1.5081
2.853
48.63
433.50

-3.00
0.91
0.0233
0.0217
0.112
0.86
9.25

Year
low

1.48%
1.72
0.60
0.85
0.50
3.64
1.53
1.99
2.04

444.00
1,186.25
533.75
125.350
3,241
146.85
20.22
66.64
1,748.00

355.75
868.00
453.25
109.575
2,745
117.15
12.92
54.19
1,400.00

2.40

2.3295
1,362.60
18.420
1,675.00
17,500.00
5,070.50
1,888.00
2,082.00
9,575.00
165.00

1.9690
1,065.70
13.930
1,451.50
13,225.00
4,320.50
1,598.00
1,467.00
7,750.00
147.20

2,707.00
52.28
1.5876
1.6591
2.8650
53.30
472.50

2,351.00
32.22
0.9643
1.1366
1.9900
31.33
285.50

-0.51%
0.53
-0.47
-0.41
0.74
0.35
0.33
0.95
0.13
-0.13
1.96
1.62
1.46
4.09
1.80
2.18

Australia

USD
1.3604

GBP
1.8091

CHF
1.3847

JPY
0.0132

HKD
0.1753

EUR
1.5031

Canada

1.3106

1.7429

1.3344

0.0128

0.1689

Euro

0.9048

1.2033

0.9214

0.0088

0.1166

Hong Kong

7.7590

10.3194

7.8999

0.0755

Japan

87.33 0.15 0.17 3.16

London close on Jun 28

CDN
1.0380

AUD
...

1.4484

...

0.9635

...

0.6903

0.6651

...

8.5751

5.9195

5.7030

102.7500

136.6600

104.6300

...

13.2430

113.5400

78.4000

75.5300

Switzerland

0.9820

1.3062

...

0.0096

0.1266

1.0854

0.7494

0.7222

U.K.

0.7519

...

0.7656

0.0073

0.0969

0.8310

0.5737

0.5527

U.S.

...

1.3300

1.0183

0.0097

0.1289

1.1053

0.7630

0.7351

Source: Tullett Prebon

Sources: Tullett Prebon, WSJ Market Data Group

12 p.m. New York time

% YTD%
Chg Chg

Asia Titans

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

95.6
53.9
-118.4
-132.2
-112.4
-121.5
-126.8
-157.0
-66.7
-13.2
-91.2
-168.7
-122.3
-146.3
-12.6
169.0
-71.1
-12.7
-127.5
-110.0
-42.9
-49.4
...
...

Yield
Month ago

Previous

Cross rates

0.3773 0.04
8.8831 13.5
3.8761 0.4
0.3019 0.5
0.3851 0.03
3.641 0.05
3.7505 0.1
15.2184 1.7

Top Stock Listings

Cur Stock

1.573
1.998
-0.567
0.137
-0.506
0.244
-0.651
-0.111
-0.050
1.327
-0.295
-0.228
-0.606
-0.004
0.492
3.149
-0.094
1.332
-0.658
0.359
0.188
0.965
0.617
1.459

Spread Over Treasurys, in basis points

Previous
Month Ago
Year ago

Sources: SIX Financial Information; WSJ Market Data Group

Close Net Chg % Chg YTD % Chg

WSJ Dollar Index

Latest

Palm oil (MYR/mt) MDEX

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

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

1920

June

Prices of futures contracts with the most open interest

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

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

Country/currency

Yield

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

London close on June 28

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

May

EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.; MDEX: Bursa Malaysia
Derivatives Berhad; TCE: Tokyo Commodity Exchange; COMEX: Commodity Exchange; LME: London Metal Exchange;
NYMEX: New York Mercantile Exchange; ICE-EU: ICE Futures Europe. *Data as of 6/27/2016
Year
One-Day Change
Commodity
Exchange Last price
Net
Percentage
high

Source: SIX Financial Information;WSJ Market Data Group

Currencies

Country/
Maturity, in years

3.250
Australia 2
4.250
10
3.500
Belgium 2
0.800
10
1.000
France 2
0.500
10
0.000
Germany 2
0.500
10
4.500
Italy 2
2.000
10
0.100
Japan 2
0.100
10
0.500 Netherlands 2
0.250
10
4.350
Portugal 2
2.875
10
4.500
Spain 2
1.950
10
4.250
Sweden 2
1.000
10
1.250
U.K. 2
2.000
10
0.625
U.S. 2
1.625
10

406.80 13.4
3541.18 12.9
5217.80 11.8
11802.37 12.1
1728.89 8.9
24157.39 27.2
506.05 5.5
968.03 19.6
11612.60 17.9
9537.90 11.8
54760.91 0.9
86931.34 7.3
6813.41 1.6

Coupon

18167.63 0.8
5231.94 6.8
2132.82 1.1
53.29 8.8

Apr.

Global government bonds

519.17 0.2
54977.70 15.2
14748.00 6.4
46545.32 4.2
3243.62 4.3

High

Mar.

Latest, month-ago and year-ago yields and spreads over or under U.S. Treasurys on benchmark two-year
and 10-year government bonds around the world. Data as of 12 p.m. ET

YTD
% chg

2567.62 4.8
1956.39 9.9
1044.05 1.5

1188.42
4765.30
2655.66
18319.58
22951.83
4120.50
14952.02
1532.14
5546.88
30564.50
6084.28
2532.70
1829.81
7410.34
1224.83

0.14
0.66

1.91
33.90
16.85
54.84
121.59
46.12
13.93
4.52
29.65
37.06
49.21
26.68
9.37
46.64
13.11

52-Week Range
Close

300

June

Data as of 12 p.m. New York time

Latest
NetChg

Americas
Brazil
Canada
Mexico
Chile

EMEA

May

-4.61
-7.02
-16.61
0.95
-14.16
-21.46
13.63
-22.15
-16.57
-6.78
-35.14
-2.29
-14.53
-18.66
-24.50
-40.64
2.10
-35.46
-6.71
-5.77
-7.25
-2.54
-14.79
-40.73
-18.06
-39.84
10.41
-18.44
-22.97
-1.08
-28.93
-48.12
-31.22
-0.59
-22.26
-7.35
-1.14
11.03
-21.06
-7.67
-37.70
-6.08
9.79

% YTD%
Chg Chg Cur Stock

Cur Stock

Sym

Last

HK$

AU$
AU$
AU$

TakedaPharm
TencentHoldings
TokioMarineHldg
ToyotaMtr
Wesfarmers
WestpacBanking
Woolworths

4502
0700
8766
7203
WES
WBC
WOW

4343.00
170.50
3154.00
4975.00
39.36
28.52
20.63

-0.07
-0.23
-1.35
-3.42
0.38
0.49
-0.24

-28.39
11.66
-33.06
-33.56
-5.41
-15.02
-15.80

CHF

CHF
CHF

CHF
CHF
DKK

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

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

18.82
17.20
90.08
124.00
110.25
4273.50
65.81
38.35
391.45
4.85
3.36
131.50
89.14
404.45
4555.50
55.85
10.20
53.68
12.64
14.40
1935.00
13.66
1514.00
443.60
8.81
3777.50
1.62
134.65
54.95
165.35
1024.50
73.45
77.45
347.50
1190.50
7062.00

-0.05
4.85
1.54
3.20
0.68
3.57
0.95
3.90
4.15
1.85
1.76
3.38
2.48
2.41
2.26
4.39
-0.10
0.58
0.84
3.04
1.10
3.25
1.75
1.28
2.36
1.49
4.77
2.47
7.43
1.57
2.77
3.31
2.79
1.64
7.74
1.02

4.79
-31.83
-13.09
-24.18
-3.63
-7.43
-6.94
-26.57
-17.01
-27.30
-26.33
-39.93
-23.02
14.25
20.80
-22.54
-52.50
-30.81
-43.86
-12.86
4.23
-1.01
10.27
-17.27
-29.24
5.33
-47.41
-7.07
-24.80
6.47
9.28
-1.48
-10.77
-13.10
-22.24
12.43

Stoxx 50

CHF

CHF

CHF

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

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

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

% YTD%
Chg Chg

Sym

Last

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

2132.50
246.20
1921.00
66.40
72.82
50.87
89.19
7.84
41.39
12.25
39.87
3367.00
218.10
226.60

2.25
2.20
0.73
1.84
3.41
2.30
2.06
2.31
2.64
-2.00
1.83
1.71
4.20
2.95

7.73
-10.93
25.88
-9.51
-7.35
-3.22
-0.77
-23.42
2.32
-37.24
-0.60
15.05
-1.31
-12.31

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

57.34
92.38
123.02
71.86
101.08
27.63
43.99
95.64
62.30
89.99
29.82
140.09
126.85
30.92
144.45
58.67
117.77
117.76
55.53
49.20
52.67
34.23
81.90
168.66
112.71
98.14
138.40
74.86
54.74
71.41

-0.57
0.37
0.26
0.67
0.72
1.15
0.48
1.33
-2.78
1.27
1.71
0.42
1.75
0.65
0.66
1.84
1.05
1.26
0.40
1.59
1.50
1.29
0.82
0.88
2.14
0.96
0.94
2.07
0.01
-0.13

-17.56
-12.24
-14.92
5.74
12.36
1.73
2.39
-8.98
-6.46
15.45
-4.27
-22.27
-4.08
-10.25
4.96
-11.15
14.65
-0.32
5.13
-11.32
-15.73
6.06
3.14
11.97
-0.13
2.15
17.65
-3.47
18.44
16.49

DJIA

Asia Titans 50

Last: 125.48 t 0.61, or 0.49%

High
Close
Low

1
8
Apr.

YTD t 7.9%
150
140
130
120
110
100

50day
moving average
t

15

22

29
6
May

13

20

27

3
10
June

17

Stoxx 50

Last: 2700.18 s 63.47, or 2.41%

24

YTD t 12.9%
3000
2900
2800
2700
2600
2500

1
8
Apr.

15

22

29
6
May

13

20

27

3
10
June

17

Dow Jones Industrial Average

24

P/E: 18

Last: 17289.91 s 149.67, or 0.87%

YTD t 0.8%
18000
17500
17000
16500
16000

1
8
Apr.

15

22

29
6
May

13

20

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

Sources: WSJ Market Data Group; Birinyi Associates

27

3
10
June

17

24

P2HW181000-0-B01100-1000000001F

THE WALL STREET JOURNAL.

Wednesday, June 29, 2016 | B11

MONEY & INVESTING

Pound Gains, but Few Predict a Recovery

The pound edged up Tuesday from the lowest levels in
decades as global markets rose
for the first time since Britain
voted to leave the European
Union. But amid political and
economic uncertainty, analysts
predict further weakness for
sterling.
Sterling gained 0.5% against
the U.S. dollar and was at
$1.3330 in late European trading after slumping to a 31-year
low Monday. It was up 0.1%
against the euro, in gains that
analysts attributed to traders
covering short positions after
profiting from those bets that
the pound would fall. The
pound was at $1.3225 late
Monday in New York.
With Britains political situation in flux and its exit nego-

STOCKS
Continued from page B7
to $1,314.80 an ounce, while
the yield on the 10-year Treasury note rose slightly to
1.471% in earlier trading as
prices fell. The yield slipped to
1.458% by midday.
Shares of utilities, which
are often viewed as bond proxies because of their steady
dividend payouts, were among
the only decliners Tuesday after posting big gains the past
couple of days.
The dollar rose 0.6% against
the yen, which tends to gain
during times of market stress.
Mark Dowding, a senior
portfolio manager at BlueBay
Asset Management, said global
markets are likely to stabilize
following the recent declines,
and that the impact of Brexit
wont be felt as keenly in Europe and the U.S. as in the
U.K.
Id be inclined to think we
have seen most of the worst of
it in the course of the last couple of days in terms of global
assets, but we may not have
seen the worst of it in terms

tiations with the EU likely to

drag on for years, analysts see
Tuesdays gains as a pause in a
long period of weakness for
the pound. The U.K. currency is
also vulnerable because of the
countrys large current-account
deficit and an expectation foreign investment will fall following last Thursdays vote.
I wouldnt put too much
weight on this movewere in
uncharted territory now, said
Rob Carnell, chief international
economist at ING Bank. Mr. Carnell sees the pound falling to
$1.25 due to the continued postBrexit uncertainty. I wouldnt
be going out and filling my
boots with sterling, he said.
Financial markets showed
signs of stabilizing Tuesday.
The Stoxx Europe 600 rose
2.6%, having tumbled about
11% over the previous two

trading sessions. The euro advanced 0.3% to $1.105 against

the greenback.
John Wraith, head of U.K.
rates strategy at UBS, said
that after falls of such magnitude for sterling, a rebound
should have been expected.
But the key question for
markets is whats next on the
political side, he said.
On Tuesday, investors were
trying to gauge the state of
play in Brussels, where U.K.
Prime Minister David Cameron
was late Tuesday scheduled to
discuss Britains next steps
with EU leaders. But Mr. Cameron, who has said he is resigning, has said that negotiating
the
U.K.s
future
relationship with the bloc is
something the next prime minister will decide, heralding a
further period of delay. Mr.

of the U.K., he said.

Mr. Dowding cautioned
against reading too much into
Tuesdays bounce in sterling,
though, warning that the
pound could fall as low as
$1.20 against the dollar.
Youve got an economic
crisis, a constitutional crisis, a
political crisis. The outlook for
the pound looks depressingly
bleak, he said.
Standard & Poors Global
Ratings stripped the U.K. of its
triple-A credit rating Monday
and Fitch Ratings cut the
countrys rating by a notch,
predicting an abrupt slowdown in growth as businesses
postpone investment.
Its going to be volatile for
as long as we havent got clarity on what happens next,
said Russell Silberston, a fund
manager at Investec Asset
Management.
The
U.K.
doesnt really have a government. We dont have an opposition. We dont know whos in
charge. The country is split.
The Stoxx Europe 600
banks index gained 2.5% Tuesday after sinking to its lowest
level since 2011 Monday. The
U.K.-focused FTSE 250 index
climbed 3.6%, though remains

around 9% lower versus a

week ago.
Barclays rose 3.4% and
Lloyds Banking Group gained
7.4% despite two credit-rating
downgrades Monday night for
the U.K. Italian banks also
gained after reports Monday
the Italian government might
inject 40 billion ($44.11 billion) into its banks.
In commodities, crude-oil
prices rose after two sessions
of declines, helped by a
weaker U.S. dollar and a production strike in Norway. U.S.
crude rose 2.1% to $47.30 a
barrel by midday.
Asian shares ended mostly
higher in choppy trade. The
Nikkei Stock Average rose 0.1%
after falling as much as 1.9%
earlier in the session.
Japanese government bond
yields hit record lows, meanwhile, with the yield on the
20-year note nearing negative
territory for the first time.
Expectations of further policy easing from the Bank of
Japan have boosted these securities, which have also benefited from a flight to safety
following the Brexit vote.
Many investors now expect
major central banks to act to

Camerons Conservative Party

will elect a leader by September, leaving analysts scrambling to work out what each
potential candidate will mean
for negotiations.
A period of exceptional uncertainty now starts for the
U.K., including a potential
leadership battle in the Conservative party, the timing of
the trigger of the EUs Article
50 [regulating Britains exit
from the bloc], as well as a potential Scottish referendum
too, analysts at Deutsche
Bank wrote in a note to clients.
Nicola Sturgeon, leader of
Scotlands devolved government, has said a second Scottish independence referendum
is very much on the table,
because Scots mainly voted to
stay in the EU.
Deutsche Bank said it now

believes sterling will fall to

$1.15 later this year.
Other investment banks see
further falls for the pound.
Citigroup forecasts the U.K.
currency will fall to $1.25
within three months and then
settle around $1.36 in the long
term. Barclays sees the pound
ending the third quarter at
$1.27 and oscillating around
$1.30 early next year.
For Britain, a weaker currency may come with benefits,
making its exports cheaper to
buy. The pounds steep fall in
1992, after the government
pulled the currency from the
European Exchange Rate
Mechanism, a system designed
to achieve monetary stability
in Europe, helped British manufacturing for some months
afterward.
A weaker currency, though,

could also stoke inflation,

making it potentially harder
for the Bank of England to reduce interest rates.
Analysts also highlight the
U.K.s record current-account
deficit, which is sustained by
large inflows of foreign capital, as a risk to sterling. If the
investors providing those inflows go sour on the U.K., demand for sterling would slump
and the pound could plummet.
Still, some analysts say any
forecasts need to be taken
with a grain of salt, particularly given that events are difficult to predict.
There is no historical precedent for this, and all of our
models cant help, said INGs
Mr. Carnell.
Gregor Stuart Hunter and
Christopher Whittall
contributed to this article.

HAN YAN/XINHUA/ZUMA PRESS

BY GEORGI KANTCHEV

A Barclays branch in London. U.K. banks regained some ground, including a 3.4% rise for Barclays.
counter a potential drag on
the global economy after the
Brexit vote, with many predicting rate cuts from the
Bank of England and further
stimulus from the European
Central Bank.
Fed-fund futures, which investors and traders use to bet
on movements in U.S. interest

rates, indicated Monday there

is a greater probability of the
Federal Reserve cutting interest rates than raising interest
rates before the end of 2016,
according to CME Group,
though rates remaining unchanged was shown to be the
most likely outcome.
The most immediate im-

pact of Brexit will be on economic growth. That in turn

will have a significant effect
on central banks monetarypolicy stances, said Tanguy
Le Saout, head of European
fixed income at Pioneer Investments.
Corrie Driebusch
contributed to this article.

U.S. Grocery Chain Sues Visa

IMAGINECHINA/ZUMA PRESS

BY ROBIN SIDEL

A QR code for restaurant-review site Dianping, shown in 2014. Venture fund Lightspeed backed
Dianping, which merged with a rival to form Meituan-Dianping, later valued at over $18 billion.

China Fund Raises Cash

BY WEI GU

HONG KONGA top Chinese venture-capital fund

raised $260 million worth of
fresh capital from global investors, increasing the amount of
money set to flow into local
startups as valuations in the
country stall.
Lightspeed China Partners,
co-founded by former Google
executive James Mi, said Tuesday it has closed its third venture-capital fund for deals in
China. The capital was raised
in just three months and the
fund saw strong demand from
global investors, despite some
concerns about Chinas growth
prospects, according to fund
executives.
Private company valuation
[in China] has been coming
down gradually over the last
few quarters, Mr. Mi said. He
headed Googles early China
efforts and ran its deal making
in Asia. This may lower our
investment cost, and make this
a good vintage year for our
new fund.
Lightspeed China has invested in some of Chinas top
startups that have soared in
valuation as the countrys mobile internet grows rapidly. For
example, it backed Tujia.com,
the largest online vacation
rental service provider, which
is Chinas answer to Airbnb
Inc. It also has invested in
Rong360.com, a financialproduct search-and-recommendation platform.

Valuations for some of

Chinas biggest internet companies have stalled as growth
has cooled. Venture capitalists
have engineered a spate of
mergers among some competing startups in the past year to
reduce the subsidy spending
that is used to lure consumers.
Lightspeed China backed
Dianping, a popular Chinese
restaurant-review site, which
later merged with a competitor to form Meituan-Dianping,
which was valued at more than
$18 billion by its fundraising
following the merger. The
combined company is now
Chinas top online seller of
movie tickets and restaurant
bookings.
Lightspeed China also completed a closing of its first
yuan-denominated fund at 500
million yuan ($75 million),
which gives it greater flexibility to invest in companies that
plan to list at home in China.
Local stock exchanges in China
have valued Chinese tech companies at a premium to overseas counterparts in New York
and elsewhere.
Lightspeed plans to put the
fresh funds into China-based
early-stage mobile-internet
companies, startups seeking to
transform traditional industries with internet technologies and businesses that focus
on developing technology for
enterprise customers.
One example where Lightspeeds Mr. Mi sees opportunity is on-demand trucking

and software to help employers find better candidates online. Lightspeed China is an
early investor in internet
trucking company Yunmanman, which provides a smartphone-based schedule service
for trucks. It also has put
money into IfChange, an online
data-intelligence service provider helping employers like
Alibaba Group Holding Ltd.
and Tencent Holdings Ltd. find
better candidates online.
Chinese companies didnt
like to pay for software in the
past, Mr. Mi said. But as labor costs get higher, businesses are more willing to pay
for software services that can
drive savings and revenue
growth.
Not all of Lightspeed
Chinas investments have paid
off. One early investment in
TasteV, a social e-commerce
site that helps consumers buy
wine recommended by friends,
soured. Beijings corruption
crackdown hit sales of highend wines, forcing dealers to
reduce inventory as sales fell.
Chinas fast-changing internet
landscape also hurt the
startup. TasteV, launched in
2012, relied heavily on Twitter-like social-networking site
Weibo Corp. When that application began losing traffic to
Tencents messaging app
WeChat, TasteV wasnt able to
transfer its early success on
Weibo to the new platform,
which was less open to thirdparty apps.

Inc. sued Visa in May over

similar debit-card issues.
The move also comes as
U.S. merchants are installing
new payment equipment to accept cards that are embedded
with a computer chip rather
than just a magnetic stripe.
The chip-enabled cards, which
are considered safer than the
traditional type, are widely
used around the world.
Kroger said the dispute began after it was informed by
Visa that the configuration of
its new terminals didnt comply with Visas rules. Like WalMart, the grocery chain re-

Kroger Co. sued Visa Inc.

over debit-card transactions,
saying the payment network
has levied fines against it and
threatened to raise fees and
cut off its acceptance of debit
cards if the grocery chain
doesnt allow customers to
verify purchases with a signature instead of a personal
identification number.
The lawsuit represented the
latest step in a burst of legal
activity between merchants
and the card industry. It
comes after Wal-Mart Stores

quired customers to verify

debit-card purchases with a
PIN instead of a signature.
Visas rules require merchants to allow customers to
choose between a PIN and a
signature verification.
Our goal is to provide our
customers with a safe and secure payments environment,
and two layers of protection
are better than one, Chris
Hjelm, Krogers executive vice
president and chief information officer, said. A spokeswoman for Visa said the company was reviewing the
lawsuit.

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China A-Share Fund Cls A CAD H
China A-Share Fund Cls A EUR H
China A-Share Fund Cls A EUR UnH
China A-Share Fund Cls A GBP H
China A-Share Fund Cls A GBP UnH
China A-Share Fund Cls A HKD H
China A-Share Fund Cls A HKD UnH
China A-Share Fund Cls A NZD H
China A-Share Fund Cls A NZD UnH
China A-Share Fund Cls A RMB (CNH)
China A-Share Fund Cls A USD
China A-Share Fund Cls A USD H
China Greenchip-A Units
China Greenchip-A Units AUD H
China Greenchip-A Units CAD H
China Greenchip-A Units NZD H
China Greenchip-A Units USD
China Greenchip-A2 QDIs Units
GC Hi Yield Inc - Cls A MDIs GBP H
GC Hi Yield Inc-Cls A MDIs AUD H
GC Hi Yield Inc-Cls A MDIs CAD H
GC Hi Yield Inc-Cls A MDIs NZD H
GC Hi Yield Inc-Cls P HKD Acc sh
GC Hi Yield Inc-Cls P HKD MDIs sh
GC Hi Yield Inc-Cls P MDIs SGD H
GC Hi Yield Inc-Cls P USD Acc sh
GC Hi Yield Inc-Cls P USD MDIs sh
GC Hi Yield Inc-ClsA MDIs EUR H
Hi-Div Stk Cls A RMB H Acc
Hi-Div Stk Cls A RMB UnH Acc
Hi-Div Stk Cls A1
Hi-Div Stk Cls A2 AUD H MDIs
Hi-Div Stk Cls A2 CAD H MDIs
Hi-Div Stk Cls A2 GBP H MDIs
Hi-Div Stk Cls A2 HKD MDIs
Hi-Div Stk Cls A2 MDIs
Hi-Div Stk Cls A2 NZD H MDIs
Hi-Div Stk Cls A2 RMB H MDIs
Hi-Div Stk Cls A2 RMB UnH MDIs
Intel-China Converg Fund-A AUD H
Intel-China Converg Fund-A CAD H
Intel-China Converg Fund-A NZD H
Intel-China Converg Fund-A Units
Intel-Chinese Mainland Foc Fund
VP Classic-A Units

OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
AS
AS
AS
AS
AS
AS
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
OT
AS
AS
AS
AS
AS
AS

OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
EQ CYM
EQ CYM
EQ CYM
EQ CYM
EQ CYM
EQ CYM
OT CYM
OT CYM
OT CYM
OT CYM
OT CYM
OT CYM
OT CYM
OT CYM
OT CYM
OT CYM
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
OT HKG
EQ CYM
EQ CYM
EQ CYM
EQ CYM
EQ CYM
EQ HKG

06/27 AUD
06/27 AUD
06/27 CAD
06/27 EUR
06/27 EUR
06/27 GBP
06/27 GBP
06/27 HKD
06/27 HKD
06/27 NZD
06/27 NZD
06/27 CNH
06/27 USD
06/27 USD
06/27 HKD
06/27 AUD
06/27 CAD
06/27 NZD
06/27 USD
06/27 HKD
06/27 GBP
06/27 AUD
06/27 CAD
06/27 NZD
06/27 HKD
06/27 HKD
06/27 SGD
06/27 USD
06/27 USD
06/27 EUR
06/27 CNH
06/27 CNH
06/27 USD
06/27 AUD
06/27 CAD
06/27 GBP
06/27 HKD
06/27 USD
06/27 NZD
06/27 CNH
06/27 CNH
06/27 AUD
06/27 CAD
06/27 NZD
06/27 USD
06/27 USD
06/27 USD

11.08
10.37
10.34
10.95
10.72
10.56
11.97
11.05
10.91
10.88
9.56
11.72
10.89
10.96
46.82
7.88
7.72
8.05
7.75
8.53
9.26
8.85
8.88
9.11
12.88
8.69
9.52
12.98
8.75
9.70
9.35
11.09
67.46
8.64
8.67
8.14
8.80
9.66
8.80
8.32
8.56
8.11
9.29
9.55
121.82
33.70
231.79

-12.6
-14.3
-13.3
-13.6
NS
-13.8
-3.6
-13.2
-12.6
-12.7
-15.5
-11.5
-12.7
-13.0
-11.6
-11.4
-11.9
-11.0
-11.6
-11.6
5.4
6.5
5.7
6.8
6.0
6.0
6.1
5.9
5.9
5.2
-4.7
-4.8
-6.1
-6.0
-6.8
-7.3
-6.0
-6.1
-5.8
-4.7
-4.9
-13.7
NS
NS
-16.7
-18.4
-11.9

-19.0
-19.5
-20.1
-19.9
NS
-20.2
-8.8
-19.5
-21.6
-18.8
-23.7
-16.7
-21.4
-19.5
-30.5
-31.1
-31.7
-30.7
-31.2
-30.6
3.3
5.3
3.7
6.2
4.0
4.0
4.7
3.9
4.0
3.1
-16.9
-13.1
-18.8
-18.8
-20.1
-20.9
-19.1
-18.9
-17.9
-17.1
-13.4
NS
NS
NS
-32.8
-33.1
-26.8

-8.3

NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
-11.8
-12.2
-13.0
-11.1
-12.8
-11.9
NS
6.5
4.8
7.7
4.7
4.7
NS
4.7
4.7
NS
NS
1.1
-2.2
-1.0
-2.6
NS
-2.3
-2.1
-0.1
NS
NS
NS
NS
NS
0.3
-0.8
0.9

NAV
GF AT LB DATE CR

VP Classic-B Units
VP Classic-C Units
VP Classic-C Units AUD H
VP Classic-C Units CAD H
VP Classic-C Units HKD H
VP Classic-C Units NZD H
VP Classic-C Units RMB
VP Classic-C Units RMB H
VP Multi-Asset Fund Cls A USD
VP Taiwan Fund

AS
AS
AS
AS
AS
AS
AS
AS
OT
AS

EQ HKG
EQ HKG
EQ HKG
EQ HKG
EQ HKG
EQ HKG
EQ HKG
EQ HKG
OT HKG
EQ CYM

06/27 USD
06/27 USD
06/27 AUD
06/27 CAD
06/27 HKD
06/27 NZD
06/27 CNH
06/27 CNH
06/27 USD
06/27 USD

NAV

%RETURN
YTD 12-MO 2-YR

104.59
13.19
10.90
10.61
9.02
10.96
9.11
8.73
9.58
15.28

-12.1
-12.1
-11.1
-11.4
-12.1
-11.5
-10.7
-10.8
-2.4
6.0

-27.2
-27.7
-27.1
-28.0
NS
-26.7
NS
NS
NS
-5.6

0.4
0.6
3.0
1.7
NS
3.3
NS
NS
NS
-4.7

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P2HW181000-0-B01200-1--------AL

THE WALL STREET JOURNAL.

B12 | Wednesday, June 29, 2016

HEARD ON THE STREET

Email: heard@wsj.com

U.S. banks are strong

enough to get through the
market turmoil unleashed by
Britains vote to leave the
European Union. But surviving is different from thriving. A tough slog lies ahead.
Major international investment banks like Morgan
Stanley, Goldman Sachs and
J.P. Morgan Chase are deeply
involved in European capital
markets. American banks
may also lose the passport
privileges that allow them to
do business throughout the
EU from their bases in London, forcing relocation of
some businesses.
With their balance sheets
and capital buffers vastly
strengthened since the last
crisis, U.S. banks should be
able to withstand all this and
more.
Still, Americas big banks
face an unenviable situation.
For years, investors in bank
shares have pined for a return to a more normal environment, featuring higher
interest rates and an end to
paralyzing uncertainty.
Now, the return to normalcy will again be delayed.
The U.K. faces an extended
period of uncertainty as it
negotiates the terms of its
exit. This will suppress economic activity in the U.K.
and Europe for years to
come.
This dour outlook will
also keep interest rates
lower for longer around the
world, pushing down Treasury yields in the U.S. and
making it harder for the Federal Reserve to raise rates.
In the wake of Brexit, U.S.
banks should expect a chilled
market environment, featuring low rates, persistent uncertainty and underwhelming profits. In short, a world
much like they have endured
for the past several years.
Aaron Back

WSJ.com/Heard

Takeover Fight Tests China Policy

A rare Chinese boardroom

tussle is testing the countrys resolve to make markets friendlier to investors.
Hostile takeover battles
are unusual in China, where
most companies have a controlling shareholder, sometimes the government. But
China Vanke, a developer in
the countrys southern city
of Shenzhen, doesnt have
oneand its entrenched
management teams jobs are
in danger now.
Baoneng Group, an obscure insurer, became
Vankes biggest shareholder
last year. That raised management fears of a takeover
attempt, which the developer
proposed to thwart by issuing a big chunk of new
shares and using them to
buy projects from subway
operator Shenzhen Metro.
Baonengs countermove: an
attempt to remove Vanke
Chairman Wang Shi and
most of the board.
State-owned conglomerate
China Resources, which had
been Vankes largest shareholder until Baoneng came
on the scene, also has come

Land Grab

Vanke's top shareholders

Baoneng
24%
China
Resources
15%
Others
56%
GETTY IMAGES

No Return to
Normalcy for
U.S. Banks

FINANCIAL ANALYSIS & COMMENTARY

Anbang
5%
Source: the company

THE WALL STREET JOURNAL.

Wang Shi, chairman of Vanke

out against the deal.

Both voted against resolutions Monday at Vankes annual general meeting, where
Mr. Wang hinted that regulators should step in. Capital
in the markets cannot just
do whatever it wants, he
said.
But his adversaries havent done anything that
isnt ordinary in an unfettered market. Baoneng
bought its Vanke shares in
the open market. China Re-

sources is voicing opposition

to a transaction that would
dilute its interests.
If any partys actions are
open to question, it is
Vankes. The tie-up with
Shenzhen Metro would be
highly dilutive andas China
Resources has pointed out
could have been financed
with debt. Vanke has suspended trading in its Shenzhen-listed shares for more
than six months, presumably
to prevent Baoneng from

buying more. Arbitrary trading halts were one reason index provider MSCI earlier
this month decided against
including Chinese domestic
shares in its indexes.
Credit-rating company
Moodys is worried that
Vankes rating could be hurt
by removal of the management team, led by Mr. Wang
since the companys founding decades ago under the
Shenzhen municipal government. Vanke has delivered
stellar results through prudent financial management
not a commonplace in China.
But the alternative isnt so
bad either. China Resources
has no shortage of managers
for a property business,
given that it owns another
highly rated developer, China
Resources Land.
Vanke was among the first
batch of companies listed on
the Shenzhen stock exchange
as the country moved to embrace the market. Now, 25
years later, it is time to accept the sometimes uncomfortable effects of letting
market forces rule.
Jacky Wong

OVERHEARD
Its a Cryan shame.
Since he took over as cochief executive of oncemighty Deutsche Bank last
year, John Cryan has seen
some 54% lopped off of the
banks market value in dollars.
As of Monday morning, this
left it slightly lower than the
market capitalization of SunTrust Banks.
SunTrust, which does business in the Southeastern U.S.,
is the sort of institution that
boasts about how many
ATMs it has, not traders.
SunTrust has about onequarter of the employees and
had barely one-tenth the assets of Deutsche at the end
of last year.
By the standards of regional banks, SunTrust is no
slouch, making its headquarters in the nations 21st tallest building and the secondhighest in Atlanta.
But then Georgias capital
has no ambitions to become
a global financial center.
Frankfurt doesespecially
now that London is reeling
from Brexit. This isnt a good
sign.

Beijings Nonperforming Debts Wont Wash Away Easily

Acknowledgment is the
first step toward acceptance.
In China, that means realizing that cleaning up the bad
debts riddling the financial
system will require more
than just piling on fresh
debt. It will take major doses
of equity, too.
China Huarong Asset
Management, one of the
largest institutions tasked
with soaking up the countrys souring loans, said Friday that it plans to raise
more than $1 billion in a
public offering in Shanghai
less than a year after raising
$2.5 billion with an offering
in Hong Kong.
Beijing established Huarong and other bad bank

Capital Cushion
China Huarong's capital
adequacy ratio
15%
10
5
0
2012 13

14

*Before Hong Kong IPO

Source: the company

June
15*

15

THE WALL STREET JOURNAL.

asset-management companies almost two decades ago

to take on a growing baddebt mountain. They have
since morphed into slightly
more commercial enterprises, selling themselves as

countercyclical plays on
Chinas again-substantial
stock of nonperforming
loans. They buy bad debt at
a discount to restructure and
sell, swap bad debt for equity and securitize assets.
They also have other businesses providing the likes of
asset-management and brokerage services.
Huarongs possible Shanghai listing is an acknowledgment that capital will erode
faster than had been expected. On the face of it,
Huarong seems adequately
capitalized. Its capital-adequacy ratio dropped close to
the 12.5% regulatory minimum last year, but the Hong
Kong offering boosted it to

14.75%, and Jefferies analysts say the Shanghai offering could bolster it by a further 4 to 6 percentage
points.
Why so much buffer? Huarong is tasked with taking on
aggressive asset growthaveraging 40% over the past
three yearsso a substantial
capital cushion is necessary.
And Huarong has been moving away from a wholesale
bank-funded model, meaning
an increasing portion of its
funding comes from debt itself. Earlier this month, for
instance, it raised more than
$1 billion in debt to fund operations.
Other signs of indigestion
are emerging as the scale of

Chinas bad loans grows

clearer. The asset managers
distressed assets have risen
by more than 40%, but impairments have risen even
more, by almost 70%. Huarongs earnings growth is becoming volatile as impairments on distressed assets
and financial assets such as
bonds rise sharply and returns on these assets fall. Interest margins are shrinking.
This means replenishing capital to keep up with asset
growth isnt straightforwardand comes at a cost.
The next step for Huarong
will be accepting that gainfully washing away bad
debts isnt so easy.
Anjani Trivedi

MONEY & INVESTING

DEALS
Continued from page B7
vestment deals freely with
other countries after the U.K.
leaves the EU. Opponents have
countered that deals could dry
up because investors will
worry about how to handle everything from immigration
and labor to trade with the
rest of Europe.
There are 18 deals valued
at $3.6 billion excluding debt
between U.K. companies and
Asian acquirers that have
been announced but not completed, according to Dealogic.
The biggest is private-equity
firm Bain Capital LLC and the
U.K. Department of Healths
820 million (around $1.09
billion) sale of Bio Products
Laboratory Ltd. to Chinese investment firm Creat Group
Corp., which was announced
in May.
A further 115 acquisitions
by Asian buyers valued at
$95.13 billion excluding debt
are pending across the rest of
Europe.
Among them is Chinas biggest yet outbound deal, China
National Chemical Corp.s
pending $43 billion acquisition of Switzerland-based
Syngenta AG. Although Switzerland isnt in the EU, Syngentas business extends
throughout Europe.
Asian buyers looking for
assets and businesses to bring
back home likely wont be deterred by Brexit, bankers say.
But potential buyers hoping

LAW
Continued from page B7
this, Ms. Czerniawska said.
The U.K. is already Europes
largest and fastest-growing
market for consulting services,
with spending up 8% to $14
billion in 2015, according to
Source Global Research.
Accounting firm Ernst &
Young Global Ltd. has 14,500
employees in the U.K. and expects to tap others in its quarter-million-strong global workforce to help clients deal with
the impact.
Tax practices will be af-

VIX

Halfway There

Uncertainties loom over pending Europe- and U.K.-bound deals from Asia after the Brexit vote.
Largest Europe-bound deals
ANNOUNCED

TARGET

TARGET MARKET

ACQUIRER

ACQUIRER MARKET

Feb. 3, 2016

Syngenta

Switzerland

China National Chemical

China

Aug. 6, 2015

Wind Telecomunicazioni

Italy

CK Hutchison

Hong Kong

June 21, 2016 Supercell (84%)

Finland

Tencent

China

May 18, 2016

Kuka (86.49%)

Germany

Midea Group

China

Feb. 10, 2016

Birra Peroni, Koninklijke Grolsch,

Miller Brands, Meantime Brewing

Italy/Netherlands/U.K. Asahi Group

Japan

China

DEAL VALUE

$44.13 billion
11.86
8.60
4.48
2.86

Noteworthy U.K.-bound deals

$1,189 million

May 19, 2016

Bio Products Laboratory

U.K.

Creat Group

May 5, 2016

Pension Insurance

U.K.

Legend Holdings, Reinet Investments China

363

April 28, 2016 Mayborn

U.K.

Ping An Insurance

China

197

April 18, 2016 Canary Wharf Property Portfolio

U.K.

HNA International Investment

Hong Kong

186

May 9, 2016

U.K.

GCA Savvian

Japan

111

Altium Capital

THE WALL STREET JOURNAL.

Source: Dealogic

to use a U.K. business as an

entry into the rest of Europe,
or those looking at assets
heavily reliant on European
sales, may now balk at a purchase.
If their strategy is to buy
a business with a long-term
view of importing the business into China or Asia, the
buyer may proceed regardless
of the economic uncertainty
and impact on the targets
performance, said John P.
Hall, co-head of M&A for Asia
at J.P. Morgan Chase & Co. in
Hong Kong. If, on the other
hand, the objective is to enter
Europe from the U.K., the uncertainty surrounding to-be-

negotiated terms of Brexit

will deter Asian buyers.
Britains sports industry,
which has generated much interest from Asian buyers, especially Chinese, is an example of the kind of acquisition
target less likely to be affected by Brexit concerns,
since Chinese buyers are looking for entertainment to distribute to the countrys viewers. A number of Chinese
companies are in the bidding
for London-based Stellar
Group, a sports agency that
represents some top soccer
players, in a deal that could
be valued at more than $130
million, according to a person

familiar with the situation.

Chinese companies have spent
more than $500 million in the
past year snapping up a stake
in British soccer club Manchester City and control of
Aston Villa.
Chinese companies have
also been aggressively buying
assets in Germany, including
Midea Groups $5-billion-plus
offer to buy German robotics
firm Kuka AG.
People close to Midea and
China National Chemical
Corp., commonly known as
ChemChina, said there was no
immediate impact on their acquisitions from the Brexit
vote.

fected as well. The U.K. will

have more opportunities to
use taxation to help particular
industries and regions, according to Kevin Nicholson, head of
tax at PricewaterhouseCoopers
LLCs U.K. affiliate.
Law firms including Clifford
Chance LLP, K&L Gates LLP
and Dechert LLP have set up
24-hour hot lines staffed with
lawyers across disciplines to
help clients understand the
implications of Thursdays results. By Friday morning,
emails from clients were flooding inboxes, and webinars on
various topics were being
quickly arranged by law firms
marketing departments.

Dechert has a team of 30

lawyers to field client queries
on regulation, trade, governance, capital markets and
mergers after the U.K. vote. It
has offices in the U.K., Belgium,
France, Germany and the U.S.
Its a monumental task,
said Andrew Hood, a senior director at Dechert and former
legal adviser to departing U.K.
Prime Minister David Cameron.
The most demand could
come when the U.K. renegotiates trade deals with the EU
and its agencies, as well as bilateral trade deals and sectorfocused agreements with individual countries.
Such work involves tedious

hours spent by associates pondering hundreds of rules related to everything from the
migration of honey bees to the
making of cheese and the
width of tire treads. The U.K.
government hasnt led its own
complex trade negotiations in
decades. That means it will
need help from private firms,
said Clif Burns, an attorney
specializing in international
trade with Bryan Cave LLP.
Theres no question well
be hiring more, said Mr.
Burns. The firm has 42 lawyers
in its London office.
Sara Randazzo
and Kimberly S. Johnson
contributed to this article.

Some bankers said buyers

of U.K. and European assets
with deals pending could seek
to either renegotiate the
terms of those deals or pull
out of them altogether if they
have a clause in place that
lets them renegotiate in the
case of a material adverse
change. However, lawyers
say such clauses are difficult
to enforce unless the buyer
can successfully argue that an
event will have a material and
adverse impact on the business in the future, which
could be very difficult to
prove in relation to Brexit.
Vibhuti Agarwal
contributed to this article.

CEO
Continued from page B7
permanent CEO.
More details on the LendingClub moves were expected
at its annual shareholder
meeting, scheduled for Tuesday afternoon. The meeting
was originally scheduled to be
held on June 7, but the companys board postponed the
gathering for three weeks to
allow more time for the completion of a report on the
state of its business.
In its announcement Tuesday, the online lender said it

Continued from page B7

cide to do their own trading,
are really impacted, said Dave
Lutz, head of ETF trading at
JonesTrading.
Currently, VIX futures that
expire in July are more expensive than those expiring in August, meaning the so-called
roll costs arent eroding returns. But history suggests the
structure typically reverts.
Eric Mancini, a wealth adviser at Traphagen Financial
Group in Oradell, N.J., said he
has held structured notes since
2013 that give him some exposure to volatility, but typically
for a limited time.
His firm first bought a twoyear structured note that is
linked to the S&P 500 stock index and that adds long or
short exposure to a volatility
index. After making about four
percentage points above the
returns of the S&P 500, after
fees, he said he bought a similar structured note in September. On Monday, the note took
a moderately long exposure to
the volatility index, based on
rules set earlier by the notes
issuer. The product has taken
on volatility exposure only
about 5% of the time over the
last three years.
We dont believe in attempting to market time, Mr.
Mancini said. When there are
extreme circumstanceswhen
the VIX is high enough or low
enough[volatility exposure]
will kick in.
also expected to spend $9 million in the current quarter on
incentives to boost investors
appetite for its loans and as
much as to $20 million on
items such as employee retention, severance, due diligence
and advisory relationships.
The slower projections for
also led the company to record
a write-down of up to $40 million on its 2014 acquisition of
Springstone Financial, which
makes loans for elective medical procedures.
LendingClub shares, which
had fallen 61% this year
through Monday, rose 4.7%
Tuesday morning trading in
New York.