VOL. XXXII NO. 121

THURSDAY, JULY 24, 2014

The Heat Index on Amazon FirePERSONALJOURNAL25

DJIA 17086.63 g 0.16% Nasdaq 4473.70 À 0.40% Stoxx Eur 600 342.86 À 0.12% FTSE 100 6798.15 À 0.04% DAX 9753.56 À 0.20% CAC 40 4376.32 À 0.16% Euro 1.3461 g 0.06% Pound 1.7035 g 0.13%

EUROPE EDITION

WSJ.com

Options Point to CautionOn Scottish Referendum

Opinion polls suggest, andLondon’s politicians hope,that Scottish voters will passon the chance to break theircenturies-old bond with therest of the U.K. in a referen-dum in September. But betsare starting to build on a dropin the pound in the event of asurprise “yes” vote for inde-pendence.

For most of this year, de-spite the run-up to the Sept.18 vote, sterling has beenheading one way: up. It ranksamong the best-performingmajor currencies in the worldthis year, gaining about 5%against the euro and morethan 3% against the dollar.The currency now stands at

its strongest levels in almostsix years against the buck, re-flecting a rebounding econ-omy and the chance that theBank of England will be thefirst major central bank tobump up interest rates.

The macroeconomic back-drop offers little reason tosuspect an imminent reversalin the pound. But options con-tracts that would pay out ifsterling slides at the time ofthe Sept. 18 independencevote are increasingly in de-mand.

“Investors are buying op-tion expiries for the 19th…il-lustrating a pickup in buyinginterest to hedge for a poten-tial surprise vote,” said PeterKinsella, a currencies strate-gist at Commerzbank AG.

The cost of options is ex-pressed in percentage termsbased on calculations reflect-ing expected price movementsand demand for the option it-self. Mr. Kinsella said thatsince Friday, when two-monthoptions for sterling againstthe dollar began to includethe Sept. 18 vote date, thecost has jumped from lessthan 5% to about 5.4%.

That is a modest rise, stillwithin the range of the pastmonth, but many analystsnote that 5.4% is higher thanthe equivalent rates for theeuro against the dollar, for ex-ample. They say they expect

Please turn to page 22

BY CHIARA ALBANESE

Ukrainian JetsDowned NearCrash Site

Two Ukrainian fighter jetswere shot down Wednesdayover separatist-held territorynot far from the site of theMalaysia Airlines crash, asfighting between Kiev forcesand pro-Russia rebels esca-lated despite intensified at-tempts at diplomacy.

While Kiev made signifi-cant advances against rebelsin the country’s east in recentdays, Ukrainian and U.S. offi-cials say Russian weapons arecontinuing to pour over theborder, indicating RussianPresident Vladimir Putin hasno intention of backing downand denting Western hopesthat the tragedy would forcehim to change his course.

Mr. Putin’s defiance, de-spite increased internationalpressure since the downing ofthe flight from Amsterdam toKuala Lumpur that killed 298people, poses a challenge forU.S. and European Union offi-cials who have for monthstried to offer him a diplomaticroute to step back fromUkraine.

With Mr. Putin appearingundeterred from continuing tofuel a conflict in Ukraine’s eastin what diplomats and analystssay is an attempt to crippleKiev’s move westward, seniorEU diplomats will meet Thurs-day to decide on new sanc-tions targets. They will alsodiscuss a plan to impose sanc-tions on entire sectors of theRussian economy, includinghigh-tech goods and oil andgas exploration equipment.

EU foreign ministers thisweek said they would activate

that plan if Russia didn’t useits sway over the rebels to al-low access by internationalinvestigators to the crash siteand stop the flow of weaponsand men across the borderfrom Russia. With progressbeing made on the first condi-tion, an EU diplomat said gov-ernments will be focusing onwhether Mr. Putin has scaledback his alleged support for

Please turn to page 4

By Anton Troianovskiin Kiev, Ukraine,

and Lukas I. Alpertin Moscow

Heard on the Street: Bank ofEngland focuses on pay..... 28

The Costa Concordiaresumes a voyage cuttragically short in 2012Europe .................... 5

Is this the end to thePutin Puzzle?Opinion ................. 13

Doubts plague DeutscheBank’s balance sheetBusiness ................ 15Heard......................28

Inside

$1.75 (C/V) - KES 250 - NAI 375 - £1.70

The coffin of one of the victims of Malaysia Airlines Flight 17, downed over eastern Ukraine, is carriedfrom an aircraft during a Dutch national reception ceremony at Eindhoven airport on Wednesday.

InvestigatingFlight 17

International leaders voicedgrowing impatience as aDutch-led team ofinternational expertswaited for safe access tothe Ukraine crash site ofMalaysia Airlines Flight 17.Articles on pages 10-11

Reuters

Copyright © 2013, Oracle and/or its affiliates. All rights reserved.

Oracle CloudApplications

More Enterprise SaaS ApplicationsThan Any Other Cloud Services Provider

ERPFinancialsProcurementProjectsSupply Chain

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28 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

HEARDON THE STREETEmail: heard@wsj.com FINANCIAL ANALYSIS & COMMENTARY WSJ.com/Heard

BOE PaysAttentionTo PayGrowth

Last year, the substantialpay package granted to in-coming Bank of England Gov.Mark Carney was attractingattention. This year, the focusfor the BOE is very much onwhat is happening to every-one else’s wages.

The minutes from the Julymeeting of the central bank’sMonetary Policy Committeeshowed another unanimousvote in favor of holding ratesat 0.5%. While that was un-surprising, the tone of theminutes was slightly moredovish than expected: Bothsterling and gilt yields fell.

True, there were signs of agrowing belief that with theU.K. expanding at an annualpace of 3% or more and unem-ployment falling rapidly, theeconomy might be able to tol-erate a small rise in rates. Butthere also were hints that pol-icy makers are worried aboutthe outlook for global growth,and concern about the failureof wages to reflect the pickupin the economy.

The wage conundrum willonly have deepened ahead ofthe preparation of the BOE’sAugust Inflation Report—akey venue for the committeeto update its thinking aboutthe economy. At July’s meet-ing, policy makers knew thatconsumer-price inflation sur-prisingly had jumped to 1.9%.But they didn’t have the latestwage data, which showed reg-ular pay rising just 0.7%, thelowest annual growth rate onrecord.

This is a real headache forthe BOE. On the one hand,there might simply be a lon-ger lag than expected betweenthe fall in unemployment anda rise in wages. Wage infla-tion could thus pick up quitesharply, quite quickly—as eco-nomic-survey data have beensuggesting. But an alternativeexplanation is that there arestructural changes to theworkforce, such as a willing-ness to accept lower wages oran increase in older peopleworking, impeding growth inwages.

If the first case is true,then delaying might meanthat the BOE has to raiserates more quickly than itwould like. But if it is the lat-ter, then some MPC membersfear that raising rates whilereal wages still are fallingcould derail the recovery.

The timing of the first rateincrease, then, remains un-clear. The BOE’s next movewill be determined by theeconomic data. But there is aclear message as to what datato watch particularly closely:Investors should pay attentionto wages. —Richard Barley

Fed Up With Deutsche MisstepsJust what Deutsche Bank

needed: another reason for in-vestors to doubt its balancesheet.

The German banking gianthas been called out by exam-iners at the Federal ReserveBank of New York for report-ing unreliable numbers aboutits U.S. operations since 2002,according to The Wall StreetJournal. The regulator voicedconcerns about systems andcontrols at the bank’s U.S. armand even whether its report-ing in general is reliable or ac-curate.

That raises questionsabout Deutsche Bank’s booksoverall: The U.S. operationsreportedly could equal nearlyone-quarter of the firm’s totalbalance sheet.

Investor reaction wassomewhat muted Wednesday,possibly because many al-ready take a dim view ofDeutsche. The stock trades atjust half of book value. Apartfrom its troubled domestic ri-val, Commerzbank, the onlybig European banks that tradeat lower multiples of price-to-book value are Italy’s BancaMonte dei Paschi di Sienaand Banco Espírito Santo ofPortugal.

In Deutsche’s favor, it ap-

pears to have time to sort outthese issues and has commit-ted to spending an extra €1billion ($1.35 billion) in sys-tems investment and staff in-creases to deal with this andother regulatory demandssince December, when theNew York Fed sent its letter.

That said, internal controlshave taken on greater impor-tance with U.S. regulators af-ter problems in this area weresaid to have played a role inJ.P. Morgan’s “London whale”trading debacle.

Furthermore, Deutsche al-ready is undercapitalized in

the U.S. by its own estimationand may have riled the Fed bylobbying against its proposalsfor foreign-bank capital re-quirements. These were ad-opted earlier this year.

Deutsche’s exact capitalposition in the U.S. isn’t nowreadily apparent in regulatoryfilings due to a change in itsstructure in 2012. But in itslast filing as a bank-holdingcompany in December 2011,the U.S. operations had totalassets of $355 billion and Tier1 capital of negative $5.68 bil-lion.

Also, any doubts at the Fed

about the bank’s asset valua-tions and controls could leadto demands that it hold morecapital or to restrictions thatcrimp its fixed-income tradingbusiness.

Investors were never ex-pecting Deutsche’s U.S. busi-nesses to be able to pay divi-dends up to the group after ascheduled capital review in2016 because of its low capitalbase—another potential rea-son behind the muted share-price reaction Wednesday.

However, any limitationson its fixed-income tradingoperations in the U.S. wouldhurt its ambitions to boostprofits by becoming the onlysignificant European presenceleft in this global market—akey pillar of its plan to gener-ate a 12% return on equity by2016.

The German bank’s leader-ship says the investor skepti-cism it faces relates mainly tothose return targets, as wellas some residual fear aboutthe cost of litigation settle-ments. That may be short-sighted.

This latest embarrassmentis actually another reason forshareholders to ascribe ahigher cost of equity to theGerman bank to account for

the uncertainty in its busi-nesses as well as the risks.That raises the bar for the re-turn the bank needs to gener-ate to create value.

The bank’s leadership can’tafford more slips, particularlyAnshu Jain, the co-chief exec-utive who previously ran theinvestment bank and headedits U.S. operations. Deutscheraised €8 billion in equity thisyear, having pledged last yearafter a nearly €3 billion capi-tal raise that it wouldn’t needto do more.

Deutsche Bank says it nowhas enough capital for all“known challenges.” Its valua-tion shows, though, that mar-kets don’t necessarily buy thisline.

Indeed, even after the cap-ital raisings, the bank’s lever-age ratio at 3.4% remains wor-ryingly low given its heft.Only Crédit Agricole and So-ciété Générale are worse onthis measure in Europe andeven adjusting for accountingdifferences it falls short ofmost U.S. rivals.

If missteps in the U.S.mean Deutsche Bank mustcome back to shareholders formore equity, that should leadto changes at the top.

—Paul J. Davies

U.S. Takes Wind From Glaxo SailsGlaxoSmithKline investors

can be forgiven for feelingwinded after the U.K. pharma-ceuticals company reportedweak first-half results and cutits guidance for the year.

Sales growth is now un-likely at constant currencies;earnings per share are ex-pected to be flat on the samebasis. The reason: Glaxo’sprized respiratory business isin a pinch.

How Glaxo would manageas Advair faces competitionhas always been a concern.There aren’t yet generics ofAdvair, Glaxo’s biggest drug,which accounted for one-quar-ter of sales last year. But salesfell 14% in the year’s first half,led by a 24% drop in the U.S.

Competition has rampedup even without direct copies.Big U.S. pharmacy-benefitsmanagers, newly focused onhealth-care costs, are playingsimilar products against eachother to secure discountprices. Express Scripts ex-cluded Advair from its list ofmedicines covered by insurersfor this year in favor ofcheaper alternatives.

That also could weigh onthe launch of Glaxo’s succes-sors to Advair. Sales of newrespiratory drugs, Breo andAnoro, fell well short of ex-pectations in the second quar-ter, coming in one-fifth and38% below Deutsche Bankforecasts, respectively.

Glaxo says forward-lookingdata look promising for the

drugs. But the company con-cedes it is taking much longerto establish new products inthe U.S. primary-care marketthan in the past. Meanwhile,mounting U.S. price competi-tion may affect not justGlaxo’s existing products but

also coming ones, like a triplecombination of respiratorydrugs that has just enteredlate-stage development.

There were a few brighterspots. HIV drug Tivicay is do-ing well; emerging-marketssales growth is holding up de-

spite a bribery probe in China.But there wasn’t enough to

distract investors from therespiratory sucker-punch.Glaxo is bulking up in con-sumer health care through itsdeal with Novartis, but first-half sales fell 2% thanks toproduct-supply issues. Glaxois slowing its share repur-chases because of the strengthof the U.K. pound. And, after asuccessful 2013, Glaxo’s devel-opment pipeline is unlikely togenerate much excitement inthe near term.

At 13.4 times forecast 2015earnings, Glaxo is trading at a12% discount to a Europeansector average boosted bytakeover speculation aroundAstraZeneca. For now, Glaxodoesn’t have the breath toclose that gap.

—Helen Thomas

Puffed OutSales of Glaxo’s Advair

The Wall Street Journal

Source: the company

£1.5

0

0.5

1.0

billion

1Q 2013 1Q 2014

2Q ‘14:£1.1billion

GSK headquarters, London

Another DefaultAverted in China

Another default scare inChina has ended with a bail-out mystery.

Last week, Chinese con-struction company HuatongRoad & Bridge Group warnedit might default on a 400 mil-lion yuan ($64.5 million) bondcoming due Wednesday. Itwould have been only the sec-ond bond default ever inChina, after Shanghai ChaoriSolar Energy Science &Technology missed interestpayments on a bond in March.

It wasn’t to be. The con-struction company repaid theamount due before Wednes-day’s deadline.

It isn’t clear how the com-pany came up with the moneyso quickly after warning ofimpending default. The situa-tion is reminiscent of anothernear default earlier this year,when a trust product backedby loans to a coal companyand sold to investors by In-dustrial & Commercial Bankof China, the nation’s largestbank, was rescued at the 11thhour by an anonymous thirdparty. Many investors suspectlocal government involvementin these types of bailouts.

The market could have ab-sorbed the impact of an out-right Huatong default withouttriggering much angst. Corpo-rate-bond yields have ticked

up slightly since Huatong’swarning last week, but theystill are down from levels justafter the Chaori default.

Meanwhile, in the com-pany’s “shadow banking” sec-tor, a handful of trust prod-ucts have failed to makescheduled payments this year.But a widely anticipated waveof defaults has so far failed tomaterialize. Looser monetaryconditions, intended to easethe economic slowdown, havemade it easier for stressedborrowers to roll over loans.

China is only storing uptrouble for later. Credit Su-isse estimates that over thenext nine months some 4.2trillion yuan of trust loans arescheduled for repayment. Andtotal credit continues to ex-pand, at around 19% in thesecond quarter, according toStandard Chartered. That ismore than twice the pace ofeconomic growth and infla-tion, meaning the Chineseeconomy still is levering up,not down.

Policy makers showed ear-lier this year they were readyto allow small-scale defaultsto get investors used to as-sessing risk. But like a ner-vous parent, China doesn’twant anyone to get hurt justyet. It is time to take off thetraining wheels. —Aaron Back

Strength TestPrice/book value ratios forselect European banks

The Wall Street Journal

Source: FactSet

1.6

0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

%

’13 ’142012

UBS

DeutscheBank

Barclays

Deutsche Bank headquarters,Frankfurt

Competition rose forAdvair, even withoutgeneric versions.

Bloomberg

New

s

Bloomberg

New

s

2 | Thursday, July 24, 2014 AM IM UK SW FR IT SP TK BR PL IS AE GR THEWALL STREET JOURNAL.

PAGE TWO

i i iBusiness & Finance

n French magistrates placedUBS under formal investigationfor money laundering, wideningan existing probe examiningwhether the bank helped richFrench people evade taxes. 15

n Daimler reported a sharprise in second-quarter operat-ing earnings, driven by recordsales in its Mercedes-Benz lux-ury car division, as the Germanauto maker races to catch upwith rivals BMW and Audi. 16

n Preparations for Apple’s lat-est iPhones are rippling throughAsian economies, boosting reve-nue at component makers andhelping underpin electronics ex-ports from some nations. 15

n Glaxo downgraded full-yearearnings expectations, as itssecond-quarter profit was hitby currency moves, weak salesof its respiratory drugs andthe continuing bribery investi-gation in China. 19

n Equity-research houses arescrambling to lobby Europeanregulators over tough newrules that could drasticallychange the way their researchis paid for and put some ofthem out of business. 19

n U.S. securities regulatorstook a step to reduce risk inthe $2.6 trillion money-marketmutual-fund industry. 19

n BHP said it plans to bolsteriron-ore output despite fallingprices and a glut in supplies ofthe steelmaking ingredient. 17

i i iWorld-Wide

n EU countries will have tostrive to make energy savingsof 30% by 2030, according toproposals unveiled by the Eu-ropean Commission. 5

nThe former French financeminister who is vying for a topeconomic post for Europe saidskepticism over a French candi-date for the job is unfounded andEurope must push for growth. 5

n A TransAsia Airways flightcrashed while trying to makeits second landing attempt inthe Penghu islands off thecoast of Taiwan, killing morethan 40 people. 9

nThailand’s military junta saidit won’t abuse the sweepingpowers it gave itself in an in-terim constitution over the newlegislature and councils responsi-ble for shaping the country’selectoral democracy. 9

n Prabowo Subianto will chal-lenge results from Indonesia’spresidential election, focusing afinal bid for leadership on whathis team suspects are irregulari-ties involving 21 million votes. 8

nHeavy fighting around Trip-oli’s airport hit a fuel tanker, offi-cials said, as an escalation of vio-lence in Libya damaged the oilinfrastructure for the first time. 8

n Leaders of several U.S. citiesand at least one state have of-fered to take in some of the un-accompanied minors from Cen-tral America who have swarmedthe border in recent months. 7

What’s News—

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What’s Online

Malaysia Airlines Crash StreamRead the latest updates on the Malaysia Airlines crash investigation.on.wsj.com/1nfndvO

Getty

Images

Malaysia’s Risky TalksWith Rebels Paid Off

As attempts to retrieve the bod-ies and flight recorders from Malay-sia Airlines Flight 17 dragged onover the weekend, Prime MinisterNajib Razak risked a gambit that Eu-ropean leaders wouldn’t: sending of-ficials into a war zone to meet withheavily armed rebels whose govern-ment almost no one recognizes.

After a nervy journey throughcheckpoints that dot easternUkraine’s conflict zone, the teammet separatist leaders in their

stronghold of Donetsk,who handed over theflight recorders—

known as black boxes—and releasedthe bodies for repatriation via Ukrai-nian government-held territory.

While European governmentswrestled with how to get to the sitewithout legitimizing the rebels orrisking security, Mr. Najib put asidediplomatic protocol and safety fearsand sent in his team.

“What was key to him was theoutcome,” said a person close to theprime minister’s office. “He waslooking at people who controlled anarea of land. And on that land wasour plane, our bodies, our blackboxes.”

The success of their mission de-livered a political victory for Mr. Na-jib’s government, still reeling fromits missteps after the disappearanceof another Malaysia Airlines flight inMarch with 239 aboard.

But it also handed a gift to therebels in the form of an accord,signed by the top Malaysian officialpresent in Donetsk, calling the crashsite “the territory of the DonetskPeople’s Republic,” offering a levelof apparent recognition that eventhe rebels’ main backer—Russia—has steered clear of.

“It’s a tragic occasion, but we’veproven we can be a subject of an in-tergovernmental agreement,” saidSergei Kavtaradze, an aide to rebelleader Alexander Borodai.

That recognition could antago-nize Kiev and Washington, whichhave striven not to give any credibil-ity to the rebels, whose main leadersare Russian citizens with few ties tothe area.

Still, Mr. Najib’s intervention re-solved a diplomatically awkward sit-uation, enabling the bodies to be re-trieved and an investigation to beinitiated.

When Mr. Najib, 61 years old, re-ceived word of Malaysia’s secondaircraft disaster in less than fivemonths late Thursday, he immedi-ately went to the Kuala Lumpur air-port operations center and tookcharge.

There were 43 Malaysian passen-gers and crew members aboard theplane, making the country’s lossessecond only to the Netherlands. As apredominantly Muslim nation, Ma-laysians are used to quick burials,and the sight of bodies lying aroundthe crash area was particularly up-setting.

Mr. Najib—who has preservedMalaysia’s traditional stance of nottaking sides among the U.S., Russiaand China—worked the phones withforeign leaders, but steered clear ofjoining many Western leaders in

blaming the rebels for shootingdown the airliner.

Instead, he quietly began lookingfor a back channel to speak with theinsurgents, said one of the peopleclose to Mr. Najib’s office.

Known as a calm and pragmaticmediator, Mr. Najib reached out toMr. Borodai, a former Moscow PRman, through an unidentified inter-mediary.

Negotiating with another coun-try’s rebels violates an informal ruleof diplomatic protocol, and Mr. Najibfaced the danger of public embar-rassment and offending other na-tions if his attempt to negotiate adeal fell through and the talks be-came public.

“He felt we were at a completeimpasse and no one was getting any-where with this,” said a second per-son close to the prime minister’s of-fice. “The prime minister was reallyaware that there were risks. Peoplecould blame him for negotiatingwith terrorists.”

Mr. Najib spoke with Mr. Borodaiat least twice by telephone, said thepeople close to his office, makingclear that he wanted three things:the remains, the data recorders andaccess to the site for investigators.

Mr. Najib, under pressure fromthe opposition and even some of hisown advisers to take a tougher lineon the rebels, told almost no one ofhis negotiations.

At first, some rebels said theywould investigate the incident them-selves, or ship the flight recorders toMoscow. They also demanded acease-fire, which could have allowedthem to consolidate their hold oneastern Ukraine.

As talks progressed, Mr. Najib or-dered a 12-person team headed byCol. Mohammad Sakri of the Malay-sian National Security Council tohead from Kiev to the rebel-heldarea.

As the dozen Malaysian officialsin a convoy of rental cars negotiatedtheir way through checkpoints thatdot eastern Ukraine’s conflict zoneMr. Najib steeled their nerves in aphone call.

“Tell people it was Malaysia’splane and the team is going throughto recover our dead and the plane,and that it is only right,” Mr. Najibtold Col. Sakri, according to a personfamiliar with the call.

Mr. Kvatardze said the rebelswere surprised by the audacity theMalaysians showed in drivingthrough a zone that has been tornby a three-month conflict.

Arriving in the rebel-held re-gional capital of Donetsk early Mon-day afternoon, they headed into

talks with top insurgents at the seatof their flimsy political organizationknown as the “Donetsk People’s Re-public.”

The meeting took place on the11th floor of the regional assemblybuilding that the rebels seized inApril, a drab gray structure thatused to house the local CommunistParty headquarters.

Col. Sakri, a diminutive, bespec-tacled civil servant, stood in con-trast to the burly rebel gunmen whoguard the building. The meetinglasted several hours, only breakingwhen the Malaysians went to pray.

By the end of the discussions,Mr. Borodai was saying that hewould only pass the bodies andblack boxes to the Malaysia team,said one person close to the primeminister’s office. After a furtherphone call between Mr. Borodai andMr. Najib, the deal was sealed.

Just after 1 a.m., Col. Sakrisigned an agreement with a top sep-aratist official confirming the hand-over of the black boxes.

The stamp of the National Secu-rity Council of Malaysia is mis-spelled, “Sekurity,” suggesting ahasty effort to fulfill bureaucraticprotocol by having the stamp madelocally.

Col. Sakri thanked Mr. Borodai,calling him “His Excellency.”

“We don’t blame anybody, wedon’t believe anybody, we just wantto deliver the bodies as soon as pos-sible,” he said.

By Richard C. Paddockin Kuala Lumpur, Malaysiaand Alexander Kolyandr

in Donetsk, Ukraine

The success of Prime Minister Najib Razak’s efforts delivered a political victory.

European

Presspho

toAgency

ANALYSIS

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 27

OFF THE WALL

Doing Chores? It’s NeverToo Early for a Cocktail

margaritas all day.”The soap, introduced last fall

as a short-term promotion, soldso well that the company decidedto repurpose the fragrance for itsnew Mitch Heavy Hitter shampoo,launched this spring. This time,the Patrón name doesn’t appearon the package. “It was fun butnot something we would want tomarket on all the time,” says Ms.Firrell.

Jarden Corp.’s Yankee Candleaims to duplicate the precisenotes of the drinks for which itscandles are named. So far thisyear, Yankee Candle, based inSouth Deerfield, Mass., has intro-duced candles of margarita, san-gria and “the cool, golden aromaof a freshly poured draft beer.”

Sniffing its Margarita Timecandle, currently one of Yankee

Candle’s best sellers, yields notesof salt, tequila, and “freshsqueezed” lime, says Hope Mar-gala, the company’s executivevice president of brand, designand innovation. “We try to beas true to life as we can makeit,” she says. “It gives you thefragrance and the feelingwithout having to actually havea drink.”

BY ELLEN BYRON

From left, a lime andsea salt dish soapand all-purposecleaner fromMethod, a YankeeCandle Co. cocktail-inspired candle, astrawberry daiquiriquaff from PetEdge.

(Leftto

right)Metho

d;Yankee

Cand

le;P

etEd

ge

J enny, a golden retriever, hasnever sipped a daiquiri, buther owner likes her to smell

like one.Once a month, Mike Sunseri

bathes his dog with daiquiri, piñacolada or cosmopolitan-scentedshampoo, part of the BarktiniBlends line made by Lawrence-burg, Ky.-based Glo-Marr Prod-ucts Inc., which also makes a“Hair of the Dog” conditioner.

The fruity cocktail scentmakes washing the reluctantJenny more enjoyable, at leastfor Mr. Sunseri, a photographydirector from Versailles, Ky. “I’mthinking of which Caribbean is-land I can visit next,” he says.“Or scuba diving and which re-freshing cocktail would finish theday perfectly.”

Fragrances usually aim tomake everyday products—and thechores associated with them—more pleasant, typically evokingpine forests, lemon groves orflower gardens. Now, they prom-ise happy hour.

Scrubbing dishes, showering,lighting a candle or washing adog can all be opportunities toescape with a cocktail—or atleast the idea of one, productmakers say. Household staplesnow smell like margaritas, te-quila, piña coladas, daiquiris andbeer as they attempt to elicit ahappy buzz from even the mostmundane everyday tasks.

“Instead of spring cleaning,I’m on a spring break drinking amargarita,” says Michelle Arnau,the home-care general managerfor San Francisco-based MethodProducts PBC, of its lime and seasalt dish soap and all-pur-pose cleaner. The fragrancebecame a permanent part ofits product lineup in Aprilafter a brief run two yearsago. “When you can actuallyhave a fragrance that takesyou on an escape, it changesthe whole act of cleaningfrom that moment of ‘Ugh, Ihave to do it’ to ‘I actuallyreally enjoy it.’ ”

The quiet solitude of wash-ing dishes is particularly con-ducive to moments ofscented intoxication, Ms. Ar-nau says. “The fragrance bloom isamazing in a concentrated arealike that,” she says. “It transportsyou to wonderful places.”

The whiff of a cocktail can re-mind consumers of a tropical get-away, even if they’ve never beenon one, says Deborah Betz, a se-nior scent-design manager forhome care at New York-based fra-grance supplier International Fla-vors & Fragrances Inc.

Combining the fruit and coco-nut scents common in many cock-tails, along with citrus notes oflemon and lime, is especially po-tent at triggering an emotionalresponse, Ms. Betz says. “Itsmells like you just took a sipand you get that fizzing feelingin your nose,” she says. “Youhave to clean anyway, why notenvelop yourself with this won-derful feeling and daydream a lit-tle bit?”

Hello Products LLC’s mojito-mint flavored toothpaste, mouth-wash and breath spray were in-

spired in part by the Montclair,N.J.-based company trying tocounter the harsh warnings com-mon in oral-care advertising. “Ev-erything in this category seemsto be about fear and shame—ifyou don’t use it, you won’t get adate, or your next dental visitwill be a painful one,” says CraigDubitsky, Hello’s chief executive.“What we really want is an expe-rience, a vacation in yourmouth.”

Consumers who buy Hello’smojito mint toothpaste typicallyalso buy its pink grapefruit mintflavor, usually preferring grape-fruit in the morning and mojitofor bedtime brushing, Mr. Du-bitsky says. “No nightcap jokes,please,” he says.

For now, mojitos, cosmopoli-tans and hurricanes are on thewait list of future potential fra-grances for dog shampoos andcolognes made by pet-groomingsupplier PetEdge Inc. in Beverly,Mass. Instead, the March launchof its Pet Effects Tropics Collec-tion line stuck to what the com-pany deemed to be more main-stream quaffs, includingstrawberry daiquiri, appletini,mango margarita and piña colada,hoping to appeal to the broadestpossible audience of groomers,owners—and dogs.

“Now there is a need to createa spa-like environment for dogs,and fragrance does that,” saysLori Haraske, PetEdge’s directorof product development. “A fewyears ago to think that your dogmight smell like an appletiniwould be a little odd, but it’s notthat odd anymore,” she says. “Ifyou love the smell, why wouldn’tyou want your little fella to smell

like it, too?”Of course, not ev-

eryone conjures up avacation when they

face work, no matterthe cocktail fragrance.

Heather Crotsley, a mar-keting director in Lancaster,Pa., can easily recall funnights out with friendswhen she uses her “Seno-rita Margarita” shampoo,

shower gel and bubble bath,made by Coty Inc.’s Philoso-

phy brand. “But I’m not go-ing to look forward to do-

ing dishes just because the soapsmells like margaritas,” says Ms.Crotsley. “You’re not relaxedwhen you’re doing work, you’rebusy thinking about all the otherthings you have to get done.”

Some products aim for justthe idea of a drink, rather thanre-creating its exact smell. WhenJohn Paul Mitchell Systems cre-ated a men’s body soap with te-quila brand Patrón Spirits Co.—both companies were co-foundedby John Paul DeJoria—productdevelopers deliberately avoidedmaking it smell too much like theliquor, preferring instead to em-phasize notes from the agaveplant used to make it. The result-ing scent still resembles the “es-sence” of the drink, executivessay.

“We didn’t want people to bein the shower smelling like te-quila,” says Kristin Firrell, JohnPaul Mitchell’s vice president ofproduct development. “Peoplewould think you’ve been drinking

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 3

NEWS

U.S. Cites Progress on Gaza DiplomacyNo Letup in Violence as Kerry Talks With Palestinian, Israeli Leaders Face to Face; U.S. Extends Flight Ban

Secretary of State John Kerrysaid Wednesday there have been“steps forward” in diplomatic effortsto end fighting between Israel andHamas, the Islamist group that rulesGaza.

The top U.S. diplomat held face-to-face talks with both PalestinianPresident Mahmoud Abbas in theWest Bank and Israeli Prime Minis-ter Benjamin Netanyahu in Jerusa-lem for the first time since the con-flict flared on July 8, trying tobroker a cease-fire.

“We’re working hard....We havemade some steps forward,” Mr.Kerry said before meeting UnitedNations Secretary-General Ban Ki-moon in Jerusalem.

There was no letup in violence,however. Israel kept up attacks onthe Palestinian territory, focusing ontargets around the southern city ofKhan Younis. The coastal strip’s solepower plant was bombarded.

The Health Ministry in Gaza said

the Palestinian death toll since theconflict began rose by 61 overnightto 682 killed, with more than 4,100wounded. The dead included 161children and 66 women, it said.

Israel said three of its soldiersdied in Gaza on Wednesday, bringingto 32 the number killed since thearmy launched intensive aerial bom-bardments followed by a ground as-sault that began Thursday.

In addition to the 32 soldiers,three civilians have died in Israel.The latest was a worker from Thai-land killed Wednesday when arocket fired from Gaza struck an ag-ricultural collective in Hof Ashkelon,according to an official of that re-gion.

At Nasser Medical Center, KhanYounis’s main hospital with atrauma center, patients streamed inby ambulance and private car, manynursing gaping shrapnel wounds andbroken limbs.

Ayman Al Farrah, the chief ofemergency medicine, said that sincemidnight on Wednesday, they hadreceived 18 people dead on arrival,

including five children between theages of 5 and 12 years old, and twowomen.

The injured numbered close to100, he said.

“From the first day of this war,we’ve seen horrific injuries,” he said,mostly severe burns, brain injuries,blunt-force trauma and amputatedlimbs. “These are life-changing inju-ries. The weapons being used aredesigned for tanks, not for humanbeings.”

Israel said it began the Gaza op-eration to halt rocket fire by Pales-tinian armed groups on its territoryand to destroy a network of tunnelsleading from Gaza to Israel that areintended to allow fighters fromHamas’s military wing to carry outattacks against Israelis.

In Geneva, the U.N.’s top human-rights official said both sides mayhave committed violations of inter-national humanitarian law that pointto the possibility of war crimes.

Navi Pillay cited the cases of anIsraeli drone attack that killedthree children in Gaza City and an

Israeli strike that killed four chil-dren playing on a Gaza beach lastweek.

“These are just a few exampleswhere there seems to be a strongpossibility that international human-itarian law has been violated in amanner that amounts to warcrimes,” said Ms. Pillay, the U.N.High Commissioner for HumanRights.

She also said rocket and mortarfire by Hamas and armed Palestinianfactions into Israel were indiscrimi-nate and therefore were possiblewar crimes and crimes against hu-manity.

Mr. Kerry is shuttling across theMiddle East this week to promote acease-fire agreement proposed bythe Egypt. Israel accepted it lastweek but Hamas rejected it. U.S. of-ficials said the Egyptian initiativealso faced opposition from other re-gional governments.

Mr. Kerry met with EgyptianPresident Abdel Fattah Al Sisi andother senior Egyptian officials onTuesday to try to amend the cease-

fire plan.The U.N. chief said the interna-

tional community was showinggreater unity in a bid to bring abouta cease-fire in Gaza as soon as possi-ble.

Mr. Kerry flew into Ben GurionInternational Airport outside TelAviv early Wednesday, a day afterthe U.S. Federal Aviation Adminis-tration barred American air carriersfrom flying to Israel after a rocketfrom Gaza struck close to the air-port on Tuesday. Many Europeancarriers also suspended flights to Is-rael. The FAA on Wednesday ex-tended the ban for another 24 hours.

Mr. Netanyahu and other Israeliofficials have pressed the U.S. to liftthe ban, arguing the airport is se-cure. In a telephone conversation onTuesday, the Israeli prime ministerappealed directly to Mr. Kerry tohave the FAA ban lifted.

“The only consideration in issu-ing the notice was the safety and se-curity of our citizens,” State Depart-ment spokeswoman Jennifer Psakisaid.

BY JAY SOLOMONAND TAMER EL-GHOBASHY

AssociatedPress

With Flights Canceled, Travelers Stay GroundedBEN GURION INTERNATIONAL

AIRPORT, Israel—The flight board inthe arrivals hall of Israel’s main in-ternational airport was awash in redon Wednesday, denoting canceledflights from Amman, Paris, NewYork and beyond.

A day earlier, a rocket fired fromPalestinian militants in the GazaStrip struck a home near the run-ways here, prompting the U.S. Fed-eral Aviation Administration andmany European carriers to suspendflights to Israel for the first time inmore than 20 years. The FAA onWednesday extended the ban onAmerican carriers flying into the TelAviv airport for another 24 hours.

As of midday Wednesday, Israeliaviation officials said, more than aquarter of commercial air traffic hadbeen canceled, forcing thousands oftravelers to adjust itineraries.

Wheeling a suitcase toward a taxistand, Yogev Nahum, an Israeli tech-nology company salesman returningfrom a business trip to Greece, de-scribed a trip that was supposed tohave ended with his arrival in Israelon Tuesday.

He said his Aegean Airlinesflight from Greece was canceled “be-cause of an American decision,which the Europeans followed.” Hesaid he found his way back to TelAviv on El Al, Israel’s national car-rier.

The flight ban undercut Israel’seffort to portray itself as a countrythat can manage business as usual inthe midst of intermittent fire frommilitant groups at its borders.

“This is something that no Arab[enemy] had ever been able to do,”said Avraham Sela, a professor ofpolitical science at Hebrew Univer-sity. “Even if it would be only for 24hours and very limited in time, the

fact that international airlines de-cided not to fly to Israel—and nowthere are Israelis stuck abroad andpeople can’t leave according toschedule—means a lot. It means Is-rael as a hub of business and as aplace of pleasure is interrupted.”

Despite the disruptions, the air-port was far from empty on Wednes-day. Check-in lines for El Al ticketingcounters swelled with departingpassengers who had switched flightsfrom tickets booked with airlinesthat announced cancellations.

“This isn’t normal. But there isn’tpanic,” said Adi Shimri, as he called

numbers of open check-in countersto keep the line moving. “People un-derstand the situation, they’re justafraid they’ll lose their money.”

Mr. Shimri, a retired El Al flightattendant, had volunteered to easethe pressure on the carrier. “Thetourists are a little bit more scared.”

Samantha Workman, a recentuniversity graduate from Canadawho had come to Israel to work onan archaeological dig near the GazaStrip, emerged in the arrivals hallloaded down with backpacks. Shehad just returned from Greece afterfleeing Israel this month because ofrocket fire. “It was too stressful run-ning to a shelter four times a day,”she said.

With reservations on a returnflight to Canada in just a few days,Ms. Workman said she was crossingher fingers that the Polish airlineshe had booked on wouldn’t cancel.

In one darkened corner, in a

mezzanine between the check-in andthe arrival hall, university studentsplayed guitar and snoozed whilecamped out several hours becausethey had tickets on Turkish Air-lines, which canceled its flights.

On the other side of the airport’sdeparture hall, check-in counters ofEuropean and U.S. airlines that hadstopped service were all but empty.

The fight suspension by the FAAprompted Israeli officials and politi-cians—even President ShimonPeres—to fume at the U.S. for givingHamas a boost. But some Israelitravelers said they understood.

“If they made such a decision itmust have been for a good reason,”said Arik Shlomo, an Israeli who hadjust returned from Los Angeles withEl Al. “I wish they canceled myflight. I could have stayed an extraweek. I should have flown Delta.”

—Asa Fitch in Jerusalemcontributed to this article.

BY JOSHUA MITNICK

Death tolls from three recentIsrael-Hamas conflicts

Conflict Toll

The Wall Street Journal

ISRAELIS

Dec. 2008–Jan. 2009(22 days)

Nov. 2012(7 days)

July 2014(16 days)

Sources: Israel Foreign Ministry (Israelis);B’Tselem (Palestinians); Gaza HealthMinistry (2014)

13

6167

PALESTINIANS1,166

More than620*

35†

*Including 121 children†Including 3 civilians killed in Israel

U.S. Secretary of State John Kerrymeets with Israeli Prime MinisterBenjamin Netanyahu in Tel Avivon Wednesday for talks on acease-fire with Hamas in Gaza.

‘This isn’t normal. Butthere isn’t panic,’ said avolunteer with El Al.

26 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

HEARD ONTHE PITCH

SPORT

FromAccountant toTopTriathleteGwen Jorgensen was working as

an Ernst & Young accountant whenshe received an unusual recruitingpitch: Why not try triathlon?

The pitch came from crediblequarters—USA Triathlon, the sport’sgoverning body in America. But Jor-gensen felt as if the organizationmust have mistaken her for some-one else. She’d never done a triath-lon. She wasn’t a cyclist. During herswimming and running career at theUniversity of Wisconsin, she hadnever won gold, silver or bronze atthe NCAA championships.

Long ago, moreover, she’d tradedher childhood dream of an Olympiccareer for a new love: corporate tax-ation. “I loved Ernst & Young,” shesaid.

Today, no athlete in America ishotter than Jorgensen. She has wonfour consecutive World TriathlonSeries races this season—somethingno other female has ever done—making her the top-ranked womantriathlete on the planet. Instead ofErnst & Young, her income now de-rives from race purses as well assponsors such as Specialized, Asicsand Red Bull.

“It doesn’t seem real,” Jor-gensen, 28, said of her transforma-tion from accountant to world-lead-ing triathlete. Typical of triathletes,she comes across as less impressedwith her accomplishments than ob-sessed with her weakest leg: swim-ming. “I‘ve been swimming mywhole life and I don’t have a lot oftalent in it,” Jorgensen said in an in-terview from Spain, her Europeantraining base, emphasizing in par-ticular the difficulty of switchingfrom pools to open water.

Particularly gratified by her suc-cess is Mark Hellmer, her formerboss at Ernst & Young, who in 2010became an ally of USA Triathlon in

persuading Jorgensen to make theleap. “I told her, ‘You’ll always have aplace at EY to fall back on,” saidHellmer, a partner in the firm’sWashington, D.C., office, who callsthe outcome “surreal.” “I knew shewould do well, but I didn’t foreseeher becoming a world (leader).”

Two years ahead of the RioOlympics, Jorgensen representsAmerica’s best hope for winning itsfirst Olympic gold medal in triath-lon, a French-invented sport thatgained popularity only after catch-ing fire in California in the 1970s.Since triathlon became an Olympicsport in 2000, America has wononly one medal, a bronze in 2004.

Recognizing that the deficit re-flects the sport’s status as a recre-

ational pastime in America, USATriathlon about five years ago be-gan a recruiting program aimed atcollege runners and swimmers. Tolead the program it tapped BarbLindquist, a 2004 Olympic triathletewho came to the sport after swim-ming at Stanford.

NCAA champions in running orswimming tend to pursue theirOlympic dreams in those particulardisciplines. But Lindquist knew fromfirst-hand experience that persis-tence and a diversity of skills can el-evate a near-Olympic runner orswimmer into a world-class triath-lete.

“My joy in this job is giving asecond chance to athletes who nevermade it to the absolute top of their

sport,” said Lindquist.When Lindquist received a note

from a running coach of Jorgensen’ssaying that the young woman previ-ously had competed in the pool,Lindquist wasted no time makingcontact.

Jorgensen, who had recentlyjoined Ernst & Young after receivinga graduate degree in accounting, re-calls feeling skeptical. A Wisconsinnative, she was stationed in thefirm’s Milwaukee office, near all herfamily. And like many people, sheconflated triathlon with Ironman—the race involving 140.6 miles ofswimming, biking and running. Shewas relieved to learn that the Olym-pic distance is only about 32 miles.

In March of 2010, about a yearafter graduating college, she at-tempted her first triathlon, and didwell enough to achieve elite status.“I was shocked at how hard it was,”she said. “But I did well enough towonder what I could do if I reallytook it seriously.”

She was reluctant to cut back onher hours at Ernst & Young. “She wasworking 65 hours a week and totallyenjoying the people she worked withand the work that she was doing,” re-called Lindquist, who stepped up herrecruitment by contacting Hellmer,Jorgensen’s boss.

“I started encouraging Gwen togo part-time more than she wantedto,” recalled Hellman. “Gwen arguedthat her EY work provided a nicecounterbalance to all the training.”

Gradually, Jorgensen workedfewer hours while training more. Theturning point came when she quali-fied for the 2012 Olympics. A flat tireruined her chances at those Games,where she finished 38th. “When Icrossed the finish line in London, myonly thought was, ‘I want to go toRio. I want to win gold.’”

—Andrew Beatoncontributed to this article.

BY KEVIN HELLIKER

Gwen Jorgensen has won four consecutive World Triathlon Series races; above, at her most recent win in Hamburg in July, and below, in Chicago in June.

Getty

Images

(2)

Germany’s Löw to StayThrough Euro 2016

World Cup winner JoachimLöw will remain the Germanycoach through the 2016 EuropeanChampionship in France.

There was speculation Löwmight step down after Germanylifted its fourth World Cup titlewith a 1-0 victory over Argentinain the final in Rio de Janeiro onJuly 13, although Löw’s contractwas extended well before thetournament.

“At the moment, I can imaginenothing more beautiful than tocontinue working with this team,to guide it to the EuropeanChampionship in France, to de-velop the team and the individualplayers further,” Löw said in aninterview published on Wednes-day on the German Football Fed-eration (DFB) website.

“I am as motivated as I wason the first day with DFB. Wecelebrated a gigantic success inBrazil but there are other goalsthat we want to achieve. TheWorld Cup 2014 was a highlightfor all, but it was not a conclu-sion.”

Löw said he needed sometime to come to terms with hisemotions after the World Cup buthad not thought “even for a sec-ond” about stepping down.

Löw has been with the DFBsince 2004, and head coach since2006, but had never won a titleuntil the triumph in Brazil.

Germany and Argentina have arematch in a friendly in Düssel-dorf on Sept. 3, before Germanykicks off qualifying for Euro 2016against Scotland four days later.

Before then, the 54-year-oldLöw will have to find an assistantcoach and a new captain.

Hansi Flick, his assistantthroughout his tenure, is to bethe technical director at DFB.Philipp Lahm, captain since 2010,surprisingly ended his Germanycareer as soon as the team re-turned home.

Lahm informed him about hisdecision to retire from interna-tionals on the morning after thefinal, Löw said, calling it a greatloss for the team.

“I could not have wished for abetter captain, he did an out-standing job influencing, leadingand presenting the team,” Löwsaid. “I regret that he will not re-turn but I accept and respect hisdecision.”

—Associated Press

HEARD ONTHE PITCH

Agence France-Presse/Getty Images

Joachim Löw celebrates Germany’sWorld Cup victory in Berlin on July15, two days after the title win.

4 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

EUROPE NEWS

From left, Dutch King Willem-Alexander, Queen Máxima and Premier Rutte await the first bodies at Eindhoven on Wednesday.

Planes Bearing BodiesReach the Netherlands

Twomilitary transport planes car-rying the remains of some of the vic-tims ofMalaysia Airlines Flight 17 ar-rived in the Netherlands onWednesday.

A Dutch air force C-130 Herculescarrying 16 bodies landed first, and alarger Australian air force C-17with 24bodies touched down two minuteslater.

Trumpets sounded the Dutchequivalent of Taps, followed by amin-ute of silence. Relatives and dignitar-ies, including members of the Dutchroyal family, observed the proceedingsduring the first national day ofmourn-ing in the country in the past 50 years.

The 40 coffins with victims’ bodieswere carried off the planes in silenceby Dutch teams of eight airmen, sol-diers, sailors and marines. Marchingwith short, precise steps, the service-men laid each coffin into hearses,which left for Hilversum, southeast ofAmsterdam, where the process ofidentification can begin.

Outside Eindhoven air base, well-wishers paid their respects. A steady

trickle built to a throng as the air-crafts’ arrival neared. Some came onfoot, others by bicycle, to be usheredthrough the gates of themilitary baseby airmen and police toward amemo-rial at the foot of a statue of a plane.One by one, they placed flowers, smallgifts, handwritten cards and memen-tos.

Familymembers of the victims, theDutch king and queen, the Dutch primeminister and dignitaries from coun-tries that lost citizens were presentwhen the planes arrived.

Across the country, church bellsrang after the planes touched ground.In The Hague, on a square next to theparliament, hundreds of people ob-served a minute’s silence.

The Netherlands lost 193 nationalsin the crash of Flight 17 on July 17 andis leading the forensics effort and theinvestigation into the cause of the di-saster. In total, 298 people from 10 na-tions were on the flight fromAmster-dam toKuala Lumpurwhen itwas shotdown. There were no survivors.

After the hearses left the air base,the families and dignitaries broke intoshort bursts of applause. Some familymembers ventured onto the tarmac togreet the aircrewsmilling around out-side the giant planes they had just pi-

loted.Words and handshakeswere ex-changed, and quiet nods of thanksgiven to the men who had broughtloved ones back towhere their dignitycould finally be ensured.

At amilitary base in Hilversum, fo-rensics experts will begin the complextask of identifying the bodies and re-turning them to their families. About40 Dutch experts have equipped largewarehouse spaceswith special air-con-ditioning equipment and computersfor processing genetic information.

The remains will be laid out onmortuary slabs. The forensics expertswill focus on dental identification andDNA—the two fastest andmost accu-rate methods—and will use finger-prints as a last resort, a spokesman forthe Dutch forensic team said.

Forensic dental X-ray machineshave been installed in thewarehousesand DNA will be primarily collectedthrough hair samples and stored formatching process, the spokesman said.

Some human remains are still inthewreckage of the aircraft, a spokes-man for the internationalmission fromthe Organization for Security and Co-operation in Europe said on Tuesday.

—Margaret Coker, AlexanderKolyandr and Maarten van Tartwijk

contributed to this article.

By Alexis Flynn in EindhovenandMatina Stevis in

Amsterdam

Two Ukraine Fighters Downed Near Flight 17 Crash Sitethe rebels.

A decision to impose sectorwidesanctions could come as early asnext week, diplomats have said.

While Kiev says it has made sig-nificant advances against the rebelsin recent days—and nearly halvedthe territory they hold in the pastfive weeks—the continued Kremlinsupport for the insurgents raises theprospect of a bloody and drawn-outconflict. The rebels say they are re-treating in order to dig into asmaller number of towns, which arecloser to the border with Russiathat Ukraine’s army says it hasn’tbeen able to seal.

Russia has continued its supportto the separatists even since thecrash of Flight 17, sending tanks androcket launchers, U.S. intelligenceofficials said. “We don’t think theyhave stopped,” said one. “We thinkthey continue to do it.” Moscow de-

Continued from first page nies this.The shoot-down of the jets—an

attack the rebels took credit for butthat Kiev said it believed came fromRussian territory—marks the firsttime a plane has been brought downover Ukraine since Flight 17 wasdowned on July 17.

The Ukraine government has al-ready pointed at least once to mis-sile fire at its jets coming fromacross the border, a claim Russiahas denied.

The two planes were flying at analtitude of about 17,000 feet whenthey were hit, said Ukrainian secu-rity spokesman, Col. Andriy Ly-senko, too high for the rebels toreach with the weapons they arenow believed to possess.

The U.S. and Ukraine have pre-sented a case that Flight 17 wasbrought down in a missile strike firefrom a sophisticated Buk missilesystem likely provided by Russia

that was then smuggled back acrossthe porous border. Russia has rou-tinely denied aiding the insurgency.

“According to our preliminary in-formation, they [the planes] weredowned from abroad,” Col. Lysenkosaid. That account couldn’t be inde-pendently confirmed.

A message posted on a social-media page associated with rebelmilitary leader Igor Girkin, whogoes by the nom de guerre IgorStrelkov, claimed responsibility fordestroying the two planes usingshoulder-fired, surface-to-air mis-siles. Video posted on the siteshowed the remains of what ap-peared to be the planes smolderingin grassy fields in rebel-held terri-tory.

The shoulder-fired missiles havea substantially lower reach andwouldn’t be able to hit a plane at17,000 feet. Neither Russia nor therebels immediately responded to

Col. Lysenko’s claim.Moscow continued to come un-

der rhetorical fire from the West, aday after the European Unionagreed to escalate sanctions. “Rus-sia has in the past promised muchto defuse the conflict, but has rarelydelivered,” a German Foreign Minis-try spokeswoman said.

A spokesman for German Chan-cellor Angela Merkel said that re-ports continued to come in of Rus-sian weapons streaming across theborder and that the Kremlin didn’tappear to be interested in a com-prehensive investigation of thecauses of the Malaysia Airlinescrash. He said the Kremlin alsodidn’t appear to be willing to fullyexercise its influence on the rebels,who are led, the spokesman said,by longtime Russian intelligenceagents.

Mr. Putin has shown few signs ofbacking down. On Monday, Russian

defense officials presented an alter-nate version of events in the Flight17 crash, suggesting the Malaysianairliner had been possibly shotdown by the Ukrainian government,a theory that has been viewed withdeep skepticism in the West.

The following day Mr. Putin of-fered blistering criticism ofUkraine’s continued military opera-tion against the separatists, and ac-cused the West of trying to weakenRussia and of issuing ultimatums.

The Defense Ministry said thetwo Su-25 planes were broughtdown near the villages of Savur-Mohyla and Dmytrivka, which sitclose to the Russian border and arearound 20 kilometers from Torez,where the civilian jet was broughtdown a week ago. The pilots man-aged to successfully eject from theplanes, the ministry said.

—Matthew Dalton in Brusselscontributed to this article.

Flight 17 Flew Right OverActive Ukraine Air Battle

MOSCOW—When investigatorseventually sort through the wreck-age to determine why Malaysia Air-lines Flight 17 was shot down, theywill have to consider the plane’stragic trajectory: straight over thecenter of some of the hottest fight-ing in eastern Ukraine, where airpower had begun playing a crucialrole on the battlefield.

The plane entered that zone justhours after rebels had gotten theirhands on an antiaircraft missile sys-tem sophisticated enough to takedown a plane cruising at 33,000feet, U.S. and Ukrainian officials say.That missile system, the Buk, knownin the West as the SA-11 or Gadfly, isparticularly inept on its own at dis-tinguishing a civilian aircraft from amilitary one, military experts say.

The path of the Malaysia Airlinesflight took it directly over a stretchof the Russia-Ukraine border near atown called Snizhne where fightinghad raged for weeks. The territorywas critical for both sides, becauseUkrainian troops had effectively cutoff rebels from Russia by seizingand holding a thin strip of territoryalong that border.

Air power has become a factortipping the war in Ukraine’s favor inrecent weeks, not only as a meansto strike rebel positions, but also tospot targets for artillery and mis-siles. Artillery barrages have been akey tool for the Ukrainian militaryin making gains against separatistsforces, one U.S. official said. “Notthe only tool, but an importantone,” he said. In general, aerial ob-servation can dramatically improvethe accuracy of effectiveness oflong-range artillery, he said.

The rebels have no air force, al-though Ukrainian officials say theyhave been operating some drones.Intercepted radio transmissions re-leased by the Ukrainian governmenthave shown rebels prior to thedowning of the Malaysian flightwere having trouble using their ownartillery effectively because theydidn’t have forward observers fortheir guns. Lately, rebels have triedto even the score by acquiring anti-aircraft weapons that can reach tohigher altitudes.

Ukraine continues to lose lower-flying ground attack aircraft to mis-siles launched by the rebels. OnWednesday, the Ukraine military re-

ported that two ground attackSu-25s were shot down not far fromthe Malaysia Airlines crash site.

For reconnaissance flights, ana-lysts say the Ukrainians probablytried sending their planes higherand out of reach of the rebel antiair-craft systems. The delivery of theBuk system appears to have been aKremlin gambit to give rebels achance to shoot down the highest-possible planes that the Ukrainianscould fly over them. A question nowis why its crew unleashed a missileagainst a civilian aircraft.

Military experts say the Buk isideally deployed as just one compo-nent of a wider antiaircraft system.Doug Richardson, editor of IHSJane’s Missiles & Rockets, said thatwhile the Buk operating alone canidentify a friendly aircraft, it can’tdistinguish between enemy or neu-tral ones.

Ukraine’s security service saidthat about seven hours before theMalaysia flight fell from the sky, itintercepted a phone call from a pro-Russia militant to a rebel com-mander, calling the Buk “a beauty”that he had just brought fromacross the Russian border on a flat-bed truck. The missile system, hesaid, came with a crew to operate it,the recording said.

Ukraine’s security service identi-fied the rebel commander as a for-mer Russian military officer, SergeiPetrovsky. The caller told Mr.Petrovsky that “we need to unload itsomewhere and hide it,” accordingto the recording.

Mr. Petrovsky told him to ren-dezvous with an armored columnthat would escort the system out-side the city. Within two hours, thesystem had been deployed, Ukrainesecurity officials said.

Shortly after issuing orders todeploy the system, Mr. Petrovskytalked to another rebel commanderand complained about the heavyUkrainian artillery fire, which hesaid was “constant” and “only nowthere is a pause.”

When asked why he didn’t fireback with their own Grad system,Mr. Petrovsky replied that “Thething is that we have a Grad, butdon’t have a spotter, firstly,” accord-ing to the released recording.

“Thank God, today Buk M ar-rived,” he is heard saying on the re-cording. “It has become a little biteasier.”

BY ALAN CULLISON

European

Presspho

toAgency

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 25

PERSONAL JOURNAL

Amazon Fire Jumps Into the Phone FrayA Major New Smartphone Offers Innovations, but They Don't Make Up for Battery, App Issues

The big idea in Amazon’s firstsmartphone is that you can controlthe screen just by moving yourhead. Amazon’s Fire phone prom-ises to draw you into a 3-D world

where thingshappen without atouch.

But in reality,the Fire is the grown-up equiva-lent of a 9-year-old riding a bikewith his hands in the air. “Look,Ma, no hands!” It’s a neat gim-mick, but it won’t get you very far.

The $199 phone is packed witha number of such technologicalbells and whistles that seemclever, for about a day. Amazonhas taken worthwhile steps to sim-plify using the Android operatingsystem, but on the smartphonefundamentals, the Fire stumbles.u Over the past five days, I

couldn’t once get the Fire’s batteryto last to day’s end—a telephoniccardinal sin.u Don’t expect to get all the

apps you love: Though it runs on aversion of Google’s Android oper-ating system, Google apps likeMaps, Drive and YouTube arelocked out. And the Fire can’ttransfer most app purchases fromprevious phones.u The controls that track your

head, which Amazon calls “dy-namic perspective,” never becomeas natural and predictable as justtouching the screen with your fin-gers.

The root of the problem is Am-azon’s oversize ambitions for itsphone, which begins shipping thisweek. Entering the smartphonemarket so late, Amazon mighthave stuck to its mission of ever

cheaper, easier and more effi-cient—perhaps making an inexpen-sive handset or an extra long-last-ing battery.

Instead, Amazon CEO Jeff Be-zos said he wanted to engineer abetter smartphone user experi-ence. He smartly gave this first-generation Fire 32 GB of memory,but larded it up with other fea-tures of questionable utility andpriced it to compete with mature$200 handsets like the iPhone 5Sand Samsung Galaxy S5. (All threerequire a contract; the iPhone andGalaxy come with half the mem-ory.) The comparison seems al-most unfair, but it’s the one Ama-zon wants us to make.

The Fire does some things well.None is a reason most peoplewould switch. The screen holds upadequately in sunlight and mea-sures 4.7-inches, a great size tobalance grip and thumb reach. Theheadphones include flat cable andmagnetic buds that help preventtangles. It also has a user interfacethat clears away the clutter andconfusing layout of most Androidphones, including easy-to-readpanels that emerge from the sidesand a home-screen “carousel” withbig icons for your most-used apps.Too often, though, it wastes spaceunder those icons recommendingthings for you to buy.

All Fire owners get a free yearof Amazon’s $99 Prime shippingand media-streaming service,which defrays the phone’s cost.The most helpful original feature,borrowed from Amazon’s tablets,is a service called Mayday thatspeedily connects you with livetech support.

The Fire’s rear camera, whichincludes a lens that’s supposed to

stabilize images, is close to, butnot better than, the reigningchamp iPhone 5S. The Fire takesphotos at a higher resolution, butimages of night landscapes anddark restaurants lacked the detailand natural color I could pick upwith the iPhone.

The biggest reason I wouldn’tswitch to a Fire is its battery,which like the iPhone is sealed in-side and can’t be replaced. Thephone usually died after aboutthree-quarters of a day’s ordinaryuse—calling, surfing, emailing,mapping and listening to music—and often got warm to the touch.

In my battery torture test, whichinvolves streaming a video overWi-Fi with the screen at 50%, theFire lasted just 6 hours and 40minutes, 16% less than the Galaxy,and 25% less than the iPhone.

Amazon says the battery wasdesigned to last a full day for theaverage user. To ensure I didn’thave a lemon, I actually swappedout my first test model, whosebattery lasted less than four hoursin regular use.

Given the competition, Amazonmakes it harder than it should toswitch to the Fire. First, it’s avail-able only on the AT&T network inthe U.S. Second, because Amazonmade its own version of Android,the Fire doesn’t come withGoogle’s Play app store, so youmust re-buy all of your apps from

Amazon. Amazon added Uber,WhatsApp and Instagram for theFire’s launch, but apps I use regu-larly that still aren’t available in-clude Starbucks, LinkedIn andSnapchat. Amazon says it expectsa LinkedIn app soon and is in dis-cussion with these other app mak-ers.

The apps I missed most aremade by Google. Instead of GoogleMaps, Amazon made its own mapsapp. It got the location wrong ofthe house where I grew up, but itisn’t as flawed as Apple’s first at-tempt at maps in 2012.

These deficiencies make it diffi-cult to even have a debate overthe new technologies that Amazoncreated for the Fire. I give Amazoncredit for creatively entering thesmartphone game with two origi-nal ideas. I just don’t think youneed either.

One idea is that the Fire canmake it easier to compare pricesand shop—on Amazon, of course.A camera mode called Firefly con-ducts a visual search on what-ever’s in front of it, including aproduct, TV show, a phone num-ber, email or Web address. Thisworks best with products inclearly marked packages and signswith large type. It repeatedly readmy business card email as“geuffrey.fuwler@wsj.co”.

Amazon says Firefly works onmore than 100 million items—buteven if it were perfect, what prob-lem is it solving, exactly? Fireflydoesn’t add much to the ability wealready have to compare prices us-ing product-ID features in Ama-zon’s existing apps. I had the mosthope for the Fire’s 3-D-like “dy-namic perspective” technology.There’s no reason touch has to be

the only way we operate a phone;it requires lots of compromises, in-cluding poor typing and greasyscreens.

So Amazon’s big idea is makingthe Fire phone watch you, trackingyour face for cues. To do this, itadded four extra cameras to thefront of the phone and built soft-ware that moves the images on thescreen with you.

It makes for some pretty 3-Dicons and animated lock-screenimages. Inside the maps app, dy-namic perspective makes it looklike you’re one of Amazon’s droneshovering above renderings ofbuildings.

You have to learn how to com-mand the phone with your head orhow you hold the phone: Turn justa little bit to peek around build-ings on the map, or quickly flickthe phone to open a side panelwith other options. Tilting thephone back makes websites scrolldown, which is handy.

Soon enough, though, it startsto feel like a gimmick. This flickingand nodding only worked for meonly about three-quarters of thetime—just ineffective enough to bea deal-breaker. The hardest partwas getting the battery life at thetop of the screen to show up. Andtrust me, nobody wants to be thatperson on the train twitching athis phone.

The phone handset business isin need of new ideas, so I’m actu-ally rooting for Amazon to makeinroads that might disrupt the gi-ants. But Amazon’s first Fire isn’tgoing to spark much.

Write to Geoffrey A. Fowler atGeoffrey.Fowler@wsj.com or onTwitter @geoffreyfowler.

BY GEOFFREY A. FOWLER

FireThe Fire’scamera broughta lot of light to aphoto taken atnight using theHDRmode.

iPhone 5SThe same shotfrom an iPhone,also usingHDR, revealedmore color anddetail in brightareas. See morecomparisonshots atwsj.com/Tech

Shop atFirst SightThe Fire canrecognize 70million productsand ordermanyof them fordelivery.

Heads UpThe Fire’s Dynamic Perspective functionfollows users’ headmovements.

Trial by Fire | Some of the key features of Amazon’s Fire phone

Tangled Upin NothingGet to yourmusicmorequickly thanks toflat headphonecables withmagneticearpieces.

Don’tTouch ThatDialThe Firefly appcan read andsave phonenumbers,emails andWebaddresses.

WeCompare the Cameras

JasonHenry

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PERSONALTECHNOLOGY

Amazon makes it harderthan it should to switch tothe Fire.

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 5

EUROPE NEWS

Recovered Ship Begins Last TripGIGLIO, Italy—The Costa Concor-

dia on Wednesday set out to com-plete the voyage to Italy’s northwestcoast that got cut short 30 monthsago when the massive cruise shipsank near this Tuscan island.

Sirens rang and applause brokeout from the island when the shipleft the port. Small groups of on-lookers climbed onto rocks to watchthe ship be dragged away fromGiglio, whose tourism business wasdamaged by the presence of thewreck. Many onlookers said theirapplause was directed at the morethan 500 salvage workers who havetoiled to get the ship ready.

“It is a great day for Giglio,” saidMario Solari, 49 years old, co-ownerof Pizzeria L’Archetto at the island’ssmall port. “This has been an openwound for 2½ years and now the is-land can begin the healing process.”

The Concordia will make the 320-kilometer journey at a snail’s pace,about two nautical miles an hour, toreduce to a minimum the stress onthe ship’s weakened hull. If all goesaccording to plan, the Concordia andits convoy of more than a dozen ves-sels will arrive in Genoa on Sunday.A 22-month operation to dismantleand scrap the ship will begin imme-diately.

Engineers and the salvage crewgot the ship to float last week and inrecent days some of its lower 13decks emerged after being underwa-ter since the sinking in January2012. Deck 4, where most of the 32people who died in the sinking werefound, was among the decks thatemerged in recent days. One body isstill unaccounted for as the Concor-dia begins its journey north toGenoa.

Little of the cruise ship’s formersplendor could be seen Wednesdayas the ship is supported and largely

obscured by 30 huge caissons thatkeep it afloat. The part of the hullstill visible is rusty and showing theeffects of resting so many monthsunder the water line.

The sight of the Concordia’sslowly decaying carcass just outsideof the island’s main port has becomeso indelibly etched in the minds oflocals that some islanders haveasked that the underwater platformsused to support the ship until it wasfloated last week be left in place asboth a memorial to those who per-ished and as an artificial reef to at-tract sea life.

Not everyone at the port onWednesday was feeling nostalgic oreven in the mood to celebrate theConcordia’s departure.

“I’m not sorry to see the ship go.Good riddance,” said Romina Brizzi,26, who could see the Concordiafrom a window in the waterfront to-

bacco shop where she works.Filippo Di Cristina, who works in

the family’s bakery close to the port,said Wednesday was just like anyother day: “I’m living today like I didyesterday and like I will tomorrow.This is no big deal.”

In January 2012, the Concordiahad just departed from the port ofCivitavecchia on the mainland southof Giglio when it slammed into rocksafter sailing too close to the islandin what was supposed to be a spec-tacle for passengers and onlookersin Giglio.

The operation to stabilize, up-right and refloat the ship has costmore than $1.2 billion. The wholebill is expected to top $2 billion oncethe costs to clean the local area, theremoval to Genoa and the disman-tling are tallied.

The salvage operation is beingcarried out by Titan-Micoperi, a

joint venture between Titan Salvage,a U.S. company owned by CrowleyMaritime Group, and Micoperi SRL,an Italian company specializing inengineering and installation of off-shore structures and undersea pipe-lines.

Francesco Schettino, the Concor-dia captain at the time of the sink-ing, is on trial and faces up to 20years in prison if convicted of caus-ing the shipwreck, manslaughter andabandoning ship. He is fighting thecharges and has argued that his nav-igational skills mitigated what couldhave been a worse disaster.

While he doesn’t dispute that heleft the ship well before hundreds ofpassengers, he argues he did it to bebetter positioned to help in the res-cue operation. That the ship was faroff its predetermined course when itstruck the submerged rocks isn’t indispute.

BY ERIC SYLVERS

Final Count321

30$2

20020

People who died in shipwreck

Body not yet recovered

Months since Costa Concordia’s sinking

Billion in total costs to stabilize, float and scrap ship

Nautical miles from shipwreck site to Genoa

Years ship’s captain could face in prison

Sources: Costa Crociere; legal experts

Photo: Italian Civil Protection Department/Associated Press

Europe SetsNew TargetFor SavingsOn Energy

BRUSSELS—European Unioncountries will have to strive to makeenergy savings of 30% by 2030, ac-cording to proposals unveiled by theEuropean Commission on Wednes-day.

The proposal follows weeks offierce lobbying by governments andindustry, and though it is more am-bitious than expected, it was imme-diately derided by green groups aslacking teeth.

Under the current proposal, EUgovernments should improve energyefficiency by 30% compared with2007 levels. But the commissioncaved in to pressure from Poland,Hungary and others not to make thetargets legally binding for now.

The Ukraine crisis has turned en-ergy efficiency into a key policy toolas a means of improving energy se-curity and reducing Europe’s depen-dence on Russian gas and oil im-ports.

It is also a cornerstone of abroader EU plan to tackle climatechange by cutting carbon-dioxideemissions by 40% by 2030, com-pared with 1990 levels.

But the measures have beenmired in controversy because of thesubstantial investments needed tomake the savings, such as improvinginsulation and heating in homes, re-furbishing public buildings and put-ting in place “smart” energy gridsthat make better use of electricity.

Meeting the 30% target couldcost €89 billion ($120 billion) annu-ally in upfront investments, thecommission said.

“Indicative targets don’t work—nobody takes them seriously,” saidBrook Riley of Friends of the EarthEurope, an environmental group.“Europe is crying out for a way toreduce dependence on imported en-ergy. The easiest, safest way to dothis is to use less energy. Insteadwe’ve got a bafflingly weak target.”

Mr. Riley said it was now up toGermany and Denmark to take thelead in pushing for a binding targetwhen the proposals are discussed byEU leaders in October.

Berlin has been leading the cam-paign to impose more stringent tar-gets of as much as 40% to send astrong political signal to Russia,while at the same time helping toslash energy import bills—the EUcurrently imports 56% of its oil andgas at a cost of €1 billion a day.

Its efforts were bolstered by asurprise intervention by the incom-ing European Commission president,Jean-Claude Juncker, who last weeksaid a 30% target should be “theminimum.”

But the EU’s energy chief,Günther Oettinger, swatted awaycriticism that the targets were tooweak.

“It is ambitious and at the sametime it is realistic,” Mr. Oettingertold reporters. “You need to haveobjectives that are achievable bothin Bulgaria and in London. Memberstates of course can go further ifthey like.”

It remains unclear when the pro-posal will be turned into legislation.In the worst-case scenario, the pro-cess could limp on until 2017, theyear slated for the commission’sbroad review on efficiency mea-sures.

BY VANESSA MOCK

EU Job Contender Slams ‘French Bashing’PARIS—When France’s Pierre

Moscovici took to Twitter to denyhe fell asleep during a euro crisismeeting in 2013, he slammed the re-ports as “French bashing.”

Now, as the former finance min-ister vies to become a top economiccommissioner for Europe—and toconvince doubters a Frenchman isup to the job of policing Europeanbudgets—he says he is plagued bythe same bias.

“We have to stop with facileFrench bashing,” Mr. Moscovici saidin an interview. “France is a seriouscountry that people can have confi-dence in and a French commis-sioner, whatever the portfolio, is acommissioner people can have con-fidence in.”

The 56-year-old Socialist has be-come a key piece in a complex gamethat has European capitals and po-litical parties wrangling for influ-ence in the renewal of the EuropeanCommission, the European Union’sexecutive arm, in the fall.

At the heart of the negotiationsare German and Northern Europeanconcerns about a French official tak-ing over budget-policing afterFrance repeatedly missed targets forbringing down its own deficit—in-cluding under Mr. Moscovici’s watchas finance minister.

“One aspect is, of course, howthe public, and not just in Francebut in all of Europe, would react if

such a post in such a situation werefilled with a French candidate of allthings,” German Finance MinisterWolfgang Schäuble said in a radiointerview last week.

The tensions underscore a lin-gering division over economic policybetween the euro zone’s two largesteconomies.

As France struggles to recoverfrom years of weak economicgrowth and rising unemployment,officials in Paris have pointed to theweight imposed by German-inspired

austerity on the region over thepast five years. Berlin, meanwhile, isreluctant to relinquish a tight holdon budgets and argues that doing sowould undermine confidence, fur-ther harming the tepid economic re-covery in the euro zone.

German officials have welcomedthe French government’s recentplans for tax cuts to help businessesrecover from the crisis but stressthat isn’t a reason to soften rules togive France yet more time to meetfiscal goals. “Time in itself doesn’t

create confidence,” said Mr.Schäuble.

As the finance minister who ne-gotiated with EU authorities to geta two-year delay to 2015 to bringFrance’s deficit within the EU ruleof 3% of economic output, Mr. Mos-covici has become a lightning rodfor the debate over a possible shiftin policy.

“A Moscovici appointment issymbolically and substantially sig-nificant,” said Mujtaba Rahman,euro-zone analyst at political risk

research firm Eurasia Group. “Weare looking at a world where Franceis set to get some more flexibilityand certainly a reinterpretation ofthe rules.”

Europe’s left-leaning bloc of gov-ernments are pushing for a Socialistto get the post at the EU’s executiveto counterbalance Luxembourg’sformer Prime Minister Jean-ClaudeJuncker, a center-right politicianwho has already secured the com-mission presidency. French Presi-dent François Hollande wants to

seize on the reshuffle to prioritizeeconomic growth and limit austerityby using all the possible flexibilityon budget rules.

“From the moment Francewishes to change the direction ofEurope toward growth and jobs,France is justified in asking for aneconomic portfolio,” Mr. Moscovicisaid.

In recent weeks, German officialshave been vocal in opposing thatlogic. The debate became heatedwhen Norbert Barthle—a seniorlawmaker in Angela Merkel’s Chris-tian Democratic Union—likened ap-pointing a French candidate to thetop economy job to “casting outdevils with Beelzebub.”

Mr. Schäuble stepped in to sayMr. Moscovici, with whom he has aclose working relationship, was agood finance minister and Germancriticism didn’t apply to him di-rectly.

“These kinds of decisions are verysensitive. The more we talk about it,the more difficult it becomes tomake a decision,” Mr. Schäuble saidthis week in a joint newspaper inter-view with France’s current financeminister, Michel Sapin.

Mr. Moscovici played down theconflict and said he never broke fis-cal rules, as the two-year extensionhe negotiated for France to meetdeficit targets is in line with theflexibility of EU treaties. “There isno antagonism between France andGermany,” he said.

BY WILLIAM HOROBIN

At issue are Germanconcerns about a Frenchofficial policing Europeanbudgets after Francemissed its deficit targets.Re

uters

24 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

Major players & benchmarks

Credit derivativesSpreads on credit derivatives are oneway themarket ratescreditworthiness. Regions that are treading in roughwaterscan see spreads swing toward themaximum—and vice versa.Indexes beloware for five-year swaps.

Markit iTraxx Indexes SPREADRANGE, in pct. pts.Mid-spread, sincemost recent roll

Index: series/version in pct. pts. Mid-price Coupon Maximum Minimum Average

Europe: 21/1 0.61 101.88% 0.01% 0.81 0.56 0.67

Eur. HighVolatility: 20/1 0.72 101.20 0.01 1.26 0.68 0.91

EuropeCrossover: 21/1 2.47 111.27 0.05 3.11 2.19 2.61

Asia ex-Japan IG: 21/1 1.04 99.83 0.01 1.06 0.99 1.02

Japan: 21/1 0.68 101.55 0.01 0.68 0.63 0.66

Note: Data as of July 22

SpreadsSpreads onfive-year swapsfor corporatedebt; based onMarkit iTraxxindexes.

In percentage points

3.00

2.00

1.00

0

–1

tAustralia

t

Japan

2014Feb. Mar. April May June July

Index roll

Source: Markit Group

Behind Asia's deals: Bank revenue rankings, JapanBehind every IPO, bond offering,merger deal or syndicated loan is one ormore investment banks. Here areinvestment banks ranked by year-to-date revenues from recent deals.

PERCENTAGEOFTOTALREVENUERevenue, Equity Debt Mergers&inmillions share capitalmarkets capitalmarkets acquisitions Loans

Nomura $426 20.8% 72% 17% 11% ...

Mizuho 289 14.1 35 37 8 20%

MorganStanley 252 12.3 46 25 29 ...

SumitomoMitsui Financial Group 239 11.6 53 21 12 13

DaiwaSecurities 173 8.4 64 27 9 ...

GoldmanSachs 103 5.0 28 14 59 ...

BankofAmericaMerrill Lynch 69 3.4 43 25 18 13

JPMorgan 60 2.9 19 18 54 9

DeutscheBank 49 2.4 34 9 56 ...

Source: Dealogic

Trackingcreditmarkets &dealmakers

Dow Jones Industrial Average P/E: 17LAST: 17086.63 t 26.91, or 0.16%YEAR TO DATE: s 509.97, or 3.1%OVER 52WEEKS s 1,544.39, or 9.9%

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

17500

17000

16500

16000

15500

1500025 2 9 16 23 30

May6 13 20 27

June3 11 18

July

High

CloseLow

50–daymoving average

t

Stoxx Europe 50: Wednesday's best and worst...

Previousclose, in STOCK PERFORMANCE

Company Country Industry Volume local currency Previous session YTD 52-week

Rio Tinto United Kingdom GeneralMining 4,399,288 3,391 1.62% -0.5% 13.0%

ABB Switzerland Industrial Machinery 15,409,556 21.39 1.62 -8.9 0.2

Glencore PLC United Kingdom GeneralMining 32,947,392 373.00 0.95 19.3 31.9

Vodafone Group United Kingdom Mobile Telecommunications 62,021,385 197.00 0.69 -19.7 -1.3

Reckitt Benckiser Grp United Kingdom Nondurable Household Products 706,624 5,125 0.69 6.9 10.7

GlaxoSmithKline United Kingdom Pharmaceuticals 22,930,954 1,482 -4.73% -8.1 -11.4

L'Air Liquide France Commodity Chemicals 553,059 98.35 -0.90 -4.3 0.4

Telefon L.M. Ericsson B Sweden Telecommunications Equipment 6,695,391 86.15 -0.81 9.7 14.8

Deutsche Telekom Germany Mobile Telecommunications 5,694,186 12.17 -0.77 -1.2 32.1

Daimler Germany Automobiles 4,872,012 65.58 -0.77 4.3 24.5

...And the rest of Europe's blue chipsLatest,in local STOCK PERFORMANCE

Company/Country (Industry) Volume currency Latest YTD 52-week

Financiere Richemont 1,144,010 90.80 0.67% 2.3% 2.9%Switzerland (Clothing & Accessories)Banco Bilbao Vizcaya Argn 22,092,388 9.20 0.63 3.9 40.9Spain (Banks)SAP 2,950,093 61.12 0.63 -1.9 10.9Germany (Software)British American Tobacco 1,864,040 3,550 0.61 9.6 3.0United Kingdom (Tobacco)BASF 1,985,026 83.57 0.59 7.8 19.7Germany (Commodity Chemicals)BHPBilliton 6,832,357 2,067 0.58 10.6 8.0United Kingdom (GeneralMining)Nestle 3,161,515 69.85 0.58 7.0 11.6Switzerland (Food Products)BNPParibas 4,113,034 49.01 0.51 -13.5 7.3France (Banks)Bayer 1,279,474 100.40 0.51 -1.5 18.8Germany (Specialty Chemicals)AXA 4,580,201 17.74 0.48 -12.2 7.2France (Full Line Insurance)BPPLC 16,655,277 500.80 0.46 2.6 6.4United Kingdom (Integrated Oil & Gas)National Grid 3,581,841 873.00 0.46 10.8 14.2United Kingdom (Multiutilities)Standard Chartered 3,184,749 1,222 0.45 -10.2 -19.4United Kingdom (Banks)Lloyds Banking Group PLC 112,351,893 73.63 0.45 -6.7 8.1United Kingdom (Banks)Siemens 1,419,264 93.94 0.43 -5.4 12.6Germany (Diversified Industrials)HSBCHldgs 11,720,783 607.30 0.40 -8.3 -17.0United Kingdom (Banks)Moet Hennessy Louis Vuitt 579,867 139.80 0.39 5.4 7.5France (Clothing & Accessories)INGGroep 11,966,747 10.08 0.30 -0.2 32.0Netherlands (Life Insurance)Banco Santander S.A. 47,363,041 7.45 0.27 18.0 51.1Spain (Banks)Zurich Insurance Group 304,858 273.50 0.26 5.8 8.0Switzerland (Full Line Insurance)

Latest,in local STOCK PERFORMANCE

Company/Country (Industry) Volume currency Latest YTD 52-week

Royal Dutch Shell A 2,107,380 2,424 0.23% 12.1% 9.3%United Kingdom (Integrated Oil & Gas)Diageo 3,297,123 1,824 0.22 -8.8 -9.7United Kingdom (Distillers & Vintners)BGGrp 4,043,888 1,205 0.21 -7.1 -0.5United Kingdom (Integrated Oil & Gas)RocheHolding Part. Cert. 733,302 266.50 0.19 6.9 15.3Switzerland (Pharmaceuticals)UBS 8,989,380 16.50 0.18 -2.5 -7.9Switzerland (Banks)Barclays 55,086,839 210.95 0.17 -22.4 -34.4United Kingdom (Banks)Total 3,618,512 51.41 0.12 15.5 28.9France (Integrated Oil & Gas)ENI 9,363,622 19.79 0.10 13.2 18.9Italy (Integrated Oil & Gas)Schneider Electric SE 1,072,264 67.73 -0.06 6.8 19.5France (Electrical Components & Equipment)Sanofi SA 1,459,245 76.93 -0.08 -0.2 -3.3France (Pharmaceuticals)AstraZeneca 1,611,961 4,421 -0.11 23.7 34.4United Kingdom (Pharmaceuticals)Allianz SE 876,307 128.85 -0.15 -1.2 10.2Germany (Full Line Insurance)Telefonica S.A. 7,622,852 12.16 -0.16 2.7 18.1Spain (Fixed Line Telecommunications)Anheuser-Busch InBev 924,880 83.69 -0.18 8.3 25.2Belgium (Brewers)Unilever 2,846,865 2,683 -0.19 8.1 -1.1United Kingdom (Food Products)Credit Suisse GroupAG 5,138,185 25.77 -0.27 -5.5 -8.2Switzerland (Banks)Novartis AG 3,163,615 80.20 -0.43 12.6 18.3Switzerland (Pharmaceuticals)Tesco 24,405,807 276.00 -0.49 -17.5 -24.8United Kingdom (Food Retailers &Wholesalers)Unilever CVA 4,256,398 32.28 -0.54 10.2 4.3Netherlands (Food Products)Deutsche Bank 10,848,019 26.48 -0.66 -23.6 -25.2Germany (Banks)

Sources: SIX Financial Information

DJIA component stocksVolume, CHANGE

Stock Symbol inmillions Latest Points Percentage

AT&T T 12.1 $35.93 –0.01 –0.03%AmExpress AXP 1.6 93.21 –0.16 –0.17Boeing BA 11.4 126.72 –3.02 –2.33Caterpillar CAT 3.7 108.54 –1.52 –1.38Chevron CVX 2.9 133.82 1.24 0.94CiscoSys CSCO 23.3 25.66 –0.28 –1.10CocaCola KO 15.2 40.90 –0.29 –0.70Disney DIS 3.0 86.10 –0.11 –0.13DuPont DD 5.1 65.45 0.50 0.77ExxonMobil XOM 5.0 104.35 0.80 0.78GenElec GE 22.8 25.98 –0.04 –0.15GoldmanSachs GS 3.1 176.74 1.72 0.98HomeDpt HD 3.0 81.04 0.50 0.62Intel INTC 22.5 34.50 –0.29 –0.83IBM IBM 3.1 193.70 –0.39 –0.20JPMorgChas JPM 8.7 59.01 0.34 0.58JohnsJohns JNJ 3.8 102.38 –0.09 –0.09McDonalds MCD 8.6 95.39 –0.88 –0.91Merck MRK 5.2 58.12 –0.31 –0.53Microsoft MSFT 48.0 44.86 0.03 0.07NikeB NKE 1.7 77.44 0.39 0.51Pfizer PFE 15.7 30.43 –0.06 –0.20ProctGamb PG 5.0 80.03 –0.07 –0.083M MMM 1.6 144.84 –0.28 –0.19TravelersCos TRV 2.3 91.69 0.06 0.07UnitedTech UTX 6.1 109.58 –1.28 –1.15UtdHlthGp UNH 2.0 85.97 –0.08 –0.09Verizon VZ 10.2 50.98 ... ...VISAClA V 1.7 221.32 0.06 0.03

WalMart WMT 3.1 77.02 0.38 0.50

Source: WSJ Market Data Group

Credit-default swaps: European companiesAt itsmostbasic, thepricingofcredit-defaultswapsmeasureshowmuchabuyerhastopaytopurchase-andhowmuch a seller demands to sell-protection from default on an issuer's debt. The snapshot below gives asensewhichway themarketwasmoving yesterday.

Showing the biggest improvement...CHANGE, in basis points

Yesterday Yesterday Five-day 28-day

DeutscheBk 74 –5 –6 11

BcoSANTANDER 79 –6 –6 4

Commerzbank 91 –6 –4 18

BcoBilbaoVizcayaArgentaria 83 –5 –7 4

SOCIETEAIRFRANCE 128 –7 –10 –34

BcoComercial Portugues 228 –13 –43 43

Zurich Ins 47 –3 –4 –2

IntesaSanpaolo 84 –5 –5 8

SwissReins 45 –2 –3 –2

Royal Bkof Scotland 83 –4 –5 11

And the most deteriorationCHANGE, in basis points

Yesterday Yesterday Five-day 28-day

Contl 80 3 7 16

Dexia Cr Loc 217 6 12 63

Tesco 89 2 5 9

DixonsRetail 77 1 –42 –57

ABVolvo 91 1 5 12

BayMotorenWerke 39 1 –1 3

BritAwys 183 2 8 8

Koninklijke 46 1 1 4

Prudential 64 1 2 2

SANTANDERUK 74 1 1 5

Source:Markit Group

BLUE CHIPS & BONDS

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Below, a look at the Dow Jones Stoxx50, the biggest and best knowncompanies in Europe, including the U.K.

6 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

U.S. NEWS

Rulings Cloud Health Law’s SubsidiesTwo U.S. appeals courts issued

conflicting rulings on whether con-sumers can get subsidies for healthcoverage bought on the AffordableCare Act’s federal exchange, escalat-ing a legal battle that could compli-cate fall insurance enrollment andjeopardize tax credits for millions ofAmericans.

In a blow to President BarackObama’s signature legislativeachievement, a panel of the U.S.Court of Appeals for the District ofColumbia Circuit, on a 2-1 vote, in-validated an Internal Revenue Ser-vice regulation that implemented akey piece of the 2010 health law.The regulation said subsidies forhealth insurance were available toqualifying middle- and low-incomeconsumers whether they boughtcoverage on a state or federally runexchange.

Two hours later, a three-judgepanel of the U.S. Court of Appealsfor the Fourth Circuit in Richmond,Va., reached the opposite conclu-sion, unanimously ruling that con-sumers in states relying on the fed-eral marketplace could receivesubsidies. That handed the WhiteHouse a victory that counteractedthe administration’s loss in theother case.

Tuesday’s rulings won’t have animmediate impact on the subsidiesthat an estimated 4.7 million Ameri-cans have received on the federal ex-change. But they raise a new cloudof legal unknowns that likely won’tbe settled before open enrollmentbegins Nov. 15, because the casescould take a year or more to con-clude in the courts.

If the two courts remain in con-flict, it is a near certainty the Su-preme Court will have to step in toresolve the dispute, setting the stagefor a third high-court ruling on thehealth law. Should the D.C. Circuit’sruling eventually prevail, it couldcripple the law by making subsidiesunavailable in as many as 36 stateswhere the federal government hasrun some or all of the insurance ex-changes.

The Obama administration said itwould ask the full D.C. appealscourt, which might be more sympa-thetic to its position, to reconsiderthe case.

“This just lays another layer ofuncertainty on top of an alreadyconfused environment,” said RuthKrystopolski, president of nonprofitSanford Health Plan, which sellsplans to individuals in North Dakotaand South Dakota.

Several insurers said they had nocurrent plans to change how they sell

policies through the federal ex-change. Hospital executives said thecases complicate efforts to plan an-nual budgets, because losing the sub-sidies would likely increase the num-ber of uninsured patients comingthrough their doors.

At issue was how to interpret asection of the health law allowingsubsidies when consumers buy insur-ance on an exchange “established bythe state.” The law gave states re-sponsibility for setting up exchanges,but more than two-thirds of thestates chose not to do so. Thosestates, mostly with Republican gov-ernors opposed to the law, decidedto rely on the federal government in-stead.

Individuals and employers whochallenged the subsidies in court ar-gued the law’s language made clearsubsidies weren’t available in thosestates without their own exchanges.The Obama administration arguedCongress intended the subsidies tobe available everywhere.

“You don’t need a fancy legal de-gree to understand that Congress in-tended for every eligible American tohave access to tax credits that wouldlower their health-care costs, regard-less of whether it was state officialsor federal officials who were runningthe marketplace,” White House presssecretary Josh Earnest said Tuesday.

The D.C. Circuit held the IRS reg-ulation allowing the subsidies na-tionwide wasn’t a permissible inter-pretation of the health law. “Wereach this conclusion, frankly, withreluctance,” Judge Thomas Griffith, aGeorge W. Bush appointee, wrote forthe court, saying the decision wouldlikely have significant consequencesfor millions of people. He was joinedby another Republican-appointedjudge. But he said the court had tointerpret the law the way Congresswrote it. Judge Harry Edwards, aJimmy Carter appointee, said in dis-sent that the ruling “portends disas-trous consequences.”

The Richmond court said lan-guage in the Affordable Care Act onthe subsidies was ambiguous andcould be read in different ways. “Ap-plying deference to the IRS’s deter-mination, however, we uphold therule as a permissible exercise of theagency’s discretion,” wrote JudgeRoger Gregory, originally nominatedby Bill Clinton. Joining the rulingwere two Obama appointees.

The average size of a federal sub-sidy for each enrollee getting one in2015 will be $4,250, and the govern-ment is expected to spend $17 billionin fiscal 2014 on exchange subsidies,according to research by the nonpar-tisan Congressional Budget Office.Exchange enrollees who selected

plans with tax credits pay an averageof $82 a month in premiums afterthe subsidy, which is 76% less thanthe full premium, according to theDepartment of Health and HumanServices.

Aetna Inc. said the tax creditsplayed a significant role in attractingpeople to exchange plans. Insuranceindustry advocates have warned thata win for the challengers in the casescould destabilize insurance marketsand lead to higher premiums for allexchange consumers.

“It could mean the collapse of theindividual insurance market in statesthat are affected,” if the subsidiesare ultimately struck down by thehigh court, said Timothy Jost, a pro-fessor at Washington and Lee Uni-versity School of Law who supportsthe health law.

Will Ferniany, chief executive ofUniversity of Alabama at Birming-ham Health System, said the deci-sions made it difficult to set nextyear’s budget, which is due to theboard in August. “Do we take a con-servative approach and assume thesepeople aren’t going to be insured, ordo we take an optimistic approachand assume it will be appealed [suc-cessfully]?”

Julie Thiets, 51 years old, of Deca-tur, Ga., gets an insurance subsidy ofmore than $600 a month through the

federal exchange. She said she isn’tsure if she would have signed up ifthere was a possibility she could losethat tax credit.

“To me, it was the whole benefitof signing up,” said Ms. Thiets, whoowns a small business that providesvideo tennis instruction. “It woulddevastate my life without it.”

The law requires most Americansto carry health insurance or pay atax penalty, a mandate that was up-held by the Supreme Court two yearsago. The subsidies were designed towork in tandem with the mandate tomake coverage more affordable forlower-income individuals.

The D.C. ruling also could hobblethe functioning of a delayed health-law provision that can requireslarger employers to pay penalties ifthey don’t offer affordable coverageto full-time workers and those work-ers get a subsidized exchange plan.The penalties are triggered when aworker receives federal subsidies forpurchasing insurance on an ex-change.

The administration’s legal optionsinclude an appeal to the SupremeCourt. But first it plans to ask theD.C. appeals court to rehear the case,with all active judges participating inthe review. The full court has a morefavorable political makeup for theadministration, with a majority ofjudges appointed by Democraticpresidents.

The White House’s Mr. Earnestsaid that given fierce Republican op-position to the law the prospects fora legislative move that might fix thelaw “seem rather unlikely.”

House Speaker John Boehner (R.,Ohio) said the court’s decisionshows House Republicans are rightin seeking to file a lawsuit accusingMr. Obama of overstepping his au-thority in implementing the law.

“The president has demonstratedhe believes he has the power tomake his own laws. That’s not theway our system of government wasdesigned to work,” Mr. Boehner said.

A senior administration officialindicated the White House is used tochallenges to the health law by now,and that the law would weather thisturn of events, as it has previoussetbacks. Officials emphasized therewould be no near-term impact onpolicyholders’ subsidies or premi-ums.

As with past health-law chal-lenges, multiple cases are workingtheir way through the federal courts.In addition to Tuesday’s cases, twoother similar lawsuits are being con-sidered by courts in Indiana andOklahoma.

—Anna Wilde Mathews, Carol E.Lee and Christopher Weaver

contributed to this article.

BY BRENT KENDALLAND STEPHANIE ARMOUR

Some 5.4 million people have bought health coverage in the 36 states where the federal governmentruns the insurance exchange. In each of those states, a big majority of consumers got a federal taxcredit to offset the cost of their premiums. A court ruling threatens that tax credit.

At Risk | Subsidies for health insurance in states using federal exchange

Source: Department of Health and Human Services The Wall Street Journal

State-run exchangeFederally run exchange

Nev.

Del.

Colo.

N.M.

Minn.

N.Y.

Ky.

Vt.

Conn.

Md.

R.I.

Wash.

D.C.

Hawaii

Mont.

Ariz.

Utah

Okla.

Mich.

MaineN.H.

N.J.

Texas

Wyo.

Kan.

S.D.

Fla.

N.D.

S.C.

Alaska

Mass.

Fla.

Texas

Mich.Mich.

Ariz. S.C.C.

Utah

Okla.

Kan.Calif.

Ore.

Enrolledparticipants

800,000

600,000

400,000200,000

Union Allowed to Organize Small Group at RetailerA group of 41 cosmetics and fra-

grances workers at a Macy’s store inMassachusetts is large enough to at-tempt to unionize, the National La-bor Relations Board decided in a rul-ing that could advance organizedlabor’s quest to unionize subsets ofworkers in varied industries.

In a 3-1 decision issued Tuesdaythat sided with the United Food andCommercial Workers union andraised concerns among businessgroups that it would lead to frag-mented workplaces, the board’sthree Democrats said the workers atthe store in Saugus, Mass., are an

appropriate bargaining unit andshare “a community of interest.”Their employer, Macy’s Inc., had ar-gued otherwise but failed to meet“its burden of demonstrating” thatthe smallest appropriate unit shouldinclude all employees at the store orat least all the selling employees, ac-cording to the written decision.

Macy’s said in a statement it was“disappointed” and considering itsoptions, including an appeal. “Orga-nizing a selected portion of a store’sselling associates into multiple col-lective-bargaining units is impracti-cal and an impediment to providinga consistent level of customer ser-vice,” Macy’s said.

The Republican board memberassigned to the case, Philip Misci-marra, filed a dissent that under-scores the partisan divide on thefive-member board.

Mr. Miscimarra said the unit “isnot appropriate under any standard”and the case “illustrates the frail-ties” of an earlier board ruling thathis colleagues cited in the Macy’sdecision.

In the 2011 case known as Spe-cialty Healthcare, the board decideda union could try organizing a groupthat consisted only of nursing assis-tants at a long-term-care facility.

Business groups feared the Spe-cialty Healthcare ruling would open

the door to similar NLRB decisionsin the health sector and other indus-tries, and would give unions an un-fair advantage by allowing them tocreate “micro units” of workers thatwould be easier to organize.

The National Retail Federation,which filed an amicus brief in theMacy’s case and lists the retailer asone of its members, said the latestruling was improper and accused theboard of overstepping its bounds toadvocate for unions.

“Recognizing individual groupsof employees that work in the samestore as unique bargaining units isnonsensical and impractical,” the re-tail group’s senior vice president of

government relations, David French,said. The NLRB is “once again sub-verting well-established labor lawand precedent in order to make iteasier for big labor to organize em-ployees,” he said. The decision “willimpact any large employer thatmaintains a diverse workforce,” headded.

The NLRB declined to comment.“Our decision is based solely on

the facts before us in this case, andwe do not reach the question ofwhether other subsets of selling em-ployees at this, or any other, retaildepartment store may also consti-tute appropriate units,” the NLRBruling said.

BY MELANIE TROTTMAN

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 23

Major stock market indexes Stock indexes fromaround theworld, grouped by region. Shown in local-currency terms.

PREVIOUS SESSION PERFORMANCERegion/Country Index Close Net change Percentage change Yr.-to-date 52-wk.

EUROPE Stoxx Europe 600 342.86 0.42 0.12% 4.4% 14.5%

Stoxx Europe 50 3037.79 1.92 0.06 4.1 12.3

Euro Zone Euro Stoxx 322.17 0.64 0.20 2.5 16.8

Euro Stoxx 50 3193.13 3.91 0.12 2.7 17.3

Austria ATX 2376.60 11.17 0.47 -6.7 3.4

Belgium Bel-20 3177.00 13.19 0.42 8.7 20.9

Czech Republic PX 951.28 -1.58 -0.17% -3.8 6.3

Denmark OMXCopenhagen 672.91 0.35 0.05 18.9 34.3

Finland OMXHelsinki 7698.35 39.80 0.52 4.9 24.4

France CAC-40 4376.32 6.80 0.16 1.9 11.6

Germany DAX 9753.56 19.23 0.20 2.1 17.3

Hungary BUX 18004.51 -100.35 -0.55 -3.0 -1.8

Ireland ISEQ 4742.49 18.51 0.39 4.5 17.2

Italy FTSEMIB 20831.26 -42.24 -0.20 9.8 28.3

Netherlands AEX 408.53 0.58 0.14 1.7 10.8

Norway All-Shares 699.85 1.85 0.27 16.1 28.9

Poland WIG 51540.81 -126.79 -0.25 0.5 10.3

Portugal PSI 20 6377.43 103.79 1.65 -2.8 12.8

Russia RTSI 1272.02 5.14 0.41% -11.8 -7.1

PREVIOUS SESSION PERFORMANCERegion/Country Index Close Net change Percentage change Yr.-to-date 52-wk.Spain IBEX 35 10659.10 10.20 0.10 7.5 32.0

Sweden OMXStockholm 452.43 0.18 0.04 6.8 18.2

Switzerland SMI 8605.10 10.89 0.13 4.9 8.6

Turkey BIST 100 82854.62 324.1 0.39 22.2 9.9

U.K. FTSE 100 6798.15 2.81 0.04 0.7 3.0

ASIA-PACIFIC DJAsia-Pacific TSM 1534.29 5.84 0.38 5.9 9.5

Australia SPX/ASX 200 5576.70 33.40 0.60 4.2 10.8

China Shanghai Composite 2078.49 3.01 0.14 -1.8 2.2

Hong Kong Hang Seng 23971.87 189.76 0.80 2.9 9.1

India S&PBSE Sensex 26147.33 121.53 0.47 23.5 30.1

Japan Nikkei Stock Average 15328.56 -14.72 -0.10% -5.9 4.1

Singapore Straits Times 3340.70 23.79 0.72 5.5 2.0

South Korea Kospi 2028.32 -0.61 -0.03 0.8 6.1

AMERICAS DJAmericas 501.15 0.80 0.16 7.6 16.8

Brazil Bovespa 57262.76 -720.56 -1.24 11.2 17.3

Mexico IPC 44209.70 -47.39 -0.11 3.5 8.4

Note:Americas index data are as of 3:00 p.m. ET. Sources: SIX Financial Information;WSJMarketDataGroup

Cross rates U.S.-dollar and euro foreign-exchange rates in global trading

USD GBP CHF SEK RUB NOK JPY ILS EUR DKK CDN AUD

Australia 1.0584 1.8029 1.1727 0.1548 0.0304 0.1708 0.0104 0.3100 1.4247 0.1911 0.9854 ...

Canada 1.0740 1.8296 1.1901 0.1571 0.0309 0.1733 0.0106 0.3146 1.4458 0.1939 ... 1.0148

Denmark 5.5396 9.4367 6.1381 0.8101 0.1591 0.8939 0.0546 1.6225 7.4571 ... 5.1579 5.2341

Euro 0.7429 1.2655 0.8231 0.1086 0.0213 0.1199 0.0073 0.2176 ... 0.1341 0.6917 0.7019

Israel 3.4143 5.8163 3.7832 0.4993 0.0981 0.5510 0.0336 ... 4.5961 0.6163 3.1790 3.2260

Japan 101.5010 172.9070 112.4679 14.8432 2.9161 16.3791 ... 29.7282 136.6347 18.3229 94.5069 95.9039

Norway 6.1970 10.5566 6.8666 0.9062 0.1780 ... 0.0611 1.8150 8.3420 1.1187 5.7700 5.8553

Russia 34.8074 59.2943 38.5682 5.0901 ... 5.6168 0.3429 10.1946 46.8556 6.2834 32.4089 32.8880

Sweden 6.8382 11.6489 7.5771 ... 0.1965 1.1035 0.0674 2.0028 9.2052 1.2344 6.3670 6.4611

Switzerland 0.9025 1.5374 ... 0.1320 0.0259 0.1456 0.0089 0.2643 1.2149 0.1629 0.8403 0.8527

U.K. 0.5870 ... 0.6505 0.0858 0.0169 0.0947 0.0058 0.1719 0.7902 0.1060 0.5466 0.5547

U.S. ... 1.7035 1.1080 0.1462 0.0287 0.1614 0.0099 0.2929 1.3461 0.1805 0.9311 0.9449

Source: ICAPPlc.

MSCI indexesDeveloped and emerging-market regional and country indexesfromMSCI as of July 23, 2014

Price-to- LOCAL-CURRENCYDividend earnings PERFORMANCEyield ratio MSCI Index Last Daily YTD 52-wk.

2.50% 17 MSCIACWI* 431.41 -0.66% 5.6% 21.2%

2.40 18 World (DevelopedMarkets) 1,750.75 -0.61 5.4 22.1

2.30 18 World ex-EMU 215.04 -0.56 6.2 21.5

2.30 18 World ex-UK 1,766.19 -0.58 5.6 22.1

3.00 16 EAFE 1,961.75 -0.77 2.4 19.7

2.70 12 EmergingMarkets (EM) 1,074.48 -1.04 7.2 14.3

3.20 17 EUROPE 117.06 1.31 4.4 19.8

3.10 19 EMU 198.01 -0.95 0.2 27.0

3.10 19 Europe ex-UK 124.64 1.30 3.6 20.5

4.10 14 EuropeValue 119.22 1.38 5.0 24.1

2.30 22 EuropeGrowth 110.61 1.25 3.7 15.6

2.30 18 EuropeSmall Cap 271.11 1.05 4.0 27.7

3.60 8 EMEurope 268.22 1.72 -2.3 -1.5

3.50 15 UK 2,005.88 0.98 0.7 9.2

3.30 16 Nordic Countries 213.99 1.49 6.1 23.7

4.20 5 Russia 726.28 1.39 -8.4 3.9

2.80 19 SouthAfrica 1,270.99 1.26 11.7 29.3

3.00 13 ACASIAPACIFICEX-JAPAN 503.89 -0.76 7.6 16.6

1.90 15 Japan 779.97 0.69 -3.1 10.9

3.40 9 China 63.67 2.00 0.9 16.7

1.40 19 India 975.18 1.42 19.3 29.0

1.10 10 Korea 588.30 0.45 -0.2 10.2

2.70 17 Taiwan 343.66 0.65 13.5 18.8

1.90 20 USBROADMARKET 2,246.65 -0.54 6.7 23.7

1.40 32 USSmall Cap 3,301.51 -0.75 2.3 21.4

3.40 17 EMLATINAMERICA 3,566.02 -0.86 11.4 11.9

*Twenty-four developed and 21 emergingmarkets Source:MSCI

S&P Dow Jones IndicesPrice-to-

Dividend earnings PERFORMANCE (euros) PERFORMANCE (U.S.dollars)yield* ratio* S&PDowJones Index Last Daily 52-wk. Last Daily 52-wk.

2.36%19.68 Global TSM 3418.63 0.18% 15.3%

2.80 19.91 GlobalDOW 1844.62 0.02% 15.0% 2637.72 0.00 16.9

2.90 15.20 Global Titans 50 245.63 0.26 12.3 247.00 0.23 14.2

3.14 21.72 DevEuropeTSM 3473.46 0.11 16.8

2.31 20.61 DevelopedMarketsTSM 3429.41 0.16 15.6

2.79 14.04 S&PBMIEmgMarkets 277.33 0.35 12.0

3.30 21.46 S&PEurope 350 1406.47 0.10 14.3 1701.33 0.05 16.4

3.14 26.06 S&PEuro 1375.80 0.16 16.5 1686.56 0.11 18.6

3.74 26.76 EuropeDow 1435.71 0.08 14.4 2052.86 0.05 16.3

3.44 9.74 BRIC50 426.63 0.48 14.2 547.64 0.46 16.1

1.87 21.27 U.S. TSM 20721.20 0.13 17.5

Kuwait Titans 30 -c 211.18 0.40 3.5

Price-to-Dividend earnings PERFORMANCE (euros) PERFORMANCE (U.S.dollars)yield* ratio* S&PDowJones Index Last Daily 52-wk. Last Daily 52-wk.

TurkeyTitans 20 -c 857.29 0.41% 15.3%

5.05%17.08 Global SelectDiv 267.87 0.52 19.4

5.22 17.46 Asia/Pacific SelectDiv 318.01 0.93% 7.5% 366.42 0.90 9.3

U.S. SelectDividend -d 1338.52 -0.13 17.1

3.08 29.38 S&PGlbNatResources 2177.70 0.27 10.1 2913.46 0.26 12.0

2.08 20.35 IslamicMarket 2930.41 0.23 17.3

2.38 18.13 IslamicMarket 100 3232.64 0.34 18.8

Islamic Turkey -c 4633.18 -0.01 5.9

3.24 23.42 Sustainability Europe 114.84 0.22 15.5 169.96 0.19 17.5

3.39 30.41 S&PGlb Infrastructure 1699.38 0.09 18.4 2584.73 0.08 20.5

2.05 16.88 Luxury 2011.12 0.19 5.3

DJCommodity 682.29 0.27 -2.0

*Fundamentals are based on data inU.S. dollar. Footnotes: a-inUSdollar. b-dividends reinvested. c-in local currency. Note:All data as of 2 p.m.ET. Source: S&PDowJones Indices

GLOBAL MARKETS LINEUP

WSJ.com>> Follow the markets throughout the day with updated stock quotes, news andcommentary at WSJ.com. Also, receive email alerts that summarize the day’s trading in Europeand Asia. To sign up, go to WSJ.com/email.

Commodities Prices of futures contractswith themost open interestEXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: ChicagoMercantile Exchange; ICE-US: ICE Futures U.S.MDEX:BursaMalaysiaDerivatives Berhad; LIFFE: London International Financial Futures Exchange; COMEX: Commodity Exchange; LME: LondonMetals Exchange;NYMEX:NewYorkMercantile Exchange;ICE-EU: ICE Futures Europe *Data as of July 22, 2014

ONE-DAY CHANGE Year YearCommodity Exchange Last price Net Percentage high low

Corn (cents/bu.) CBOT 370.25 2.00 0.54% 517.00 365.75Soybeans (cents/bu.) CBOT 1076.50 18.75 1.77 1,279.25 1,055.00Wheat (cents/bu.) CBOT 529.75 5.25 1.00 751.50 520.25Live cattle (cents/lb.) CME 158.225 0.350 0.22 159.300 130.900Cocoa ($/ton) ICE-US 3,199 68 2.17 3,204 2,650Coffee (cents/lb.) ICE-US 176.20 7.90 4.69 220.60 116.70Sugar (cents/lb.) ICE-US 16.95 -0.21 -1.22% 18.91 15.72Cotton (cents/lb.) ICE-US 68.10 0.19 0.28 84.74 67.10Rapeseed (euro/ton) LIFFE 329.25 7.00 2.17 386 301Cocoa (pounds/ton) LIFFE 1,939 14 0.73 1,950 1,651Robusta coffee ($/ton) LIFFE 1,994 1 0.05 2,216 1,568

Copper ($/lb.) COMEX 3.2080 unch. unch. 3.3855 2.8780Gold ($/troy oz.) COMEX 1307.20 -0.80 -0.06 1,390.80 1,207.00Silver ($/troy oz.) COMEX 20.970 -0.038 -0.18 22.160 18.650Aluminum ($/ton)* LME 2,039.00 32.00 1.59 2,039.00 1,686.50Tin ($/ton)* LME 22,160.00 10.00 0.05 23,770.00 21,410.00Copper ($/ton)* LME 7,065.00 76.00 1.09 7,422.00 6,430.00Lead ($/ton)* LME 2,226.00 31.00 1.41 2,242.00 2,033.00Zinc ($/ton)* LME 2,370.00 58.00 2.51 2,370.00 1,948.00Nickel ($/ton)* LME 19,000 100 0.53 21,100 13,425

Crude oil ($/bbl.) NYMEX 102.98 0.59 0.58 106.64 88.93Heating oil ($/gal.) NYMEX 2.8898 0.0262 0.91 3.0848 2.8405RBOB gasoline ($/gal.) NYMEX 2.8446 -0.0077 -0.27 3.0732 2.6607Natural gas ($/mmBtu) NYMEX 3.773 -0.012 -0.32 4.8850 3.7680Brent crude ($/bbl.) ICE-EU 108.13 0.80 0.75 115.09 102.75Gas oil ($/ton) ICE-EU 891.75 5.75 0.65 949.25 874.00

Sources: SIX Financial Information;WSJMarket Data Group

Currencies London close on July 23Per In

AMERICAS Per euro In euros U.S. dollar U.S. dollars

Argentina peso-a 10.9972 0.0909 8.1694 0.1224

Brazil real 2.9890 0.3346 2.2204 0.4504

Canada dollar 1.4458 0.6917 1.0740 0.9311

Chile peso 758.49 0.001318 563.46 0.001775

Colombia peso 2483.62 0.0004026 1845.00 0.0005420

EcuadorUS dollar-f 1.3461 0.7429 1 1

Mexico peso-a 17.4002 0.0575 12.9260 0.0774

Peru sol 3.7496 0.2667 2.7855 0.3590

Uruguay peso-e 30.918 0.0323 22.968 0.0435

U.S. dollar 1.3461 0.7429 1 1

Venezuela bolivar 8.55 0.116986 6.35 0.157480

ASIA-PACIFIC

Australia dollar 1.4247 0.7019 1.0584 0.9449

1-mo. forward 1.4277 0.7004 1.0606 0.9429

3-mos. forward 1.4339 0.6974 1.0652 0.9388

6-mos. forward 1.4430 0.6930 1.0719 0.9329

China yuan 8.3463 0.1198 6.2002 0.1613

Hong Kong dollar 10.4335 0.0958 7.7506 0.1290

India rupee 80.7119 0.0124 59.9580 0.0167

Indonesia rupiah 15469 0.0000646 11492 0.0000870

Japan yen 136.63 0.007319 101.50 0.009852

1-mo. forward 136.61 0.007320 101.48 0.009854

3-mos. forward 136.55 0.007323 101.44 0.009858

6-mos. forward 136.42 0.007330 101.34 0.009868

Malaysia ringgit-c 4.2667 0.2344 3.1696 0.3155

NewZealand dollar 1.5495 0.6454 1.1511 0.8688

Pakistan rupee 132.804 0.0075 98.655 0.0101

Philippines peso 58.161 0.0172 43.206 0.0231

Singapore dollar 1.6663 0.6001 1.2378 0.8079

South Koreawon 1378.51 0.0007254 1024.05 0.0009765

Taiwan dollar 40.351 0.02478 29.975 0.03336

Thailand baht 42.844 0.02334 31.828 0.03142

Per InEUROPE Per euro In euros U.S. dollar U.S. dollars

Euro zone euro 1 1 0.7429 1.3461

1-mo. forward 0.9999 1.0001 0.7428 1.3463

3-mos. forward 0.9997 1.0003 0.7427 1.3465

6-mos. forward 0.9994 1.0006 0.7424 1.3469

Czech Rep. koruna-b 27.459 0.0364 20.398 0.0490

Denmark krone 7.4571 0.1341 5.5396 0.1805

Hungary forint 307.26 0.003255 228.25 0.004381

Norway krone 8.3420 0.1199 6.1970 0.1614

Poland zloty 4.1371 0.2417 3.0733 0.3254

Russia ruble-d 46.856 0.02134 34.807 0.02873

Sweden krona 9.2052 0.1086 6.8382 0.1462

Switzerland franc 1.2149 0.8231 0.9025 1.1080

1-mo. forward 1.2146 0.8233 0.9023 1.1083

3-mos. forward 1.2140 0.8237 0.9019 1.1088

6-mos. forward 1.2130 0.8244 0.9011 1.1098

Turkey lira 2.8142 0.3553 2.0906 0.4783

U.K. pound 0.7902 1.2655 0.5870 1.7035

1-mo. forward 0.7904 1.2651 0.5872 1.7031

3-mos. forward 0.7908 1.2645 0.5875 1.7022

6-mos. forward 0.7917 1.2630 0.5882 1.7002

MIDDLE EAST/AFRICA

Bahrain dinar 0.5075 1.9706 0.3770 2.6527

Egypt pound-a 9.6271 0.1039 7.1516 0.1398

Israel shekel 4.5961 0.2176 3.4143 0.2929

Jordan dinar 0.9534 1.0489 0.7083 1.4119

Kuwait dinar 0.3805 2.6280 0.2827 3.5377

Lebanon pound 2035.97 0.0004912 1512.45 0.0006612

Saudi Arabia riyal 5.0486 0.1981 3.7505 0.2666

South Africa rand 14.1367 0.0707 10.5017 0.0952

United Arab dirham 4.9444 0.2022 3.6731 0.2723

a-floating rate b-financial c-government rate c-commercialrate d-Russian Central Bank rate.Source: ICAPPlc.

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 7

Mayor Stephanie Miner said Syracuse, N.Y., has been in discussions with federal authorities to house minors in vacant buildings at a Sisters of St. Francis convent.

ReportsofAir-TrafficErrorsRoseInFiscalYear

U.S. air-traffic-control errorscontinued to climb in fiscal 2013rather than plateauing as federalaviation regulators previously pro-jected, according to data slated tobe released by the government.

There were roughly 6,700 in-stances of planes flying closer toeach other than permitted in U.S.airspace in the 12 months throughSeptember, up about 50% from a re-cord 4,394 events a year earlier, ac-cording to data compiled by theFederal Aviation Administration.Traffic volume was down roughly2%. Officials considered some 2,300midair events in fiscal 2013 seriousenough to warrant detailed analysis,according to the FAA’s data. In theprevious year, about 1,200 incidentsfit that category.

But the number of the most seri-ous, or “high risk,” midair closecalls dropped slightly during the lat-est period, according to one personwho has reviewed the FAA numbers.The agency categorized 38 suchnear-collisions in fiscal 2013, versus41 a year earlier.

Considered a key safety yard-stick, the annual statistics detailingso-called losses of separation, or vi-olations of air-traffic-control stan-dards, are closely watched by out-side experts, lawmakers and othergroups. The numbers don’t detailwhether the incidents resulted frommistakes by pilots or controllers,but they are seen as an importantwarning system for budding safetyhazards.

FAA officials had attributed therecent surge in reported air-traffic-control mistakes to new automatedflight-tracking systems that collectsubstantially more data and identifymany minor slip-ups that wouldn’thave been detected before.

The FAA has said that in thethree years ending in late 2012, thenew collection methods amountedto a tenfold increase in the totalnumber of available reports. FAA of-ficials and controllers had expectedthe uptick in both reports and inci-dents to subside in fiscal 2013.Some predicted a plateau in thenumber of midair losses of separa-tion.

The FAA hasn’t yet officially re-leased updated figures, but a finalversion of the report has been circu-lating in Washington. People whohave seen it didn’t indicate where orwhen the most serious close callsoccurred. An FAA spokeswomandidn’t have a comment.

After facing controversy foryears over the frequency of control-ler slip-ups, the FAA described thenew reporting procedures—alongwith changes in the way it catego-rizes and assesses midair inci-dents—as a safety enhancement.

Officials have said the system’sautomated features allow them tofocus on the most pressing hazards.Despite the influx of raw data, ac-cording to these officials, automatedfilters allow them to avoid wastingtime scrutinizing inconsequentialdeviations that don’t pose any sig-nificant danger to planes or passen-gers. By certain measures, comput-erized data collection has generatedas many as 900 additional reportsof losses of separation on somedays.

BY ANDY PASZTOR

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U.S. NEWS

Cities Offer Shelter to MigrantsMunicipal LeadersWorkWith Federal Officials in Effort to House Unaccompanied Children

Leaders of several U.S. cities andat least one state have offered totake in some of the thousands of un-accompanied minors from CentralAmerica who have swarmed thesouthern U.S. border in recentmonths. The invitations follow vocalopposition in other places to hous-ing the children.

Los Angeles; New York City; Syr-acuse, N.Y.; and Dallas County inTexas are among localities that havesaid they would allow minors to behoused in federally funded facilities.Massachusetts Gov. Deval Patrickhas expressed willingness to shelteras many as 1,000 children at militarybases that were used for evacuees ofHurricane Katrina.

Border Patrol agents have appre-hended about 57,000 unaccompaniedminors trying to enter the countryillegally since October. Mostly fromHonduras, Guatemala and El Salva-dor, many are fleeing gangs and pov-erty. The Pew Research Center saidTuesday that 117% more unaccompa-nied children age 12 and youngerwere apprehended in the first eightmonths of this fiscal year, which be-gan Oct. 1, than in the entire previ-ous fiscal year.

The youngsters remain in federalcustody until they have receivedmedical screening and can be re-leased to an adult sponsor. But therecent surge in arrivals has caused ashortage of space and a rush by fed-eral officials to find additional hous-ing options.

Los Angeles Mayor Eric Garcetti,a Democrat, said that as a father andmayor, he couldn’t ignore the plightof children. “We are working to ad-dress the humanitarian crisis on ourborder,” he said.

He said the mayor’s Office of Im-migrant Affairs recently convened ameeting of 50 local organizations todiscuss how to help. They will workwith the federal government to iden-tify temporary shelters. The citywasn’t asked to provide resources orservices, a spokesman said.

“There has been an absence oflocal officials saying we want tohelp,” said Stephanie Miner, the

Democratic mayor of Syracuse. Shesaid the city of 150,000 has been intalks with authorities to house mi-nors in vacant buildings at a Sistersof St. Francis convent.

President Barack Obama hasasked Congress for $3.7 billion inemergency spending to bolster bor-der enforcement and to fund more

facilities to house minors and givethem legal assistance. The Houseand Senate are moving forward onseparate bills, with no clear deal insight. Senate Democrats are prepar-ing legislation to allocate $2.7 billionthis calendar year to the issue, aneffort expected to meet resistancefrom Republicans as too expensive.

Most places that have been re-ceptive to the minors already havesizable immigrant populations andare led by Democrats.

“These moderate to liberal may-ors and governors are speaking totheir constituents,” said Louis De-Sipio, a political-science professor atthe University of California, Irvine.“They are also giving the presidentsome coverage by saying, ‘We don’twant these kids crossing but we willbe responsible to the ones who arehere.’ ”

Towns in Arizona, California,Michigan and Maryland have re-sisted efforts to have migrantshoused there. Leaders say havingthem will encourage more illegal im-migration, undermine public safetyand health, and strain budgets.

Until minors are released to care-takers, they are housed in Depart-ment of Health and Human Servicesshelters. Agency spokesman KennethWolfe said the average length of stayper child is fewer than 35 days, withabout 9,000 minors now in HHS fa-cilities. The agency has 100 sites,but to meet soaring demand, it hasset up three extra shelters in Cali-fornia, Oklahoma and Texas.

HHS regulations say minors don’tleave a facility, even for recreation,until they are released to a sponsor.A fact sheet provided to Syracuse of-ficials says: “HHS pays for and pro-vides all services for the childrenthrough its network of grantees.This includes providing food, cloth-ing, education and medical screen-ing to the children.”

Local opponents still have criti-cized Dallas County Judge Clay Jen-kins for proposing that three vacantfacilities house minors. In Massa-chusetts, critics said they aim tothwart Mr. Patrick’s plan, as it wouldstrain their communities.

Syracuse’s Ms. Miner said therewas no cost tied to housing the chil-dren “that gives me pause or makesme concerned.”

“If a child breaks his arm, he willgo to our hospital,” she said, butotherwise, “all services are pro-vided at the facility.”

—Scott Calvertcontributed to this article.

BY MIRIAM JORDANYouth MovementLeaders of several U.S. cities have offered to host unaccompaniedminors who have entered the U.S. illegally. Apprehensions ofunaccompanied minors at the U.S.-Mexico border:

By age By select country

Note: Fiscal year ends Sept. 30

Source: Pew Research Center analysisof U.S. Customs and Border Protection data

35,314 39,472

3,445

7,460

FY2013 FY2014(first eight months)

12 andyounger

13–17years old

0 10,000 20,000

Honduras

El Salvador

Guatemala

Mexico

FY2013FY2014(firsteightmonths)

The Wall Street Journal

HouseGOPConsiders ImmigrationPlansWASHINGTON—House Republi-

cans are reviewing proposals tospend roughly $1.5 billion and deploythe National Guard to help deal withthe flood of migrants crossing thesouthern border.

At a closed-door meeting of HouseRepublicans on Wednesday, a groupof lawmakers pitched a set of mea-sures aimed at tightening border se-curity and speeding up the process ofreviewing Central American unaccom-panied children and families enteringthe U.S. in record numbers this year.

Their proposal includes changes toa 2008 antitrafficking law in order toreturn minors to their home coun-tries more quickly.

“That is the most critical point,”

said Rep. John Carter (R., Texas), amember of the GOP group. “The lawhas great big holes in it, and smartfolks have figured out how to getthrough those holes.”

The House plan would spend farless on the border than either thepresident’s request for $3.7 billion orSenate legislation that would provide$2.7 billion through the end of 2014.

Senate Democrats criticized theRepublican proposal. “If they reallywant to take these kids and shipthem back in five days without givingthem a decent right to claim asylum,no, I’m not going to change on that,”said Sen. Tom Harkin (D., Iowa).

—Kristina Petersonand Michael R. Crittenden

22 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

Europe ex-UK Small/Mid-Cap EquityFunds that invest primarily in the equities of small- and mid-cap companies incontinental Europe. At least 75% of total assets are invested in equities. Ranked on %total return (dividends reinvested) in Euros for one year ending July 23, 2014

Leading 10 PerformersFUND FUND LEGAL %Return in $US **RATING * NAME FUNDMGM'T CO. CURR. BASE YTD 1-YR 2-YR 5-YR

2 TR European Henderson Global GBPGBR 6.08 39.89 40.59 16.12GrowthOrd Investors

2 IP European Invesco Fund GBPGBR 10.45 31.63 29.25 17.76Small Companies Managers Limited

3 Invesco Cont Invesco Global USDIRL 7.89 27.52 34.91 25.12European SmCp EqA AssetManagement Limited

4 Ignis Ignis FundManager GBPGBR 6.92 26.95 32.37 20.89European Smlr Coms I Acc Limited

4 IP European Invesco Fund GBPGBR 7.71 26.57 30.02 21.44Opportunities Acc Managers Limited

3 Schroder Schroder Unit GBPGBR 7.67 25.61 28.46 16.88European SmCosAcc Trusts Limited

NS Taaleri Taaleritehtaan EURFIN 8.33 24.08 23.84 NSRhein Value A RahastoyhtiöOy

4 European F&CAsset GBPNLD 7.40 22.42 36.91 22.73Assets Ord Management PLC

3 Digital J.Chahine Capital EURLUX 3.80 20.82 25.67 17.71Stars Europe ex-UKAcc

2 Fourton Fourton Oy EURFIN 6.99 18.11 17.88 14.61Odysseus

NOTE: Changes in currency rateswill affect performance and rankings. Source: Morningstar, LtdKEY: ** 2YR and 5YR performance is annualized 1 Oliver’s Yard, 55-71 City RoadNA-not available due to incomplete data; London EC1Y 1HQUnited KingdomNS-fund not in existence for entire period www.morningstar.co.uk; Email: mediaservice@morningstar.com

Phone: +44 (0)203 107 0038; Fax: +44 (0)203 107 0001

MARKETS

Fund Scorecard

European StocksEke Out Slim Gains

The exposure of financial-report-ing problems at Deutsche Bank sentshares in Germany’s largest lenderlower Wednesday, but overall mar-kets clung to slim gains.

Deutsche Bank closed down 0.7%after falling about 3% in early trad-ing, following a Wall Street Journalreport that an examination by the

Federal Reserve Bankof New York foundthat the lender’s U.S.operations suffer from

a litany of serious problems, includ-ing shoddy financial reporting, inad-equate auditing and oversight andweak technology systems.

The bank’s share price had takena beating already this year, fallingmore than 30% from a high of morethan €38 ($51.17) in January, to justover €26 on Wednesday, and ana-lysts at Berenberg said that the re-port “perfectly illustrates the issuesfacing all large complex banks. Italso raises the question as to whythe market places such faith in tan-gible book value,” they wrote in anote.

Germany’s DAX 30 index gained0.2% to 9753.56, while France’s CAC40 index rose 0.2% to 4376.32 andthe U.K.’s FTSE 100 edged up lessthan 0.1% to 6798.15.

In London, GlaxoSmithKline fell4.7% as the company said it now ex-pects core per-share earnings to besimilar to 2013. That compares withGlaxo’s previous target of 4% to 8%growth.

The broad Stoxx Europe 600closed 0.1% higher at 342.86 as in-vestors weighed upbeat U.S. infla-tion data against concerns sur-rounding the Middle East conflictand tensions between Russia andthe West.

In the U.S., the broader marketsqueaked out a gain while blue chipsslipped.

The Dow Jones Industrial Aver-age fell 26.91 points, or 0.2%, to17086.63. The S&P 500 index gained3.48 points, or 0.2%, to 1987.01, top-ping its last record reached July 3.

The Nasdaq Composite Indexadded 17.68 points, or 0.4%, to4473.70, helped by Apple’s gain. Thestock advanced 2.6% after the tech-nology company beat forecasts forearnings. The iPhone maker re-ported 12% profit growth thanks, es-pecially, to demand for products inBrazil, Russia, India, and China—collectively known as the BRICcountries—where iPhone sales rose55%.

Biotech stocks rallied after a pairof better-than-expected earnings re-ports from companies in the sector.Shares have been under pressure inrecent sessions, after a report fromthe Federal Reserve noted that valu-ations of biotech, small-cap and so-cial-media stocks could bestretched.

Shares of Intuitive Surgical rose18%. The maker of robotic surgicalsystems reported a decline in itssecond-quarter earnings and reve-nue, but results topped expecta-tions. Biogen Idec beat second-quarter earnings expectations,fueled by sales of its multiple-scle-rosis treatments. Shares rose 11%.

In currency markets, sterling hita day’s low in Europe of $1.7060, af-ter minutes from the latest Bank ofEngland policy meeting showed thatnone of the policy makers had votedto change interest rates this month,even though “for some members thedecision had become more balancedin the past few months than earlierin the year,” the bank wrote in itsminutes. They added that althoughemployment was strong, wagegrowth had been “surprisinglyweak.”

Late in New York, the poundfetched $1.7034 from $1.7066 lateTuesday. The euro bought $1.3460from $1.3465, while the dollartraded at ¥101.52 from ¥101.47.

In commodity markets, crude oilfor September delivery gained 73cents, or 0.7%, to $103.12 a barrelon the New York Mercantile Ex-change. Gold for July delivery lost$1.60, or 0.1%, to $1,304.50 a troyounce on the Comex division ofNymex.

BY JOSIE COX

MARKETREPORT

Pressure Builds on Finance ChiefNews of the New York Fed letter

sent Deutsche Bank shares downnearly 3% in U.S. trading late Tues-day and 0.7% in Frankfurt onWednesday.

Mr. Krause joined Deutsche Bankas CFO in 2008 from luxury-carmaker BMW AG. The New YorkFed’s blast at his work contrastswith positive reactions he has re-ceived from many investors forshedding unwanted assets and help-ing rebuild the bank’s financial baseover the past two years.

The New York Fed’s criticismsare unlikely to cause Deutsche Bankto restate its financial results. Butthe content of the letter adds fuel tointernal criticism of Mr. Krause, ac-cording to people familiar with dis-cussions in the bank.

One of Mr. Krause’s biggest proj-ects since he became CFO has beenimplementing an enormous informa-tion-technology project dubbedStride, an acronym for Strategic Re-porting and Information DeliveryProgram. Stride, started in 2010, isdesigned to improve the lender’s fi-nancial reporting across all divi-

Continued from page 15 sions by consolidating into a singlesystem the more than 1,000 infor-mation-technology systems thatDeutsche Bank uses for financial re-porting.

But Stride’s progress has beenslow. It was originally expected tobe completed next year, but that hasbeen pushed back to 2016, partly be-cause of technical problems.

The slow pace has elicited criti-cism at meetings of Deutsche Bank’ssupervisory board, according to aboard member, who said that Mr.Krause has been struggling withseveral projects related to the im-provement of the finance depart-ment’s organization.

Deutsche Bank executives pri-vately acknowledge that Stride hasshortcomings.

The slow progress promptedDeutsche Bank to cut Mr. Krause’scompensation last year, according topeople familiar with the matter.

“We believe the Stride program,under Stefan Krause’s leadership,has been an instrumental compo-nent in helping us to further consol-idate and modernize our regulatoryand financial reporting,” the

Deutsche Bank spokesman saidWednesday. “The program is makingprogress step-by-step, but like anyambitious systems project, it is amultiyear initiative.”

In his letter, the New York Fed’sMr. Muccia said that Stride’s “scopewas limited and would not have ad-dressed the issues identified duringour review.” He said that discus-sions with supervisors from theNew York Fed led Deutsche Bank toexpand its scope and to devotingmore resources on it.

“As the bank hasn’t been able toremove shortcomings over such along period of time…there need tobe consequences for the CFO,” saidDieter Hein, an analyst at Germanfinancial-research company Faire-search in Frankfurt.

The publication of the New YorkFed letter is “horribly embarrass-ing” for Deutsche Bank, said DanDavies, an analyst at Exane BNPParibas in London.

But Mr. Davies said the issueshouldn’t be “taken out of propor-tion…The general inadequacy of sys-tems and controls is a big priorityof the Fed at the moment.”

Options Point to CautionOver Scottish Referendumthe cost of these sterling options toramp up further in the run-up to thevote.

“In English, this means thatwe’ve seen [foreign-exchange] in-vestors looking to pay a bigger pre-mium for downside protection onthe pound,” said Stephen Gallo, acurrencies strategist at Bank ofMontreal. “If we did see a pickup involatility over the coming twomonths, investors are betting itwould most likely stem from the re-sult of the Scottish referendum.”

Investors have been aware of thecoming vote for months. Strategistsand portfolio managers at the in-vestment firm BlackRock Inc. said ina note in March that an independentScotland would bring major uncer-tainties, costs and risks to bothScotland and the rest of the U.K.

“There is a lot to settle: a cur-rency union or a Scottish pound,Scotland’s opening balance sheet,division of the hydrocarbon bounty,financial regulation, European Unionmembership, tax matters, timeta-bles, and much more. Some balls arebound to be dropped,” they wrote.But these concerns don’t appear tohave troubled investors enough tomake them shy away from sterlingor from U.K. assets.

U.K. government bonds, for ex-ample, have been rising all year. Theyield on the U.K.’s 10-year debt hasfallen by half a percentage point to2.6%. Bond yields fall when pricesrise.

Now, as the vote date drawsnear, some buyers of currencies op-tions, both those seeking to protectagainst losses and those seeking toprofit from a drop in the pound, arepouncing.

“Speculators betting on a ‘yes’vote are buying one-year sterlingputs, expecting a big drop in thepound and a significant pickup involatility,” said Cameron Millar, atrader at Scottish-based foreign-ex-change consultant Positive Gamma.

Continued from first page

Mr. Millar expects the pound tofall up to 5% as an initial reaction toa “yes” vote, with sensitivity tonews headlines to continue for at

least nine months. He has been buy-ing nine- to 10-month options, alsokeeping in mind the U.K. generalelection in May 2015. “There is a lot

of money to be made here. They arecheap at this level,” he said.

Recent polls suggest that 37% ofthe Scottish vote will favor abreakup, but the 13% of the elector-ate describing themselves as unde-cided could swing the final tally. “A‘yes’ vote is much more than just atail risk,” Morgan Stanley said in arecent research note, suggestingthat the probability of a breakup is25%. In this scenario, the currencywould drop by up to 10%, the banksaid.

The negative consequences forthe currency would be considerable,said Valentin Marinov, a currencystrategist at Citigroup.

—Nick Cawleycontributed to this article.

Source: Thomson Reuters *As of 5 p.m. Wednesday BST The Wall Street Journal

The Early VoteSterling has beenclimbing againstthe euro…

How many eurosone pound buys*

…but the optionsmarket is signalingcaution ahead ofthe Scottishindependencereferendum

Implied volatility twomonths out in theeuro–sterling market;as volatility rises, so domarket premiums onthe options*

€1.28

1.18

1.20

1.22

1.24

1.26

Jan. Feb. March April May June July

9

4

5

6

7

8

%

Jan. Feb. March April May June July

BlackRock said in Marcha ‘yes’ vote would raisebig issues. ‘Some ballsare bound to be dropped,’the investment firm said.

8 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

WORLD NEWS

IndianMen’s Trip to IraqRouses Fears BackHome

KALYAN, India—When fourfriends from this small town outsideMumbai disappeared in May—andthen turned up in Iraq—it awakenedfears of a new type of discontentamong young Muslims in India.

Police say they are looking intowhether the four went to Iraq tojoin a Sunni Muslim insurgentgroup. Relatives and friends of themen, who are in their early 20s, saidthat militancy would be out of char-acter and that they believe the fourwent looking for jobs or to visit reli-gious sites.

Despite the uncertainty aboutthe men’s intentions, there is wide-spread concern in India that stemsin part from the country’s complexrelationship with its Muslim minor-ity and fears in India about Islamistterror.

For days, Indian newspapershave been running stories aboutthese men and others who are al-leged by unnamed law-enforcementand intelligence sources to havejoined up with militants in Iraq andSyria.

In a sign of the national interestin the case, India’s home ministermet with relatives of the fourfriends from Kalyan on Friday. Thefamily members were seeking gov-ernment help to bring them home.

Ministry spokesman KuldeepSingh Dhatwalia said on Sunday

that it “has been brought to thegovernment’s notice” that the fourfriends “may have been motivated”to join radical forces.

Police said they have found noevidence of wrongdoing by thegroup. If they do find the youngmen are linked to the extremistgroup Islamic State, it would be “aparadigm shift” with important con-sequences for how India polices ter-rorism, said Deven Bharti, a seniorofficial in the state police in Maha-rashtra, which is home to Mumbaiand Kalyan.

Concerns about the possible mo-tivations of the four men come asyoung men from other countries, in-cluding France and the U.K., havejoined Islamic State, and U.S. offi-cials have expressed alarm over thephenomenon.

Modern India was formed morethan a half-century ago in a bloody“partition” involving a mass migra-tion of Muslims to the new state ofPakistan and Hindus from Muslim-majority areas into India. Muslimsmake up about 13% of India’s billion-plus population.

One concern about the fouryouths is the possibility that youngpeople in India may be receiving,and responding to, internationalmessages of militancy in new ways.That would be a departure because,as a general rule, Muslims in Indiahave tended to focus on issueswithin South Asia—regional politics,for instance, or questions of dis-

crimination, or the disputed terri-tory of Kashmir on the Pakistan bor-der—as opposed to conflicts such asIraq’s.

One notable change in recentyears: International militant mes-sages have begun reaching the earsof more youths within India. Here inKalyan, police and locals noted thatIndia’s widening access to the Inter-net has given more people access toinflammatory videos and messages.For instance, spam messages senton the popular smartphone serviceWhatsApp that ask recipients to riseup against attacks on Sunni or ShiaIslam have become commonplace,they said.

“There has definitely been achange in Muslim youth being awareof issues concerning them globally,”said Ravindra Tayde, a senior policeinspector in the area where the fourmen live.

Relatives of the four young menexpressed concerns over suchchanges, while stressing their beliefthat the four men may have beenmisunderstood. “There has been achange in awareness of global issuesaffecting Islam,” said Iftikaar AyubKhan, an uncle of one of the fourmen, Arif Fayyaz Majeed, a 22-year-old engineering graduate.

However, Mr. Khan said, the fouryoung men may have simply wantedto find good jobs and “get economi-cally stable in life.” In addition toMr. Majeed, the group of friends in-cluded two engineering students

and one man who worked in a callcenter.

Mr. Majeed’s father said his fam-ily is “frustrated with the Indianpress reports accusing the boys offighting in Iraq.” The parents of theother three men couldn’t bereached.

Sitting on a porch in a monsoondownpour after Friday prayers, agroup of relatives and friends of Mr.Majeed’s said he graduated from arespected private high school wherehe played on the cricket and soccerteams. Cricket “was his passion,”said Shadab Shaikh, a cousin.

The four men disappeared onMay 24. The uncle, Mr. Khan, saidMr. Majeed on that evening, afterplaying cricket with friends, told hisfamily he was “going for somework.” When he didn’t return homeby the following evening, his familyfiled a missing-persons report.Within a few days, the families real-ized the four friends were all gone,he said.

Around May 28, the four called

or sent texts to their families sayingthey were in Iraq and were fine. Thetravel agent who organized theirtrip said the four disappeared onthe sixth day of a seven-day tour ofreligious sites, according to Mr.Khan.

The last contact came on June 7,when the four again indicated theywere fine, according to the uncleand the police.

In Kalyan, the men were also vol-unteers with a local group, IslamicGuidance Centre, an organizationthat says it helps young Muslims en-gage in mainstream Indian societyby, for instance, organizing fieldtrips to old-age homes to chat withlonely residents.

Some Indian press reports havesuggested that one of the IGC’s vol-unteers, Adil Dolare, may have beena catalyst for the men’s decision togo to Iraq. Mr. Dolare, an importerof dried fruits from Afghanistan,said that wasn’t true.

—Niharika Mandhana in NewDelhi contributed to this article.

BY JESSE PESTAAND KENAN MACHADO

Iftikaar Ayub Khan, above, the uncle of one of the young men, in Kalyan, India.

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SubiantoWants Indonesia Election RedoJAKARTA, Indonesia—Presiden-

tial candidate Prabowo Subianto willchallenge results from the July 9election in Indonesia’s Constitu-tional Court, focusing a final bid forleadership of the world’s fourth-most-populous nation on what histeam suspects are irregularities in-volving 21 million votes.

Jakarta Gov. Joko Widodo wasdeclared president-elect of theSoutheast Asian nation Tuesdaywith 53.15% of the vote, defeatingMr. Subianto by a margin of 8.4 mil-lion votes. More than 133 millionballots were cast in what was atightly contested two-man race.

Mr. Subianto’s campaign team onWednesday raised questions aboutvoting at some 52,000 of the coun-try’s 479,000 polling stations anddemanded a revote at those sta-tions. They said that ballots cast atthose stations far exceeded their to-tal number of eligible voters.

“We will prove improper con-duct,” said team lawyer MahendraDatta.

Indonesia’s election commission,which announced its official tallyTuesday night, didn’t respond to re-quests to comment. In recent days,as ongoing counting showed Mr.Widodo winning and Mr. Subiantoforeshadowing a legal challenge, thecommission said it followed all rec-ommendations to address claims ofirregularities.

Mr. Subianto’s team said that byFriday it would submit a claim tothe Constitutional Court, the high-est in Indonesia when it comes toresolving election disputes. Thenine-member court would have until

mid-August to issue a decision.Mr. Subianto’s brother and ad-

viser, Hashim Djojohadikusumo, al-leged that votes were “mysteriouslyadded” to Mr. Widodo’s tally fromvarious regions during the finalcounting stage.

“The indication of massive fraudand widespread irregularities isoverwhelming,” Mr. Subianto’s cam-paign spokesman, Tantowi Yahya,told reporters. “We cannot and willnot ignore the evidence while thewill of the people remains in ques-tion.”

Legal experts played down thechallenge, pointing to a wide win-ning margin, intense oversight ofthe elections and a high bar for pro-cessing cases at the ConstitutionalCourt.

During legislative elections inApril, the court dismissed all but 21of about 900 cases filed. The burden

will be on Mr. Subianto’s camp toprove there was misconduct in theelection process that influenced theoutcome.

“I don’t believe they can win thislegal battle,” said Andi Asrun, a pro-fessor of constitutional law at theUniversity of Indonesia. He said thecourt would likely dismiss casesconcerning extra voters as not af-fecting the poll’s outcome, because“it’s impossible to determine whothey voted for.”

Political observers and marketanalysts also said they viewed Mr.Subianto’s challenge as an unlikelyeffort that has tepid support fromsome of his biggest backers. His co-alition has been fraying in recentdays, with several high-rankingmembers of the grouping’s largestparty, Golkar, urging its members tocongratulate Mr. Widodo.

Mr. Subianto’s running mate,

Hatta Rajasa, didn’t attend a newsconference Tuesday at which thepresidential candidate said he re-jected the results of the vote. OnWednesday, the campaign team saidthey didn’t know Mr. Rajasa’swhereabouts but that he supportedMr. Subianto’s push in the Constitu-tional Court. Attempts to reach Mr.Rajasa were unsuccessful.

Markets fell on the news, withthe country’s main stock index shav-ing 0.6% off morning gains immedi-ately after Mr. Subianto’s teamspoke. “Until a definitive ruling isissued, the market may move side-ways,” said Benny Irawan, a fundmanager with Jakarta-basedLautandhana Securities.

A peaceful outcome to the elec-tion is still “in our baseline,” saidHelmi Arman, an economist for Citi-group in Jakarta. “We do not expectany ruling to materially affect theoutcome of the election.”

Mr. Djojohadikusumo, Mr. Subi-anto’s adviser, requested that worldleaders withhold congratulatorystatements to Mr. Widodo for now,although Mr. Widodo said Wednes-day he had already received callsfrom U.S. President Barack Obama,Singaporean Prime Minister LeeHsien Loong and Australian PrimeMinister Tony Abbott, among oth-ers.

“We had a very congenial con-versation,” Mr. Abbott told report-ers Wednesday.

Wednesday’s newspapers in In-donesia were filled with headlinesof Mr. Widodo’s win. No unrest wasreported.

—I Made Sentana in Jakartaand Rob Taylor in Sydneycontributed to this article.

BY BEN OTTO

Prabowo Subianto with members of his coalition in Jakarta on Tuesday.

Getty

Images

Libya FuelTanker HitIn Fighting

A fuel storage tank was hit inheavy fighting around Tripoli air-port amid an escalation of violence,oil and airport officials said onWednesday.

Fighting between rival militiasfor control of the capital’s airporthas left at least 47 dead since July13—the worst clashes in six months.The fighting has also led to theevacuation of expatriate oil workersand prevented some staff fromreaching a key oil field.

Libya’s interim prime minister,Abdullah al-Thani, called on the mi-litias to stop the fighting and saidhis government was considering in-ternational support to help build aneffective army and police.

In statements posted on his offi-cial website, Mr. Thani said he hadruled out a direct foreign interven-tion. The fuel tank burst into flamesafter being hit by a missile, accord-ing to statements and videos postedon the airport’s Facebook page.

The fire was eventually put out.Libyan oil officials, who con-

firmed the incident, said the dam-age will make it even more difficultto supply Tripoli, which has alreadysuffered from acute shortages offuel.

Despite unrest in the capital, oiloperations elsewhere have regis-tered some progress. On its Face-book page, the state-run Sirte OilCo. said production at its oil fieldsin Eastern Libya has now restartedand output is 21,000 barrels a day.

BY BENOÎT FAUCON

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 21

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Connecticut Rethinks Tipster RightsConnecticut’s highest court is set

later this year to weigh in on a caseagainst UBS AG that could limit pro-tections for whistleblowers in thestate, a stronghold for the financialsector.

The Connecticut Supreme Courtwill consider whether a 2006 U.S.Supreme Court ruling that restrictedprotections for workers who exposealleged wrongdoing by their employ-ers should apply to cases broughtunder Connecticut law, which isfriendlier than federal law on em-ployee rights.

Richard Trusz, 58 years old, saidhe was fired from his Connecticut-based position as head of valuationsat UBS’s real-estate-investment arm,UBS Realty Investors LLC, in August2008 after confronting senior man-agement about properties he consid-ered overvalued, and therefore ledto excessive fees for clients includ-ing state pension funds. The unit Mr.Trusz led was responsible for deter-mining the market value of its realestate and mortgage investments.

Mr. Trusz later sued the Swissbank in federal court, saying his su-periors engaged in “acts of intimida-tion and retaliation” and “treatedhim differently from others whodidn’t complain” before terminatinghis employment.

A UBS spokeswoman said re-cently that Mr. Trusz’s claims were“thoroughly looked into both inter-nally and externally many yearsago.” She declined to comment onMr. Trusz’s valuation allegations andsaid the bank is continuing to seekdismissal of the lawsuit.

The state will remain a haven forcorporate whistleblowers if the Con-necticut Supreme Court sides withMr. Trusz. But if it applies the U.S.Supreme Court ruling, the state willfall in line with the federal standard.

“If the court interprets the lawnarrowly, whistleblower employees

will have less protection for report-ing corporate wrongdoing” in Con-necticut, said Jordan Thomas, a law-yer at Labaton Sucharow whorepresents whistleblowers but isn’tinvolved in Mr. Trusz’s case. “Thatwould be a setback for investors andthe general public.”

A ruling in Mr. Trusz’s favorcould limit employers’ flexibility tomake “tough decisions” on person-nel matters, said Gregory Keating, alawyer at Littler Mendelson whorepresents employers in whistle-blower cases. “Judges in federalcourt don’t want to sit around allday as glorified personnel depart-ments,” he said.

In March, a federal-district courtasked the Connecticut SupremeCourt to weigh in on whether a U.S.

Supreme Court decision applies tothe issues raised in Mr. Trusz’s law-suit, which was brought under statelaw. Connecticut has traditionallybeen a popular destination forhedge-fund managers and other fi-nancial firms because of its proxim-ity to Wall Street.

The Connecticut court will heararguments on whether the U.S. Su-preme Court ruling should apply inConnecticut cases in which an em-ployer is accused of subjecting anemployee to “discipline or dis-charge” for exercising rights guaran-teed by the state’s constitution, in-cluding freedom of speech andreligion.

That ruling held that when em-ployees make statements “pursuantto their official duties, the employ-

ees aren’t speaking as citizens forFirst Amendment purposes” andtherefore aren’t insulated from em-ployer discipline.

In a motion to dismiss the law-suit, UBS said Mr. Trusz was termi-nated because UBS Realty out-sourced a portion of its valuation-review function and made hisposition redundant. Mr. Trusz’sstatements about the valuations“were encompassed within his offi-cial duties,” the bank argues.

Despite the 2006 ruling, protec-tions for U.S. corporate whistleblow-ers have expanded in recent yearsthrough legislation and key courtdecisions.

Last month, for the first time,the Securities and Exchange Com-mission alleged in a civil administra-

tive action that a hedge-fund adviserillegally took retaliatory actionsagainst an employee. The SEC’smove was made possible by beefed-up whistleblower protections stem-ming from the 2010 Dodd-Frank fi-nancial overhaul.

The 2002 Sarbanes-Oxley Actalso enhanced whistleblower protec-tions by, among other things, requir-ing publicly traded companies to es-tablish internal procedures foremployees to report potentialwrongdoing and criminalizing retali-ation against whistleblowers undercertain circumstances. As protec-tions for corporate tipsters expand,companies are fighting back in courtagainst “potentially draconian rami-fications” of decisions in favor ofwhistleblowers, Mr. Keating said.

In an interview, Mr. Trusz saidstrong whistleblower protections arenecessary to defend those who aretrying to uphold their obligations toclients. “For me to get terminatedfor doing the right thing—that wasthe ultimate blow,” he said.

According to the lawsuit, Mr.Trusz informed his superiors inearly 2008 that certain propertiesheld by UBS Realty were overvalued.In the following months, he wasbarred from attending client meet-ings and his superiors refused todiscuss his concerns about the reli-ability of the valuations, accordingto his lawsuit.

In April 2008, Mr. Trusz filed acomplaint with the OccupationalSafety and Health Administration al-leging violation of the Sarbanes-Ox-ley Act. Mr. Trusz said the hostiletreatment continued during the sub-sequent OSHA investigation.

In November 2008, OSHA con-cluded its formal process after Mr.Trusz indicated that he intended topursue a lawsuit in federal court.The case is currently pending in theU.S. District Court in New Haven,Conn. Mr. Trusz is seeking back payand damages, among other things.

BY DANIEL HUANG

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Connecticut’s highest court may limit whistleblower protections there when it considers Richard Trusz’s firing from UBS.

Julie

Bidw

ellfor

TheWallS

treetJournal

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 9

WORLD NEWS

Jet Crashes on Taiwan IslandTAIPEI—A TransAsia Airways

flight crashed on Wednesday whiletrying to make its second landing at-tempt in the Penghu islands off thecoast of Taiwan, killing more than40 people.

The Penghu Fire Department saidthe death toll late Wednesday was atleast 42 of the 58 people on board,and all bodies and remains had beensent to hospitals or the nearbymorgue. The final death toll will beannounced after the bodies havebeen properly identified.

The cause of the crash is still be-ing investigated. The governmentsuspected technical failure could bea factor in the airplane crash, butbad weather may have also contrib-uted.

The fire department said 10 pas-sengers and a local resident weresent to the hospital for burn injuries.

More than 300 rescue workers,including military personnel and lo-cal firefighters, were dispatched tothe crash site.

Flight 222 was heading from thesouthern city of Kaohsiung to thePenghu islands, halfway between theChinese mainland and Taiwan in theTaiwan Strait.

Transportation Minister YehKuang-shih said two of the passen-gers are French nationals. “We be-lieve we have found one of two blackboxes,” the minister added.

According to the Civil Aeronau-tics Administration, the aircraft wasan ATR-72-500 short-haul regionalairliner and had been in commissionfor 14 years. The flight was sched-uled to take off at 4 p.m. local timebut was asked to stay on the grounduntil 5:43 p.m. because of badweather from tropical storm Matmo.

According to the CAA, the air-craft was unable to land properly atPenghu’s Magong Airport. After cir-cling in the air for a while, it wasforced to make an emergency land-ing.

CAA Director-General Jean Shensaid the last communication the air-

craft had with the tower was at 7:06p.m., when the pilot told the towerhe would make a second landing at-tempt.

The agency said data indicate theplane probably crashed after ascend-ing approximately 300 feet.

TransAsia said bad weatherforced the plane to make the emer-gency landing. Taiwan was batteredby Matmo Tuesday and Wednesday.

Company General Manager ChooiYee-Chong said the airline will doeverything it can to help the victim’sfamily members. There will be acharter flight at 6 a.m. Thursday forfamily members from Kaohsiung toMagong Airport.

“We will fully cooperate with theCAA and the transportation ministrywith the investigation,” said Mr.Chooi.

TransAsia Airways had seven ac-cidents between 2002 and 2012, fiveof them involving the ATR-72, ac-cording to the website of Taiwan’sAviation Safety Council. Only the De-

cember 2002 accident resulted inloss of life.

Based in Taipei, TransAsia Air-ways is smaller than Taiwanese car-riers China Airlines Ltd. and Eva Air-ways. It flies mostly domestic routes,but also has some internationalflights to destinations in mainlandChina as well as northeast andsoutheast Asia.

The carrier last year received ap-proval from the CAA to set up a low-cost airline operating flights withina five-hour distance of Taiwan.

The type of aircraft that crashedon Wednesday is a “highly stable”plane able to land and take off onshort runways, according to an avia-tion expert.

“The ATR-72 can come to a deadstop on a very short runway. Itslanding speed is much lower thanjets. It’s a highly maneuverable planethat’s used for inhospitable terrains,”said Mark Martin of Martin Consult-ing, an aviation advisory firm, said.

The Penghu islands area has seen

deadly crashes before.The worst was a Boeing 747 jet

operated by Taiwan’s flag carrier,China Airlines, which broke apart inmidair in May 2002 about 20 min-utes into its journey from Taipei toHong Kong and crashed into the seanorthwest of Penghu, killing 225people on board. Investigators saidmetal fatigue caused the plane tobreak apart.

In December 2002, a TransAsiaATR-72 cargo flight heading toMacau from Taipei crashed south-west of Penghu, killing the two crewmembers, on board. An investigationfound that accumulation of icearound the plane’s major compo-nents caused loss of control.

Penghu has for centuries beenhome to communities that live offfishing. In recent decades, thebeaches and marine life have becometourist attractions.

—Joanne Chiuand Gaurav Raghuvanshiincontributed to this article.

BY JENNY HSU

Rescuers survey wreckage of TransAsia Airways Flight 222 on the Taiwanese island of Penghu on Wednesday.

Reuters

Thai Junta Tries to Allay Fears of AbuseBANGKOK—Thailand’s military

junta said on Wednesday it won’tabuse the sweeping powers it gaveitself in an interim constitution overthe new legislature and councilstasked with shaping the country’selectoral democracy.

The provisional charter allowsarmy chief Gen. Prayuth Chan-ochato retain broad authority over polit-ical developments, even with the ex-istence of a national legislative as-sembly and an interim government.

All decisions made by Gen. Pr-ayuth will be legal, while he also hasveto power over the drafting of apermanent constitution.

“The junta’s leader will exercisehis power in a constructive way. Thepower won’t be used frequently orrecklessly without reason,” WissanuKrea-Ngam, a legal adviser to thejunta, said at a press briefing.

The charter, drafted by thejunta’s legal team, was endorsed byKing Bhumibol Adulyadej on Tues-day, two months after the militaryseized power and suspended the2007 constitution.

Criticism has been relativelymuted so far amid a continuing ef-fort to stifle dissent by the military,which imposed martial law two days

before the coup. Analysts said thearmy may seek to use the powersconferred by the interim charter toretain its dominance.

The 60-year-old general has theauthority to handpick the membersof the 220-seat legislature, whichwill then select the prime ministerand as many as 35 cabinet members.

The interim charter also allowsGen. Prayuth to be prime minister, ifhe gets a nod from the legislature,his legal advisers said Wednesday.

“I don’t see that Gen. Prayuthlacks any qualifications,” Gen. Pai-

boon Kumchaya, deputy army com-mander and the junta’s chief of legalaffairs, said at Wednesday’s brief-ing. “In the past two months, he’sbeen doing a great job, chairing ev-ery meeting and running the admin-istration of the country.”

Mr. Wissanu said the junta won’thave the power to fire the primeminister or cabinet.

“The junta will only performsome tasks to alleviate the burdenof the cabinet, such as in securitymatters, so the cabinet won’t getdistracted and can go ahead with

other national affairs,” he said.The temporary charter, which is

expected to be used for about ayear, stipulates that a national legis-lative assembly will be set up by Au-gust to serve as parliament. A re-form council will be tasked withdrawing up political and economicreforms through constitutional andelectoral changes.

A permanent charter will bedrafted by a special committeebased on directions set by the junta.Among other things, the charter willseek to prevent corruption and toblock corrupt politicians from hold-ing any political position.

The permanent constitution islikely to curb the influence of careerpoliticians, said Ambika Ahuja, aThailand analyst at Eurasia Group, aNew York-based political-risk con-sulting firm.

The temporary charter barsthose who held political positions inthe past three years from taking anyposition in the interim governmentand the legislature.

“The next elected government ismore likely to be a coalition, whichcould be more easily manipulated bythe army than a one-party rule,”which characterized the premiershipof ousted leader Thaksin Shinawa-tra, Ms. Ahuja said in an email.

BY WARANGKANA CHOMCHUEN

Thai army chief Gen. Prayuth Chan-ocha at a meeting in Bangkok Wednesday.

Reuters

MalaysiaAirlinesLifts CrisisResponse

Malaysia Airlines’ rapid, assuredresponse after the loss of Flight 17last week has been in contrast withits bumbling when Flight 370 wentmissing just four months earlier.

The Malaysian flag carrier hasbeen praised for acknowledging onTwitter within minutes of the firstnews reports on July 17 that it hadlost contact with Flight 17, whichthe U.S. says was shot down by asurface-to-air missile over rebel-held eastern Ukraine, killing all 298people on board. That was in con-trast to the several hours it took theairline to reveal that Flight 370 haddisappeared in March. The airline,owned by Malaysian Airline Sys-tem Bhd., has some 548,000 follow-ers on Twitter.

Malaysia Airlines also posted astatement on its website two hoursafter the Flight 17 crash. That wasthree hours faster than when it no-tified the public after the disappear-ance of Flight 370, which vanishedfrom radar soon after taking offfrom Kuala Lumpur in March andstill hasn’t been located. The air-line’s public communications duringthe current crisis have been accu-rate and centralized, compared withthe confusion and misinformationthat prevailed in March.

The carrier also immediately ex-tended support to families of Flight17 passengers, saying it would pro-vide accommodations and assignstaff caregivers to provide emo-tional support. It said Monday that79 such caregivers were in Amster-dam, and 43 in Kuala Lumpur. Onmore than one occasion, frustratedfamily members of Flight 370 pas-sengers heckled ministers and eventhrew objects in anger about thespeed at which information was be-ing released, or simply its accuracy.

Malaysia Airlines said Wednes-day that it hasn’t experienced asurge in ticket cancellations or re-quests for refunds after the Flight17 crash. The carrier on Saturday of-fered full refunds for passengersholding tickets for flights this yearif passengers opt to cancel reserva-tions.

The many differences betweenthe two incidents help account forthe improved response this time, in-dustry experts say.

While the exact cause of thecrash of Flight 17 is also unknown atthis stage, the plane’s wreckage andflight recorders are expected to of-fer enough clues for experts to piecetogether what happened.

Still, airline experts say that Ma-laysia Airlines has learned hard les-sons from its earlier disaster, andits improved handling of the latestcrisis might help its reputation withfliers.

“Malaysia Airlines has beenmuch better in their response thistime. On social media, they’ve beenvery upfront, quashing all rumorsand ensuring that they were the au-thority for all the information.That’s critical and that’s how theyhad lost control last time,” withFlight 370, said Shashank Nigam,chief executive of SimpliFlying, anaviation-marketing-strategy firm.

—Newley Purnell,Jake Maxwell Watts

and Celine Fernandezcontributed to this article.

BY GAURAV RAGHUVANSHI

20 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

BUSINESS & FINANCE

Breakfast has become the finalfrontier in the struggle over health,convenience and profit in the U.S.diet.

Starved for growth at othermealtimes, companies like YumBrands Inc., Burger King World-wide Inc. and Kellogg Co. are bat-tling to change how Americans starttheir day. But even as consumersback away from cereal to experimentwith more protein-rich foods, theirhabits remain otherwise entrenched:most Americans still eat breakfast at

home and follow morning routinesmore rigid than during the rest ofthe day.

“People are time-pressed in themorning and know exactly wherethey’re going, and that doesn’t varymuch,” said Alex Macedo, BurgerKing’s North American president, ina recent interview. That chain claims2.8% of the $47 billion spent eachyear on fast-food breakfasts in theU.S., according to brokerage firmSanford C. Bernstein & Co. This yearit started offering its value-menuitems at breakfast and added burg-ers to the morning menu in an effortto boost sales.

Many fast food and fast casualrestaurant chains smell opportunityaround breakfast. Of consumers whoeat out at least twice a week, 30%say they do so for breakfast, com-pared with 40% for lunch and 50%for dinner, according to Bernstein.

What’s more, breakfast is gener-ally more profitable, restaurant com-panies say, because the ingredientsare less expensive. Bernstein esti-mates that breakfast accounted forabout 25% of McDonald Corp.’s rev-enue last year and 40% of its pretaxprofit.

Yet the standard American morn-ing leaves little room for branchingout. The leisurely scene of decadespast—sipping a glass of orange juice,scanning the newspaper—has givenway to an average of just 12 minutesa day for consuming breakfast, saidHarry Balzer, chief food industry an-alyst for research firm NPD GroupInc. That is about half the time theyspend on lunch (28 minutes) or din-ner (24 minutes).

Societal shifts have driven thetime-starved nature of the morningmeal. More mothers of young chil-dren are in the workforce, puttingadditional pressure on families toprepare breakfast, drop off the chil-dren at day care or school and get towork. Last year, 57.3% of motherswith children under the age of onewere in the workforce, up from53.7% in 2003 and the highest levelin almost 16 years, according to theBureau of Labor Statistics.

In addition, baby boomers arecontinuing to work, placing con-straints on the morning routines ofAmerica’s most populous age group.Nearly half of working baby boom-ers say they don’t expect to retireuntil they are 66 or older, includingone in 10 who predict they willnever retire, according to a recentGallup poll.

Taco Bell, a unit of Yum Brands,is trying to entice consumers to cre-ate new habits with menu items thatare convenient but—in keeping withits brand identity—defy the trendtoward healthier eating. The chainbet big in March on a new waffletaco to kick off its first nationalbreakfast menu, which also includesCinnabon sweet rolls and the 710-calorie A.M. Crunchwrap with sau-sage.

When Yum reported earnings lastweek, CEO David Novak said break-fast is already profitable and that heexpects the breakfast business toadd from $70,000 to $120,000 in an-nual sales per restaurant.

Others have reported mixed re-sults. Subway, the sandwich chainowned by Doctor’s Associates Inc.,

launched a national breakfast menuin 2010, but it accounted for just 6%of revenue last year, according toBernstein. Wendy’s Co. last yearpulled the plug on plans for a na-tional rollout of its latest attempt atbreakfast, saying it wasn’t profitableenough.

McDonald’s was the forerunnerof fast-food breakfast with the cre-ation of its Egg McMuffin in 1971and still dominates the category. Ithad $8.96 billion in breakfast saleslast year or more than 19% of theU.S. market, according to Bernstein.Because McDonald’s launched break-fast so long ago, the chain has beenable to integrate itself into Ameri-cans’ morning routines better thansome of the newer entrants.

But some consumers still have ahard time with the idea of a fast-food breakfast. “I’m a creature ofhabit and I eat pretty healthy and Ilike to control that,” said Kim Sulli-van, an Orange County, Calif., resi-dent who heads marketing for anevent planning trade group. “Plus,I’m on a big time crunch in themorning and none of those placesare on my route.”

Dunkin’ Brands Group Inc.,which gets nearly 80% of its salesfrom breakfast, is retooling its ap-proach to emphasize healthier fare.The chain is focusing more on break-fast sandwiches, which are sellingbetter than doughnuts, said DunkinCEO Nigel Travis. “Our highest mar-gin item is beverages, but breakfastsandwiches aren’t far behind.”,” hesaid in a recent interview.

Dunkin also is redesigning prep

stations to be faster to meet busymorning schedules. Shaving a fewseconds per order can push morepeople through the drive-thru, Mr.Travis said. “People don’t want to sitin the drive-thru lane and wait fortheir breakfast.”

In grocery stores, what sells wellare foods that are fast to prepare,highly portable and high in protein.Sales of frozen hand-held breakfastitems such as Jimmy Dean biscuitsandwiches and ham-egg-and-cheeseHot Pockets in the U.S. surged 29%in the last two years to nearly $1 bil-lion in 2013, according to market re-search firm IRI. Similarly, MondelezInternational Inc. has found successwith its Belvita breakfast biscuits.And the hunger for protein hasdriven booming sales of Greek yo-gurt for Chobani Inc. and others.

The big loser in all this is cereal,long one of America’s most popularbreakfast foods. Not only does itstruggle to compete on convenience,but a low-carb, high-protein shiftamong consumers is making cerealconsumption soggy.

Cereal is still about a $10-billiona year industry, but consumptionhas been declining. “The breakfastoccasion has become crowded,” Kel-logg’s Chief Executive John Bryantsaid in a recent interview. “We arecompeting with quick-serve restau-rants more, but the bigger driver isthat people want more protein.” Kel-logg and other big cereal makers likeGeneral Mills Inc. say they need todo a better job “reminding consum-ers” that with milk, cereal too canbe a high-protein breakfast.

BY JULIE JARGONAND ANNIE GASPARRO Breakfast Battleground

Consumers’ shift from carbohydrates to protein is changing the breakfastlandscape. Change in sales since 2010*

The Wall Street JournalSource: Bernstein analysis of Nielsen's data*Change in sales for the 12-month period ending in July of each year

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How consumerperceptionsand corporatestrategies shapethe U.S. diet.

Fast and Furious: Americans at Breakfast

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10 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

INVESTIGATING FLIGHT MH17

Strife ThreatensFurther DelaysFor Probe Team

Days after seeking access to theeastern Ukraine crash site of Malay-sia Airlines Flight 17, officials incharge of the investigation sketchedout the parameters of their probe

for the first time—even as deterio-rating security in the region threat-ened to further delay their arrival atthe scene.

Early Wednesday, British author-ities said the plane’s “black boxes”had arrived in the U.K. for analysis.Rebels holding the territory wherethe plane went down, meanwhile, al-lowed three Malaysian officials—onefrom the airline and two from thecountry’s civil-aviation authority—toroam the site unrestricted.

But the main contingent of 24 in-ternational investigators, led by theNetherlands, remained far from thesite. The three Malaysians aren’tpart of the formal air-accidentprobe, a spokeswoman for the DutchSafety Board said. It wasn’t clearwhether the Malaysian group wascoordinating its probe with theDutch-led group.

With little evidence contradictingU.S. and Ukrainian claims that anantiaircraft missile brought downthe jet, access to the crash site iskey for investigators. But with fiercefighting between Ukraine forces andrebels still flaring in the region, it isunclear how quickly the Dutch groupcan get there. Rebels shot down two

more Ukrainian military planes inthe area Wednesday.

Australian Prime Minister TonyAbbott said early Wednesday thatworld leaders were considering amultinational force among severaloptions to secure the crash zone.

Despite the lack of access, theDutch safety board started to sketchout its priorities. It said the team’sprimary objective is to determinedefinitively the cause of the crash. Italso said it would examine whyFlight 17 was flying over the strife-torn eastern Ukraine region where itwas shot down last week, killing all298 people on board.

Once it gets access to the site,the Dutch-led panel will restrict it-self to establishing the facts of theincident, and not determine culpa-bility, it said in a statement. If evi-dence of a criminal or terrorist actcomes to light, that evidence will bepassed onto other authorities, theagency said. Several countries, in-cluding the Netherlands and theU.S., have said they also want tosend law-enforcement officials tothe site for a criminal probe.

Without access so far, accidentinvestigators in Kiev and the Nether-lands are trying to get a head startby analyzing video and photographsto assess the crash site and damageto the jet. The Dutch organizationsaid it had set no timeline to con-clude the probe.

The agency also said the cockpitvoice recorder was successfullydownloaded by experts in England,despite damage to the device. Ef-forts will be made Thursday to readthe flight data recorder that stores

information on how the plane’s sys-tems functioned.

Even if all data is downloaded, itis unlikely to show what type of mis-sile or projectile brought down theplane. The only way to definitivelyanswer that question is to conduct adetailed chemical and metallurgicalanalysis of remnants of Flight 17, ac-cording to air-safety experts.

Such tests “could give you thechemical breakdown of the explosivedevice,” according to John Cox, aformer U.S. airline pilot and crashinvestigator for the Air Line PilotsAssociation who now runs a consult-ing firm in Washington.

Investigators also are expected toconduct sophisticated analysis ofsounds captured by the cockpit re-corder. The aim, according to safetyspecialists, would be to identify theinstant the plane may have been hitand the sequence of events that fol-

lowed. A full analysis of black-boxdata could take weeks, the Dutchsafety board said.

So far, the Malaysia group thatreached the site Wednesday hasn’tdetailed what it found. A spokesmanfor the Organization for Securityand Cooperation in Europe, which ison a special monitoring mission inUkraine, said three Malaysian inves-tigators had been granted “unfet-tered” access to the site by the sepa-ratists.

The Malaysians were accompa-nied by a rebel escort and 12 OSCEmonitors, said the OSCE spokesman,Michael Bociurkiw, by phone fromeastern Ukraine. Mr. Bociurkiw saidthe bigger Dutch-led team hadn’t ar-rived yet on the scene. The groupfound “many pieces of interest tothe Malaysians…it has been a pro-ductive day so far,” said Mr. Boci-urkiw.

During a news conferenceWednesday, an OSCE spokesmansaid he wasn’t aware of any otherinternational experts or investiga-tors coming to Donetsk, near thesite, “tomorrow or the day after.” Hesaid meanwhile, the OSCE monitor-ing mission “stays put.”

The Moscow-backed rebels saidthey would cooperate with the Dutchinvestigators after their self-pro-claimed leader Alexander Borodaiaccused the international team ofdragging its feet. He promised “asmuch security as one can provide”during war, and that Dutch armedpolice would be allowed to securethe site.

The investigation team includesfour representatives from the Neth-erlands, as well as team membersfrom the U.S., the U.K. and theUnited Nations’ International CivilAviation Organization.

By Robert Wall in London,Anton Troianovskiin Kiev, Ukraine,

and Alexander Kolyandr inDonetsk, Ukraine

OSCE monitors inspected railcars holding the bodies of victims from Flight 17 while the train was still in Torez on Monday.

Getty

Images

Malaysia Launches Effort to Prosecute SuspectsKUALA LUMPUR—Malaysia is lay-

ing the groundwork to prosecuteanyone suspected of downingMalay-sia Airlines Flight 17 in Ukraine,Prime Minister Najib Razak saidWednesday.

“I have directed the attorney gen-eral to study this matter to ensureany action that will be taken by Ma-laysia is in line with internationallaw,” Mr. Najib told Parliament in aspecial meeting on Flight 17, whichcrashed July 17. It appears to havebeen struck by a surface-to-air mis-sile, killing all of the 298 passengersand crew on board.

Mr. Najib won plaudits from theinternational community and localMalaysians for secretly negotiatingwith rebels to recover the bodies andthe aircraft’s so-called black boxes.Now he is under pressure to deliveron the legal front as well. Severalhundred people protested outside theRussian and Ukrainian embassies inKuala Lumpur on Tuesday demand-ing that the countries reveal who isresponsible for shooting down Flight17.

Malaysia, which is still reelingfrom the disappearance of MalaysiaAirlines Flight 370 in March, wouldhave to prove it has the jurisdictionto oversee any prosecutions in inter-

national courts. Legal experts differover whether Malaysia would havethe right to do so.

Other issues that would affect anypotential prosecution includewhether the shooting down of thecommercial jet constitutes a warcrime. Malaysia authorities wouldalso have to address whether anysuspects would best be prosecutedby Ukraine under its criminal laws.Since no crime was committed onMalaysian territory, the extraditionof suspects, while possible, would ap-pear to be an unlikely prospect.

It could also be legally relevantwhether or not the act was inten-tional and who supplied the weapon.The investigation may have alreadybeen compromised, officials worry,since debris from the plane—possibleevidence in a criminal trial—mayhave been moved or tampered with.

But Mr. Najib is sending signalshe intends to pursue a legal course.

The prime minister has receivedsupport from other senior govern-ment officials in Malaysia, who havecalled for “justice” against the perpe-trators of the attack.

“The outrage cannot go unpun-ished,” Transport Minister LiowTiong Lai said Saturday, adding thatMalaysia “calls for those responsibleto be found and to face the full forceof justice without delay.”

Lawyers from the 10 nationswhose citizens died in the disasterwould also have to consider wherethe alleged perpetrators face justice.Dutch prosecutors have alreadyopened an investigation that may in-clude a war-crimes prosecution inthe international courts.

However, the International Crimi-nal Court can only prosecute casescommitted by or against a citizen ofa state that is part of the Treaty ofRome, the international accord thatestablishes its legitimacy, or a casebrought by a state where the allegedwar crime occurred. Neither Ukrainenor Malaysia is currently a signatory,although the Netherlands is.

If suspects are found, said Si-varasa Rasiah, a Malaysian lawmakerand lawyer, Malaysia could considerpursuing them via a special tribunalset up by United Nations SecurityCouncil. The U.N. has previouslybacked such high-powered tribunalsto prosecute suspected war crimes inRwanda, the former Yugoslavia andCambodia, among others. Whilesometimes successful, the process of-ten takes years and is generally re-served for cases of genocide or mur-

der on a much greater scale thanwith Flight 17. In the case of Cambo-dia’s Khmer Rouge, several defen-dants died before their trial was over.

The other hurdle, according toMr. Sivarasa, is that such a proposalrequires unanimous approval fromthe Security Council’s five permanentmembers, which include Russia.

“While we don’t definitely knowwho the perpetrator is, it’s prettyclearly, from all the reports, a crime,”said Mark Dombroff, a partner atMcKenna Long & Aldridge in the U.S.and specialist in aviation law.

U.S. intelligence officials indicatethat Russian-backed separatists ineastern Ukraine used a surface-to-air-missile to shoot down Flight 17.Moscow has denied any involvementand condemned the attack, and in-vestigators are still trying to assesswho was behind it and where theymight have gotten such a weapon.

Mr. Dombroff said if Russia wereshown to have had a role in thecrash, it would be difficult to pursueany criminal charges against eitherthe state or politicians.

“I don’t think that’s a simplequestion at all,” said Mr. Dombroff.

Despite mounting evidence, Mr.Najib continued to refrain from at-tributing blame on Wednesday, reit-erating that Malaysia isn’t “pointingfingers at any party until concreteevidence can be obtained.”

BY JASON NGAND JAKE MAXWELL WATTS

Prime Minister Najib, right, speaks at a special Parliament meeting on Flight 17.

ZumaPress

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 19

BUSINESS & FINANCE

New Risk for AnalystsLONDON—Equity-research

houses are scrambling to lobby Eu-ropean regulators over proposedrules that could drastically changehow research is paid for, threaten-ing firms’ businesses.

Next week, a consultation periodcloses on new European rules thatwould force asset managers to payupfront for research. Now, researchon stocks is paid for as a part ofcommissions on trades, which varyaccording to factors including trans-action volumes. Those costs arethen passed to fund investorsthrough fees they pay managers.

This opaque system has beentargeted by regulators who worrythat investors are being ripped off.

Regulators want to ensure thatthe real cost of research is transpar-ent. The result could be that assetmanagers decide some researchisn’t worth the money, analysts say.

“Asset managers are using otherpeople’s money to pay for research,”says Neil Scarth, principal at FrostConsulting & Advisory, which offersadvice on commission-related regu-latory change. “Regulators are wor-ried they are not being that carefulabout how they spend it.”

The proposed rules could dent

operating margins at European as-set managers, according to analystsat Citigroup Inc., because fundsprobably wouldn’t be able to raisefees to offset the cost of hiring in-house research teams or paying forexternal research. The European Se-curities and Markets Association,which is proposing the rules, isseeking comments until Aug. 1.

This week, Robert van Brugge,chief executive officer of financial-research company Sanford C. Bern-stein, sent an email asking custom-ers to write to the association toexpress their concerns.

“We believe the interests of theend-investors are best served by theability of all asset managers to ac-cess a wide variety of research anddifferentiated points of view,” Mr.van Brugge wrote in the email, acopy of which was reviewed by TheWall Street Journal. The new ruleswould “create a less competitive Eu-ropean asset-management industry,”he added.

Under the current system, inves-tors pay a commission fee to a bro-ker when they trade. Part of that feegoes toward executing the trade anda portion is retained to pay for serv-ices including equity research.

The newly proposed rules statethat all but the most basic researchmust be paid for separately from

commissions. Other services, suchas setting up meetings with com-pany executives or providing be-spoke research, also would have tobe paid for separately.

The U.K.’s Financial Conduct Au-thority is among those backing thenew regulations. The FCA estimatesU.K. investment managers payaround £3 billion ($5.11 billion) ofdealing commissions a year to bro-kers, and that around £1.5 billion ofthis is spent on research.

Research houses fear the newrules could mean that asset man-agers pull back on the amount of re-search they consume. As the ruleswould only apply in Europe, theycould also make asset managersthere seem more expensive com-pared with those elsewhere.

The FCA this month said it isworking with international regula-tors to bring about changes, andthat “global interest will increase” ifthe EU moves ahead. If other regula-tors imposed similar rules, thatcould level the playing field.

Citigroup analysts said it is pos-sible that dealing fees would be low-ered in response to the rules andthat a new, separate research chargecould be added to fund-managementfees and absorbed by investors.

The proposed European ruleswouldn’t go into force until 2017.

BY MAX COLCHESTERAND MARGOT PATRICK

SEC Tightens RulesFor Money Funds

WASHINGTON—U.S. regulatorstook a long-awaited step to reducerisk in the $2.6 trillion money-mar-ket industry, approving rules in-tended to prevent a repeat of an in-vestor stampede out of the fundsduring the 2008 financial crisis.

The Securities and ExchangeCommission voted 3-2 on final rulesthat would require money funds ca-tering to large, institutional inves-tors to abandon their fixed $1 shareprice and float in value like othermutual funds.

The rules also would allowmoney funds to temporarily blockinvestors from withdrawing moneyin times of stress or allow the fundsto impose a fee to redeem shares.

“This strong reform package willmake our financial system more re-silient,” SEC Chairman Mary JoWhite said ahead of the vote onWednesday.

Companies would have up to twoyears to comply with the changes.

Cathy Gregg, a partner at Chi-cago-based Treasury Strategies, aconsultant to institutional clientsthat use money funds, said she ex-pects an initial pullback from inves-tors in the funds.

“I think there’s going to be somesegment of them who will have tostop using money-market funds be-cause they’re not permitted to in-vest in a floating-rate product likethat, according to their investmentguidelines,” Ms. Gregg said.

The final rule is less ambitiousthan an earlier proposal consideredat the SEC. Fund companies focusedon individual investors won supportfor an approach that focuses thebulk of the restrictions on institu-tional investors, who exited thefunds at a far greater rate than indi-vidual investors during the crisis.

The rules aim to discourage in-stitutional investors from fleeingmoney funds en masse during peri-ods of market tumult by trainingthem to accept fluctuations in thevalues of their investments and byensuring funds sold to both institu-tional and individual investors havethe ability to limit outflows.

The vote ends a lengthy battleover how to address structural vul-nerabilities in the funds that en-courage investors to bolt at the firstsign of trouble. Investment flightduring the crisis threatened tofreeze corporate lending.

SEC commissioners Kara Stein, aDemocrat, and Michael Piwowar, aRepublican, voted against thechanges.

Mr. Piwowar said he feared theSEC’s approach would eliminatemoney funds’ appeal to investorsand said he didn’t believe floatingshare prices would stop runs.

Ms. Stein said she worried theredemption restrictions could spur,rather than curb, investor stam-pedes, echoing the concerns ofother regulators, including membersof the Financial Stability OversightCouncil.

In a statement on its website,Pittsburgh-based Federated Inves-tors Inc. said it was disappointedthat the SEC voted to adopt a float-ing share price for institutionalfunds, saying the change would im-pose “significant and costly dailyoperational burdens on money-mar-ket fund users.”

But Federated, the company per-haps most affected by the rules be-cause of its institutional holdings,

said there was no imperative for cli-ents to change their cash-manage-ment tools right away because thenew rules will take time to imple-ment.

Money funds are cashlike instru-ments used by millions of individu-als, businesses and municipalities tosafely park cash. During the finan-cial crisis, the oldest money fund,Reserve Primary Fund, “broke thebuck” by falling under the $1-a-share value funds seek to maintain.

Investors yanked money fromthe fund, igniting a wider panic thateased only after the federal govern-ment stepped in to backstop allmoney funds.

The SEC implemented broadchanges in 2010 designed to makethe industry more resilient, includ-ing tighter rules on the kinds of se-curities that funds could hold. Butthe SEC left unresolved structuralissues with the funds.

Daniel Gallagher, a Republicanmember of the SEC who supportedthe rules, said they would eliminatethe perception that money funds areimplicitly backed by the federal gov-ernment.

“Addressing a three-decade-olderror in a nuanced and tailoredmanner to reinstate market-basedpricing should not be seen, as somehave argued, as a heavy-handed actof government,” he said before thevote.

Concerns about money fundshave increased in recent years asregulators worried about a suddenrise in interest rates, which coulddepress the value of the funds’ hold-ings.

An International Monetary Fundreport this spring outlined such ascenario, and the Financial StabilityOversight Council, for the fourthyear in a row, cited money funds asa source of systemic risk.

The SEC’s move comes after aproposal championed by former SECChairman Mary Schapiro falteredtwo years ago amid heavy industrylobbying and internal SEC bickering.Ms. Schapiro proposed requiring allmoney funds to either float theirshare prices or post banklike capitalto ensure they could make good onredemptions when asset holdingssuddenly drop in value.

Mr. Gallagher and Luis Aguilar,another SEC commissioner who is aDemocrat, criticized that earlier ap-proach as flawed on Wednesday,with Mr. Gallagher saying its capitalrequirements “made no economicsense.”

The SEC’s new approach wouldcombine two options the commis-sion presented last summer when itregrouped after the collapse of Ms.Schapiro’s plan and voted unani-mously to propose tighter rules: afloating share price for “prime” in-stitutional funds, which are consid-ered riskier than other money fundsand invest in short-term corporatedebt, coupled with redemption“gates” and fees.

—Kirsten Grindcontributed to this article

BY ANDREW ACKERMAN

Glaxo Trims Earnings OutlookLONDON—GlaxoSmithKline PLC

lowered its earnings outlook onWednesday, as its second-quarterprofit was hit by weak respiratory-drug sales in the U.S., currencymoves and a continuing bribery in-vestigation in China.

The U.K. drug maker said it nowexpects no growth in either sales orits core measure of earnings thisyear. It is also canceling plannedshare buybacks valued at £1 billionto £2 billion ($1.7 billion to $3.4 bil-lion), and launching a formal salesprocess for a portfolio of its olderdrugs with annual sales of roughly£1 billion.

Glaxo shares fell 4.7% to £14.82in London on Wednesday.

“Clearly the quarter saw a num-ber of significant challenges, partic-ularly in the U.S., where we saw fur-ther pressure in price,” said financechief Simon Dingemans.

Glaxo recorded an 18% sales de-cline in its largest franchise, respi-ratory drugs. In the U.S., its best-selling drug, Advair—for asthmaand chronic obstructive pulmonarydisease—has been removed from therecommended prescribing list ofpharmacy-benefit manager Express

Scripts Holding Co., which nowurges doctors to prescribe competi-tors’ inhalers.

U.S. sales of Advair fell 19% inthe second quarter and Glaxo said itexpects pressure on the drug’s mar-ket share and pricing to continue.

Meanwhile, Glaxo’s newlylaunched successors to Advair, therespiratory drugs Breo and Anoro,have been slow to take off, each reg-istering just £5 million in sales inthe second quarter.

The company said its respiratoryportfolio was in “transition” andthat it expects to maintain its lead-ership in the segment well into thenext decade.

Glaxo said sales were also hit bygeneric competition to Lovaza, adrug that treats high levels of fat inthe blood, and the strengthening ofthe pound against a range of curren-cies in the markets where it booksmost of its sales.

Glaxo gave no update on the con-tinuing investigation in China,where its former top executivestands accused of orchestratinglarge-scale bribery, but reiteratedthat it is cooperating fully with theauthorities. Sales in that countryfell to £129 million in the secondquarter, from £212 million in the

same quarter of the previous year.Glaxo’s core measure of earnings

per share, which strips out currencymoves and costs related to restruc-turing and acquisitions, fell 12%. Netprofit attributable to shareholdersfell to £654 million, from £1.05 bil-lion the previous year.

Performance at Glaxo’s con-sumer-health and vaccine busi-nesses also came more sharply intofocus, after the company signed aseries of transformational assetswaps with Novartis AG in Aprilworth more than $20 billion to bol-ster those divisions. Once the dealis closed, Glaxo expects the divi-sions to make up about half of itssales.

Vaccine sales rose 5% at constantexchange rates, while those in con-sumer health sank 4%, hit by supplyshortages of key “wellness” brands,a category that includes Panadoland Nicorette.

Bright spots in the second quar-ter included encouraging sales ofnewly launched products includingthe antiretroviral HIV drug Tivicayand two melanoma drugs, Mekinistand Tafinlar. The latter two will besold to Novartis as part of the assetswaps, along with Glaxo’s othermarketed cancer drugs.

BY HESTER PLUMRIDGE

The U.K. pharmaceutical maker now expects no sales growth this year as its respiratory drugs struggle in the market.

Bloomberg

New

s

The rules are meant todiscourage institutionalinvestors from fleeingmoney funds en masseduring market tumult.

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 11

INVESTIGATING FLIGHT MH17

U.S. Lays Out Case Against RussiaU.S. intelligence officials pre-

sented reporters with their most de-tailed case yet Tuesday that Rus-sian-backed Ukrainian separatistsshot down a Malaysia Airlines jet-

liner last week, in a bid to counterwhat American officials see as Rus-sian efforts to muddy the waterswith claims of Ukrainian culpability.

The officials relied on photo-graphs, social media, and voiceprintanalysis of Ukrainian communica-tions intercepts to make their publiccase that a likely SA-11 antiaircraftweapon fired from separatist-con-trolled territory shot down the com-mercial airliner, killing 298 peopleon board.

The evidence cited, however,didn’t raise the case for Russian in-volvement in the shoot-down to anew level of certainty. Officials saidthey are still working to refine evi-dence and may offer more in comingdays.

Other U.S. officials, includingsome at the Pentagon, have saidmore assertively in recent days thatRussia likely provided the missilesystem used by separatists to shootdown Flight 17. The more restrainedpresentation by intelligence officialsTuesday reflected the cautious na-ture of intelligence analysis.

There is a “solid case it was anSA-11 fired from Eastern Ukraine un-der conditions created by Russia,” atop U.S. intelligence official said.

The officials said that the U.S.detected a surface-to-air missilelaunch at the time that the airlinerwas hit, in roughly the same sepa-ratist-controlled area in EasternUkraine; that there has been a grow-ing flow of weapons from Russia toseparatists over the last month; thatRussians have provided training forseparatist fighters in southwestRussia on antiaircraft weapons andother arms; and that separatistshave downed more than a dozen air-craft during the conflict.

U.S. officials who weren’t part ofthe Tuesday briefing said Americanradar and space-based assetstracked the missile soon after itslaunch from rebel-held territory un-til its detonation near the Malaysianairliner.

From that data establishing themissile’s track, intelligence analystsextrapolated the location of theSA-11 back to the area near the cityof Snizhne, officials said. U.S. offi-cials call this type of informationmeasurement and signature intelli-gence, or MASINT.

Snizhne lies close to fighting inrecent weeks between Ukrainianforces and pro-Russia separatistsover control of the nearby borderwith Russia, the rebels’ main sourceof weaponry.

Rebels began barring news out-lets from entering the city on Tues-day, as interest over the suggestedmissile launch site grew.

Locals in the rebel-held city ofTorez said on Tuesday that on theday Flight 17 went down, they spot-ted an SA-11, or Buk, missile on aflatbed truck traveling through thetown center toward the allegedlaunch site.

One Torez resident who workson the main road said the SA-11 wasnotable because he hadn’t seen sucha sophisticated ground-to-air missilesystem among the many military ve-hicles that had rolled through Torezsince fighting began.

He said what looked like the

same truck later came back throughtown going the other way, withoutthe missile.

Another resident said he saw theinstallation pass through Torez to-ward Snizhne midday on July 17with at least two cars, a jeep behindand another vehicle in front as atype of escort.

He verified a photo of the SA-11going through town, shot from thegas station on the main road, aswhat he had also seen on the day ofthe crash. U.S. officials noted thesame photo, which had circulated onsocial-media sites.

Among new findings, U.S. intelli-gence officials said at the briefingon Tuesday that shrapnel damage tothe Malaysian airliner visible inphotographs is consistent with asurface-to-air missile, such as anSA-11.

The officials also said they hadcorroborated some of the Ukrainiancommunications intercepts that Kievhas said show separatists discussing

the shoot-down, using voiceprintanalysis by the National SecurityAgency and the Central IntelligenceAgency. They added that they arestill going through their own data-bases of intercepts to find corrobo-rating evidence, and that doing socould take time.

U.S. officials showed aerial pho-tos of what they said was a trainingcenter in southwest Russia whereseparatists were taught to use air-defense systems. The intelligence of-ficials also provided a map, releasedearlier Tuesday by the State Depart-ment, that showed the trajectory ofthe fatal missile and the launch sitewhere it was allegedly fired.

The on-site investigation of thecrash site is expected to providemore physical evidence of what hap-pened to Flight 17.

The Netherlands said Tuesday itwould take the lead in that probe,but accident investigators stillhadn’t arrived at the crash site asfighting raged in the region.

The remains of hundreds of vic-tims were transported in five grayrefrigerated train wagons from therebel-held area in eastern Ukraine tothe government-held city of Kharkiv,where they came under the custodyof a multinational forensics team.The experts observed a moment ofsilence before transferring the firstof them to a makeshift forensicscomplex at a tank factory.

The bodies were flown onWednesday to Eindhoven, the Neth-erlands, and from there were head-ing to a military base in Hilversum,southeast of Amsterdam, for identi-fication.

Russian President Vladimir Putinsaid in a speech Tuesday that Russiawould attempt to influence separat-ists in eastern Ukraine to aid the in-vestigation even as he slammedWestern leaders for “destabilizing”the country.

U.S. officials cited as an indica-tion of possible Russian culpabilitycomments by the Russian ambassa-dor to the United Nations on Mon-day that left open the possibilitythat the shoot-down could havebeen a mistake.

The Russian government is mak-ing a “full-court press” to spread aRussian version of events that try topin the shoot-down on the Ukraini-ans, which is “not plausible to us,”one senior intelligence official said.

A key goal of Tuesday’s presen-tation was “not letting a Russiannarrative get out there,” said onesenior U.S. intelligence official.

Russia has continued its supportto the separatists even since thecrash of Flight 17, sending tanks androcket launchers, U.S. intelligenceofficials said. “We don’t think theyhave stopped,” said one. “We thinkthey continue to do it.”

The officials pointed repeatedlyto social media to bolster their case,citing postings about sightings of anSA-11 traveling through the separat-ist-controlled towns of Torez andSnizhne, near the crash site and thelocation where officials believe themissile was shot from.

The SA-11 has the range and alti-

tude that would have been able toshoot down the Malaysian airlinerfrom this area, they added.

Intelligence officials presented aspart of their case a map and accom-panying photos, taken from socialmedia, of an SA-11 system beingmoved through eastern Ukraine to-ward the Russian border in the af-termath of the crash.

Another social-media postingthat showed an SA-11 apparentlytraveling back to Russia through theKrasnodon area is further evidence,they said, noting that they are stillworking to verify the location anddirection identified in the video.They further cited the separatistsbragging about a shoot-down in so-cial media postings, echoing earliercomments by U.S. leaders.

The officials said they couldn’tbe certain when the SA-11 systemwas brought into eastern Ukraine.U.S. officials suspected that the Rus-sian-backed separatists had an SA-11when a Ukrainian military cargoplane was shot down at a lower alti-tude on July 14, but U.S. intelligenceofficials still haven’t confirmed thatan SA-11 is what took it down.

The July 17 crash of Flight 17confirmed the presence of the SA-11,the officials said.

Lawmakers have questioned whythe U.S. didn’t provide a warning toairlines, and U.S. officials said thatthey didn’t know until July 17 thatthe separatists had the capability toshoot aircraft above an altitude inthe high 20,000-foot range.

They noted that it can be diffi-cult to track the transportation ofweapons because they are oftenmoved at night, and the Russianshave provided the separatists withtypes of weapons that the Ukraini-ans also have in order to maintain“plausible deniability.”

While the Ukrainians also haveSA-11s, the U.S. intelligence officialssaid Tuesday that those weaponswere nowhere near the site of theshoot-down at the time.

—Julian E. Barnes, MargaretCoker, and Matina Steviscontributed to this article.

By Siobhan Gorman inWashington and Paul Sonne

in Snizhne, Ukraine

A 2011 file photo shows Russian rocket system Buk-M2 on display during an airshow in the town of Zhukovsky, outside Moscow.

European

Presspho

toAgency

Horlivka

Donetsk Torez

Hrabove

Approximatedebris field

U.S. says missilewas launchednear Snizhne

U K R A I N E

RUSSIA

DONETSK LUHANSK

10 miles

10 km

PATH OF FLIGHT 17 Hrabov

Kiev

DETAILUKRAINE

Sources: Flightradar24; U.S. Embassy in Ukraine; Ukrainian Defense Ministry; NationalSecurity and Defense Council and National Guard; staff reporting The Wall Street Journal

Dangerous SkiesU.S. officials have announced the area from which the missile was launchedthat took down Malaysia Airlines Flight 17, which was one of many aircraft thathave been attacked in recent months.

18 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

BUSINESS & FINANCE

Techie CEOs Face Gender GapTech startups are racing to build

hobby, crafts and fashion businessescatering to women. Therein lieswhat might be called an “instinctgap”: Nearly all of the people head-ing these companies are men.

When Ashish Arora became chiefexecutive of crafting product makerCricut more than two years ago, hedidn’t anticipate just how big thatgap could be.

The former product manager atcomputer-accessories maker Log-itech Inc. was tasked with remodel-ing the company’s old-fashioneddesktop craft cutter with high-techsoftware. Mr. Arora was mesmerizedby how the machine’s gears and cir-cuit boards worked, so he tested atransparent prototype.

“The women hated it,” he says.They wanted the technology to behidden and the machine to lookspare and clean.

He also tried packaging that wasprinted with the technological specsand cloud-software capabilities.Again, rejection: They wanted to seethe images of the crafts they couldmake.

At times, he would come homefrom work dejected, telling his wife,“I find my instincts consistentlywrong.”

So he spent several months loi-tering in the aisles of arts-and-crafts retailer Michaels Stores Inc.and Jo-Ann Fabric & Crafts Stores,observing women as they browsedfor items. He bought a sewing ma-chine and started sewing lessons.And he hired women who were ac-tive crafters and scrapbookers as asort of in-house focus group.

Eventually the insights influ-enced the make and build of the Cri-cut Explore, a $299 desktop craftcutter launched this past January byhis South Jordan, Utah, company,incorporated as Provo Craft & Nov-elty Inc.

Some in the industry view this

instinct gap as a problem, and onecreated by a male-dominated invest-ment culture.

“It’s not that a male founder or amale CEO automatically is precludedfrom doing a good job of running acompany for women,” says NicoleShariat Farb, the CEO and co-founder of craft e-commerce com-pany Darby Smart Inc. “But they areprecluded from understanding theircustomer on an instinctual level.”

Sometimes, gender differencesdevelop inadvertently, as a companyevolves. When Ben Silbermann co-founded Pinterest Inc. in 2010, hisidea was to build a digital grid ofimages to help people show off col-lections, like the insects he liked toamass as a child.

Mr. Silbermann didn’t anticipatethat Pinterest would become a hubfor women to share inspiration forcrafts, home décor and recipes. Pin-terest has more than 60 millionmonthly active users, according tocomScore. And 80% of them are

women, according to a recent studyfrom RJMetrics, an analytics soft-ware firm.

The San Francisco company’sfounding team is male, as are itsheads of operations, product andengineering. Last fall, it hired ashead of partnerships Joanne Brad-ford, previously the president of theSan Francisco Chronicle.

Mr. Silbermann, who wasn’tavailable to comment, often em-braces the homespun culture of thesocial network he created whencommunicating with pinners. On hisown Pinterest profile, he has posted120 items to “Things for My FutureKitchen.”

Like Pinterest, the male foundersof Craftsy Inc. an online video plat-form that offers quilting, knittingand cake-decorating classes to its 4million mostly female users didn’tintend to target women. Craftsy wasfounded in 2010 as Sympoz and of-fered tutorials on diverse subjectssuch as golf and personal finance.

But its crafting classes drew legionsof paying customers so the companyswitched its focus.

John Levisay, the Denver com-pany’s CEO, says he and his male co-founders have paid close attentionto the opinions of Craftsy’s 7 millionFacebook followers—as well as thewomen they have hired to overseethe finance, production and productdevelopment teams. “We put a lot ofeffort into rounding out our teamwith key people who, mercifully forthem, look nothing like me,” hesays.

Chad Dickerson, the chief execu-tive of Etsy Inc., an online market-place for handmade and vintagegoods, says he tries to tap into theshopping psyche of female custom-ers and employees. One adviser isfinancial chief Kristina Salen. “Wetalk about shopping, and then wetalk about tax issues,” says Mr. Dick-erson, who succeeded Robert Kalinas CEO of the New York company in2008.

BY KATHERINE ROSMAN

Ashish Arora, who is chief executive of crafting product maker Cricut, talks to a shopper at a crafts store.

LoriEa

nesforTh

eWallS

treetJournal

Many ProfitOntheRolloutOfNewiPhoneApple around $200 in materials perphone. The most expensive compo-nents are the display and casing,both over $40 each. The phone re-tails for over $600 without a con-tract. Credit Suisse analyst RandyAbrams estimates iPhone productionwill bring Taiwan’s companies be-tween $17.9 billion and $26.9 billionin revenue this year. The bank esti-mates Apple will pay Taiwanesefirms around $100 to $150 periPhone for components and assem-bly.

To be sure, the Apple effect can’tturn around an economy. Taiwan’sgrowth remains sluggish due to itsailing personal-computer business.Many analysts point out the impactof a big Apple order often wears outafter one quarter. Still, Tim Condon,an economist with ING in Singapore,believes Taiwan’s exports, which re-mained flat since 2011, are finallygetting a boost due to the iPhone.

Japan’s exports of electroniccomponents rose 4.4% in May froma year earlier, while total exportsslumped 2.7%.

Tom Kang, an analyst at Counter-point Research in Seoul, said Japa-nese parts providers like Japan Dis-play and Sony Corp. would beamong the biggest beneficiaries inthe Apple supply chain.

Sony on Wednesday said it wouldspend $345 million to expand itsproduction capacity for camera sen-sors. Sony has increased its share ofthis part in the iPhone and the firm’slatest move is likely to meet in-creased demand from Apple, Mr.Kang said.

Apple on Tuesday said quarterlynet profit grew 12% to $7.75 billionthanks to strong iPhone sales, espe-cially in markets far afield from itstraditional customer base in the U.S.

The company sold 35.2 millioniPhones in the quarter ended June28, up 12.7% from a year earlier.Apple said the growth was helped bydemand from Brazil, Russia, India,and China, where iPhone sales rose55%.

The iPhone results stood in con-trast to iPad sales, which slid for thesecond consecutive quarter, raisingquestions about the future of Ap-ple’s tablet as the company gears upto launch bigger-screen iPhone mod-els. Apple’s revenue rose 6% to $37.4billion.

Apple’s suppliers will post sec-ond-quarter profits by mid-August.Earlier releases of iPhones have hada big impact on suppliers’ earnings.

Japan Display saw its quarterlyprofit almost quadruple from a yearearlier to ¥6.3 billion ($62 million)in the April-June quarter last year,just prior to the iPhone 5S launch.

Pegatron, the Taiwanese iPhoneassembler, reported monthly reve-nue of $3.9 billion in September, themonth of the iPhone 5C’s launch, al-most twice what it posted a yearearlier. Mr. Liao of Fubon estimatesApple orders make up about a halfof the company’s revenue.

Other companies, though, arelosing their share of Apple’s busi-ness. Samsung until this year wasthe sole supplier of microprocessorsfor the iPhone. But Apple has movedto diversify its supply base, in partdue to a legal dispute with Samsung,which is the world’s largest smart-phone producer.

—Eric Pfannerand Daisuke Wakabayashicontributed to this article.

Continued from page 15

Fox IsMindful ofDebtWithTimeWarnerEver since his News Corp sur-

vived a bruising liquidity crisisin the early 1990s, Rupert Mur-doch has been careful to avoidgetting overextended financially.But his pursuit of Time WarnerInc. could test that philosophy.

To win over Time Warner’sboard, which rejected an initialoffer from Mr. Murdoch, his en-tertainment company, now called21st Century Fox, would have toraise its stock-and-cash offerfrom its initial $85 a share, andlikely increase the cash compo-nent as well. But to do so mayrequire Fox to take on so muchdebt that its investment-gradecredit rating could be down-graded, analysts say. A lowercredit rating increases a com-pany’s borrowing costs.

Fox wants to protect its in-vestment-grade credit rating, ac-cording to people familiar withFox’s thinking, and thus is pre-pared only to consider a bid ofbetween $90 and $95 a share.But it is unlikely to be willing toraise the percentage of cash inthe deal much beyond the 40% inthe original offer, the peoplesaid.

That offer may not be highenough for Time Warner. The

company wants the offer raisedto above $100 a share, with ahigher portion of cash than orig-inally offered, according to aperson close to Time Warner.

Whether Fox can go that highis a big question. “I think it’shard to argue that the dealmakes sense above a hundredbucks,” says Nomura analyst An-thony DiClemente, who says sucha scenario would force Fox totake on too much debt.

Time Warner alluded to thisquandary facing Fox in a state-ment it issued last Wednesday,explaining it had rejected the of-fer because its board felt its ownstrategic plan could create morevalue for shareholders than anyproposal Fox “is in a position tooffer.”

People close to Time Warnerhave hinted that it would preferan all cash and higher offer froma deep-pocketed technology com-pany—but there isn’t such an of-fer available right now.

For Fox, the difficulty of go-ing above $100 a share was high-lighted by credit ratings firmMoody’s Investors Services in anote Monday analyzing the fi-nancial implications of a deal.

Moody’s said that Fox likelywould have to raise its offer to$105 a share to secure a deal if

Fox retained the same mix of40% cash and 60% stock as theinitial offer. Under that scenario,Fox would need $35.3 billion incash, Moody’s estimated.

Even if Fox were to fundnearly half of that cash require-ment by selling off assets, Foxwould still end up raising itsdebt past the level seen as ap-propriate by Moody’s for its cur-rent credit rating.

Moody’s says Fox could avoida downgrade—or be downgradedonly a notch while still remain-ing investment-grade—if it pro-poses a solid plan for payingdown debt. This scenario wouldlikely push Mr. Murdoch well be-yond his historical comfort zonewhen it comes to the balancesheet, said Moody’s senior VicePresident Neil Begley.

“He’s never carried less thana couple billion dollars [of cash]on his balance sheet at any pe-riod, certainly in the last 15years, and I think that stemsfrom those days when he got introuble when he was beholden tothe banks,” Mr. Begley said ofMr. Murdoch.

In the early 1990s, News Corpran into a cash crunch thatforced it into a lengthy period ofnegotiations with its banks, end-ing with a restructuring of $7.6

billion of debt. News Corp latersold some assets and issued newshares to reduce debt.

Last year News Corp split intwo, with the bulk of the com-pany being renamed 21st CenturyFox while its print media busi-nesses, including The Wall StreetJournal, were carved off in aseparate company retaining theNews Corp name.

Fox now has a conservativelyfinanced balance sheet, withabout $5.5 billion of cash andabout $23 billion in whatMoody’s counts as debt. TimeWarner has a slightly higherlevel of earnings and debt, theagency estimates.

To finance a Time Warnerdeal, Fox has lined up a $25 bil-lion loan from Goldman Sachsand J.P. Morgan, according to aperson familiar with the matter.

Fox has several ways to raiseadditional cash. The company isexpected to raise between $7 bil-lion and $9 billion by selling itsinterest in two European satelliteTV businesses, Sky Deutschlandand Sky Italia, to its 39%-ownedU.K. satellite-TV affiliate BSkyB.That deal, news of which sur-faced in May in a Bloomberg re-port, is close to being finalized.

—Amol Sharmacontributed to this article.

BY KEACH HAGEY

12 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

OPINION: REVIEW & OUTLOOK

P resident Obama’s penchant fortreating laws as unlimited grantsof power to his Administration is

catching up with him. The irony is thaton Tuesday the nation’s second highestcourt ruled that ObamaCare is defined bywhat Congress enacted, not how his Ad-ministration has rewritten it.

In Halbig v. Burwell, the D.C. CircuitCourt of Appeals held that the Adminis-tration violated the Affordable Care Actby expanding subsidies to the 36 insur-ance exchanges run by the federal gov-ernment. The plain statutory language ofObamaCare repeatedly stipulates thatthese credits shall flow only through “anExchange established by the State.” The2-1 panel majority thus did not “strikedown” part of ObamaCare, as liberals andthe media claim. Using straightforwardtextual construction, the court upheld thelaw the President signed but it vacatedthe illegitimate federal-exchange subsi-dies he tried to sneak in via regulation.

Distinguishing between state and fed-eral exchanges was no glitch or draftingerror. In 2010 Democrats assumed thatthe unpopularity of ObamaCare wouldmelt away and all states would run theirown exchanges. Conditioning the subsi-dies was meant to pressure Governors toparticipate. To evade this language, theInternal Revenue Service simply pumpedout a rule in 2012 dispensing the subsi-dies to all. The taxmen did not elaborateon niceties such as legal justification.

The courts usually defer to executiveinterpretation when statutes are ambigu-

ous, but Mr. Obama’s lawyers argued thatthe law unambiguously means the oppo-site of the words its drafters used. JudgeThomas Griffith knocked this argumentaway by noting in his ruling that, “Afterall, the federal government is not a‘State,’” and therefore “a federal Ex-change is not an ‘Exchange establishedby the State.’”

The White House alsoargued that the courtshould ignore the law’sliteral words because Con-gress intended all along tosubsidize everybody, call-ing the contrary conclu-sion an “absurd result.”Yet this is merely ex post facto regret forthe recklessness and improvisation of theway ObamaCare became law, when notrick was too dirty after Democrats losttheir 60-vote Senate supermajority.Nancy Pelosi said we had to pass the billto find out what’s in it. Now we know.

Judge Griffith, a George W. Bush ap-pointee known as a moderate, writes thathe and Judge Ray Randolph reached theirconclusion “frankly, with reluctance,”given the practical consequences. “But,high as those stakes are, the principle oflegislative supremacy that guides us ishigher still. Within constitutional limits,Congress is supreme in matters of policy,and the consequence of that supremacyis that our duty when interpreting a stat-ute is to ascertain the meaning of thewords of the statute duly enactedthrough the formal legislative process.”

About two-thirds of the U.S. popula-tion lives in one of the 36 federal-ex-change states, and about 4.7 million peo-ple are receiving subsidies for which theyare not legally eligible. The White Houseis making much of these lost subsidies ifthe ruling stands, but the fault is withthe Democrats who drafted the bill, not

the courts or scholars likeCase Western Reserve lawprofessor Jonathan Adlerand Michael Cannon ofthe Cato Institute whofirst noticed the IRSabuse.

Another irony is thatObamaCare’s own archi-

tecture could thwart its goal of evolvinginto national health care. By attemptingto coerce the Governors into joining,Democrats also handed them a veto. IfHalbig survives on appeal, then Mr.Obama will have no choice but to askCongress to rewrite the law if he wantssubsidies for the 36 states with federalexchanges. And that would open up thelaw to a larger rewrite.

As it happens, the White House gotlucky on Tuesday and a different appel-late court, the Fourth Circuit, ruled in fa-vor of the federal subsidies in a separatelawsuit—even if the White House posi-tion prevailed “only slightly,” as JudgeRoger Gregory wrote.

“There can be no question that thereis a certain sense to the plaintiffs’ posi-tion,” he continued. “If Congress did infact intend to make the tax credits avail-

able to consumers on both state and fed-eral Exchanges, it would have been easyto write in broader language, as it did inother places in the statute.”

i i iThe competing decisions increase the

likelihood that the Supreme Court willeventually agree to hear the cases. If it isserious about its claims of damage, theWhite House could even seek an expe-dited High Court hearing. But the WhiteHouse may be more worried that it willlose at the Supreme Court, so it will tryto dodge a split appellate judgment byfirst seeking review by the entire D.C.Circuit.

Senate Democrats broke the filibusterin a rush last year to pack the D.C. Circuitwith three more liberals, precisely in an-ticipation of this Halbig result. The liberalmajority may well overturn Judge Griffith.

But our guess is that the SupremeCourt will still take Halbig, and it should.The case is part of a growing body of ju-risprudence on executive overreach, theseparation of powers and political ac-countability. Mr. Obama’s profound dis-dain for Congress is inspiring a healthylegal counteroffensive that goes to theheart of American self-government.

In perhaps the greatest irony of all,Chief Justice John Roberts would thenget a chance to honor his words from hisfamous—or infamous—2012 ruling up-holding ObamaCare. He wrote then that,“It is not our job to protect the peoplefrom the consequences of their politicalchoices.” Indeed.

N ations must be militarily strongand determined enough to ensuretheir own survival. Israelis have

long understood this harsh reality ofglobal politics, and it has never beenclearer than this week as the worldbrowbeats Israel and the terror groupHamas for a “cease-fire” in Gaza.

President Obama and John Kerryhave adopted this ostensibly even-handed trope, and on Tuesday the Euro-

pean Union went further and deploredIsrael and Hamas as if they were equalperpetrators. Hamas should stop its“criminal and unjustifiable acts,” the EUsaid, but it added that it was “particu-larly appalled” at the human cost of theIsrael ground offensive. Particularly?

This all may be intended as fine im-partiality, but the reality is that a cease-fire now would help Hamas. The terrorgroup rejected Egypt’s offer of a cease-

fire last week after Israel had acceptedit, perhaps figuring that Israel wouldn’trisk a ground invasion. Or perhaps itwanted such an invasion figuring theworld would condemn Israel for civiliancasualties and Hamas would win thepropaganda war.

In any case now that it has moved onthe ground, Israel will lose if it stops be-fore it achieves its main military objec-tives. This means blowing up the entire

network of tunnels that Hamas uses toinfiltrate into Israel and to smuggleweapons into Gaza from Egypt. It alsomeans destroying the stockpiles of rock-ets and storage sites.

The Israelis are best positioned tojudge their progress, and the U.S. shouldpublicly support its military response ina war it didn’t start. This is what willbring the most rapid end to the vio-lence.

W e’ve seen what happened atthe IRS when Democratslaunched a political campaign

to crack down on tax-exempt groupsthat don’t disclose their donors. A simi-lar animus is now at work in the states,where two attorneys general are forcing501(c) groups to disclose their donors ifthey want to raise money in thosestates.

In New York, tax-exempt groups mustapply for a license to solicit contribu-tions, a process that has traditionally re-quired the submission of their publicIRS form 990. But Attorney General EricSchneiderman has begun demandingthat nonprofits also file their confiden-tial list of donors found on IRS form“Schedule B.” The AG from Occupy WallStreet says a failure to do so makes anapplication “deficient” and exposes agroup to fines or ban for violating the

state’s law against unregistered solicita-tion.

Under New York’s Administrative Pro-cedure Act, a change like this must gothrough a period of pub-lic comment, but Mr.Schneiderman acted byunilateral fiat. In May the501(c)(4) Citizens Unitedsued on grounds that theAG’s diktat violates itsFirst Amendment and due process rightsby imposing a rule without consultationor notice. The suit is pending in federalcourt.

Mr. Schneiderman says the informa-tion will be kept confidential, but NewYork state law has a robust bias in favorof freedom of information. How long be-fore one of the AG’s liberal allies peti-tions the government to produce thosefiles? The IRS recently paid $50,000 to

settle a suit over the leak of donor in-formation from the National Organiza-tion for Marriage to its political adver-saries at the Human Rights Campaign.

In California, mean-while, the Center forCompetitive Politics ischallenging the GoldenState’s requirement thatthe group must cough upits donors if it wants a li-

cense to solicit contributions. The statesays the power to seek donor informa-tion has been on the books for years,but the Center for Competitive Politicssays the state’s demand this year is thefirst time the information had been re-quired. This new arbitrary enforcementis happening amid the general liberal at-tack on conservative campaign donors.

California claims its wants disclosureto deter fraud, but state tax-law in-

fringement doesn’t justify a rule thatwould cover donors nationwide. TheCenter for Competitive Politics is basedin Virginia and draws donors from allover the country. The requirementmeans a Massachusetts contributor to aVirginia group would be disclosed to theCalifornia state AG.

California and New York are trying toend-run federal law that makes the do-nor names on Schedule B confidential.The Internal Revenue Code creates aspecific avenue for state officials to pe-tition Treasury if they have a good rea-son to see confidential donor informa-tion. Citizens United criticizesDemocrats like Mr. Schneiderman, whichmakes his disclosure efforts an act ofpolitical self-interest during his re-elec-tion campaign. Let’s hope the courtsoverrule these attempts at chilling polit-ical speech.

Upholding ObamaCare—as Written

Let Israel Decide

Give Us Your Donors, or Else

An appeals court’sremedial civics lesson:

Laws meanwhat they say.

California andNew York try to chillpolitical speech.

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 17

BUSINESS & FINANCE

In Australia, Coal-Gas Bet Proves DiceyGLADSTONE, Australia—Conoco-

Phillips, Total SA and other globalenergy companies have investedUS$60 billion on bets they couldpump natural gas from Australiancoal seams and create a new fron-tier in a world hungry for clean-burning fuel.

But problems perfecting newdrilling techniques, conflicts withlandowners and competition fromthe U.S. shale revolution are threat-ening returns from those six yearsof investments.

Australia is the first countryseeking to convert methane trappedin coal seams into liquefied naturalgas, which then could be exportedon tanker ships. The country has avibrant LNG industry and is on trackto overtake Qatar as the biggest ex-porter of the fuel by 2017. Mostprojects, however, are for conven-tional natural-gas deposits in deepwaters off Australia’s northwesterncoast. The country’s unconventionalcoal-seam projects, meanwhile, arebeing closely watched by countriesfrom Britain to Indonesia, whichhope to make better use of theirown seams.

The first Australian project,owned by Britain’s BG Group PLCand expected to go online this year,underscores the challenges thathave helped quiet the buzz overcoal-seam gas. The project, in thiseastern port city, is 36% over bud-get, at US$20.4 billion, hurt by suchfactors as rising labor costs and un-favorable currency swings.

Now the company wants to sellassets including pipelines and wa-ter-treatment plants to improve itsreturn. BG also has scrubbed aplanned expansion that would haveincreased the project’s output by atleast 50%.

Investors in two rival plants, onerun by Conoco and Origin EnergyLtd. and the other by Total and San-tos Ltd., have tried in vain to sellstakes. Each has run over budget bybillions of dollars. Origin said it re-

mains enthusiastic about Australia’scoal-seam gas reserves and fore-casts that the project will deliverUS$1 billion a year in cash flow. To-tal said its coal-seam project is partof the company’s strategy to remaina leader in LNG.

A fourth proposed facility, led byRoyal Dutch Shell PLC and Petro-China Co., is in limbo as the compa-nies question its economic viability.Andrew Smith, the chairman ofShell’s Australian business, said theArrow Energy venture might ditchplans for a multibillion conversion-and-export terminal and simply sellits gas to the other projects instead.

Producers need to pump waterfrom coal seams to make natural gasflow but have found the technologytroublesome.

Big export projects each need

thousands of wells to be viable. Un-expectedly weak flow rates at somewells have forced companies deeperinto the Australian Outback to huntfor resources.

The process harnesses sophisti-cated computer-directed drills thatpinpoint pockets of gas trapped incoal seams buried hundreds of feetunderground. Because salt watermixed with the gas is sucked out todepressurize the seam, the drillingprocess risks contaminating ground-water used by farmers.

Experienced producers say theirwells are safe because they are en-cased in concrete to prevent leak-age, and contaminated water is col-lected at the surface and treated.Companies have spent heavily onwater-treatment plants and cam-paigns to assure farmers that their

land won’t be harmed.A problem is that companies

have resisted working together,which would help keep costs down.The facilities to liquefy natural gasby cooling it stand side-by-side onan island just off shore, each relyingon separate pipelines to move gashundreds of miles.

“There’s still uncertainty from atechnical perspective about howwell these projects will work, giventhe complex interaction between acontinuous drilling program and liq-uefaction-plant operations,” saidChris Holmes, a managing directorat consulting firm IHS. “When youlook at aerial images and see theseprojects sitting right next to eachother, it hardly illustrates the mostefficient use of capital.”

The companies remain bullish

about the prospects of coal-seamgas, despite rising costs. Japanesepower generators and other custom-ers are locked into contracts, typi-cally lasting 20 years, guaranteeingdemand. Queensland also is closerto fast-growing Asian energy mar-kets than North America, wherecompanies are looking to convertshale gas to LNG for export.

“Eight years ago, as a domesticgas supplier, we were facing a mar-ket that lacked sufficient scale andhence, a business with low growthprospects and unsustainable salesmargins,” said Santos Chief Execu-tive David Knox. “To grow, weturned to Asia.”

Still, the cost overruns mean ex-porting coal-seam gas as LNG isshaping up to be less profitable thancompanies expected. Credit Suisseanalyst Mark Samter estimated thatthe return rate from Santos and To-tal’s project has dropped below 7%after costs rose to $18.5 billion fromthe $16 billion budgeted. “Quiteclearly, at face value, this has beena materially unappetizing project,”he said.

There also is the risk of moreconstruction delays. Bechtel Corp.,which is building all three exportterminals, this year had to fly inaround 50 specialist welders andpipe fitters from the Britain and Ire-land because it wasn’t able to findenough workers locally. BG’s plantalone has 80 modules—giant piecesof gas-processing equipment thatcan weigh twice as much as an A380superjumbo jet—that need to bewelded together.

Bechtel said it was confidentthat BG’s plant would be ready toexport its first LNG cargo beforeyear-end, as targeted. The Conocoand Total projects are scheduled tofollow next year.

“Of course, you always wish thatyou were further ahead and that ev-erything was sailing along even bet-ter than you’d expected,” said KevinBerg, Bechtel general manager inGladstone. “But we’re comfortablewith where we’re at.”

BY ROSS KELLY

Cost overruns are threatening profits from Australian coal-gas projects. Above, a Queensland Curtis LNG tank facility.

BGGroup

BHP Aims to Boost Iron-Ore Output Despite GlutThe world’s largest mining com-

pany said it plans to continue ramp-ing up iron-ore production despitetumbling prices and a glut in sup-plies of the steelmaking ingredient.

The move signals BHP Billiton’sgrowing confidence that it can digup the bulk commodity for less thanmany rival producers and therebythrive even in an environment ofweakening prices.

BHP is angling to win more mar-ket share, believing the recent slipin iron-ore prices could be a lever toforce high-cost producers in coun-tries such as China to shut theirmines.

In a written statement, Mel-bourne-based BHP said Wednesdaythat it exported more iron ore thanexpected from mines in Australia’sNorthwest last fiscal year—even af-ter raising projections twice duringthe period. It said it plans anothersharp increase during the current fi-nancial year.

Meanwhile, BHP and Anglo-American PLC are in talks to selltheir jointly owned portfolio ofmanganese assets in South Africaand Australia, according to peoplefamiliar with the matter.

The assets include two mines in

South Africa, one in Australia andprocessing plants in both countries.BHP owns 60% and Anglo 40% ofthe operations. Macquarie analystJeff Largey values Anglo’s share ofthe manganese portfolio at $530million, which implies a full value of$1.33 billion.

Manganese is a key alloy ingredi-ent in the production of stainlesssteel, and although its prices are offabout 20% since 2011, they have sta-bilized recently. However, for mega-miners, it is a only niche business.Global trade in manganese totalsabout $3 billion a year, 2.5% of theequivalent figure for iron ore.

After years of aggressive expan-sion in mining regions such as Aus-tralia’s resource-rich Pilbara, whichaccounts for half the world’s sea-borne iron-ore supply, BHP hasswitched its focus to improving pro-ductivity in order to work its exist-ing mines harder.

The company reported recordiron-ore production of 225 millionmetric tons from its Western Aus-tralian mines for the year throughJune, up 20% on the prior 12months and above the level inves-tors had been expecting.

In April, BHP raised its forecastfor full-year iron-ore production inAustralia to 217 million tons. That

compared with previous guidance of212 million metric tons and an ini-tial estimate of 207 million tons.

Outside of Australia, BHP alsoproduces iron ore at the Samarcooperation in Brazil, a joint venturewith Vale SA. Globally, BHP’s ownshare of iron-ore output from itsmines last fiscal year was 204 mil-lion tons, it said.

A key reason for the latest jumpin the company’s Australian ship-ments—which includes the share ofoutput for minority venture part-ners—was improvement in BHP’ssupply chain, as well as the start ofproduction at its newest mine, Jim-blebar, ahead of schedule.

Now, the company says it be-lieves it can lift production evenfurther in the year ahead. It pre-dicted that total iron-ore productionfrom the Pilbara is likely to reach245 million tons this fiscal year. Theincrease of 20 million tons, or 8.9%,is nearly double the annual exportsof some smaller Pilbara rivals suchas Atlas Iron Ltd.

BHP’s record production resultcomes a week after rival Rio Tintoannounced an all-time high in pro-duction in its own fiscal first half.Rio Tinto is aiming to boost its Aus-tralian iron-ore output by a further20% to 350 million tons by 2017.

The burgeoning oversupply inthe market has already sparked a29% slide in iron-ore prices thisyear. Iron ore is trading around $95a metric ton, after slipping as low as$89 a ton last month to the com-modity’s weakest level since Sep-tember 2012.

Most industry analysts expectfurther price declines in the comingyear as growth in industrializingChina, the world’s biggest importerof iron ore, cools.

BHP says declining prices aren’tunexpected.

“We’ve been saying for a longtime now that growth rates in Chinawill begin to slow,” supply wouldrise and that benchmark priceswould fall, BHP’s marketing presi-dent, Mike Henry, said recently.“This is baked into our plans.”

BHP executives add that their ef-forts over the past 18 months to re-duce production costs will enablethe company to take a bigger sliceof the market, even as growth inChinese steel output slows.

The company has moved to pro-tect earnings from the falling iron-ore price, recently cutting 100 jobsat the Perth headquarters of itsiron-ore division and announcing afurther 170 layoffs at its MountWhaleback pit in the Pilbara.

Earlier this month, Mr. Henrysaid he had heard reports of smaller,private mining operations in Chinahaving to be closed, although hesaid it was difficult immediately toestimate exactly how much produc-tion had already been removed fromthe market.

Australian investment bank Mac-quarie estimates that about one-third of China’s domestic iron-oresupply is unprofitable at currentprices. BHP’s mines in the remoteAustralian Outback are among someof the lowest-cost to operate glob-ally, Mr. Henry said.

The sharp increase in productionalso demonstrates BHP’s growingreliance on iron ore, which alreadyaccounts for more than half of thecompany’s earnings. Credit Suissehas estimated that BHP’s earningscould decline as much as 14% thisfiscal year amid sharply lower iron-ore prices.

About 1.3 billion tons of iron oreis traded by sea each year, withmore than half of these shipmentsending up in China. UBS predictsthe seaborne market will be awashwith almost 74 million tons of sur-plus iron ore this year.

—John W. Miller, Gillian Tanand Alex MacDonald

contributed to this article.

BY RHIANNON HOYLE

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 13

OPINION

A three-judge panel of the U.S.Court of Appeals for the D.C. Cir-cuit—a tribunal second only to theSupreme Court—ruled on Tuesdaythat the Obama administrationbroke the law. The panel foundthat President Obama spent bil-lions of taxpayer dollars he had noauthority to spend, and subjectedmillions of employers and individu-als to taxes he had no authority toimpose.

The ruling came in Halbig v.Burwell, one of four lawsuits aimedat stopping those unlawful taxesand expenditures. It is a decisionlikely to have far-reaching reper-cussions for the health-care law.

Because the ruling forces theObama administration to imple-ment the Affordable Care Act aswritten, consumers in 36 stateswould face the full cost of its over-priced health insurance. Accordingto one brief filed in the case, over-all premiums in those states wouldbe double what they are under theadministration’s rewrite, and typi-cal enrollees would see their out-of-pocket payments jump seven-fold. The resulting backlash againsthow ObamaCare actually workscould finally convince even Demo-crats to reopen the statute.

At its heart, though, Halbig isnot just about ObamaCare. It isabout determining whether thepresident, like an autocrat, canlevy taxes on his own authority.

The president’s defenders oftenconcede that he is doing the oppo-site of what federal law says. Yethe claims that he is merely imple-menting the law as Congress in-tended.

Such claims should be met withmore than the usual skepticismwhen made by a president whoopenly advocates unilateral ac-tion—“I’ve got a pen, and I’ve got aphone”—when the legislative pro-

cess doesn’t produce the re-sult he wants, and whenthey are made by a presi-dent whose expansive viewof his powers the SupremeCourt has unanimously re-jected 13 times. Unfortu-nately, the abuse of powerexposed in Halbig maytrump them all.

Here’s where the presi-dent broke bad. The PatientProtection and AffordableCare Act directs states toestablish “exchanges” toregulate the sale of healthinsurance. If a state de-clines to do so, as 36 stateshave, the health-care lawdirects the federal govern-ment to “establish and op-erate such Exchange withinthe State.” But here’s therub: Certain taxpayers canreceive subsidized coverage,the law says, if they enroll“through an Exchange es-tablished by the State.” Thelaw nowhere authorizessubsidies through ex-changes established by thefederal government.

This is common practice.The Medicaid program hasoperated on the same prin-ciple for nearly 50 years. Only resi-dents of cooperating states get as-sistance. When Congress debatedhealth reform in 2009, both Repub-licans and Democrats introducedlegislation conditioning health-in-surance subsidies on statesestablishing exchanges. SenateDemocrats advanced two leadinghealth-care bills. Both allowed fed-eral exchanges to operate withoutsubsidies. One of them became law.

The only thing that is uncom-mon about the Affordable Care Actis that two-thirds of the states re-fused to comply. Yet federal law isclear, consistent and unambiguous:The Obama administration has noauthority to issue subsidies outside

“an Exchange established by theState.” According to congressionalinvestigators, Treasury Departmentand Internal Revenue Service per-sonnel even admitted they knewthe statute did not authorize themto dispense subsidies in states withexchanges established by the fed-eral government. Yet the IRS stillpromulgated a rule authorizingsubsidies in states with federal ex-changes.

We were the first to draw atten-tion to the president’s actions, onthese pages in November 2011. InJanuary 2014, despite years of crit-icism from members of Congressand others, the Obama administra-tion began spending taxpayer dol-

lars to buy coverage for anestimated five million peo-ple who enrolled throughfederal exchanges. If eightmillion people enrolled infederal-exchange coverage,as we are told they have, itis because the presidentwas unlawfully subsidizingmore than half of them.

Subsidies for policiespurchased on an exchangeautomatically trigger taxesagainst both employers andindividuals who do not pur-chase the mandated level ofcoverage. So when thepresident issued those sub-sidies in states where hehad no authority to do so,he also imposed, on mil-lions of employers and indi-viduals, taxes that no Con-gress ever authorized. Twostates, dozens of public-school districts, and severalprivate-sector employersand individual taxpayersfiled Halbig and three otherlawsuits to block thatunlawful spending and theillegal taxes it triggers.

The president’s support-ers claim that Halbig ismeritless because Congress

clearly intended to authorize subsi-dies through federal exchanges. Ifthat were Congress’s intent, cer-tainly one should be able to findsome statutory language to that ef-fect. Or contemporaneous quotesfrom the law’s authors explainingthat they intended the AffordableCare Act to authorize subsidies infederal exchanges. The president’ssupporters have had three years tofind such evidence supporting theirtheory of congressional intent.They have come up empty.

The administration’s legal strat-egy is therefore, of necessity, bi-zarre. The president’s representa-tives argue in court that Congressintended to use the words limiting

subsidies to exchanges “establishedby the State,” and intended to au-thorize subsidies through ex-changes established by the federalgovernment, without everexplicitly reconciling the contradic-tion. Also on Tuesday, the FourthCircuit Court of Appeals upheld theInternal Revenue Service rule as apermissible interpretation of anambiguous statute, as if there wereanything ambiguous about the dif-ference between a state and thefederal government.

The D.C. Circuit saw throughthis nonsense. One by one, it re-jected the government’s many ar-guments. The court held the Af-fordable Care Act “does notauthorize the IRS to provide taxcredits for insurance purchased onfederal Exchanges” and “the gov-ernment offers no textual basis . . .for concluding that a federally-es-tablished Exchange is, in fact or le-gal fiction, established by a state.”The administration’s decision to is-sue those subsidies anyway is thuscontrary to the statute and “givesthe individual and employer man-dates . . . broader effect than theywould have” if the government fol-lowed the law.

While the dissent in Halbighighlighted the plaintiff’s motives,the majority opinion came fromJudge Thomas B. Griffith, whosenomination in 2005 was supportedby prominent Democrats includingSeth Waxman, David Kendall, andeven then-Sen. Barack Obama.Judge Griffith noted that while thecourt’s ruling could have a signifi-cant impact on the Affordable CareAct, “high as those stakes are, theprinciple of legislative supremacythat guides us is higher still.”

Mr. Adler is a law professor anddirector of the Center for BusinessLaw and Regulation at Case West-ern Reserve University. Mr. Can-non is director of health-policystudies at the Cato Institute.

Getty

Images

Reining in ObamaCare—and the PresidentBY JONATHANH. ADLERAND MICHAEL F. CANNON

Perhaps whatwe’ve been actuallywatching since thestart of 2014 hasbeen the last chap-ter of Vladimir Pu-

tin’s rule. All has inevitably gonepear-shaped for the Russian leadersince the popular overthrow of hisclient and ally Viktor Yanukovychin the strategic next-door nation ofUkraine.

The Sochi Olympics extrava-ganza, meant to suggest to Rus-sians they are a world-class coun-try with a world-class president,now looks like $50 billion downthe drain. The Russian economy,already weighed down by corrup-tion and cronyism and stunted de-velopment outside the govern-ment-controlled energy sector, issinking fast under sanctions andcapital flight.

Mr. Putin enjoyed an extraordi-nary run on oil prices after comingto power in 1999—a tenfold in-crease. That gift won’t be repeated,

and the Russian middle class inany case is harder to placate withcrumbs from resource extractionwhose proceeds mostly flow to Mr.Putin’s nearest and dearest.

And it’s not just that Mr. Putinis KGB; everyone around him isKGB too, even if their interestsdon’t perfectly overlap. A tad pre-mature is the judgment that MH17is purely a misadventure, a cock-up. Someone ordered the highly-capable missiles across the borderinto the hands of Russia’s proxyfighters in Ukraine, if only to seewhat useful havoc might be stirredup. In 2001, just such a system ac-cidentally shot down a Russian air-liner in a botched Ukrainian mili-tary exercise.

And made to order right nowmight be a certain kind of conflictwith the West—combining loudand angry rhetoric from Americanpoliticians with the usual weaksanctions that don’t impede the oiland gas money that keeps the Pu-tin crony banquet from dissolvingin murderous acrimony.

Mr. Putin, at 61, is apparentlyhealthy and can expect a longlife—but has no way out. Underthe existing Russian constitution,

he must face voters again in 2018and 2024—each a potential Ti-ananmen. Then, in theory, he’sdone. But Mr. Putin can’t afford tobe done. He can’t retire. But nei-ther is he Deng Xiaoping, withdeep institutional support to facedown a Kiev-style uprising. Hecan’t count on Russian Army gen-erals, who may be getting conflict-ing advice from friendly billion-aires about where their owninterests lie, if confronted withmass demonstrations.

Ignore the Metternichs: WhatPutin fears is not the West but hisown people.

As economist Sergei Gurievnoted two years ago, Russia’s pres-ident is acutely aware of the differ-ing fates that befell Silvio Ber-lusconi—who, since being drivenfrom politics, has been enjoying hisbillions in private—and MoammarGadhafi.

Igor Shadkhan, a filmmakerwho produced Mr. Putin’s firstcampaign biopic, explained toBloomberg last year: “Many of thepeople in his entourage will wantrevenge as soon as he steps downbecause many of them are humili-atingly dependent on him. He

trusts no one, not even his ownpeople.”

Mr. Putin’s best bet may be tosuspend Russia’s constitutionsooner rather than later, and seeka showdown with Russia’s remain-ing liberal forces at a moment ofhigh patriotic fever and conflictwith the West. Mr. Putin terselytold a radio questioner in April“no” when asked if he would bepresident for life, but the choicemay not be totally under his con-trol. Anyway, we’ll see.

Whatever the truth of MH17, theshootdown adds to a burden of un-explained matters that complicateany Putin plan for a blissful retire-ment: The deaths of journalists,critics and even the odd inconve-nient mentor, the killings of legis-lators Sergei Yushenkov and YuriShchekochikhin who were investi-gating the greatest mystery of all,the apartment block bombings in1999 that slaughtered 293 Russiansin their beds and cemented Mr. Pu-tin’s rise to power.

At the same time Mr. Putin’sposition at home has been but-tressed by intimations that theWest considers him a man it cando business with, even a bulwark

against chaos. The signs of sottovoce approval have been hard tomiss even lately: The way formerGerman Chancellor GerhardSchröder laid himself out to pro-tect Mr. Putin after the Crimeagrab. The undiminished parade ofWestern business leaders to joinMr. Putin last month at the WorldPetroleum Congress in Moscow.Most of all, his regime’s continuedand deep reliance on BP andExxon-Mobil to advance its energydevelopment goals.

This has been our fifth columnin nine years with the words “Pu-tin puzzle” in the title. Two yearsago, we asked if Mr. Putin mighthave an act of creative statesman-ship in him, fashioning a gracefulexit from power and into some lav-ish tax-haven exile. He evidentlydoesn’t. Even with the airlinershootdown, the U.S. and Europeare likely loath to destabilize hisregime fatally. The next question iswhether the Russian people have acreative act in them, or whetherthey are prepared supinely andmutely to share whatever fate Mr.Putin, in his selfishness, decides toinflict on his country for his ownpreservation.

[ Business World ]

BY HOLMAN W. JENKINS, JR.

End to the Putin Puzzle?

16 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

INDEX TO BUSINESSESAegean Airlines..............3Airbus Group N.V..........16Apple........................15,25AstraZeneca..................28Atlas Iron......................17Audi...............................16Banca Monte dei Paschidi Siena S.p.A............28

Banco EspiritoSanto.....................22,28

Bank of Montreal.........22Bayerische MotorenWerke....................16,22

Bechtel..........................17BG Group.......................17BHP Billiton..................17BNP Paribas..................22Boeing...........................16British Sky BroadcastingGroup..........................18

Burger KingWorldwide.............16,20

Catcher Technology......15Citigroup ....................... 22Commerzbank............1,28ConocoPhillips...............17Coty...............................27Craftsy...........................18Credit Agricole..............28Credit Suisse Group.....28Cricut.............................18Crowley Maritime Group5Daimler..........................16Deutsche Bank....15,22,28Dunkin’ Brands Group..20Etsy...............................18Express ScriptsHolding.......................19

Express ScriptsHolding.......................28

Federal Reserve Bank ofNew York...................22

Federated Investors.....19General Dynamics.........16GlaxoSmithKline......19,28Google...........................25Hon Hai PrecisionIndustry ..................... 15

Huatong Road & BridgeGroup..........................28

Industrial & CommercialBank of China............28

Jarden ........................... 27J.P. Morgan Chase........28Kellogg..........................20Largan Precision...........15LG Display.....................15Macy's.............................6MalaysiaAirlines ........ 1,2,4,10,22

Malaysian AirlineSystem Bhd.................9

McDonald's ..............16,20Micoperi ..........................5Mondelez International20Morgan Stanley............22National Labor RelationsBoard............................6

News Corp.....................18Novartis ................... 19,28Origin Energy................17OSI Group......................16Pegatron........................15PetroChina ....................17Pinterest.......................18Provo Craft & Novelty..18Rio Tinto.......................17Royal Dutch Shell.........17Santos...........................17

Shanghai Chaori SolarEnergy Science &Technology.................28

Shanghai Husi Food.....16Sky Italia.......................18Societe Generale ..........28Sony..............................18Taiwan SemiconductorManufacturing...........15

Tesla Motors.................16Time Warner.................18Total ..............................17Twitter............................921st Century Fox..........18UBS ............................... 21United Food andCommercial Workers...6

Vale ...............................17Wendy's ........................20Yum Brands ............. 16,20

BusinessesThis index of businessesmentioned in today’sissue of TheWall StreetJournal is intended toinclude all significantreference to companies.First reference to thecompanies appears inbold face type in allarticles except thoseon page one and theeditorial pages.

Corrections Amplifications

England cricketers Gary Ballance, JoeRoot and Moeen Ali averaged 54.25 fromfive games, 46.67 from 19 and 41.16 fromfour, respectively. A Sports article Wednes-day about England’s cricket team gave in-correct numbers of games played by GaryBallance and Joe Root. The article also in-correctly included Sam Robson in a list ofaverages by England’s batsmen.Readers can alert the London newsroom of TheWall Street Journal to any errors in news articlesby emailing wsjcontact@wsj.com or by calling+44 (0)20 7842 9901.

BUSINESS & FINANCE

Daimler Profit Up On MercedesBERLIN—Daimler AG reported

a sharp rise in second-quarterearnings, driven by record salesin its Mercedes-Benz luxury cardivision, as the German automaker races to catch up with ri-vals BMW AG and Audi AG.

The strong performance wasfueled by soaring sales of theflagship Mercedes S-class luxurysedan, higher earnings in thecompany’s truck and financialservices businesses, and cost cutsthat are expected to save Daimleras much as €2 billion ($2.69 bil-lion) this year.

Daimler’s earnings before in-terest and taxes from its continu-ing operations rose 12% from ayear earlier to €2.46 billion. Rev-enue increased 6.2% to €31.54 bil-lion, on a 3.8% rise in sales to628,857 cars, trucks and vans.

But net profit fell 52% in thethree-month period to €2.20 bil-lion compared with €3.2 billion inthe year earlier period, which in-cluded a large, one-time gainfrom the sale of the company’sshares in Airbus Group NV.

The strongest growth was atthe Mercedes-Benz Cars division,where earnings before interestand taxes on continuing opera-tions rose 30% to €1.41 billion inthe quarter on a 8.9% increase inrevenue to €17.77 billion. Mer-cedes car sales rose 3.5% to418,685 cars.

Daimler lost its throne as theworld’s best-selling luxury carmaker in 2005 and has since beenfighting to regain the title. It isexpanding in China and the U.S.and overhauled the design of carsthat range from luxury sedans tothe midrange C-class and luxury

compact city cars.“We are growing profitably,

our strategy is bearing fruit,” saidDieter Zetsche, Daimler’s chair-man and chief executive, during aconference call. “Unit sales, reve-nue and EBIT from the ongoingbusiness will all increase signifi-cantly in the year 2014.”

Daimler shares ended off lessthan a percentage point at €65.67after initially climbing nearly 2%in Frankfurt following its earningsrelease. Earnings were largely inline with analysts’ forecasts.

“Daimler’s [second quarter] re-sults are pretty dull—in a good

way,” Max Warburton, automotiveanalyst with Bernstein Research,wrote in a note after the release.

Daimler also realized a pretaxgain of €718 million to reflect thecurrent value of its 4% stake inTesla Motors Inc.

Daimler’s truck division alsoreported higher EBIT, up 1.9% to€526 million, driven by highersales in North America. But thebusiness is facing pressure inemerging markets that have beenhit by falling currencies and weakeconomies. As a result, revenue inthe truck division was flat at€7.97 billion and sales were up

1.9% to 126,066 vehicles.“We are assuming that the

economic weakness in LatinAmerica will last for a long time,”said Wolfgang Bernhard, head ofDaimler’s truck business.

He added that Daimler believesthe new Indian government willuse its strong majority to imple-ment economic reforms that couldhelp stabilize the economy andbenefit Daimler’s truck business.

“The benefit for Daimlertrucks from a recovery of the In-dian economy will be dispropor-tionately higher,” said Mr. Bern-hard.

BY WILLIAM BOSTON

New high-end S class cars are boosting sales and profit. Above, a redesigned S class at the spring Geneva motor show.

AssociatedPress

Boeing’sProfit Rises,But So DoConcerns

Boeing Co. on Wednesday re-ported a 52% rise in quarterly profitand raised its full-year earningsguidance, but disclosed problemswith the new military refuelingtanker it plans to sell to the U.S.and its allies.

Chief Executive Jim McNerneymaintained there was no bubble inthe record commercial jet ordersthat has buoyed Boeing and rivalAirbus Group NV, with the latestsurge in deals at the recent Farn-borough Airshow reflecting thethirst for more fuel-efficient planesto satisfy traffic growth, notably inAsia and the Middle East.

Mr. McNerney said on a post-earnings’ call that requests to deferjet deliveries remained below theirhistorical average, with a “brisk”activity among airlines and lessorsseeking to accelerate orders.

The rise in profit from commer-cial deliveries in the quarter wasovershadowed by a $272 million af-ter-tax charge for the Pegasus aerialrefueling tanker being developedfor the U.S. Air Force, which Boeinghopes to also sell to South Korea,Japan and other U.S. allies.

Boeing won the tanker contractafter a fierce decadelong battle withAirbus, and the charge caught ana-lysts by surprise after the companyguided in May that it was on trackdespite what executives called“challenges”. Mr. McNerney said thecharge reflected wiring problems,though the issues had been identi-fied. Analysts at RBC Capital calledthe charge “worrying” at such anearly stage in the program.

Boeing reported a profit of $1.65billion for the quarter ended June30 compared with $1.09 billion ayear earlier, with per-share earn-ings rising to a forecast-beating$2.24 from $1.41. Revenue edged up1.1% to $22.05 billion.

The company raised its per-share core earnings estimate—which excludes pension costs andgains—for the year to between$7.90 and $8.10 a share, from itsearlier view of $7.15 to $7.35.

Boeing’s commercial-jet backloggrew to more than 5,200 aircraftvalued at $377 billion, adding 783new orders so far this year, with be-tween 715 and 725 forecast in 2014.

Like other aerospace and de-fense firms, Boeing continues topush share buybacks, repurchasing$1.5 billion in the second quarter.

BY DOUG CAMERONAND JON OSTROWER

China Detains Five; Meat Scandal GrowsBEIJING—China detained em-

ployees of a U.S.-owned Chinesemeat supplier that it says intention-ally sold expired meat to fast-foodchains in China, and accused man-agement of planning the food-safetyviolations.

Chinese police said Wednesdaythat they had detained five peopleconnected to Shanghai Husi FoodCo., which supplied restaurantchains including McDonald’s Corp.,Yum Brands Inc. and Burger KingWorldwide Inc. in China. Policedidn’t release their names but iden-tified two of the detained employeesas a person responsible for the com-

pany and a quality supervisor. Thedetained employees couldn’t bereached for comment.

Yum, parent of KFC and PizzaHut restaurants, on Wednesday saidthe company had dropped OSIGroup Inc., the parent of ShanghaiHusi, entirely as a supplier in China.Yum said it reserved the right totake legal action against OSI, de-pending on the outcome of the Chi-nese government investigation.

A spokeswoman for OSI, based inAurora, Ill., didn’t respond to a re-quest for comment.

The detentions came a day afterthe Shanghai Food and Drug Admin-istration said food-safety violationsat the Shanghai-based meat supplierwere organized by the company.

“We’ve discovered that the viola-tions of the company were not theact of an individual, but were more-over a plan organized by the com-pany,” the deputy assistant of theShanghai agency was quoted as say-ing by the state-controlled XinhuaNews Agency late Tuesday.

The company has said its execu-tives were “appalled” by Chinesemedia reports that alleged ShanghaiHusi sold meat that had expired. Itsaid it believed the Chinese mediareports depicted an isolated incidentbut takes full responsibility.

Shanghai Husi has faced risingscrutiny since Saturday, whenChina’s Dragon TV reported that thecompany’s Shanghai plant repack-aged and sold chicken and beef past

their sell-by dates. Shanghai foodauthorities launched an investiga-tion. A number of food chains, in-cluding Yum, McDonald’s and Star-bucks Corp. have cut ties with thesupplier.

One OSI employee said that me-dia reports accusing the company ofwrongdoing were incorrect. LeonWang, currently a Shanghai-basedOSI sales manager and a formermanager at Shanghai Husi, saidMcDonald’s declined to take meatthat had been frozen for more thanthree months. That meat, whichwasn’t expired, was then sold toother customers, he said.

—Fanfan Wang, Yang Jieand Julie Jargon

contributed to this article.

BY LAURIE BURKITTAND JACOB BUNGE

14 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

OPINION

Asked on “Meetthe Press” Sundaywhether this wasthe lowest momentin U.S.-Russia rela-tions since the

Cold War, America’s robo-Secre-tary of State John Kerry replied:“We live in an extremely compli-cated world right now, where ev-erybody is working on ten differ-ent things simultaneously.” Well,not everyone.

As the world burns, the presi-dent spent this week fiddling atfundraisers in the living rooms offive Democratic Party fat cats inSeattle, San Francisco and Los An-geles. As White House communica-tions director Jennifer Palmieri fa-mously explained, changing thepresident’s fundraising schedule“can have the unintended conse-quence of unduly alarming theAmerican people or creating afalse sense of crisis.”

Alarmed? Who’s alarmed?What false sense of crisis? Vladi-mir Putin’s masked men in easternUkraine shot Malaysia Airlines

Flight 17’s 298 people out of theair just about the time Israel andHamas commenced their deathstruggle, not long after the IslamicState of Iraq and al-Sham occu-pied a third of Iraq within sevendays.

If news coverage defined real-ity, you’d think the once-ragingcivil war in Syria was over—but itisn’t. There just isn’t space to fit itall in. The homicidal fanatics ofBoko Haram may soon establishstatelike control of northern Nige-ria, as ISIS has in Iraq. Last weekthe April kidnappers of the world’snow-forgotten “our girls” gunneddown another 44 Nigerians, thendays later killed 100 more in vil-lages abandoned by the Nigerianarmy. After Boko Haram grabbed aGerman citizen in Gombi, Ger-many’s foreign ministry said itwas “aware of the case.”

On Monday, Barack Obamashowed up on the White Houselawn to make clear that he, too, isaware of what’s going on. Ad-dressing the war in Gaza for aboutthree minutes, Mr. Obama urged“the international community tobring about a ceasefire that endsthe fighting.” He said, “I haveasked John,”—that would be oursquirrel-on-a-wheel secretary ofstate—to “help facilitate” that.This is a foreign policy whose arcbegins and ends with the phrase,“stop the killing.”

More revealing, though, waswhat Mr. Obama said on the air-liner shoot-down and Russia’srole. “If Russia continues to vio-

late Ukraine’s sovereignty,” hesaid, and if it still backs “theseseparatists” who are becoming“more and more dangerous” notjust to Ukrainians “but thebroader international community,”then “the costs for Russia” will in-crease.

What does this mean? Mr. Pu-tin better watch out if one of histongs does something worse thanshoot a passenger jet out of thesky?

Here’s what it means. It meansthat “the situation,” as the WhiteHouse routinely labels all theworld’s chaos, is surely going toget worse. It means in the nexttwo years, a lot more people aregoing to die, and not necessarilyin the places where they are dyingnow. Why should it stop?

The president and his team

need not worry about injecting afalse sense of crisis. This being the100th anniversary of 1914, morethan a few people are wanderingin and out of commemorativeWorld War I events, their headswimming with Yeats’s thoughtthat “mere anarchy is loosed uponthe world.”

On Sunday, there was anotherlargely overlooked event. BosnianMuslims buried 284 bodies re-cently found in a mass grave fromthe Balkans war in the 1990s. Thatwar was a genocide taking placeon post-World War II Europeansoil, which didn’t stop until theU.S. acted to end it. Now withDutch bodies strewn acrossUkraine, president-in-waiting Hil-lary Clinton ludicrously says, “Eu-ropeans have to be the ones totake the lead on this.”

As a White House veteran ofthe Milosevic slaughters in Bosnia,Croatia and Kosovo, Mrs. Clintonknows Europe won’t act until theU.S. leads. Europe today mainlywages war on Google, Microsoftand Intel. Its leaders won’t domuch more than hope nothing likea Flight 17 happens one morningin the subways or on the streets oftheir capitals. Hope alone won’tprotect them or us.

This week the original 9/11Commission put out an update onglobal terrorism. The report saysthe “complacency” that led to 9/11“is happening again.”

How, then, to explain someonewho claims he can run the countryand a troubled world out of hisback pocket while he flies fromfundraiser to fundraiser? BarackObama is the most provincial U.S.president in at least a century. Theprogressive Democrats who dis-placed the Clinton machine in2008 and came to power with Mr.Obama have no interest beyondconsolidating political and elec-toral power inside the U.S. Noteven the White House of LyndonJohnson, the ultimate pol, was sopurely politicized.

The fundraising is a frantic ef-fort to protect this new Demo-cratic voter machine. The worlddoesn’t vote, so the world doesn’tmatter. Unless, of course, theAmerican people in November de-cide that a world defined byevents like Flight 17 does matter.

Write to henninger@wsj.com

[ Wonder Land ]

BY DANIEL HENNINGER

Obama to World: Drop Dead

Boko Haram leader Abubakar Shekau. Why is this man laughing?

AgenceFrance-Presse/Getty

Images

President Obama’s response tothe July 17 attack on MalaysiaAirlines Flight 17 has followed awell-established pattern. Viewinginternational affairs through theconfining prism of legal proce-dures and restraints, Mr. Obama istreating this terrorist act—whicheven such a stalwart supporter ofthe president as Sen. Carl Levincalled “an act of war”—as some-thing akin to a police homicideinvestigation.

Mr. Obama has unfortunatelydwelled on getting internationalforensic experts to the crash siteinstead of emphasizing the vitalstrategic lessons to be drawnfrom this terrible episode. He didwarn on Friday and again onMonday of unspecified steps thatwould be taken—no doubt after

the criminal-justice approachplays out—but his vague incanta-tions about “consequences” arealso familiar. Red lines ultimatelyprove illusory with this president,retribution never materializes,and American lassitude and disin-terest approach surreal levels.

Tectonic power and politicalforces—not legalisms—are nowclashing in Europe. Vladimir Pu-tin, though a lawyer like theAmerican president, understandsthis. Mr. Obama does not. Subor-dinating a president’s primary, ex-istentially important political roleto an emphasis on the sifting ofevidence impairs America’s abilityto protect its vital interests. And,hour by hour, delay saps Europe’swillingness to do more than sim-ply wring its hands.

For much of the past two de-cades, Russophiles contended thatMoscow was finally ready to jointhe West, but Mr. Putin’s iron de-termination to re-establish Rus-sian hegemony within the formerSoviet Union has repeatedlyproven the opposite. For an Amer-ican president, making clear thebroader political implications ofRussian belligerence and mobiliz-ing our NATO allies and otherlike-minded countries ought to befar more important than verifyingdetails like which missile batteryfired the deadly rocket, fromwhere, and by whose hand.

The strategic reality is that therebellion in eastern Ukraine’s con-flict is being conducted with Rus-sian direction and material assis-tance. To be sure, Mr. Putin plays

on the local population’s pro-Mos-cow sympathies, but the key oper-atives, as in the annexation ofCrimea, are either Russians orUkrainian citizens under Russiancommand and control.

Ukraine is the great prizeamong the former Soviet repub-lics, and Mr. Putin suffered a sig-nificant setback last winter when

Ukrainians overthrew the Yanuk-ovych government. The Flight 17catastrophe is another crushingblow—or it should have been. ButMr. Putin has played his handskillfully against a Western alli-ance left rudderless by detachedand indecisive leadership from theWhite House.

Immediate and longer-term ac-tion from the U.S. and its allies isrequired. It is Moscow’s broaderpolicy of aggressive behavior, ex-tending well beyond Ukraine, thatthe West must counter. Manyhave suggested, in response to thedowning of Flight 17, institutingadditional sanctions against Rus-sia, and substantially increasingU.S. and European military assis-tance to Ukraine. These and re-lated measures are sensible, butthey must be made part of alarger strategic vision. Given Mr.

Obama’s short international atten-tion span, even initially robusttactical responses will quickly dis-sipate.

The larger strategy must reston recognizing that Russia has as-sumed an adversarial positionagainst the West. Accordingly, weshould not merely aid Ukrainemilitarily, but also renew Presi-dent George W. Bush’s 2008 pro-posal to put Ukraine (and Geor-gia) clearly on track for NATOmembership. We should restorethe missile-defense project for Po-land and the Czech Republic thatMr. Obama unwisely scrappedsoon after he took office, thepresident should give up on theill-advised “New START” nuclear-arms treaty with Russia that hecontinues to pursue, and the U.S.should step up its nuclear readi-ness.

As for economic responses,sanctions should be sharp and ef-fective. Abandon the gradual-esca-lation theories hatched in univer-sity faculty lounges and imposereal pain. Barring Russian institu-tions from Western financial mar-kets is a good place to start. Andwe should unleash development ofNorth America’s energy reserves,thereby providing Europe a strate-gic alternative to Russian hydro-carbons (and benefitting ourselvesdomestically).

Would Europe agree to suchrobust steps? Given the recent re-cord of feckless U.S. leadership,we won’t know Europe’s “real” an-swer until our allies see decisiveAmerican action. Eastern and Cen-

tral Europe would almost cer-tainly respond positively, puttingpressure on more-hesitant Euro-pean Union capitals. GermanChancellor Angela Merkel, amongothers, is not about to get aheadof the White House in movingagainst Mr. Putin.

There is much to do, and thetime to do it is slipping away. Sig-nificantly, the strategic frameworkwe must construct has implica-tions beyond Europe. Beijing is in-tently watching how Washingtondeals with Moscow. What China’sleaders have seen to date simplyfeeds their aggressive aspirationsin the East and South China Seaand along the country’s land bor-ders. China’s near neighbors fullygrasp the point.

Yet it is not just Europe andAsia that need U.S. leadership.America, for its own safety’s sake,needs it too. On the evidence ofrecent days, such leadership isstill not forthcoming.

Mr. Bolton is a senior fellow atthe American Enterprise Instituteand the author of “Surrender IsNot an Option: Defending Americaat the United Nations andAbroad” (Simon & Schuster,2007).

Foreign Policy Is Not a ‘CSI’ EpisodeBY JOHN BOLTON

Thorold Barker, Editor,Europe, Middle East & Africa

Bruce Orwall, Senior Editor, EuropeGren Manuel, Executive Editor, EuropeTerence Roth, Managing Editor, Europe

Lauren Berkemeyer, MarketingKate Dobbin, Communications

Florence LeFevre, Institutional Sales EuropeJonathan Wright, Circulation Sales

Kelly Leach, PublisherPublished since 1889 byDow Jones & Company

© 2014 Dow Jones & Company. All Rights Reserved

Sanctions are a good start,but make them part of alarger strategic vision thatrecognizes the Putin menace.

Mr. Obama is the mostprovincial U.S. presidentin at least a century.

Comments? The Journalwelcomes readers’ responses toall articles and editorials. It isimportant to include your fullname, address and telephonenumber. Please send letters to

the editor to: Letters@WSJ.com

Thursday, July 24, 2014

Pound/Euro 0.7902 À 0.07% Yen/$ ¥101.50 g 0.03% Global Dow 2637.94 À 0.01% Gold 1304.50 g 0.12% Oil 103.12 À 0.71% 3-month Libor 0.23410 10-year Treasury À 1/32 yield 2.464%

THE WALL STREET JOURNAL. europe.WSJ.com

Strong Sales at Mercedes-BenzDrive Up Daimler’s EarningsBUSINESS & FINANCE 16

Another DefaultAverted in ChinaHEARDONTHE STREET 28

More PainFor UBSAs FranceProbes Firm

PARIS—French magistratesplaced UBS AG under formal investi-gation regarding money laundering,widening a probe examiningwhether the bank helped wealthyFrench customers evade taxes.

The magistrates requested thebank pay bail of €1.1 billion ($1.49billion) by Sept. 30, a spokeswomanfor the Paris prosecutor’s officesaid.

If convicted, UBS could be hitwith a significant fine and limita-tions on its ability to do business inFrance, she said.

The €1.1 billion bail is a guaran-tee. In case the bank is convictedand required to pay a fine, themoney would be used as a downpayment. If charges are droppedUBS would recover the amount.

UBS said in a statement that thebail amount is “unprecedented andunwarranted.”

“We consider both the legal basisfor the bail amount and the methodof calculation to be deeply flawedand will appeal,” the bank said. UBSacknowledged that it has now alsobeen placed under investigation forallegedly laundering the proceeds oftax evasion, and said, “We will con-tinue to defend our case strongly.”

French authorities are probingwhether UBS France facilitated asystem under which bankers fromthe parent company in Switzerlandwere able to approach and some-times encourage French clients toopen Swiss accounts that allowedthem to evade taxes. Under Frenchlaw, only French-registered entitiescan recruit customers in France.

Investigating magistrates placedthe French unit of UBS under formalinvestigation over a year ago, press-ing preliminary charges of complic-ity in illegally sourcing clients inFrance. It opted at the time to notplace it under investigation regard-ing money laundering.

UBS has repeatedly said it is co-operating fully with the French au-thorities.

In its statement on Wednesday,UBS said, “In the course of the lastfew years, we have done everythingwe can to bring this matter to aclose. We have also taken significantand broad steps to ensure tax com-pliance of our clients and will con-tinue to do so. It is not acceptableto us that this has become a highlypoliticized process.”

The deepening probe comes asthe French government has beentrying to crack down on tax evasionand reduce the country’s budgetdeficit. Under French law, magis-trates can prosecute corporations,as well as individuals.

—John Letzingcontributed to this article.

BY INTI LANDAURO

Deutsche Bank CFO Faces HeatFRANKFURT—Deutsche Bank

AG’s finance chief, Stefan Krause,has made an overhaul of the bank’sfinancial-reporting systems a cor-nerstone of his six-year tenure atthe bank. But with U.S. authoritiesciting serious concerns about thebank’s financial data, Mr. Krausehimself is now under pressure.

An examination by the FederalReserve Bank of New York last yearfound that Deutsche Bank’s giantU.S. operations suffer from a varietyof serious financial-reporting prob-lems that the lender has been awareof for years but hasn’t fixed, accord-ing to documents reviewed by TheWall Street Journal.

Mr. Krause is the ultimate guard-ian of Deutsche Bank’s financial dataand leads a companywide effort toimprove the quality of its financialreporting—a project the New YorkFed criticized as inadequate.

In a letter to Deutsche Bank ex-ecutives last December, Daniel Muc-cia, a New York Fed senior vicepresident responsible for supervis-ing Deutsche Bank’s U.S. operations,criticized the lender’s attempts toaddress the weakness in its regula-tory reporting process.

Mr. Muccia said in the letter thatefforts to improve the quality of

data had failed.Other regulators overseeing

Deutsche Bank’s more than 8,500 le-gal entities world-wide have also ex-pressed concerns about the bank’scontrol systems. German bank su-pervisor BaFin began an investiga-tion in June into internal controls at

the lender’s commodities unit, ac-cording to a person familiar withthe probe. The reactions highlightthe increased regulatory scrutinybanks have been facing since the fi-nancial crisis.

“We have been working dili-gently to further strengthen our

systems and controls and are com-mitted to being best in class,” aDeutsche Bank spokesman saidTuesday. As part of this, he said, thebank is spending €1 billion ($1.35billion) globally and appointing1,300 people.

Please turn to page 22

BY EYK HENNINGAND MADELEINE NISSEN

Stefan Krause, Deutsche Bank’s finance chief, is in the spotlight after a stinging review of the bank by the New York Fed.

Bloomberg

New

s

TheAppleEffect: IPhoneSpreadsWealthPreparations for the rollout of

Apple Inc.’s latest iPhones are rip-pling through Asian economies,boosting revenues at componentmakers and helping underpin elec-tronics exports from some nations.

The Cupertino, Calif., company isasking suppliers to manufacture upto 80 million units, about a thirdhigher than initial orders last yearfor the iPhone 5S and 5C, accordingto people familiar with the matter.Apple is expected to launch twolarger iPhone models in the fall andhas been sourcing parts from acrossAsia ahead of the start of productionin August, they say.

Apple hasn’t named the suppliersand didn’t respond to requests forcomment. But analysts expect com-panies from Taiwan, Japan andSouth Korea that supplied earlierversions of the iPhone to producekey components like displays, cam-era lenses and microprocessors. Al-ready, some of those companies areannouncing increased earnings orforecasts, and economists and ana-lysts are talking about an Apple ef-fect on whole sectors and econo-mies.

“Apple is becoming a more majorcontributor to Taiwan’s economy,”said Arthur Liao, a tech analyst with

Fubon, a Taiwan-based brokerage.Taiwan’s export orders, an early

indicator of actual exports, were attheir strongest in 17 months in June.Industrial production in June, re-leased Wednesday, was up 8.6% froma year earlier, above expectations,led by double-digit gains in semicon-ductor output, which some analystsput down to increased Taiwanese

supply to Apple.“The jump of the output of semi-

conductors is 100% related to theiPhone launch,” said Masterlink In-vestment Advisory economist AnitaHsu.

In Japan, one government officialestimated the new iPhone couldraise quarterly demand for the coun-try’s electronics exports by 5%.

Japan Display Inc. and LG Dis-play Co. of South Korea have beenthe largest suppliers of displays, themost costly part of an iPhone.Catcher Technology Co. of Taiwanhas produced the phone’s metal cas-ing, another expensive component.Largan Precision Co., also of Tai-wan, made camera lenses. South Ko-rea’s Samsung Electronics Co. hasfurnished memory chips and micro-processors, the phone’s computingbrains.

Hon Hai Precision Industry Co.and Pegatron Corp., both Taiwan-ese-headquartered companies, previ-ously have assembled iPhones intheir Chinese factories. Apple also isleaning on some new suppliers, in-cluding Taiwan SemiconductorManufacturing Co. The companybegan shipping microprocessors toApple in the second quarter, saypeople familiar with the matter.None of the suppliers would com-ment on their relationship with Ap-ple.

Catcher reported record revenuein June, and Largan posted its sec-ond-highest monthly revenue on re-cord that month. TSMC in July fore-cast a strong third quarter afterreporting record second-quarterearnings due to strong demand forits microprocessors.

Previous launches of the iPhonehave boosted large swaths of Asia’selectronics supply chain. The 5S cost

Please turn to page 18

By Eva Dou,Fanny Liu

andMayumi Negishi

Sources: IHS Technology; staff reports Photo: Apple The Wall Street Journal

Apple’s iPhone Boosts Some Asian EconomiesA closer look at the key Apple suppliers*

CAMERA LENSTAIWANLargan Precision; GeniusElectronic Optical

ASSEMBLERTAIWANFoxconn

METAL CASINGSTAIWANCatcher Technology; Hon Hai

MICROPROCESSORS (INSIDE)SOUTH KOREASamsung

DISPLAYSJAPANSharp; JapanDisplay

SOUTH KOREALG Display

IPhone 5S shown*Suppliers for iPhone 5S only

TALarEle

TACat

TAFo

JAShaDis

SOSam

SOLG

14 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

OPINION

Asked on “Meetthe Press” Sundaywhether this wasthe lowest momentin U.S.-Russia rela-tions since the

Cold War, America’s robo-Secre-tary of State John Kerry replied:“We live in an extremely compli-cated world right now, where ev-erybody is working on ten differ-ent things simultaneously.” Well,not everyone.

As the world burns, the presi-dent spent this week fiddling atfundraisers in the living rooms offive Democratic Party fat cats inSeattle, San Francisco and Los An-geles. As White House communica-tions director Jennifer Palmieri fa-mously explained, changing thepresident’s fundraising schedule“can have the unintended conse-quence of unduly alarming theAmerican people or creating afalse sense of crisis.”

Alarmed? Who’s alarmed?What false sense of crisis? Vladi-mir Putin’s masked men in easternUkraine shot Malaysia Airlines

Flight 17’s 298 people out of theair just about the time Israel andHamas commenced their deathstruggle, not long after the IslamicState of Iraq and al-Sham occu-pied a third of Iraq within sevendays.

If news coverage defined real-ity, you’d think the once-ragingcivil war in Syria was over—but itisn’t. There just isn’t space to fit itall in. The homicidal fanatics ofBoko Haram may soon establishstatelike control of northern Nige-ria, as ISIS has in Iraq. Last weekthe April kidnappers of the world’snow-forgotten “our girls” gunneddown another 44 Nigerians, thendays later killed 100 more in vil-lages abandoned by the Nigerianarmy. After Boko Haram grabbed aGerman citizen in Gombi, Ger-many’s foreign ministry said itwas “aware of the case.”

On Monday, Barack Obamashowed up on the White Houselawn to make clear that he, too, isaware of what’s going on. Ad-dressing the war in Gaza for aboutthree minutes, Mr. Obama urged“the international community tobring about a ceasefire that endsthe fighting.” He said, “I haveasked John,”—that would be oursquirrel-on-a-wheel secretary ofstate—to “help facilitate” that.This is a foreign policy whose arcbegins and ends with the phrase,“stop the killing.”

More revealing, though, waswhat Mr. Obama said on the air-liner shoot-down and Russia’srole. “If Russia continues to vio-

late Ukraine’s sovereignty,” hesaid, and if it still backs “theseseparatists” who are becoming“more and more dangerous” notjust to Ukrainians “but thebroader international community,”then “the costs for Russia” will in-crease.

What does this mean? Mr. Pu-tin better watch out if one of histongs does something worse thanshoot a passenger jet out of thesky?

Here’s what it means. It meansthat “the situation,” as the WhiteHouse routinely labels all theworld’s chaos, is surely going toget worse. It means in the nexttwo years, a lot more people aregoing to die, and not necessarilyin the places where they are dyingnow. Why should it stop?

The president and his team

need not worry about injecting afalse sense of crisis. This being the100th anniversary of 1914, morethan a few people are wanderingin and out of commemorativeWorld War I events, their headswimming with Yeats’s thoughtthat “mere anarchy is loosed uponthe world.”

On Sunday, there was anotherlargely overlooked event. BosnianMuslims buried 284 bodies re-cently found in a mass grave fromthe Balkans war in the 1990s. Thatwar was a genocide taking placeon post-World War II Europeansoil, which didn’t stop until theU.S. acted to end it. Now withDutch bodies strewn acrossUkraine, president-in-waiting Hil-lary Clinton ludicrously says, “Eu-ropeans have to be the ones totake the lead on this.”

As a White House veteran ofthe Milosevic slaughters in Bosnia,Croatia and Kosovo, Mrs. Clintonknows Europe won’t act until theU.S. leads. Europe today mainlywages war on Google, Microsoftand Intel. Its leaders won’t domuch more than hope nothing likea Flight 17 happens one morningin the subways or on the streets oftheir capitals. Hope alone won’tprotect them or us.

This week the original 9/11Commission put out an update onglobal terrorism. The report saysthe “complacency” that led to 9/11“is happening again.”

How, then, to explain someonewho claims he can run the countryand a troubled world out of hisback pocket while he flies fromfundraiser to fundraiser? BarackObama is the most provincial U.S.president in at least a century. Theprogressive Democrats who dis-placed the Clinton machine in2008 and came to power with Mr.Obama have no interest beyondconsolidating political and elec-toral power inside the U.S. Noteven the White House of LyndonJohnson, the ultimate pol, was sopurely politicized.

The fundraising is a frantic ef-fort to protect this new Demo-cratic voter machine. The worlddoesn’t vote, so the world doesn’tmatter. Unless, of course, theAmerican people in November de-cide that a world defined byevents like Flight 17 does matter.

Write to henninger@wsj.com

[ Wonder Land ]

BY DANIEL HENNINGER

Obama to World: Drop Dead

Boko Haram leader Abubakar Shekau. Why is this man laughing?

AgenceFrance-Presse/Getty

Images

President Obama’s response tothe July 17 attack on MalaysiaAirlines Flight 17 has followed awell-established pattern. Viewinginternational affairs through theconfining prism of legal proce-dures and restraints, Mr. Obama istreating this terrorist act—whicheven such a stalwart supporter ofthe president as Sen. Carl Levincalled “an act of war”—as some-thing akin to a police homicideinvestigation.

Mr. Obama has unfortunatelydwelled on getting internationalforensic experts to the crash siteinstead of emphasizing the vitalstrategic lessons to be drawnfrom this terrible episode. He didwarn on Friday and again onMonday of unspecified steps thatwould be taken—no doubt after

the criminal-justice approachplays out—but his vague incanta-tions about “consequences” arealso familiar. Red lines ultimatelyprove illusory with this president,retribution never materializes,and American lassitude and disin-terest approach surreal levels.

Tectonic power and politicalforces—not legalisms—are nowclashing in Europe. Vladimir Pu-tin, though a lawyer like theAmerican president, understandsthis. Mr. Obama does not. Subor-dinating a president’s primary, ex-istentially important political roleto an emphasis on the sifting ofevidence impairs America’s abilityto protect its vital interests. And,hour by hour, delay saps Europe’swillingness to do more than sim-ply wring its hands.

For much of the past two de-cades, Russophiles contended thatMoscow was finally ready to jointhe West, but Mr. Putin’s iron de-termination to re-establish Rus-sian hegemony within the formerSoviet Union has repeatedlyproven the opposite. For an Amer-ican president, making clear thebroader political implications ofRussian belligerence and mobiliz-ing our NATO allies and otherlike-minded countries ought to befar more important than verifyingdetails like which missile batteryfired the deadly rocket, fromwhere, and by whose hand.

The strategic reality is that therebellion in eastern Ukraine’s con-flict is being conducted with Rus-sian direction and material assis-tance. To be sure, Mr. Putin plays

on the local population’s pro-Mos-cow sympathies, but the key oper-atives, as in the annexation ofCrimea, are either Russians orUkrainian citizens under Russiancommand and control.

Ukraine is the great prizeamong the former Soviet repub-lics, and Mr. Putin suffered a sig-nificant setback last winter when

Ukrainians overthrew the Yanuk-ovych government. The Flight 17catastrophe is another crushingblow—or it should have been. ButMr. Putin has played his handskillfully against a Western alli-ance left rudderless by detachedand indecisive leadership from theWhite House.

Immediate and longer-term ac-tion from the U.S. and its allies isrequired. It is Moscow’s broaderpolicy of aggressive behavior, ex-tending well beyond Ukraine, thatthe West must counter. Manyhave suggested, in response to thedowning of Flight 17, institutingadditional sanctions against Rus-sia, and substantially increasingU.S. and European military assis-tance to Ukraine. These and re-lated measures are sensible, butthey must be made part of alarger strategic vision. Given Mr.

Obama’s short international atten-tion span, even initially robusttactical responses will quickly dis-sipate.

The larger strategy must reston recognizing that Russia has as-sumed an adversarial positionagainst the West. Accordingly, weshould not merely aid Ukrainemilitarily, but also renew Presi-dent George W. Bush’s 2008 pro-posal to put Ukraine (and Geor-gia) clearly on track for NATOmembership. We should restorethe missile-defense project for Po-land and the Czech Republic thatMr. Obama unwisely scrappedsoon after he took office, thepresident should give up on theill-advised “New START” nuclear-arms treaty with Russia that hecontinues to pursue, and the U.S.should step up its nuclear readi-ness.

As for economic responses,sanctions should be sharp and ef-fective. Abandon the gradual-esca-lation theories hatched in univer-sity faculty lounges and imposereal pain. Barring Russian institu-tions from Western financial mar-kets is a good place to start. Andwe should unleash development ofNorth America’s energy reserves,thereby providing Europe a strate-gic alternative to Russian hydro-carbons (and benefitting ourselvesdomestically).

Would Europe agree to suchrobust steps? Given the recent re-cord of feckless U.S. leadership,we won’t know Europe’s “real” an-swer until our allies see decisiveAmerican action. Eastern and Cen-

tral Europe would almost cer-tainly respond positively, puttingpressure on more-hesitant Euro-pean Union capitals. GermanChancellor Angela Merkel, amongothers, is not about to get aheadof the White House in movingagainst Mr. Putin.

There is much to do, and thetime to do it is slipping away. Sig-nificantly, the strategic frameworkwe must construct has implica-tions beyond Europe. Beijing is in-tently watching how Washingtondeals with Moscow. What China’sleaders have seen to date simplyfeeds their aggressive aspirationsin the East and South China Seaand along the country’s land bor-ders. China’s near neighbors fullygrasp the point.

Yet it is not just Europe andAsia that need U.S. leadership.America, for its own safety’s sake,needs it too. On the evidence ofrecent days, such leadership isstill not forthcoming.

Mr. Bolton is a senior fellow atthe American Enterprise Instituteand the author of “Surrender IsNot an Option: Defending Americaat the United Nations andAbroad” (Simon & Schuster,2007).

Foreign Policy Is Not a ‘CSI’ EpisodeBY JOHN BOLTON

Thorold Barker, Editor,Europe, Middle East & Africa

Bruce Orwall, Senior Editor, EuropeGren Manuel, Executive Editor, EuropeTerence Roth, Managing Editor, Europe

Lauren Berkemeyer, MarketingKate Dobbin, Communications

Florence LeFevre, Institutional Sales EuropeJonathan Wright, Circulation Sales

Kelly Leach, PublisherPublished since 1889 byDow Jones & Company

© 2014 Dow Jones & Company. All Rights Reserved

Sanctions are a good start,but make them part of alarger strategic vision thatrecognizes the Putin menace.

Mr. Obama is the mostprovincial U.S. presidentin at least a century.

Comments? The Journalwelcomes readers’ responses toall articles and editorials. It isimportant to include your fullname, address and telephonenumber. Please send letters to

the editor to: Letters@WSJ.com

Thursday, July 24, 2014

Pound/Euro 0.7902 À 0.07% Yen/$ ¥101.50 g 0.03% Global Dow 2637.94 À 0.01% Gold 1304.50 g 0.12% Oil 103.12 À 0.71% 3-month Libor 0.23410 10-year Treasury À 1/32 yield 2.464%

THE WALL STREET JOURNAL. europe.WSJ.com

Strong Sales at Mercedes-BenzDrive Up Daimler’s EarningsBUSINESS & FINANCE 16

Another DefaultAverted in ChinaHEARDONTHE STREET 28

More PainFor UBSAs FranceProbes Firm

PARIS—French magistratesplaced UBS AG under formal investi-gation regarding money laundering,widening a probe examiningwhether the bank helped wealthyFrench customers evade taxes.

The magistrates requested thebank pay bail of €1.1 billion ($1.49billion) by Sept. 30, a spokeswomanfor the Paris prosecutor’s officesaid.

If convicted, UBS could be hitwith a significant fine and limita-tions on its ability to do business inFrance, she said.

The €1.1 billion bail is a guaran-tee. In case the bank is convictedand required to pay a fine, themoney would be used as a downpayment. If charges are droppedUBS would recover the amount.

UBS said in a statement that thebail amount is “unprecedented andunwarranted.”

“We consider both the legal basisfor the bail amount and the methodof calculation to be deeply flawedand will appeal,” the bank said. UBSacknowledged that it has now alsobeen placed under investigation forallegedly laundering the proceeds oftax evasion, and said, “We will con-tinue to defend our case strongly.”

French authorities are probingwhether UBS France facilitated asystem under which bankers fromthe parent company in Switzerlandwere able to approach and some-times encourage French clients toopen Swiss accounts that allowedthem to evade taxes. Under Frenchlaw, only French-registered entitiescan recruit customers in France.

Investigating magistrates placedthe French unit of UBS under formalinvestigation over a year ago, press-ing preliminary charges of complic-ity in illegally sourcing clients inFrance. It opted at the time to notplace it under investigation regard-ing money laundering.

UBS has repeatedly said it is co-operating fully with the French au-thorities.

In its statement on Wednesday,UBS said, “In the course of the lastfew years, we have done everythingwe can to bring this matter to aclose. We have also taken significantand broad steps to ensure tax com-pliance of our clients and will con-tinue to do so. It is not acceptableto us that this has become a highlypoliticized process.”

The deepening probe comes asthe French government has beentrying to crack down on tax evasionand reduce the country’s budgetdeficit. Under French law, magis-trates can prosecute corporations,as well as individuals.

—John Letzingcontributed to this article.

BY INTI LANDAURO

Deutsche Bank CFO Faces HeatFRANKFURT—Deutsche Bank

AG’s finance chief, Stefan Krause,has made an overhaul of the bank’sfinancial-reporting systems a cor-nerstone of his six-year tenure atthe bank. But with U.S. authoritiesciting serious concerns about thebank’s financial data, Mr. Krausehimself is now under pressure.

An examination by the FederalReserve Bank of New York last yearfound that Deutsche Bank’s giantU.S. operations suffer from a varietyof serious financial-reporting prob-lems that the lender has been awareof for years but hasn’t fixed, accord-ing to documents reviewed by TheWall Street Journal.

Mr. Krause is the ultimate guard-ian of Deutsche Bank’s financial dataand leads a companywide effort toimprove the quality of its financialreporting—a project the New YorkFed criticized as inadequate.

In a letter to Deutsche Bank ex-ecutives last December, Daniel Muc-cia, a New York Fed senior vicepresident responsible for supervis-ing Deutsche Bank’s U.S. operations,criticized the lender’s attempts toaddress the weakness in its regula-tory reporting process.

Mr. Muccia said in the letter thatefforts to improve the quality of

data had failed.Other regulators overseeing

Deutsche Bank’s more than 8,500 le-gal entities world-wide have also ex-pressed concerns about the bank’scontrol systems. German bank su-pervisor BaFin began an investiga-tion in June into internal controls at

the lender’s commodities unit, ac-cording to a person familiar withthe probe. The reactions highlightthe increased regulatory scrutinybanks have been facing since the fi-nancial crisis.

“We have been working dili-gently to further strengthen our

systems and controls and are com-mitted to being best in class,” aDeutsche Bank spokesman saidTuesday. As part of this, he said, thebank is spending €1 billion ($1.35billion) globally and appointing1,300 people.

Please turn to page 22

BY EYK HENNINGAND MADELEINE NISSEN

Stefan Krause, Deutsche Bank’s finance chief, is in the spotlight after a stinging review of the bank by the New York Fed.

Bloomberg

New

s

TheAppleEffect: IPhoneSpreadsWealthPreparations for the rollout of

Apple Inc.’s latest iPhones are rip-pling through Asian economies,boosting revenues at componentmakers and helping underpin elec-tronics exports from some nations.

The Cupertino, Calif., company isasking suppliers to manufacture upto 80 million units, about a thirdhigher than initial orders last yearfor the iPhone 5S and 5C, accordingto people familiar with the matter.Apple is expected to launch twolarger iPhone models in the fall andhas been sourcing parts from acrossAsia ahead of the start of productionin August, they say.

Apple hasn’t named the suppliersand didn’t respond to requests forcomment. But analysts expect com-panies from Taiwan, Japan andSouth Korea that supplied earlierversions of the iPhone to producekey components like displays, cam-era lenses and microprocessors. Al-ready, some of those companies areannouncing increased earnings orforecasts, and economists and ana-lysts are talking about an Apple ef-fect on whole sectors and econo-mies.

“Apple is becoming a more majorcontributor to Taiwan’s economy,”said Arthur Liao, a tech analyst with

Fubon, a Taiwan-based brokerage.Taiwan’s export orders, an early

indicator of actual exports, were attheir strongest in 17 months in June.Industrial production in June, re-leased Wednesday, was up 8.6% froma year earlier, above expectations,led by double-digit gains in semicon-ductor output, which some analystsput down to increased Taiwanese

supply to Apple.“The jump of the output of semi-

conductors is 100% related to theiPhone launch,” said Masterlink In-vestment Advisory economist AnitaHsu.

In Japan, one government officialestimated the new iPhone couldraise quarterly demand for the coun-try’s electronics exports by 5%.

Japan Display Inc. and LG Dis-play Co. of South Korea have beenthe largest suppliers of displays, themost costly part of an iPhone.Catcher Technology Co. of Taiwanhas produced the phone’s metal cas-ing, another expensive component.Largan Precision Co., also of Tai-wan, made camera lenses. South Ko-rea’s Samsung Electronics Co. hasfurnished memory chips and micro-processors, the phone’s computingbrains.

Hon Hai Precision Industry Co.and Pegatron Corp., both Taiwan-ese-headquartered companies, previ-ously have assembled iPhones intheir Chinese factories. Apple also isleaning on some new suppliers, in-cluding Taiwan SemiconductorManufacturing Co. The companybegan shipping microprocessors toApple in the second quarter, saypeople familiar with the matter.None of the suppliers would com-ment on their relationship with Ap-ple.

Catcher reported record revenuein June, and Largan posted its sec-ond-highest monthly revenue on re-cord that month. TSMC in July fore-cast a strong third quarter afterreporting record second-quarterearnings due to strong demand forits microprocessors.

Previous launches of the iPhonehave boosted large swaths of Asia’selectronics supply chain. The 5S cost

Please turn to page 18

By Eva Dou,Fanny Liu

andMayumi Negishi

Sources: IHS Technology; staff reports Photo: Apple The Wall Street Journal

Apple’s iPhone Boosts Some Asian EconomiesA closer look at the key Apple suppliers*

CAMERA LENSTAIWANLargan Precision; GeniusElectronic Optical

ASSEMBLERTAIWANFoxconn

METAL CASINGSTAIWANCatcher Technology; Hon Hai

MICROPROCESSORS (INSIDE)SOUTH KOREASamsung

DISPLAYSJAPANSharp; JapanDisplay

SOUTH KOREALG Display

IPhone 5S shown*Suppliers for iPhone 5S only

TALarEle

TACat

TAFo

JAShaDis

SOSam

SOLG

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 13

OPINION

A three-judge panel of the U.S.Court of Appeals for the D.C. Cir-cuit—a tribunal second only to theSupreme Court—ruled on Tuesdaythat the Obama administrationbroke the law. The panel foundthat President Obama spent bil-lions of taxpayer dollars he had noauthority to spend, and subjectedmillions of employers and individu-als to taxes he had no authority toimpose.

The ruling came in Halbig v.Burwell, one of four lawsuits aimedat stopping those unlawful taxesand expenditures. It is a decisionlikely to have far-reaching reper-cussions for the health-care law.

Because the ruling forces theObama administration to imple-ment the Affordable Care Act aswritten, consumers in 36 stateswould face the full cost of its over-priced health insurance. Accordingto one brief filed in the case, over-all premiums in those states wouldbe double what they are under theadministration’s rewrite, and typi-cal enrollees would see their out-of-pocket payments jump seven-fold. The resulting backlash againsthow ObamaCare actually workscould finally convince even Demo-crats to reopen the statute.

At its heart, though, Halbig isnot just about ObamaCare. It isabout determining whether thepresident, like an autocrat, canlevy taxes on his own authority.

The president’s defenders oftenconcede that he is doing the oppo-site of what federal law says. Yethe claims that he is merely imple-menting the law as Congress in-tended.

Such claims should be met withmore than the usual skepticismwhen made by a president whoopenly advocates unilateral ac-tion—“I’ve got a pen, and I’ve got aphone”—when the legislative pro-

cess doesn’t produce the re-sult he wants, and whenthey are made by a presi-dent whose expansive viewof his powers the SupremeCourt has unanimously re-jected 13 times. Unfortu-nately, the abuse of powerexposed in Halbig maytrump them all.

Here’s where the presi-dent broke bad. The PatientProtection and AffordableCare Act directs states toestablish “exchanges” toregulate the sale of healthinsurance. If a state de-clines to do so, as 36 stateshave, the health-care lawdirects the federal govern-ment to “establish and op-erate such Exchange withinthe State.” But here’s therub: Certain taxpayers canreceive subsidized coverage,the law says, if they enroll“through an Exchange es-tablished by the State.” Thelaw nowhere authorizessubsidies through ex-changes established by thefederal government.

This is common practice.The Medicaid program hasoperated on the same prin-ciple for nearly 50 years. Only resi-dents of cooperating states get as-sistance. When Congress debatedhealth reform in 2009, both Repub-licans and Democrats introducedlegislation conditioning health-in-surance subsidies on statesestablishing exchanges. SenateDemocrats advanced two leadinghealth-care bills. Both allowed fed-eral exchanges to operate withoutsubsidies. One of them became law.

The only thing that is uncom-mon about the Affordable Care Actis that two-thirds of the states re-fused to comply. Yet federal law isclear, consistent and unambiguous:The Obama administration has noauthority to issue subsidies outside

“an Exchange established by theState.” According to congressionalinvestigators, Treasury Departmentand Internal Revenue Service per-sonnel even admitted they knewthe statute did not authorize themto dispense subsidies in states withexchanges established by the fed-eral government. Yet the IRS stillpromulgated a rule authorizingsubsidies in states with federal ex-changes.

We were the first to draw atten-tion to the president’s actions, onthese pages in November 2011. InJanuary 2014, despite years of crit-icism from members of Congressand others, the Obama administra-tion began spending taxpayer dol-

lars to buy coverage for anestimated five million peo-ple who enrolled throughfederal exchanges. If eightmillion people enrolled infederal-exchange coverage,as we are told they have, itis because the presidentwas unlawfully subsidizingmore than half of them.

Subsidies for policiespurchased on an exchangeautomatically trigger taxesagainst both employers andindividuals who do not pur-chase the mandated level ofcoverage. So when thepresident issued those sub-sidies in states where hehad no authority to do so,he also imposed, on mil-lions of employers and indi-viduals, taxes that no Con-gress ever authorized. Twostates, dozens of public-school districts, and severalprivate-sector employersand individual taxpayersfiled Halbig and three otherlawsuits to block thatunlawful spending and theillegal taxes it triggers.

The president’s support-ers claim that Halbig ismeritless because Congress

clearly intended to authorize subsi-dies through federal exchanges. Ifthat were Congress’s intent, cer-tainly one should be able to findsome statutory language to that ef-fect. Or contemporaneous quotesfrom the law’s authors explainingthat they intended the AffordableCare Act to authorize subsidies infederal exchanges. The president’ssupporters have had three years tofind such evidence supporting theirtheory of congressional intent.They have come up empty.

The administration’s legal strat-egy is therefore, of necessity, bi-zarre. The president’s representa-tives argue in court that Congressintended to use the words limiting

subsidies to exchanges “establishedby the State,” and intended to au-thorize subsidies through ex-changes established by the federalgovernment, without everexplicitly reconciling the contradic-tion. Also on Tuesday, the FourthCircuit Court of Appeals upheld theInternal Revenue Service rule as apermissible interpretation of anambiguous statute, as if there wereanything ambiguous about the dif-ference between a state and thefederal government.

The D.C. Circuit saw throughthis nonsense. One by one, it re-jected the government’s many ar-guments. The court held the Af-fordable Care Act “does notauthorize the IRS to provide taxcredits for insurance purchased onfederal Exchanges” and “the gov-ernment offers no textual basis . . .for concluding that a federally-es-tablished Exchange is, in fact or le-gal fiction, established by a state.”The administration’s decision to is-sue those subsidies anyway is thuscontrary to the statute and “givesthe individual and employer man-dates . . . broader effect than theywould have” if the government fol-lowed the law.

While the dissent in Halbighighlighted the plaintiff’s motives,the majority opinion came fromJudge Thomas B. Griffith, whosenomination in 2005 was supportedby prominent Democrats includingSeth Waxman, David Kendall, andeven then-Sen. Barack Obama.Judge Griffith noted that while thecourt’s ruling could have a signifi-cant impact on the Affordable CareAct, “high as those stakes are, theprinciple of legislative supremacythat guides us is higher still.”

Mr. Adler is a law professor anddirector of the Center for BusinessLaw and Regulation at Case West-ern Reserve University. Mr. Can-non is director of health-policystudies at the Cato Institute.

Getty

Images

Reining in ObamaCare—and the PresidentBY JONATHANH. ADLERAND MICHAEL F. CANNON

Perhaps whatwe’ve been actuallywatching since thestart of 2014 hasbeen the last chap-ter of Vladimir Pu-

tin’s rule. All has inevitably gonepear-shaped for the Russian leadersince the popular overthrow of hisclient and ally Viktor Yanukovychin the strategic next-door nation ofUkraine.

The Sochi Olympics extrava-ganza, meant to suggest to Rus-sians they are a world-class coun-try with a world-class president,now looks like $50 billion downthe drain. The Russian economy,already weighed down by corrup-tion and cronyism and stunted de-velopment outside the govern-ment-controlled energy sector, issinking fast under sanctions andcapital flight.

Mr. Putin enjoyed an extraordi-nary run on oil prices after comingto power in 1999—a tenfold in-crease. That gift won’t be repeated,

and the Russian middle class inany case is harder to placate withcrumbs from resource extractionwhose proceeds mostly flow to Mr.Putin’s nearest and dearest.

And it’s not just that Mr. Putinis KGB; everyone around him isKGB too, even if their interestsdon’t perfectly overlap. A tad pre-mature is the judgment that MH17is purely a misadventure, a cock-up. Someone ordered the highly-capable missiles across the borderinto the hands of Russia’s proxyfighters in Ukraine, if only to seewhat useful havoc might be stirredup. In 2001, just such a system ac-cidentally shot down a Russian air-liner in a botched Ukrainian mili-tary exercise.

And made to order right nowmight be a certain kind of conflictwith the West—combining loudand angry rhetoric from Americanpoliticians with the usual weaksanctions that don’t impede the oiland gas money that keeps the Pu-tin crony banquet from dissolvingin murderous acrimony.

Mr. Putin, at 61, is apparentlyhealthy and can expect a longlife—but has no way out. Underthe existing Russian constitution,

he must face voters again in 2018and 2024—each a potential Ti-ananmen. Then, in theory, he’sdone. But Mr. Putin can’t afford tobe done. He can’t retire. But nei-ther is he Deng Xiaoping, withdeep institutional support to facedown a Kiev-style uprising. Hecan’t count on Russian Army gen-erals, who may be getting conflict-ing advice from friendly billion-aires about where their owninterests lie, if confronted withmass demonstrations.

Ignore the Metternichs: WhatPutin fears is not the West but hisown people.

As economist Sergei Gurievnoted two years ago, Russia’s pres-ident is acutely aware of the differ-ing fates that befell Silvio Ber-lusconi—who, since being drivenfrom politics, has been enjoying hisbillions in private—and MoammarGadhafi.

Igor Shadkhan, a filmmakerwho produced Mr. Putin’s firstcampaign biopic, explained toBloomberg last year: “Many of thepeople in his entourage will wantrevenge as soon as he steps downbecause many of them are humili-atingly dependent on him. He

trusts no one, not even his ownpeople.”

Mr. Putin’s best bet may be tosuspend Russia’s constitutionsooner rather than later, and seeka showdown with Russia’s remain-ing liberal forces at a moment ofhigh patriotic fever and conflictwith the West. Mr. Putin terselytold a radio questioner in April“no” when asked if he would bepresident for life, but the choicemay not be totally under his con-trol. Anyway, we’ll see.

Whatever the truth of MH17, theshootdown adds to a burden of un-explained matters that complicateany Putin plan for a blissful retire-ment: The deaths of journalists,critics and even the odd inconve-nient mentor, the killings of legis-lators Sergei Yushenkov and YuriShchekochikhin who were investi-gating the greatest mystery of all,the apartment block bombings in1999 that slaughtered 293 Russiansin their beds and cemented Mr. Pu-tin’s rise to power.

At the same time Mr. Putin’sposition at home has been but-tressed by intimations that theWest considers him a man it cando business with, even a bulwark

against chaos. The signs of sottovoce approval have been hard tomiss even lately: The way formerGerman Chancellor GerhardSchröder laid himself out to pro-tect Mr. Putin after the Crimeagrab. The undiminished parade ofWestern business leaders to joinMr. Putin last month at the WorldPetroleum Congress in Moscow.Most of all, his regime’s continuedand deep reliance on BP andExxon-Mobil to advance its energydevelopment goals.

This has been our fifth columnin nine years with the words “Pu-tin puzzle” in the title. Two yearsago, we asked if Mr. Putin mighthave an act of creative statesman-ship in him, fashioning a gracefulexit from power and into some lav-ish tax-haven exile. He evidentlydoesn’t. Even with the airlinershootdown, the U.S. and Europeare likely loath to destabilize hisregime fatally. The next question iswhether the Russian people have acreative act in them, or whetherthey are prepared supinely andmutely to share whatever fate Mr.Putin, in his selfishness, decides toinflict on his country for his ownpreservation.

[ Business World ]

BY HOLMAN W. JENKINS, JR.

End to the Putin Puzzle?

16 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

INDEX TO BUSINESSESAegean Airlines..............3Airbus Group N.V..........16Apple........................15,25AstraZeneca..................28Atlas Iron......................17Audi...............................16Banca Monte dei Paschidi Siena S.p.A............28

Banco EspiritoSanto.....................22,28

Bank of Montreal.........22Bayerische MotorenWerke....................16,22

Bechtel..........................17BG Group.......................17BHP Billiton..................17BNP Paribas..................22Boeing...........................16British Sky BroadcastingGroup..........................18

Burger KingWorldwide.............16,20

Catcher Technology......15Citigroup ....................... 22Commerzbank............1,28ConocoPhillips...............17Coty...............................27Craftsy...........................18Credit Agricole..............28Credit Suisse Group.....28Cricut.............................18Crowley Maritime Group5Daimler..........................16Deutsche Bank....15,22,28Dunkin’ Brands Group..20Etsy...............................18Express ScriptsHolding.......................19

Express ScriptsHolding.......................28

Federal Reserve Bank ofNew York...................22

Federated Investors.....19General Dynamics.........16GlaxoSmithKline......19,28Google...........................25Hon Hai PrecisionIndustry ..................... 15

Huatong Road & BridgeGroup..........................28

Industrial & CommercialBank of China............28

Jarden ........................... 27J.P. Morgan Chase........28Kellogg..........................20Largan Precision...........15LG Display.....................15Macy's.............................6MalaysiaAirlines ........ 1,2,4,10,22

Malaysian AirlineSystem Bhd.................9

McDonald's ..............16,20Micoperi ..........................5Mondelez International20Morgan Stanley............22National Labor RelationsBoard............................6

News Corp.....................18Novartis ................... 19,28Origin Energy................17OSI Group......................16Pegatron........................15PetroChina ....................17Pinterest.......................18Provo Craft & Novelty..18Rio Tinto.......................17Royal Dutch Shell.........17Santos...........................17

Shanghai Chaori SolarEnergy Science &Technology.................28

Shanghai Husi Food.....16Sky Italia.......................18Societe Generale ..........28Sony..............................18Taiwan SemiconductorManufacturing...........15

Tesla Motors.................16Time Warner.................18Total ..............................17Twitter............................921st Century Fox..........18UBS ............................... 21United Food andCommercial Workers...6

Vale ...............................17Wendy's ........................20Yum Brands ............. 16,20

BusinessesThis index of businessesmentioned in today’sissue of TheWall StreetJournal is intended toinclude all significantreference to companies.First reference to thecompanies appears inbold face type in allarticles except thoseon page one and theeditorial pages.

Corrections Amplifications

England cricketers Gary Ballance, JoeRoot and Moeen Ali averaged 54.25 fromfive games, 46.67 from 19 and 41.16 fromfour, respectively. A Sports article Wednes-day about England’s cricket team gave in-correct numbers of games played by GaryBallance and Joe Root. The article also in-correctly included Sam Robson in a list ofaverages by England’s batsmen.Readers can alert the London newsroom of TheWall Street Journal to any errors in news articlesby emailing wsjcontact@wsj.com or by calling+44 (0)20 7842 9901.

BUSINESS & FINANCE

Daimler Profit Up On MercedesBERLIN—Daimler AG reported

a sharp rise in second-quarterearnings, driven by record salesin its Mercedes-Benz luxury cardivision, as the German automaker races to catch up with ri-vals BMW AG and Audi AG.

The strong performance wasfueled by soaring sales of theflagship Mercedes S-class luxurysedan, higher earnings in thecompany’s truck and financialservices businesses, and cost cutsthat are expected to save Daimleras much as €2 billion ($2.69 bil-lion) this year.

Daimler’s earnings before in-terest and taxes from its continu-ing operations rose 12% from ayear earlier to €2.46 billion. Rev-enue increased 6.2% to €31.54 bil-lion, on a 3.8% rise in sales to628,857 cars, trucks and vans.

But net profit fell 52% in thethree-month period to €2.20 bil-lion compared with €3.2 billion inthe year earlier period, which in-cluded a large, one-time gainfrom the sale of the company’sshares in Airbus Group NV.

The strongest growth was atthe Mercedes-Benz Cars division,where earnings before interestand taxes on continuing opera-tions rose 30% to €1.41 billion inthe quarter on a 8.9% increase inrevenue to €17.77 billion. Mer-cedes car sales rose 3.5% to418,685 cars.

Daimler lost its throne as theworld’s best-selling luxury carmaker in 2005 and has since beenfighting to regain the title. It isexpanding in China and the U.S.and overhauled the design of carsthat range from luxury sedans tothe midrange C-class and luxury

compact city cars.“We are growing profitably,

our strategy is bearing fruit,” saidDieter Zetsche, Daimler’s chair-man and chief executive, during aconference call. “Unit sales, reve-nue and EBIT from the ongoingbusiness will all increase signifi-cantly in the year 2014.”

Daimler shares ended off lessthan a percentage point at €65.67after initially climbing nearly 2%in Frankfurt following its earningsrelease. Earnings were largely inline with analysts’ forecasts.

“Daimler’s [second quarter] re-sults are pretty dull—in a good

way,” Max Warburton, automotiveanalyst with Bernstein Research,wrote in a note after the release.

Daimler also realized a pretaxgain of €718 million to reflect thecurrent value of its 4% stake inTesla Motors Inc.

Daimler’s truck division alsoreported higher EBIT, up 1.9% to€526 million, driven by highersales in North America. But thebusiness is facing pressure inemerging markets that have beenhit by falling currencies and weakeconomies. As a result, revenue inthe truck division was flat at€7.97 billion and sales were up

1.9% to 126,066 vehicles.“We are assuming that the

economic weakness in LatinAmerica will last for a long time,”said Wolfgang Bernhard, head ofDaimler’s truck business.

He added that Daimler believesthe new Indian government willuse its strong majority to imple-ment economic reforms that couldhelp stabilize the economy andbenefit Daimler’s truck business.

“The benefit for Daimlertrucks from a recovery of the In-dian economy will be dispropor-tionately higher,” said Mr. Bern-hard.

BY WILLIAM BOSTON

New high-end S class cars are boosting sales and profit. Above, a redesigned S class at the spring Geneva motor show.

AssociatedPress

Boeing’sProfit Rises,But So DoConcerns

Boeing Co. on Wednesday re-ported a 52% rise in quarterly profitand raised its full-year earningsguidance, but disclosed problemswith the new military refuelingtanker it plans to sell to the U.S.and its allies.

Chief Executive Jim McNerneymaintained there was no bubble inthe record commercial jet ordersthat has buoyed Boeing and rivalAirbus Group NV, with the latestsurge in deals at the recent Farn-borough Airshow reflecting thethirst for more fuel-efficient planesto satisfy traffic growth, notably inAsia and the Middle East.

Mr. McNerney said on a post-earnings’ call that requests to deferjet deliveries remained below theirhistorical average, with a “brisk”activity among airlines and lessorsseeking to accelerate orders.

The rise in profit from commer-cial deliveries in the quarter wasovershadowed by a $272 million af-ter-tax charge for the Pegasus aerialrefueling tanker being developedfor the U.S. Air Force, which Boeinghopes to also sell to South Korea,Japan and other U.S. allies.

Boeing won the tanker contractafter a fierce decadelong battle withAirbus, and the charge caught ana-lysts by surprise after the companyguided in May that it was on trackdespite what executives called“challenges”. Mr. McNerney said thecharge reflected wiring problems,though the issues had been identi-fied. Analysts at RBC Capital calledthe charge “worrying” at such anearly stage in the program.

Boeing reported a profit of $1.65billion for the quarter ended June30 compared with $1.09 billion ayear earlier, with per-share earn-ings rising to a forecast-beating$2.24 from $1.41. Revenue edged up1.1% to $22.05 billion.

The company raised its per-share core earnings estimate—which excludes pension costs andgains—for the year to between$7.90 and $8.10 a share, from itsearlier view of $7.15 to $7.35.

Boeing’s commercial-jet backloggrew to more than 5,200 aircraftvalued at $377 billion, adding 783new orders so far this year, with be-tween 715 and 725 forecast in 2014.

Like other aerospace and de-fense firms, Boeing continues topush share buybacks, repurchasing$1.5 billion in the second quarter.

BY DOUG CAMERONAND JON OSTROWER

China Detains Five; Meat Scandal GrowsBEIJING—China detained em-

ployees of a U.S.-owned Chinesemeat supplier that it says intention-ally sold expired meat to fast-foodchains in China, and accused man-agement of planning the food-safetyviolations.

Chinese police said Wednesdaythat they had detained five peopleconnected to Shanghai Husi FoodCo., which supplied restaurantchains including McDonald’s Corp.,Yum Brands Inc. and Burger KingWorldwide Inc. in China. Policedidn’t release their names but iden-tified two of the detained employeesas a person responsible for the com-

pany and a quality supervisor. Thedetained employees couldn’t bereached for comment.

Yum, parent of KFC and PizzaHut restaurants, on Wednesday saidthe company had dropped OSIGroup Inc., the parent of ShanghaiHusi, entirely as a supplier in China.Yum said it reserved the right totake legal action against OSI, de-pending on the outcome of the Chi-nese government investigation.

A spokeswoman for OSI, based inAurora, Ill., didn’t respond to a re-quest for comment.

The detentions came a day afterthe Shanghai Food and Drug Admin-istration said food-safety violationsat the Shanghai-based meat supplierwere organized by the company.

“We’ve discovered that the viola-tions of the company were not theact of an individual, but were more-over a plan organized by the com-pany,” the deputy assistant of theShanghai agency was quoted as say-ing by the state-controlled XinhuaNews Agency late Tuesday.

The company has said its execu-tives were “appalled” by Chinesemedia reports that alleged ShanghaiHusi sold meat that had expired. Itsaid it believed the Chinese mediareports depicted an isolated incidentbut takes full responsibility.

Shanghai Husi has faced risingscrutiny since Saturday, whenChina’s Dragon TV reported that thecompany’s Shanghai plant repack-aged and sold chicken and beef past

their sell-by dates. Shanghai foodauthorities launched an investiga-tion. A number of food chains, in-cluding Yum, McDonald’s and Star-bucks Corp. have cut ties with thesupplier.

One OSI employee said that me-dia reports accusing the company ofwrongdoing were incorrect. LeonWang, currently a Shanghai-basedOSI sales manager and a formermanager at Shanghai Husi, saidMcDonald’s declined to take meatthat had been frozen for more thanthree months. That meat, whichwasn’t expired, was then sold toother customers, he said.

—Fanfan Wang, Yang Jieand Julie Jargon

contributed to this article.

BY LAURIE BURKITTAND JACOB BUNGE

12 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

OPINION: REVIEW & OUTLOOK

P resident Obama’s penchant fortreating laws as unlimited grantsof power to his Administration is

catching up with him. The irony is thaton Tuesday the nation’s second highestcourt ruled that ObamaCare is defined bywhat Congress enacted, not how his Ad-ministration has rewritten it.

In Halbig v. Burwell, the D.C. CircuitCourt of Appeals held that the Adminis-tration violated the Affordable Care Actby expanding subsidies to the 36 insur-ance exchanges run by the federal gov-ernment. The plain statutory language ofObamaCare repeatedly stipulates thatthese credits shall flow only through “anExchange established by the State.” The2-1 panel majority thus did not “strikedown” part of ObamaCare, as liberals andthe media claim. Using straightforwardtextual construction, the court upheld thelaw the President signed but it vacatedthe illegitimate federal-exchange subsi-dies he tried to sneak in via regulation.

Distinguishing between state and fed-eral exchanges was no glitch or draftingerror. In 2010 Democrats assumed thatthe unpopularity of ObamaCare wouldmelt away and all states would run theirown exchanges. Conditioning the subsi-dies was meant to pressure Governors toparticipate. To evade this language, theInternal Revenue Service simply pumpedout a rule in 2012 dispensing the subsi-dies to all. The taxmen did not elaborateon niceties such as legal justification.

The courts usually defer to executiveinterpretation when statutes are ambigu-

ous, but Mr. Obama’s lawyers argued thatthe law unambiguously means the oppo-site of the words its drafters used. JudgeThomas Griffith knocked this argumentaway by noting in his ruling that, “Afterall, the federal government is not a‘State,’” and therefore “a federal Ex-change is not an ‘Exchange establishedby the State.’”

The White House alsoargued that the courtshould ignore the law’sliteral words because Con-gress intended all along tosubsidize everybody, call-ing the contrary conclu-sion an “absurd result.”Yet this is merely ex post facto regret forthe recklessness and improvisation of theway ObamaCare became law, when notrick was too dirty after Democrats losttheir 60-vote Senate supermajority.Nancy Pelosi said we had to pass the billto find out what’s in it. Now we know.

Judge Griffith, a George W. Bush ap-pointee known as a moderate, writes thathe and Judge Ray Randolph reached theirconclusion “frankly, with reluctance,”given the practical consequences. “But,high as those stakes are, the principle oflegislative supremacy that guides us ishigher still. Within constitutional limits,Congress is supreme in matters of policy,and the consequence of that supremacyis that our duty when interpreting a stat-ute is to ascertain the meaning of thewords of the statute duly enactedthrough the formal legislative process.”

About two-thirds of the U.S. popula-tion lives in one of the 36 federal-ex-change states, and about 4.7 million peo-ple are receiving subsidies for which theyare not legally eligible. The White Houseis making much of these lost subsidies ifthe ruling stands, but the fault is withthe Democrats who drafted the bill, not

the courts or scholars likeCase Western Reserve lawprofessor Jonathan Adlerand Michael Cannon ofthe Cato Institute whofirst noticed the IRSabuse.

Another irony is thatObamaCare’s own archi-

tecture could thwart its goal of evolvinginto national health care. By attemptingto coerce the Governors into joining,Democrats also handed them a veto. IfHalbig survives on appeal, then Mr.Obama will have no choice but to askCongress to rewrite the law if he wantssubsidies for the 36 states with federalexchanges. And that would open up thelaw to a larger rewrite.

As it happens, the White House gotlucky on Tuesday and a different appel-late court, the Fourth Circuit, ruled in fa-vor of the federal subsidies in a separatelawsuit—even if the White House posi-tion prevailed “only slightly,” as JudgeRoger Gregory wrote.

“There can be no question that thereis a certain sense to the plaintiffs’ posi-tion,” he continued. “If Congress did infact intend to make the tax credits avail-

able to consumers on both state and fed-eral Exchanges, it would have been easyto write in broader language, as it did inother places in the statute.”

i i iThe competing decisions increase the

likelihood that the Supreme Court willeventually agree to hear the cases. If it isserious about its claims of damage, theWhite House could even seek an expe-dited High Court hearing. But the WhiteHouse may be more worried that it willlose at the Supreme Court, so it will tryto dodge a split appellate judgment byfirst seeking review by the entire D.C.Circuit.

Senate Democrats broke the filibusterin a rush last year to pack the D.C. Circuitwith three more liberals, precisely in an-ticipation of this Halbig result. The liberalmajority may well overturn Judge Griffith.

But our guess is that the SupremeCourt will still take Halbig, and it should.The case is part of a growing body of ju-risprudence on executive overreach, theseparation of powers and political ac-countability. Mr. Obama’s profound dis-dain for Congress is inspiring a healthylegal counteroffensive that goes to theheart of American self-government.

In perhaps the greatest irony of all,Chief Justice John Roberts would thenget a chance to honor his words from hisfamous—or infamous—2012 ruling up-holding ObamaCare. He wrote then that,“It is not our job to protect the peoplefrom the consequences of their politicalchoices.” Indeed.

N ations must be militarily strongand determined enough to ensuretheir own survival. Israelis have

long understood this harsh reality ofglobal politics, and it has never beenclearer than this week as the worldbrowbeats Israel and the terror groupHamas for a “cease-fire” in Gaza.

President Obama and John Kerryhave adopted this ostensibly even-handed trope, and on Tuesday the Euro-

pean Union went further and deploredIsrael and Hamas as if they were equalperpetrators. Hamas should stop its“criminal and unjustifiable acts,” the EUsaid, but it added that it was “particu-larly appalled” at the human cost of theIsrael ground offensive. Particularly?

This all may be intended as fine im-partiality, but the reality is that a cease-fire now would help Hamas. The terrorgroup rejected Egypt’s offer of a cease-

fire last week after Israel had acceptedit, perhaps figuring that Israel wouldn’trisk a ground invasion. Or perhaps itwanted such an invasion figuring theworld would condemn Israel for civiliancasualties and Hamas would win thepropaganda war.

In any case now that it has moved onthe ground, Israel will lose if it stops be-fore it achieves its main military objec-tives. This means blowing up the entire

network of tunnels that Hamas uses toinfiltrate into Israel and to smuggleweapons into Gaza from Egypt. It alsomeans destroying the stockpiles of rock-ets and storage sites.

The Israelis are best positioned tojudge their progress, and the U.S. shouldpublicly support its military response ina war it didn’t start. This is what willbring the most rapid end to the vio-lence.

W e’ve seen what happened atthe IRS when Democratslaunched a political campaign

to crack down on tax-exempt groupsthat don’t disclose their donors. A simi-lar animus is now at work in the states,where two attorneys general are forcing501(c) groups to disclose their donors ifthey want to raise money in thosestates.

In New York, tax-exempt groups mustapply for a license to solicit contribu-tions, a process that has traditionally re-quired the submission of their publicIRS form 990. But Attorney General EricSchneiderman has begun demandingthat nonprofits also file their confiden-tial list of donors found on IRS form“Schedule B.” The AG from Occupy WallStreet says a failure to do so makes anapplication “deficient” and exposes agroup to fines or ban for violating the

state’s law against unregistered solicita-tion.

Under New York’s Administrative Pro-cedure Act, a change like this must gothrough a period of pub-lic comment, but Mr.Schneiderman acted byunilateral fiat. In May the501(c)(4) Citizens Unitedsued on grounds that theAG’s diktat violates itsFirst Amendment and due process rightsby imposing a rule without consultationor notice. The suit is pending in federalcourt.

Mr. Schneiderman says the informa-tion will be kept confidential, but NewYork state law has a robust bias in favorof freedom of information. How long be-fore one of the AG’s liberal allies peti-tions the government to produce thosefiles? The IRS recently paid $50,000 to

settle a suit over the leak of donor in-formation from the National Organiza-tion for Marriage to its political adver-saries at the Human Rights Campaign.

In California, mean-while, the Center forCompetitive Politics ischallenging the GoldenState’s requirement thatthe group must cough upits donors if it wants a li-

cense to solicit contributions. The statesays the power to seek donor informa-tion has been on the books for years,but the Center for Competitive Politicssays the state’s demand this year is thefirst time the information had been re-quired. This new arbitrary enforcementis happening amid the general liberal at-tack on conservative campaign donors.

California claims its wants disclosureto deter fraud, but state tax-law in-

fringement doesn’t justify a rule thatwould cover donors nationwide. TheCenter for Competitive Politics is basedin Virginia and draws donors from allover the country. The requirementmeans a Massachusetts contributor to aVirginia group would be disclosed to theCalifornia state AG.

California and New York are trying toend-run federal law that makes the do-nor names on Schedule B confidential.The Internal Revenue Code creates aspecific avenue for state officials to pe-tition Treasury if they have a good rea-son to see confidential donor informa-tion. Citizens United criticizesDemocrats like Mr. Schneiderman, whichmakes his disclosure efforts an act ofpolitical self-interest during his re-elec-tion campaign. Let’s hope the courtsoverrule these attempts at chilling polit-ical speech.

Upholding ObamaCare—as Written

Let Israel Decide

Give Us Your Donors, or Else

An appeals court’sremedial civics lesson:

Laws meanwhat they say.

California andNew York try to chillpolitical speech.

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 17

BUSINESS & FINANCE

In Australia, Coal-Gas Bet Proves DiceyGLADSTONE, Australia—Conoco-

Phillips, Total SA and other globalenergy companies have investedUS$60 billion on bets they couldpump natural gas from Australiancoal seams and create a new fron-tier in a world hungry for clean-burning fuel.

But problems perfecting newdrilling techniques, conflicts withlandowners and competition fromthe U.S. shale revolution are threat-ening returns from those six yearsof investments.

Australia is the first countryseeking to convert methane trappedin coal seams into liquefied naturalgas, which then could be exportedon tanker ships. The country has avibrant LNG industry and is on trackto overtake Qatar as the biggest ex-porter of the fuel by 2017. Mostprojects, however, are for conven-tional natural-gas deposits in deepwaters off Australia’s northwesterncoast. The country’s unconventionalcoal-seam projects, meanwhile, arebeing closely watched by countriesfrom Britain to Indonesia, whichhope to make better use of theirown seams.

The first Australian project,owned by Britain’s BG Group PLCand expected to go online this year,underscores the challenges thathave helped quiet the buzz overcoal-seam gas. The project, in thiseastern port city, is 36% over bud-get, at US$20.4 billion, hurt by suchfactors as rising labor costs and un-favorable currency swings.

Now the company wants to sellassets including pipelines and wa-ter-treatment plants to improve itsreturn. BG also has scrubbed aplanned expansion that would haveincreased the project’s output by atleast 50%.

Investors in two rival plants, onerun by Conoco and Origin EnergyLtd. and the other by Total and San-tos Ltd., have tried in vain to sellstakes. Each has run over budget bybillions of dollars. Origin said it re-

mains enthusiastic about Australia’scoal-seam gas reserves and fore-casts that the project will deliverUS$1 billion a year in cash flow. To-tal said its coal-seam project is partof the company’s strategy to remaina leader in LNG.

A fourth proposed facility, led byRoyal Dutch Shell PLC and Petro-China Co., is in limbo as the compa-nies question its economic viability.Andrew Smith, the chairman ofShell’s Australian business, said theArrow Energy venture might ditchplans for a multibillion conversion-and-export terminal and simply sellits gas to the other projects instead.

Producers need to pump waterfrom coal seams to make natural gasflow but have found the technologytroublesome.

Big export projects each need

thousands of wells to be viable. Un-expectedly weak flow rates at somewells have forced companies deeperinto the Australian Outback to huntfor resources.

The process harnesses sophisti-cated computer-directed drills thatpinpoint pockets of gas trapped incoal seams buried hundreds of feetunderground. Because salt watermixed with the gas is sucked out todepressurize the seam, the drillingprocess risks contaminating ground-water used by farmers.

Experienced producers say theirwells are safe because they are en-cased in concrete to prevent leak-age, and contaminated water is col-lected at the surface and treated.Companies have spent heavily onwater-treatment plants and cam-paigns to assure farmers that their

land won’t be harmed.A problem is that companies

have resisted working together,which would help keep costs down.The facilities to liquefy natural gasby cooling it stand side-by-side onan island just off shore, each relyingon separate pipelines to move gashundreds of miles.

“There’s still uncertainty from atechnical perspective about howwell these projects will work, giventhe complex interaction between acontinuous drilling program and liq-uefaction-plant operations,” saidChris Holmes, a managing directorat consulting firm IHS. “When youlook at aerial images and see theseprojects sitting right next to eachother, it hardly illustrates the mostefficient use of capital.”

The companies remain bullish

about the prospects of coal-seamgas, despite rising costs. Japanesepower generators and other custom-ers are locked into contracts, typi-cally lasting 20 years, guaranteeingdemand. Queensland also is closerto fast-growing Asian energy mar-kets than North America, wherecompanies are looking to convertshale gas to LNG for export.

“Eight years ago, as a domesticgas supplier, we were facing a mar-ket that lacked sufficient scale andhence, a business with low growthprospects and unsustainable salesmargins,” said Santos Chief Execu-tive David Knox. “To grow, weturned to Asia.”

Still, the cost overruns mean ex-porting coal-seam gas as LNG isshaping up to be less profitable thancompanies expected. Credit Suisseanalyst Mark Samter estimated thatthe return rate from Santos and To-tal’s project has dropped below 7%after costs rose to $18.5 billion fromthe $16 billion budgeted. “Quiteclearly, at face value, this has beena materially unappetizing project,”he said.

There also is the risk of moreconstruction delays. Bechtel Corp.,which is building all three exportterminals, this year had to fly inaround 50 specialist welders andpipe fitters from the Britain and Ire-land because it wasn’t able to findenough workers locally. BG’s plantalone has 80 modules—giant piecesof gas-processing equipment thatcan weigh twice as much as an A380superjumbo jet—that need to bewelded together.

Bechtel said it was confidentthat BG’s plant would be ready toexport its first LNG cargo beforeyear-end, as targeted. The Conocoand Total projects are scheduled tofollow next year.

“Of course, you always wish thatyou were further ahead and that ev-erything was sailing along even bet-ter than you’d expected,” said KevinBerg, Bechtel general manager inGladstone. “But we’re comfortablewith where we’re at.”

BY ROSS KELLY

Cost overruns are threatening profits from Australian coal-gas projects. Above, a Queensland Curtis LNG tank facility.

BGGroup

BHP Aims to Boost Iron-Ore Output Despite GlutThe world’s largest mining com-

pany said it plans to continue ramp-ing up iron-ore production despitetumbling prices and a glut in sup-plies of the steelmaking ingredient.

The move signals BHP Billiton’sgrowing confidence that it can digup the bulk commodity for less thanmany rival producers and therebythrive even in an environment ofweakening prices.

BHP is angling to win more mar-ket share, believing the recent slipin iron-ore prices could be a lever toforce high-cost producers in coun-tries such as China to shut theirmines.

In a written statement, Mel-bourne-based BHP said Wednesdaythat it exported more iron ore thanexpected from mines in Australia’sNorthwest last fiscal year—even af-ter raising projections twice duringthe period. It said it plans anothersharp increase during the current fi-nancial year.

Meanwhile, BHP and Anglo-American PLC are in talks to selltheir jointly owned portfolio ofmanganese assets in South Africaand Australia, according to peoplefamiliar with the matter.

The assets include two mines in

South Africa, one in Australia andprocessing plants in both countries.BHP owns 60% and Anglo 40% ofthe operations. Macquarie analystJeff Largey values Anglo’s share ofthe manganese portfolio at $530million, which implies a full value of$1.33 billion.

Manganese is a key alloy ingredi-ent in the production of stainlesssteel, and although its prices are offabout 20% since 2011, they have sta-bilized recently. However, for mega-miners, it is a only niche business.Global trade in manganese totalsabout $3 billion a year, 2.5% of theequivalent figure for iron ore.

After years of aggressive expan-sion in mining regions such as Aus-tralia’s resource-rich Pilbara, whichaccounts for half the world’s sea-borne iron-ore supply, BHP hasswitched its focus to improving pro-ductivity in order to work its exist-ing mines harder.

The company reported recordiron-ore production of 225 millionmetric tons from its Western Aus-tralian mines for the year throughJune, up 20% on the prior 12months and above the level inves-tors had been expecting.

In April, BHP raised its forecastfor full-year iron-ore production inAustralia to 217 million tons. That

compared with previous guidance of212 million metric tons and an ini-tial estimate of 207 million tons.

Outside of Australia, BHP alsoproduces iron ore at the Samarcooperation in Brazil, a joint venturewith Vale SA. Globally, BHP’s ownshare of iron-ore output from itsmines last fiscal year was 204 mil-lion tons, it said.

A key reason for the latest jumpin the company’s Australian ship-ments—which includes the share ofoutput for minority venture part-ners—was improvement in BHP’ssupply chain, as well as the start ofproduction at its newest mine, Jim-blebar, ahead of schedule.

Now, the company says it be-lieves it can lift production evenfurther in the year ahead. It pre-dicted that total iron-ore productionfrom the Pilbara is likely to reach245 million tons this fiscal year. Theincrease of 20 million tons, or 8.9%,is nearly double the annual exportsof some smaller Pilbara rivals suchas Atlas Iron Ltd.

BHP’s record production resultcomes a week after rival Rio Tintoannounced an all-time high in pro-duction in its own fiscal first half.Rio Tinto is aiming to boost its Aus-tralian iron-ore output by a further20% to 350 million tons by 2017.

The burgeoning oversupply inthe market has already sparked a29% slide in iron-ore prices thisyear. Iron ore is trading around $95a metric ton, after slipping as low as$89 a ton last month to the com-modity’s weakest level since Sep-tember 2012.

Most industry analysts expectfurther price declines in the comingyear as growth in industrializingChina, the world’s biggest importerof iron ore, cools.

BHP says declining prices aren’tunexpected.

“We’ve been saying for a longtime now that growth rates in Chinawill begin to slow,” supply wouldrise and that benchmark priceswould fall, BHP’s marketing presi-dent, Mike Henry, said recently.“This is baked into our plans.”

BHP executives add that their ef-forts over the past 18 months to re-duce production costs will enablethe company to take a bigger sliceof the market, even as growth inChinese steel output slows.

The company has moved to pro-tect earnings from the falling iron-ore price, recently cutting 100 jobsat the Perth headquarters of itsiron-ore division and announcing afurther 170 layoffs at its MountWhaleback pit in the Pilbara.

Earlier this month, Mr. Henrysaid he had heard reports of smaller,private mining operations in Chinahaving to be closed, although hesaid it was difficult immediately toestimate exactly how much produc-tion had already been removed fromthe market.

Australian investment bank Mac-quarie estimates that about one-third of China’s domestic iron-oresupply is unprofitable at currentprices. BHP’s mines in the remoteAustralian Outback are among someof the lowest-cost to operate glob-ally, Mr. Henry said.

The sharp increase in productionalso demonstrates BHP’s growingreliance on iron ore, which alreadyaccounts for more than half of thecompany’s earnings. Credit Suissehas estimated that BHP’s earningscould decline as much as 14% thisfiscal year amid sharply lower iron-ore prices.

About 1.3 billion tons of iron oreis traded by sea each year, withmore than half of these shipmentsending up in China. UBS predictsthe seaborne market will be awashwith almost 74 million tons of sur-plus iron ore this year.

—John W. Miller, Gillian Tanand Alex MacDonald

contributed to this article.

BY RHIANNON HOYLE

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 11

INVESTIGATING FLIGHT MH17

U.S. Lays Out Case Against RussiaU.S. intelligence officials pre-

sented reporters with their most de-tailed case yet Tuesday that Rus-sian-backed Ukrainian separatistsshot down a Malaysia Airlines jet-

liner last week, in a bid to counterwhat American officials see as Rus-sian efforts to muddy the waterswith claims of Ukrainian culpability.

The officials relied on photo-graphs, social media, and voiceprintanalysis of Ukrainian communica-tions intercepts to make their publiccase that a likely SA-11 antiaircraftweapon fired from separatist-con-trolled territory shot down the com-mercial airliner, killing 298 peopleon board.

The evidence cited, however,didn’t raise the case for Russian in-volvement in the shoot-down to anew level of certainty. Officials saidthey are still working to refine evi-dence and may offer more in comingdays.

Other U.S. officials, includingsome at the Pentagon, have saidmore assertively in recent days thatRussia likely provided the missilesystem used by separatists to shootdown Flight 17. The more restrainedpresentation by intelligence officialsTuesday reflected the cautious na-ture of intelligence analysis.

There is a “solid case it was anSA-11 fired from Eastern Ukraine un-der conditions created by Russia,” atop U.S. intelligence official said.

The officials said that the U.S.detected a surface-to-air missilelaunch at the time that the airlinerwas hit, in roughly the same sepa-ratist-controlled area in EasternUkraine; that there has been a grow-ing flow of weapons from Russia toseparatists over the last month; thatRussians have provided training forseparatist fighters in southwestRussia on antiaircraft weapons andother arms; and that separatistshave downed more than a dozen air-craft during the conflict.

U.S. officials who weren’t part ofthe Tuesday briefing said Americanradar and space-based assetstracked the missile soon after itslaunch from rebel-held territory un-til its detonation near the Malaysianairliner.

From that data establishing themissile’s track, intelligence analystsextrapolated the location of theSA-11 back to the area near the cityof Snizhne, officials said. U.S. offi-cials call this type of informationmeasurement and signature intelli-gence, or MASINT.

Snizhne lies close to fighting inrecent weeks between Ukrainianforces and pro-Russia separatistsover control of the nearby borderwith Russia, the rebels’ main sourceof weaponry.

Rebels began barring news out-lets from entering the city on Tues-day, as interest over the suggestedmissile launch site grew.

Locals in the rebel-held city ofTorez said on Tuesday that on theday Flight 17 went down, they spot-ted an SA-11, or Buk, missile on aflatbed truck traveling through thetown center toward the allegedlaunch site.

One Torez resident who workson the main road said the SA-11 wasnotable because he hadn’t seen sucha sophisticated ground-to-air missilesystem among the many military ve-hicles that had rolled through Torezsince fighting began.

He said what looked like the

same truck later came back throughtown going the other way, withoutthe missile.

Another resident said he saw theinstallation pass through Torez to-ward Snizhne midday on July 17with at least two cars, a jeep behindand another vehicle in front as atype of escort.

He verified a photo of the SA-11going through town, shot from thegas station on the main road, aswhat he had also seen on the day ofthe crash. U.S. officials noted thesame photo, which had circulated onsocial-media sites.

Among new findings, U.S. intelli-gence officials said at the briefingon Tuesday that shrapnel damage tothe Malaysian airliner visible inphotographs is consistent with asurface-to-air missile, such as anSA-11.

The officials also said they hadcorroborated some of the Ukrainiancommunications intercepts that Kievhas said show separatists discussing

the shoot-down, using voiceprintanalysis by the National SecurityAgency and the Central IntelligenceAgency. They added that they arestill going through their own data-bases of intercepts to find corrobo-rating evidence, and that doing socould take time.

U.S. officials showed aerial pho-tos of what they said was a trainingcenter in southwest Russia whereseparatists were taught to use air-defense systems. The intelligence of-ficials also provided a map, releasedearlier Tuesday by the State Depart-ment, that showed the trajectory ofthe fatal missile and the launch sitewhere it was allegedly fired.

The on-site investigation of thecrash site is expected to providemore physical evidence of what hap-pened to Flight 17.

The Netherlands said Tuesday itwould take the lead in that probe,but accident investigators stillhadn’t arrived at the crash site asfighting raged in the region.

The remains of hundreds of vic-tims were transported in five grayrefrigerated train wagons from therebel-held area in eastern Ukraine tothe government-held city of Kharkiv,where they came under the custodyof a multinational forensics team.The experts observed a moment ofsilence before transferring the firstof them to a makeshift forensicscomplex at a tank factory.

The bodies were flown onWednesday to Eindhoven, the Neth-erlands, and from there were head-ing to a military base in Hilversum,southeast of Amsterdam, for identi-fication.

Russian President Vladimir Putinsaid in a speech Tuesday that Russiawould attempt to influence separat-ists in eastern Ukraine to aid the in-vestigation even as he slammedWestern leaders for “destabilizing”the country.

U.S. officials cited as an indica-tion of possible Russian culpabilitycomments by the Russian ambassa-dor to the United Nations on Mon-day that left open the possibilitythat the shoot-down could havebeen a mistake.

The Russian government is mak-ing a “full-court press” to spread aRussian version of events that try topin the shoot-down on the Ukraini-ans, which is “not plausible to us,”one senior intelligence official said.

A key goal of Tuesday’s presen-tation was “not letting a Russiannarrative get out there,” said onesenior U.S. intelligence official.

Russia has continued its supportto the separatists even since thecrash of Flight 17, sending tanks androcket launchers, U.S. intelligenceofficials said. “We don’t think theyhave stopped,” said one. “We thinkthey continue to do it.”

The officials pointed repeatedlyto social media to bolster their case,citing postings about sightings of anSA-11 traveling through the separat-ist-controlled towns of Torez andSnizhne, near the crash site and thelocation where officials believe themissile was shot from.

The SA-11 has the range and alti-

tude that would have been able toshoot down the Malaysian airlinerfrom this area, they added.

Intelligence officials presented aspart of their case a map and accom-panying photos, taken from socialmedia, of an SA-11 system beingmoved through eastern Ukraine to-ward the Russian border in the af-termath of the crash.

Another social-media postingthat showed an SA-11 apparentlytraveling back to Russia through theKrasnodon area is further evidence,they said, noting that they are stillworking to verify the location anddirection identified in the video.They further cited the separatistsbragging about a shoot-down in so-cial media postings, echoing earliercomments by U.S. leaders.

The officials said they couldn’tbe certain when the SA-11 systemwas brought into eastern Ukraine.U.S. officials suspected that the Rus-sian-backed separatists had an SA-11when a Ukrainian military cargoplane was shot down at a lower alti-tude on July 14, but U.S. intelligenceofficials still haven’t confirmed thatan SA-11 is what took it down.

The July 17 crash of Flight 17confirmed the presence of the SA-11,the officials said.

Lawmakers have questioned whythe U.S. didn’t provide a warning toairlines, and U.S. officials said thatthey didn’t know until July 17 thatthe separatists had the capability toshoot aircraft above an altitude inthe high 20,000-foot range.

They noted that it can be diffi-cult to track the transportation ofweapons because they are oftenmoved at night, and the Russianshave provided the separatists withtypes of weapons that the Ukraini-ans also have in order to maintain“plausible deniability.”

While the Ukrainians also haveSA-11s, the U.S. intelligence officialssaid Tuesday that those weaponswere nowhere near the site of theshoot-down at the time.

—Julian E. Barnes, MargaretCoker, and Matina Steviscontributed to this article.

By Siobhan Gorman inWashington and Paul Sonne

in Snizhne, Ukraine

A 2011 file photo shows Russian rocket system Buk-M2 on display during an airshow in the town of Zhukovsky, outside Moscow.

European

Presspho

toAgency

Horlivka

Donetsk Torez

Hrabove

Approximatedebris field

U.S. says missilewas launchednear Snizhne

U K R A I N E

RUSSIA

DONETSK LUHANSK

10 miles

10 km

PATH OF FLIGHT 17 Hrabov

Kiev

DETAILUKRAINE

Sources: Flightradar24; U.S. Embassy in Ukraine; Ukrainian Defense Ministry; NationalSecurity and Defense Council and National Guard; staff reporting The Wall Street Journal

Dangerous SkiesU.S. officials have announced the area from which the missile was launchedthat took down Malaysia Airlines Flight 17, which was one of many aircraft thathave been attacked in recent months.

18 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

BUSINESS & FINANCE

Techie CEOs Face Gender GapTech startups are racing to build

hobby, crafts and fashion businessescatering to women. Therein lieswhat might be called an “instinctgap”: Nearly all of the people head-ing these companies are men.

When Ashish Arora became chiefexecutive of crafting product makerCricut more than two years ago, hedidn’t anticipate just how big thatgap could be.

The former product manager atcomputer-accessories maker Log-itech Inc. was tasked with remodel-ing the company’s old-fashioneddesktop craft cutter with high-techsoftware. Mr. Arora was mesmerizedby how the machine’s gears and cir-cuit boards worked, so he tested atransparent prototype.

“The women hated it,” he says.They wanted the technology to behidden and the machine to lookspare and clean.

He also tried packaging that wasprinted with the technological specsand cloud-software capabilities.Again, rejection: They wanted to seethe images of the crafts they couldmake.

At times, he would come homefrom work dejected, telling his wife,“I find my instincts consistentlywrong.”

So he spent several months loi-tering in the aisles of arts-and-crafts retailer Michaels Stores Inc.and Jo-Ann Fabric & Crafts Stores,observing women as they browsedfor items. He bought a sewing ma-chine and started sewing lessons.And he hired women who were ac-tive crafters and scrapbookers as asort of in-house focus group.

Eventually the insights influ-enced the make and build of the Cri-cut Explore, a $299 desktop craftcutter launched this past January byhis South Jordan, Utah, company,incorporated as Provo Craft & Nov-elty Inc.

Some in the industry view this

instinct gap as a problem, and onecreated by a male-dominated invest-ment culture.

“It’s not that a male founder or amale CEO automatically is precludedfrom doing a good job of running acompany for women,” says NicoleShariat Farb, the CEO and co-founder of craft e-commerce com-pany Darby Smart Inc. “But they areprecluded from understanding theircustomer on an instinctual level.”

Sometimes, gender differencesdevelop inadvertently, as a companyevolves. When Ben Silbermann co-founded Pinterest Inc. in 2010, hisidea was to build a digital grid ofimages to help people show off col-lections, like the insects he liked toamass as a child.

Mr. Silbermann didn’t anticipatethat Pinterest would become a hubfor women to share inspiration forcrafts, home décor and recipes. Pin-terest has more than 60 millionmonthly active users, according tocomScore. And 80% of them are

women, according to a recent studyfrom RJMetrics, an analytics soft-ware firm.

The San Francisco company’sfounding team is male, as are itsheads of operations, product andengineering. Last fall, it hired ashead of partnerships Joanne Brad-ford, previously the president of theSan Francisco Chronicle.

Mr. Silbermann, who wasn’tavailable to comment, often em-braces the homespun culture of thesocial network he created whencommunicating with pinners. On hisown Pinterest profile, he has posted120 items to “Things for My FutureKitchen.”

Like Pinterest, the male foundersof Craftsy Inc. an online video plat-form that offers quilting, knittingand cake-decorating classes to its 4million mostly female users didn’tintend to target women. Craftsy wasfounded in 2010 as Sympoz and of-fered tutorials on diverse subjectssuch as golf and personal finance.

But its crafting classes drew legionsof paying customers so the companyswitched its focus.

John Levisay, the Denver com-pany’s CEO, says he and his male co-founders have paid close attentionto the opinions of Craftsy’s 7 millionFacebook followers—as well as thewomen they have hired to overseethe finance, production and productdevelopment teams. “We put a lot ofeffort into rounding out our teamwith key people who, mercifully forthem, look nothing like me,” hesays.

Chad Dickerson, the chief execu-tive of Etsy Inc., an online market-place for handmade and vintagegoods, says he tries to tap into theshopping psyche of female custom-ers and employees. One adviser isfinancial chief Kristina Salen. “Wetalk about shopping, and then wetalk about tax issues,” says Mr. Dick-erson, who succeeded Robert Kalinas CEO of the New York company in2008.

BY KATHERINE ROSMAN

Ashish Arora, who is chief executive of crafting product maker Cricut, talks to a shopper at a crafts store.

LoriEa

nesforTh

eWallS

treetJournal

Many ProfitOntheRolloutOfNewiPhoneApple around $200 in materials perphone. The most expensive compo-nents are the display and casing,both over $40 each. The phone re-tails for over $600 without a con-tract. Credit Suisse analyst RandyAbrams estimates iPhone productionwill bring Taiwan’s companies be-tween $17.9 billion and $26.9 billionin revenue this year. The bank esti-mates Apple will pay Taiwanesefirms around $100 to $150 periPhone for components and assem-bly.

To be sure, the Apple effect can’tturn around an economy. Taiwan’sgrowth remains sluggish due to itsailing personal-computer business.Many analysts point out the impactof a big Apple order often wears outafter one quarter. Still, Tim Condon,an economist with ING in Singapore,believes Taiwan’s exports, which re-mained flat since 2011, are finallygetting a boost due to the iPhone.

Japan’s exports of electroniccomponents rose 4.4% in May froma year earlier, while total exportsslumped 2.7%.

Tom Kang, an analyst at Counter-point Research in Seoul, said Japa-nese parts providers like Japan Dis-play and Sony Corp. would beamong the biggest beneficiaries inthe Apple supply chain.

Sony on Wednesday said it wouldspend $345 million to expand itsproduction capacity for camera sen-sors. Sony has increased its share ofthis part in the iPhone and the firm’slatest move is likely to meet in-creased demand from Apple, Mr.Kang said.

Apple on Tuesday said quarterlynet profit grew 12% to $7.75 billionthanks to strong iPhone sales, espe-cially in markets far afield from itstraditional customer base in the U.S.

The company sold 35.2 millioniPhones in the quarter ended June28, up 12.7% from a year earlier.Apple said the growth was helped bydemand from Brazil, Russia, India,and China, where iPhone sales rose55%.

The iPhone results stood in con-trast to iPad sales, which slid for thesecond consecutive quarter, raisingquestions about the future of Ap-ple’s tablet as the company gears upto launch bigger-screen iPhone mod-els. Apple’s revenue rose 6% to $37.4billion.

Apple’s suppliers will post sec-ond-quarter profits by mid-August.Earlier releases of iPhones have hada big impact on suppliers’ earnings.

Japan Display saw its quarterlyprofit almost quadruple from a yearearlier to ¥6.3 billion ($62 million)in the April-June quarter last year,just prior to the iPhone 5S launch.

Pegatron, the Taiwanese iPhoneassembler, reported monthly reve-nue of $3.9 billion in September, themonth of the iPhone 5C’s launch, al-most twice what it posted a yearearlier. Mr. Liao of Fubon estimatesApple orders make up about a halfof the company’s revenue.

Other companies, though, arelosing their share of Apple’s busi-ness. Samsung until this year wasthe sole supplier of microprocessorsfor the iPhone. But Apple has movedto diversify its supply base, in partdue to a legal dispute with Samsung,which is the world’s largest smart-phone producer.

—Eric Pfannerand Daisuke Wakabayashicontributed to this article.

Continued from page 15

Fox IsMindful ofDebtWithTimeWarnerEver since his News Corp sur-

vived a bruising liquidity crisisin the early 1990s, Rupert Mur-doch has been careful to avoidgetting overextended financially.But his pursuit of Time WarnerInc. could test that philosophy.

To win over Time Warner’sboard, which rejected an initialoffer from Mr. Murdoch, his en-tertainment company, now called21st Century Fox, would have toraise its stock-and-cash offerfrom its initial $85 a share, andlikely increase the cash compo-nent as well. But to do so mayrequire Fox to take on so muchdebt that its investment-gradecredit rating could be down-graded, analysts say. A lowercredit rating increases a com-pany’s borrowing costs.

Fox wants to protect its in-vestment-grade credit rating, ac-cording to people familiar withFox’s thinking, and thus is pre-pared only to consider a bid ofbetween $90 and $95 a share.But it is unlikely to be willing toraise the percentage of cash inthe deal much beyond the 40% inthe original offer, the peoplesaid.

That offer may not be highenough for Time Warner. The

company wants the offer raisedto above $100 a share, with ahigher portion of cash than orig-inally offered, according to aperson close to Time Warner.

Whether Fox can go that highis a big question. “I think it’shard to argue that the dealmakes sense above a hundredbucks,” says Nomura analyst An-thony DiClemente, who says sucha scenario would force Fox totake on too much debt.

Time Warner alluded to thisquandary facing Fox in a state-ment it issued last Wednesday,explaining it had rejected the of-fer because its board felt its ownstrategic plan could create morevalue for shareholders than anyproposal Fox “is in a position tooffer.”

People close to Time Warnerhave hinted that it would preferan all cash and higher offer froma deep-pocketed technology com-pany—but there isn’t such an of-fer available right now.

For Fox, the difficulty of go-ing above $100 a share was high-lighted by credit ratings firmMoody’s Investors Services in anote Monday analyzing the fi-nancial implications of a deal.

Moody’s said that Fox likelywould have to raise its offer to$105 a share to secure a deal if

Fox retained the same mix of40% cash and 60% stock as theinitial offer. Under that scenario,Fox would need $35.3 billion incash, Moody’s estimated.

Even if Fox were to fundnearly half of that cash require-ment by selling off assets, Foxwould still end up raising itsdebt past the level seen as ap-propriate by Moody’s for its cur-rent credit rating.

Moody’s says Fox could avoida downgrade—or be downgradedonly a notch while still remain-ing investment-grade—if it pro-poses a solid plan for payingdown debt. This scenario wouldlikely push Mr. Murdoch well be-yond his historical comfort zonewhen it comes to the balancesheet, said Moody’s senior VicePresident Neil Begley.

“He’s never carried less thana couple billion dollars [of cash]on his balance sheet at any pe-riod, certainly in the last 15years, and I think that stemsfrom those days when he got introuble when he was beholden tothe banks,” Mr. Begley said ofMr. Murdoch.

In the early 1990s, News Corpran into a cash crunch thatforced it into a lengthy period ofnegotiations with its banks, end-ing with a restructuring of $7.6

billion of debt. News Corp latersold some assets and issued newshares to reduce debt.

Last year News Corp split intwo, with the bulk of the com-pany being renamed 21st CenturyFox while its print media busi-nesses, including The Wall StreetJournal, were carved off in aseparate company retaining theNews Corp name.

Fox now has a conservativelyfinanced balance sheet, withabout $5.5 billion of cash andabout $23 billion in whatMoody’s counts as debt. TimeWarner has a slightly higherlevel of earnings and debt, theagency estimates.

To finance a Time Warnerdeal, Fox has lined up a $25 bil-lion loan from Goldman Sachsand J.P. Morgan, according to aperson familiar with the matter.

Fox has several ways to raiseadditional cash. The company isexpected to raise between $7 bil-lion and $9 billion by selling itsinterest in two European satelliteTV businesses, Sky Deutschlandand Sky Italia, to its 39%-ownedU.K. satellite-TV affiliate BSkyB.That deal, news of which sur-faced in May in a Bloomberg re-port, is close to being finalized.

—Amol Sharmacontributed to this article.

BY KEACH HAGEY

10 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

INVESTIGATING FLIGHT MH17

Strife ThreatensFurther DelaysFor Probe Team

Days after seeking access to theeastern Ukraine crash site of Malay-sia Airlines Flight 17, officials incharge of the investigation sketchedout the parameters of their probe

for the first time—even as deterio-rating security in the region threat-ened to further delay their arrival atthe scene.

Early Wednesday, British author-ities said the plane’s “black boxes”had arrived in the U.K. for analysis.Rebels holding the territory wherethe plane went down, meanwhile, al-lowed three Malaysian officials—onefrom the airline and two from thecountry’s civil-aviation authority—toroam the site unrestricted.

But the main contingent of 24 in-ternational investigators, led by theNetherlands, remained far from thesite. The three Malaysians aren’tpart of the formal air-accidentprobe, a spokeswoman for the DutchSafety Board said. It wasn’t clearwhether the Malaysian group wascoordinating its probe with theDutch-led group.

With little evidence contradictingU.S. and Ukrainian claims that anantiaircraft missile brought downthe jet, access to the crash site iskey for investigators. But with fiercefighting between Ukraine forces andrebels still flaring in the region, it isunclear how quickly the Dutch groupcan get there. Rebels shot down two

more Ukrainian military planes inthe area Wednesday.

Australian Prime Minister TonyAbbott said early Wednesday thatworld leaders were considering amultinational force among severaloptions to secure the crash zone.

Despite the lack of access, theDutch safety board started to sketchout its priorities. It said the team’sprimary objective is to determinedefinitively the cause of the crash. Italso said it would examine whyFlight 17 was flying over the strife-torn eastern Ukraine region where itwas shot down last week, killing all298 people on board.

Once it gets access to the site,the Dutch-led panel will restrict it-self to establishing the facts of theincident, and not determine culpa-bility, it said in a statement. If evi-dence of a criminal or terrorist actcomes to light, that evidence will bepassed onto other authorities, theagency said. Several countries, in-cluding the Netherlands and theU.S., have said they also want tosend law-enforcement officials tothe site for a criminal probe.

Without access so far, accidentinvestigators in Kiev and the Nether-lands are trying to get a head startby analyzing video and photographsto assess the crash site and damageto the jet. The Dutch organizationsaid it had set no timeline to con-clude the probe.

The agency also said the cockpitvoice recorder was successfullydownloaded by experts in England,despite damage to the device. Ef-forts will be made Thursday to readthe flight data recorder that stores

information on how the plane’s sys-tems functioned.

Even if all data is downloaded, itis unlikely to show what type of mis-sile or projectile brought down theplane. The only way to definitivelyanswer that question is to conduct adetailed chemical and metallurgicalanalysis of remnants of Flight 17, ac-cording to air-safety experts.

Such tests “could give you thechemical breakdown of the explosivedevice,” according to John Cox, aformer U.S. airline pilot and crashinvestigator for the Air Line PilotsAssociation who now runs a consult-ing firm in Washington.

Investigators also are expected toconduct sophisticated analysis ofsounds captured by the cockpit re-corder. The aim, according to safetyspecialists, would be to identify theinstant the plane may have been hitand the sequence of events that fol-

lowed. A full analysis of black-boxdata could take weeks, the Dutchsafety board said.

So far, the Malaysia group thatreached the site Wednesday hasn’tdetailed what it found. A spokesmanfor the Organization for Securityand Cooperation in Europe, which ison a special monitoring mission inUkraine, said three Malaysian inves-tigators had been granted “unfet-tered” access to the site by the sepa-ratists.

The Malaysians were accompa-nied by a rebel escort and 12 OSCEmonitors, said the OSCE spokesman,Michael Bociurkiw, by phone fromeastern Ukraine. Mr. Bociurkiw saidthe bigger Dutch-led team hadn’t ar-rived yet on the scene. The groupfound “many pieces of interest tothe Malaysians…it has been a pro-ductive day so far,” said Mr. Boci-urkiw.

During a news conferenceWednesday, an OSCE spokesmansaid he wasn’t aware of any otherinternational experts or investiga-tors coming to Donetsk, near thesite, “tomorrow or the day after.” Hesaid meanwhile, the OSCE monitor-ing mission “stays put.”

The Moscow-backed rebels saidthey would cooperate with the Dutchinvestigators after their self-pro-claimed leader Alexander Borodaiaccused the international team ofdragging its feet. He promised “asmuch security as one can provide”during war, and that Dutch armedpolice would be allowed to securethe site.

The investigation team includesfour representatives from the Neth-erlands, as well as team membersfrom the U.S., the U.K. and theUnited Nations’ International CivilAviation Organization.

By Robert Wall in London,Anton Troianovskiin Kiev, Ukraine,

and Alexander Kolyandr inDonetsk, Ukraine

OSCE monitors inspected railcars holding the bodies of victims from Flight 17 while the train was still in Torez on Monday.

Getty

Images

Malaysia Launches Effort to Prosecute SuspectsKUALA LUMPUR—Malaysia is lay-

ing the groundwork to prosecuteanyone suspected of downingMalay-sia Airlines Flight 17 in Ukraine,Prime Minister Najib Razak saidWednesday.

“I have directed the attorney gen-eral to study this matter to ensureany action that will be taken by Ma-laysia is in line with internationallaw,” Mr. Najib told Parliament in aspecial meeting on Flight 17, whichcrashed July 17. It appears to havebeen struck by a surface-to-air mis-sile, killing all of the 298 passengersand crew on board.

Mr. Najib won plaudits from theinternational community and localMalaysians for secretly negotiatingwith rebels to recover the bodies andthe aircraft’s so-called black boxes.Now he is under pressure to deliveron the legal front as well. Severalhundred people protested outside theRussian and Ukrainian embassies inKuala Lumpur on Tuesday demand-ing that the countries reveal who isresponsible for shooting down Flight17.

Malaysia, which is still reelingfrom the disappearance of MalaysiaAirlines Flight 370 in March, wouldhave to prove it has the jurisdictionto oversee any prosecutions in inter-

national courts. Legal experts differover whether Malaysia would havethe right to do so.

Other issues that would affect anypotential prosecution includewhether the shooting down of thecommercial jet constitutes a warcrime. Malaysia authorities wouldalso have to address whether anysuspects would best be prosecutedby Ukraine under its criminal laws.Since no crime was committed onMalaysian territory, the extraditionof suspects, while possible, would ap-pear to be an unlikely prospect.

It could also be legally relevantwhether or not the act was inten-tional and who supplied the weapon.The investigation may have alreadybeen compromised, officials worry,since debris from the plane—possibleevidence in a criminal trial—mayhave been moved or tampered with.

But Mr. Najib is sending signalshe intends to pursue a legal course.

The prime minister has receivedsupport from other senior govern-ment officials in Malaysia, who havecalled for “justice” against the perpe-trators of the attack.

“The outrage cannot go unpun-ished,” Transport Minister LiowTiong Lai said Saturday, adding thatMalaysia “calls for those responsibleto be found and to face the full forceof justice without delay.”

Lawyers from the 10 nationswhose citizens died in the disasterwould also have to consider wherethe alleged perpetrators face justice.Dutch prosecutors have alreadyopened an investigation that may in-clude a war-crimes prosecution inthe international courts.

However, the International Crimi-nal Court can only prosecute casescommitted by or against a citizen ofa state that is part of the Treaty ofRome, the international accord thatestablishes its legitimacy, or a casebrought by a state where the allegedwar crime occurred. Neither Ukrainenor Malaysia is currently a signatory,although the Netherlands is.

If suspects are found, said Si-varasa Rasiah, a Malaysian lawmakerand lawyer, Malaysia could considerpursuing them via a special tribunalset up by United Nations SecurityCouncil. The U.N. has previouslybacked such high-powered tribunalsto prosecute suspected war crimes inRwanda, the former Yugoslavia andCambodia, among others. Whilesometimes successful, the process of-ten takes years and is generally re-served for cases of genocide or mur-

der on a much greater scale thanwith Flight 17. In the case of Cambo-dia’s Khmer Rouge, several defen-dants died before their trial was over.

The other hurdle, according toMr. Sivarasa, is that such a proposalrequires unanimous approval fromthe Security Council’s five permanentmembers, which include Russia.

“While we don’t definitely knowwho the perpetrator is, it’s prettyclearly, from all the reports, a crime,”said Mark Dombroff, a partner atMcKenna Long & Aldridge in the U.S.and specialist in aviation law.

U.S. intelligence officials indicatethat Russian-backed separatists ineastern Ukraine used a surface-to-air-missile to shoot down Flight 17.Moscow has denied any involvementand condemned the attack, and in-vestigators are still trying to assesswho was behind it and where theymight have gotten such a weapon.

Mr. Dombroff said if Russia wereshown to have had a role in thecrash, it would be difficult to pursueany criminal charges against eitherthe state or politicians.

“I don’t think that’s a simplequestion at all,” said Mr. Dombroff.

Despite mounting evidence, Mr.Najib continued to refrain from at-tributing blame on Wednesday, reit-erating that Malaysia isn’t “pointingfingers at any party until concreteevidence can be obtained.”

BY JASON NGAND JAKE MAXWELL WATTS

Prime Minister Najib, right, speaks at a special Parliament meeting on Flight 17.

ZumaPress

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 19

BUSINESS & FINANCE

New Risk for AnalystsLONDON—Equity-research

houses are scrambling to lobby Eu-ropean regulators over proposedrules that could drastically changehow research is paid for, threaten-ing firms’ businesses.

Next week, a consultation periodcloses on new European rules thatwould force asset managers to payupfront for research. Now, researchon stocks is paid for as a part ofcommissions on trades, which varyaccording to factors including trans-action volumes. Those costs arethen passed to fund investorsthrough fees they pay managers.

This opaque system has beentargeted by regulators who worrythat investors are being ripped off.

Regulators want to ensure thatthe real cost of research is transpar-ent. The result could be that assetmanagers decide some researchisn’t worth the money, analysts say.

“Asset managers are using otherpeople’s money to pay for research,”says Neil Scarth, principal at FrostConsulting & Advisory, which offersadvice on commission-related regu-latory change. “Regulators are wor-ried they are not being that carefulabout how they spend it.”

The proposed rules could dent

operating margins at European as-set managers, according to analystsat Citigroup Inc., because fundsprobably wouldn’t be able to raisefees to offset the cost of hiring in-house research teams or paying forexternal research. The European Se-curities and Markets Association,which is proposing the rules, isseeking comments until Aug. 1.

This week, Robert van Brugge,chief executive officer of financial-research company Sanford C. Bern-stein, sent an email asking custom-ers to write to the association toexpress their concerns.

“We believe the interests of theend-investors are best served by theability of all asset managers to ac-cess a wide variety of research anddifferentiated points of view,” Mr.van Brugge wrote in the email, acopy of which was reviewed by TheWall Street Journal. The new ruleswould “create a less competitive Eu-ropean asset-management industry,”he added.

Under the current system, inves-tors pay a commission fee to a bro-ker when they trade. Part of that feegoes toward executing the trade anda portion is retained to pay for serv-ices including equity research.

The newly proposed rules statethat all but the most basic researchmust be paid for separately from

commissions. Other services, suchas setting up meetings with com-pany executives or providing be-spoke research, also would have tobe paid for separately.

The U.K.’s Financial Conduct Au-thority is among those backing thenew regulations. The FCA estimatesU.K. investment managers payaround £3 billion ($5.11 billion) ofdealing commissions a year to bro-kers, and that around £1.5 billion ofthis is spent on research.

Research houses fear the newrules could mean that asset man-agers pull back on the amount of re-search they consume. As the ruleswould only apply in Europe, theycould also make asset managersthere seem more expensive com-pared with those elsewhere.

The FCA this month said it isworking with international regula-tors to bring about changes, andthat “global interest will increase” ifthe EU moves ahead. If other regula-tors imposed similar rules, thatcould level the playing field.

Citigroup analysts said it is pos-sible that dealing fees would be low-ered in response to the rules andthat a new, separate research chargecould be added to fund-managementfees and absorbed by investors.

The proposed European ruleswouldn’t go into force until 2017.

BY MAX COLCHESTERAND MARGOT PATRICK

SEC Tightens RulesFor Money Funds

WASHINGTON—U.S. regulatorstook a long-awaited step to reducerisk in the $2.6 trillion money-mar-ket industry, approving rules in-tended to prevent a repeat of an in-vestor stampede out of the fundsduring the 2008 financial crisis.

The Securities and ExchangeCommission voted 3-2 on final rulesthat would require money funds ca-tering to large, institutional inves-tors to abandon their fixed $1 shareprice and float in value like othermutual funds.

The rules also would allowmoney funds to temporarily blockinvestors from withdrawing moneyin times of stress or allow the fundsto impose a fee to redeem shares.

“This strong reform package willmake our financial system more re-silient,” SEC Chairman Mary JoWhite said ahead of the vote onWednesday.

Companies would have up to twoyears to comply with the changes.

Cathy Gregg, a partner at Chi-cago-based Treasury Strategies, aconsultant to institutional clientsthat use money funds, said she ex-pects an initial pullback from inves-tors in the funds.

“I think there’s going to be somesegment of them who will have tostop using money-market funds be-cause they’re not permitted to in-vest in a floating-rate product likethat, according to their investmentguidelines,” Ms. Gregg said.

The final rule is less ambitiousthan an earlier proposal consideredat the SEC. Fund companies focusedon individual investors won supportfor an approach that focuses thebulk of the restrictions on institu-tional investors, who exited thefunds at a far greater rate than indi-vidual investors during the crisis.

The rules aim to discourage in-stitutional investors from fleeingmoney funds en masse during peri-ods of market tumult by trainingthem to accept fluctuations in thevalues of their investments and byensuring funds sold to both institu-tional and individual investors havethe ability to limit outflows.

The vote ends a lengthy battleover how to address structural vul-nerabilities in the funds that en-courage investors to bolt at the firstsign of trouble. Investment flightduring the crisis threatened tofreeze corporate lending.

SEC commissioners Kara Stein, aDemocrat, and Michael Piwowar, aRepublican, voted against thechanges.

Mr. Piwowar said he feared theSEC’s approach would eliminatemoney funds’ appeal to investorsand said he didn’t believe floatingshare prices would stop runs.

Ms. Stein said she worried theredemption restrictions could spur,rather than curb, investor stam-pedes, echoing the concerns ofother regulators, including membersof the Financial Stability OversightCouncil.

In a statement on its website,Pittsburgh-based Federated Inves-tors Inc. said it was disappointedthat the SEC voted to adopt a float-ing share price for institutionalfunds, saying the change would im-pose “significant and costly dailyoperational burdens on money-mar-ket fund users.”

But Federated, the company per-haps most affected by the rules be-cause of its institutional holdings,

said there was no imperative for cli-ents to change their cash-manage-ment tools right away because thenew rules will take time to imple-ment.

Money funds are cashlike instru-ments used by millions of individu-als, businesses and municipalities tosafely park cash. During the finan-cial crisis, the oldest money fund,Reserve Primary Fund, “broke thebuck” by falling under the $1-a-share value funds seek to maintain.

Investors yanked money fromthe fund, igniting a wider panic thateased only after the federal govern-ment stepped in to backstop allmoney funds.

The SEC implemented broadchanges in 2010 designed to makethe industry more resilient, includ-ing tighter rules on the kinds of se-curities that funds could hold. Butthe SEC left unresolved structuralissues with the funds.

Daniel Gallagher, a Republicanmember of the SEC who supportedthe rules, said they would eliminatethe perception that money funds areimplicitly backed by the federal gov-ernment.

“Addressing a three-decade-olderror in a nuanced and tailoredmanner to reinstate market-basedpricing should not be seen, as somehave argued, as a heavy-handed actof government,” he said before thevote.

Concerns about money fundshave increased in recent years asregulators worried about a suddenrise in interest rates, which coulddepress the value of the funds’ hold-ings.

An International Monetary Fundreport this spring outlined such ascenario, and the Financial StabilityOversight Council, for the fourthyear in a row, cited money funds asa source of systemic risk.

The SEC’s move comes after aproposal championed by former SECChairman Mary Schapiro falteredtwo years ago amid heavy industrylobbying and internal SEC bickering.Ms. Schapiro proposed requiring allmoney funds to either float theirshare prices or post banklike capitalto ensure they could make good onredemptions when asset holdingssuddenly drop in value.

Mr. Gallagher and Luis Aguilar,another SEC commissioner who is aDemocrat, criticized that earlier ap-proach as flawed on Wednesday,with Mr. Gallagher saying its capitalrequirements “made no economicsense.”

The SEC’s new approach wouldcombine two options the commis-sion presented last summer when itregrouped after the collapse of Ms.Schapiro’s plan and voted unani-mously to propose tighter rules: afloating share price for “prime” in-stitutional funds, which are consid-ered riskier than other money fundsand invest in short-term corporatedebt, coupled with redemption“gates” and fees.

—Kirsten Grindcontributed to this article

BY ANDREW ACKERMAN

Glaxo Trims Earnings OutlookLONDON—GlaxoSmithKline PLC

lowered its earnings outlook onWednesday, as its second-quarterprofit was hit by weak respiratory-drug sales in the U.S., currencymoves and a continuing bribery in-vestigation in China.

The U.K. drug maker said it nowexpects no growth in either sales orits core measure of earnings thisyear. It is also canceling plannedshare buybacks valued at £1 billionto £2 billion ($1.7 billion to $3.4 bil-lion), and launching a formal salesprocess for a portfolio of its olderdrugs with annual sales of roughly£1 billion.

Glaxo shares fell 4.7% to £14.82in London on Wednesday.

“Clearly the quarter saw a num-ber of significant challenges, partic-ularly in the U.S., where we saw fur-ther pressure in price,” said financechief Simon Dingemans.

Glaxo recorded an 18% sales de-cline in its largest franchise, respi-ratory drugs. In the U.S., its best-selling drug, Advair—for asthmaand chronic obstructive pulmonarydisease—has been removed from therecommended prescribing list ofpharmacy-benefit manager Express

Scripts Holding Co., which nowurges doctors to prescribe competi-tors’ inhalers.

U.S. sales of Advair fell 19% inthe second quarter and Glaxo said itexpects pressure on the drug’s mar-ket share and pricing to continue.

Meanwhile, Glaxo’s newlylaunched successors to Advair, therespiratory drugs Breo and Anoro,have been slow to take off, each reg-istering just £5 million in sales inthe second quarter.

The company said its respiratoryportfolio was in “transition” andthat it expects to maintain its lead-ership in the segment well into thenext decade.

Glaxo said sales were also hit bygeneric competition to Lovaza, adrug that treats high levels of fat inthe blood, and the strengthening ofthe pound against a range of curren-cies in the markets where it booksmost of its sales.

Glaxo gave no update on the con-tinuing investigation in China,where its former top executivestands accused of orchestratinglarge-scale bribery, but reiteratedthat it is cooperating fully with theauthorities. Sales in that countryfell to £129 million in the secondquarter, from £212 million in the

same quarter of the previous year.Glaxo’s core measure of earnings

per share, which strips out currencymoves and costs related to restruc-turing and acquisitions, fell 12%. Netprofit attributable to shareholdersfell to £654 million, from £1.05 bil-lion the previous year.

Performance at Glaxo’s con-sumer-health and vaccine busi-nesses also came more sharply intofocus, after the company signed aseries of transformational assetswaps with Novartis AG in Aprilworth more than $20 billion to bol-ster those divisions. Once the dealis closed, Glaxo expects the divi-sions to make up about half of itssales.

Vaccine sales rose 5% at constantexchange rates, while those in con-sumer health sank 4%, hit by supplyshortages of key “wellness” brands,a category that includes Panadoland Nicorette.

Bright spots in the second quar-ter included encouraging sales ofnewly launched products includingthe antiretroviral HIV drug Tivicayand two melanoma drugs, Mekinistand Tafinlar. The latter two will besold to Novartis as part of the assetswaps, along with Glaxo’s othermarketed cancer drugs.

BY HESTER PLUMRIDGE

The U.K. pharmaceutical maker now expects no sales growth this year as its respiratory drugs struggle in the market.

Bloomberg

New

s

The rules are meant todiscourage institutionalinvestors from fleeingmoney funds en masseduring market tumult.

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 9

WORLD NEWS

Jet Crashes on Taiwan IslandTAIPEI—A TransAsia Airways

flight crashed on Wednesday whiletrying to make its second landing at-tempt in the Penghu islands off thecoast of Taiwan, killing more than40 people.

The Penghu Fire Department saidthe death toll late Wednesday was atleast 42 of the 58 people on board,and all bodies and remains had beensent to hospitals or the nearbymorgue. The final death toll will beannounced after the bodies havebeen properly identified.

The cause of the crash is still be-ing investigated. The governmentsuspected technical failure could bea factor in the airplane crash, butbad weather may have also contrib-uted.

The fire department said 10 pas-sengers and a local resident weresent to the hospital for burn injuries.

More than 300 rescue workers,including military personnel and lo-cal firefighters, were dispatched tothe crash site.

Flight 222 was heading from thesouthern city of Kaohsiung to thePenghu islands, halfway between theChinese mainland and Taiwan in theTaiwan Strait.

Transportation Minister YehKuang-shih said two of the passen-gers are French nationals. “We be-lieve we have found one of two blackboxes,” the minister added.

According to the Civil Aeronau-tics Administration, the aircraft wasan ATR-72-500 short-haul regionalairliner and had been in commissionfor 14 years. The flight was sched-uled to take off at 4 p.m. local timebut was asked to stay on the grounduntil 5:43 p.m. because of badweather from tropical storm Matmo.

According to the CAA, the air-craft was unable to land properly atPenghu’s Magong Airport. After cir-cling in the air for a while, it wasforced to make an emergency land-ing.

CAA Director-General Jean Shensaid the last communication the air-

craft had with the tower was at 7:06p.m., when the pilot told the towerhe would make a second landing at-tempt.

The agency said data indicate theplane probably crashed after ascend-ing approximately 300 feet.

TransAsia said bad weatherforced the plane to make the emer-gency landing. Taiwan was batteredby Matmo Tuesday and Wednesday.

Company General Manager ChooiYee-Chong said the airline will doeverything it can to help the victim’sfamily members. There will be acharter flight at 6 a.m. Thursday forfamily members from Kaohsiung toMagong Airport.

“We will fully cooperate with theCAA and the transportation ministrywith the investigation,” said Mr.Chooi.

TransAsia Airways had seven ac-cidents between 2002 and 2012, fiveof them involving the ATR-72, ac-cording to the website of Taiwan’sAviation Safety Council. Only the De-

cember 2002 accident resulted inloss of life.

Based in Taipei, TransAsia Air-ways is smaller than Taiwanese car-riers China Airlines Ltd. and Eva Air-ways. It flies mostly domestic routes,but also has some internationalflights to destinations in mainlandChina as well as northeast andsoutheast Asia.

The carrier last year received ap-proval from the CAA to set up a low-cost airline operating flights withina five-hour distance of Taiwan.

The type of aircraft that crashedon Wednesday is a “highly stable”plane able to land and take off onshort runways, according to an avia-tion expert.

“The ATR-72 can come to a deadstop on a very short runway. Itslanding speed is much lower thanjets. It’s a highly maneuverable planethat’s used for inhospitable terrains,”said Mark Martin of Martin Consult-ing, an aviation advisory firm, said.

The Penghu islands area has seen

deadly crashes before.The worst was a Boeing 747 jet

operated by Taiwan’s flag carrier,China Airlines, which broke apart inmidair in May 2002 about 20 min-utes into its journey from Taipei toHong Kong and crashed into the seanorthwest of Penghu, killing 225people on board. Investigators saidmetal fatigue caused the plane tobreak apart.

In December 2002, a TransAsiaATR-72 cargo flight heading toMacau from Taipei crashed south-west of Penghu, killing the two crewmembers, on board. An investigationfound that accumulation of icearound the plane’s major compo-nents caused loss of control.

Penghu has for centuries beenhome to communities that live offfishing. In recent decades, thebeaches and marine life have becometourist attractions.

—Joanne Chiuand Gaurav Raghuvanshiincontributed to this article.

BY JENNY HSU

Rescuers survey wreckage of TransAsia Airways Flight 222 on the Taiwanese island of Penghu on Wednesday.

Reuters

Thai Junta Tries to Allay Fears of AbuseBANGKOK—Thailand’s military

junta said on Wednesday it won’tabuse the sweeping powers it gaveitself in an interim constitution overthe new legislature and councilstasked with shaping the country’selectoral democracy.

The provisional charter allowsarmy chief Gen. Prayuth Chan-ochato retain broad authority over polit-ical developments, even with the ex-istence of a national legislative as-sembly and an interim government.

All decisions made by Gen. Pr-ayuth will be legal, while he also hasveto power over the drafting of apermanent constitution.

“The junta’s leader will exercisehis power in a constructive way. Thepower won’t be used frequently orrecklessly without reason,” WissanuKrea-Ngam, a legal adviser to thejunta, said at a press briefing.

The charter, drafted by thejunta’s legal team, was endorsed byKing Bhumibol Adulyadej on Tues-day, two months after the militaryseized power and suspended the2007 constitution.

Criticism has been relativelymuted so far amid a continuing ef-fort to stifle dissent by the military,which imposed martial law two days

before the coup. Analysts said thearmy may seek to use the powersconferred by the interim charter toretain its dominance.

The 60-year-old general has theauthority to handpick the membersof the 220-seat legislature, whichwill then select the prime ministerand as many as 35 cabinet members.

The interim charter also allowsGen. Prayuth to be prime minister, ifhe gets a nod from the legislature,his legal advisers said Wednesday.

“I don’t see that Gen. Prayuthlacks any qualifications,” Gen. Pai-

boon Kumchaya, deputy army com-mander and the junta’s chief of legalaffairs, said at Wednesday’s brief-ing. “In the past two months, he’sbeen doing a great job, chairing ev-ery meeting and running the admin-istration of the country.”

Mr. Wissanu said the junta won’thave the power to fire the primeminister or cabinet.

“The junta will only performsome tasks to alleviate the burdenof the cabinet, such as in securitymatters, so the cabinet won’t getdistracted and can go ahead with

other national affairs,” he said.The temporary charter, which is

expected to be used for about ayear, stipulates that a national legis-lative assembly will be set up by Au-gust to serve as parliament. A re-form council will be tasked withdrawing up political and economicreforms through constitutional andelectoral changes.

A permanent charter will bedrafted by a special committeebased on directions set by the junta.Among other things, the charter willseek to prevent corruption and toblock corrupt politicians from hold-ing any political position.

The permanent constitution islikely to curb the influence of careerpoliticians, said Ambika Ahuja, aThailand analyst at Eurasia Group, aNew York-based political-risk con-sulting firm.

The temporary charter barsthose who held political positions inthe past three years from taking anyposition in the interim governmentand the legislature.

“The next elected government ismore likely to be a coalition, whichcould be more easily manipulated bythe army than a one-party rule,”which characterized the premiershipof ousted leader Thaksin Shinawa-tra, Ms. Ahuja said in an email.

BY WARANGKANA CHOMCHUEN

Thai army chief Gen. Prayuth Chan-ocha at a meeting in Bangkok Wednesday.

Reuters

MalaysiaAirlinesLifts CrisisResponse

Malaysia Airlines’ rapid, assuredresponse after the loss of Flight 17last week has been in contrast withits bumbling when Flight 370 wentmissing just four months earlier.

The Malaysian flag carrier hasbeen praised for acknowledging onTwitter within minutes of the firstnews reports on July 17 that it hadlost contact with Flight 17, whichthe U.S. says was shot down by asurface-to-air missile over rebel-held eastern Ukraine, killing all 298people on board. That was in con-trast to the several hours it took theairline to reveal that Flight 370 haddisappeared in March. The airline,owned by Malaysian Airline Sys-tem Bhd., has some 548,000 follow-ers on Twitter.

Malaysia Airlines also posted astatement on its website two hoursafter the Flight 17 crash. That wasthree hours faster than when it no-tified the public after the disappear-ance of Flight 370, which vanishedfrom radar soon after taking offfrom Kuala Lumpur in March andstill hasn’t been located. The air-line’s public communications duringthe current crisis have been accu-rate and centralized, compared withthe confusion and misinformationthat prevailed in March.

The carrier also immediately ex-tended support to families of Flight17 passengers, saying it would pro-vide accommodations and assignstaff caregivers to provide emo-tional support. It said Monday that79 such caregivers were in Amster-dam, and 43 in Kuala Lumpur. Onmore than one occasion, frustratedfamily members of Flight 370 pas-sengers heckled ministers and eventhrew objects in anger about thespeed at which information was be-ing released, or simply its accuracy.

Malaysia Airlines said Wednes-day that it hasn’t experienced asurge in ticket cancellations or re-quests for refunds after the Flight17 crash. The carrier on Saturday of-fered full refunds for passengersholding tickets for flights this yearif passengers opt to cancel reserva-tions.

The many differences betweenthe two incidents help account forthe improved response this time, in-dustry experts say.

While the exact cause of thecrash of Flight 17 is also unknown atthis stage, the plane’s wreckage andflight recorders are expected to of-fer enough clues for experts to piecetogether what happened.

Still, airline experts say that Ma-laysia Airlines has learned hard les-sons from its earlier disaster, andits improved handling of the latestcrisis might help its reputation withfliers.

“Malaysia Airlines has beenmuch better in their response thistime. On social media, they’ve beenvery upfront, quashing all rumorsand ensuring that they were the au-thority for all the information.That’s critical and that’s how theyhad lost control last time,” withFlight 370, said Shashank Nigam,chief executive of SimpliFlying, anaviation-marketing-strategy firm.

—Newley Purnell,Jake Maxwell Watts

and Celine Fernandezcontributed to this article.

BY GAURAV RAGHUVANSHI

20 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

BUSINESS & FINANCE

Breakfast has become the finalfrontier in the struggle over health,convenience and profit in the U.S.diet.

Starved for growth at othermealtimes, companies like YumBrands Inc., Burger King World-wide Inc. and Kellogg Co. are bat-tling to change how Americans starttheir day. But even as consumersback away from cereal to experimentwith more protein-rich foods, theirhabits remain otherwise entrenched:most Americans still eat breakfast at

home and follow morning routinesmore rigid than during the rest ofthe day.

“People are time-pressed in themorning and know exactly wherethey’re going, and that doesn’t varymuch,” said Alex Macedo, BurgerKing’s North American president, ina recent interview. That chain claims2.8% of the $47 billion spent eachyear on fast-food breakfasts in theU.S., according to brokerage firmSanford C. Bernstein & Co. This yearit started offering its value-menuitems at breakfast and added burg-ers to the morning menu in an effortto boost sales.

Many fast food and fast casualrestaurant chains smell opportunityaround breakfast. Of consumers whoeat out at least twice a week, 30%say they do so for breakfast, com-pared with 40% for lunch and 50%for dinner, according to Bernstein.

What’s more, breakfast is gener-ally more profitable, restaurant com-panies say, because the ingredientsare less expensive. Bernstein esti-mates that breakfast accounted forabout 25% of McDonald Corp.’s rev-enue last year and 40% of its pretaxprofit.

Yet the standard American morn-ing leaves little room for branchingout. The leisurely scene of decadespast—sipping a glass of orange juice,scanning the newspaper—has givenway to an average of just 12 minutesa day for consuming breakfast, saidHarry Balzer, chief food industry an-alyst for research firm NPD GroupInc. That is about half the time theyspend on lunch (28 minutes) or din-ner (24 minutes).

Societal shifts have driven thetime-starved nature of the morningmeal. More mothers of young chil-dren are in the workforce, puttingadditional pressure on families toprepare breakfast, drop off the chil-dren at day care or school and get towork. Last year, 57.3% of motherswith children under the age of onewere in the workforce, up from53.7% in 2003 and the highest levelin almost 16 years, according to theBureau of Labor Statistics.

In addition, baby boomers arecontinuing to work, placing con-straints on the morning routines ofAmerica’s most populous age group.Nearly half of working baby boom-ers say they don’t expect to retireuntil they are 66 or older, includingone in 10 who predict they willnever retire, according to a recentGallup poll.

Taco Bell, a unit of Yum Brands,is trying to entice consumers to cre-ate new habits with menu items thatare convenient but—in keeping withits brand identity—defy the trendtoward healthier eating. The chainbet big in March on a new waffletaco to kick off its first nationalbreakfast menu, which also includesCinnabon sweet rolls and the 710-calorie A.M. Crunchwrap with sau-sage.

When Yum reported earnings lastweek, CEO David Novak said break-fast is already profitable and that heexpects the breakfast business toadd from $70,000 to $120,000 in an-nual sales per restaurant.

Others have reported mixed re-sults. Subway, the sandwich chainowned by Doctor’s Associates Inc.,

launched a national breakfast menuin 2010, but it accounted for just 6%of revenue last year, according toBernstein. Wendy’s Co. last yearpulled the plug on plans for a na-tional rollout of its latest attempt atbreakfast, saying it wasn’t profitableenough.

McDonald’s was the forerunnerof fast-food breakfast with the cre-ation of its Egg McMuffin in 1971and still dominates the category. Ithad $8.96 billion in breakfast saleslast year or more than 19% of theU.S. market, according to Bernstein.Because McDonald’s launched break-fast so long ago, the chain has beenable to integrate itself into Ameri-cans’ morning routines better thansome of the newer entrants.

But some consumers still have ahard time with the idea of a fast-food breakfast. “I’m a creature ofhabit and I eat pretty healthy and Ilike to control that,” said Kim Sulli-van, an Orange County, Calif., resi-dent who heads marketing for anevent planning trade group. “Plus,I’m on a big time crunch in themorning and none of those placesare on my route.”

Dunkin’ Brands Group Inc.,which gets nearly 80% of its salesfrom breakfast, is retooling its ap-proach to emphasize healthier fare.The chain is focusing more on break-fast sandwiches, which are sellingbetter than doughnuts, said DunkinCEO Nigel Travis. “Our highest mar-gin item is beverages, but breakfastsandwiches aren’t far behind.”,” hesaid in a recent interview.

Dunkin also is redesigning prep

stations to be faster to meet busymorning schedules. Shaving a fewseconds per order can push morepeople through the drive-thru, Mr.Travis said. “People don’t want to sitin the drive-thru lane and wait fortheir breakfast.”

In grocery stores, what sells wellare foods that are fast to prepare,highly portable and high in protein.Sales of frozen hand-held breakfastitems such as Jimmy Dean biscuitsandwiches and ham-egg-and-cheeseHot Pockets in the U.S. surged 29%in the last two years to nearly $1 bil-lion in 2013, according to market re-search firm IRI. Similarly, MondelezInternational Inc. has found successwith its Belvita breakfast biscuits.And the hunger for protein hasdriven booming sales of Greek yo-gurt for Chobani Inc. and others.

The big loser in all this is cereal,long one of America’s most popularbreakfast foods. Not only does itstruggle to compete on convenience,but a low-carb, high-protein shiftamong consumers is making cerealconsumption soggy.

Cereal is still about a $10-billiona year industry, but consumptionhas been declining. “The breakfastoccasion has become crowded,” Kel-logg’s Chief Executive John Bryantsaid in a recent interview. “We arecompeting with quick-serve restau-rants more, but the bigger driver isthat people want more protein.” Kel-logg and other big cereal makers likeGeneral Mills Inc. say they need todo a better job “reminding consum-ers” that with milk, cereal too canbe a high-protein breakfast.

BY JULIE JARGONAND ANNIE GASPARRO Breakfast Battleground

Consumers’ shift from carbohydrates to protein is changing the breakfastlandscape. Change in sales since 2010*

The Wall Street JournalSource: Bernstein analysis of Nielsen's data*Change in sales for the 12-month period ending in July of each year

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Fred Harper

How consumerperceptionsand corporatestrategies shapethe U.S. diet.

Fast and Furious: Americans at Breakfast

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8 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

WORLD NEWS

IndianMen’s Trip to IraqRouses Fears BackHome

KALYAN, India—When fourfriends from this small town outsideMumbai disappeared in May—andthen turned up in Iraq—it awakenedfears of a new type of discontentamong young Muslims in India.

Police say they are looking intowhether the four went to Iraq tojoin a Sunni Muslim insurgentgroup. Relatives and friends of themen, who are in their early 20s, saidthat militancy would be out of char-acter and that they believe the fourwent looking for jobs or to visit reli-gious sites.

Despite the uncertainty aboutthe men’s intentions, there is wide-spread concern in India that stemsin part from the country’s complexrelationship with its Muslim minor-ity and fears in India about Islamistterror.

For days, Indian newspapershave been running stories aboutthese men and others who are al-leged by unnamed law-enforcementand intelligence sources to havejoined up with militants in Iraq andSyria.

In a sign of the national interestin the case, India’s home ministermet with relatives of the fourfriends from Kalyan on Friday. Thefamily members were seeking gov-ernment help to bring them home.

Ministry spokesman KuldeepSingh Dhatwalia said on Sunday

that it “has been brought to thegovernment’s notice” that the fourfriends “may have been motivated”to join radical forces.

Police said they have found noevidence of wrongdoing by thegroup. If they do find the youngmen are linked to the extremistgroup Islamic State, it would be “aparadigm shift” with important con-sequences for how India polices ter-rorism, said Deven Bharti, a seniorofficial in the state police in Maha-rashtra, which is home to Mumbaiand Kalyan.

Concerns about the possible mo-tivations of the four men come asyoung men from other countries, in-cluding France and the U.K., havejoined Islamic State, and U.S. offi-cials have expressed alarm over thephenomenon.

Modern India was formed morethan a half-century ago in a bloody“partition” involving a mass migra-tion of Muslims to the new state ofPakistan and Hindus from Muslim-majority areas into India. Muslimsmake up about 13% of India’s billion-plus population.

One concern about the fouryouths is the possibility that youngpeople in India may be receiving,and responding to, internationalmessages of militancy in new ways.That would be a departure because,as a general rule, Muslims in Indiahave tended to focus on issueswithin South Asia—regional politics,for instance, or questions of dis-

crimination, or the disputed terri-tory of Kashmir on the Pakistan bor-der—as opposed to conflicts such asIraq’s.

One notable change in recentyears: International militant mes-sages have begun reaching the earsof more youths within India. Here inKalyan, police and locals noted thatIndia’s widening access to the Inter-net has given more people access toinflammatory videos and messages.For instance, spam messages senton the popular smartphone serviceWhatsApp that ask recipients to riseup against attacks on Sunni or ShiaIslam have become commonplace,they said.

“There has definitely been achange in Muslim youth being awareof issues concerning them globally,”said Ravindra Tayde, a senior policeinspector in the area where the fourmen live.

Relatives of the four young menexpressed concerns over suchchanges, while stressing their beliefthat the four men may have beenmisunderstood. “There has been achange in awareness of global issuesaffecting Islam,” said Iftikaar AyubKhan, an uncle of one of the fourmen, Arif Fayyaz Majeed, a 22-year-old engineering graduate.

However, Mr. Khan said, the fouryoung men may have simply wantedto find good jobs and “get economi-cally stable in life.” In addition toMr. Majeed, the group of friends in-cluded two engineering students

and one man who worked in a callcenter.

Mr. Majeed’s father said his fam-ily is “frustrated with the Indianpress reports accusing the boys offighting in Iraq.” The parents of theother three men couldn’t bereached.

Sitting on a porch in a monsoondownpour after Friday prayers, agroup of relatives and friends of Mr.Majeed’s said he graduated from arespected private high school wherehe played on the cricket and soccerteams. Cricket “was his passion,”said Shadab Shaikh, a cousin.

The four men disappeared onMay 24. The uncle, Mr. Khan, saidMr. Majeed on that evening, afterplaying cricket with friends, told hisfamily he was “going for somework.” When he didn’t return homeby the following evening, his familyfiled a missing-persons report.Within a few days, the families real-ized the four friends were all gone,he said.

Around May 28, the four called

or sent texts to their families sayingthey were in Iraq and were fine. Thetravel agent who organized theirtrip said the four disappeared onthe sixth day of a seven-day tour ofreligious sites, according to Mr.Khan.

The last contact came on June 7,when the four again indicated theywere fine, according to the uncleand the police.

In Kalyan, the men were also vol-unteers with a local group, IslamicGuidance Centre, an organizationthat says it helps young Muslims en-gage in mainstream Indian societyby, for instance, organizing fieldtrips to old-age homes to chat withlonely residents.

Some Indian press reports havesuggested that one of the IGC’s vol-unteers, Adil Dolare, may have beena catalyst for the men’s decision togo to Iraq. Mr. Dolare, an importerof dried fruits from Afghanistan,said that wasn’t true.

—Niharika Mandhana in NewDelhi contributed to this article.

BY JESSE PESTAAND KENAN MACHADO

Iftikaar Ayub Khan, above, the uncle of one of the young men, in Kalyan, India.

JessePe

staforTh

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treetJournal

SubiantoWants Indonesia Election RedoJAKARTA, Indonesia—Presiden-

tial candidate Prabowo Subianto willchallenge results from the July 9election in Indonesia’s Constitu-tional Court, focusing a final bid forleadership of the world’s fourth-most-populous nation on what histeam suspects are irregularities in-volving 21 million votes.

Jakarta Gov. Joko Widodo wasdeclared president-elect of theSoutheast Asian nation Tuesdaywith 53.15% of the vote, defeatingMr. Subianto by a margin of 8.4 mil-lion votes. More than 133 millionballots were cast in what was atightly contested two-man race.

Mr. Subianto’s campaign team onWednesday raised questions aboutvoting at some 52,000 of the coun-try’s 479,000 polling stations anddemanded a revote at those sta-tions. They said that ballots cast atthose stations far exceeded their to-tal number of eligible voters.

“We will prove improper con-duct,” said team lawyer MahendraDatta.

Indonesia’s election commission,which announced its official tallyTuesday night, didn’t respond to re-quests to comment. In recent days,as ongoing counting showed Mr.Widodo winning and Mr. Subiantoforeshadowing a legal challenge, thecommission said it followed all rec-ommendations to address claims ofirregularities.

Mr. Subianto’s team said that byFriday it would submit a claim tothe Constitutional Court, the high-est in Indonesia when it comes toresolving election disputes. Thenine-member court would have until

mid-August to issue a decision.Mr. Subianto’s brother and ad-

viser, Hashim Djojohadikusumo, al-leged that votes were “mysteriouslyadded” to Mr. Widodo’s tally fromvarious regions during the finalcounting stage.

“The indication of massive fraudand widespread irregularities isoverwhelming,” Mr. Subianto’s cam-paign spokesman, Tantowi Yahya,told reporters. “We cannot and willnot ignore the evidence while thewill of the people remains in ques-tion.”

Legal experts played down thechallenge, pointing to a wide win-ning margin, intense oversight ofthe elections and a high bar for pro-cessing cases at the ConstitutionalCourt.

During legislative elections inApril, the court dismissed all but 21of about 900 cases filed. The burden

will be on Mr. Subianto’s camp toprove there was misconduct in theelection process that influenced theoutcome.

“I don’t believe they can win thislegal battle,” said Andi Asrun, a pro-fessor of constitutional law at theUniversity of Indonesia. He said thecourt would likely dismiss casesconcerning extra voters as not af-fecting the poll’s outcome, because“it’s impossible to determine whothey voted for.”

Political observers and marketanalysts also said they viewed Mr.Subianto’s challenge as an unlikelyeffort that has tepid support fromsome of his biggest backers. His co-alition has been fraying in recentdays, with several high-rankingmembers of the grouping’s largestparty, Golkar, urging its members tocongratulate Mr. Widodo.

Mr. Subianto’s running mate,

Hatta Rajasa, didn’t attend a newsconference Tuesday at which thepresidential candidate said he re-jected the results of the vote. OnWednesday, the campaign team saidthey didn’t know Mr. Rajasa’swhereabouts but that he supportedMr. Subianto’s push in the Constitu-tional Court. Attempts to reach Mr.Rajasa were unsuccessful.

Markets fell on the news, withthe country’s main stock index shav-ing 0.6% off morning gains immedi-ately after Mr. Subianto’s teamspoke. “Until a definitive ruling isissued, the market may move side-ways,” said Benny Irawan, a fundmanager with Jakarta-basedLautandhana Securities.

A peaceful outcome to the elec-tion is still “in our baseline,” saidHelmi Arman, an economist for Citi-group in Jakarta. “We do not expectany ruling to materially affect theoutcome of the election.”

Mr. Djojohadikusumo, Mr. Subi-anto’s adviser, requested that worldleaders withhold congratulatorystatements to Mr. Widodo for now,although Mr. Widodo said Wednes-day he had already received callsfrom U.S. President Barack Obama,Singaporean Prime Minister LeeHsien Loong and Australian PrimeMinister Tony Abbott, among oth-ers.

“We had a very congenial con-versation,” Mr. Abbott told report-ers Wednesday.

Wednesday’s newspapers in In-donesia were filled with headlinesof Mr. Widodo’s win. No unrest wasreported.

—I Made Sentana in Jakartaand Rob Taylor in Sydneycontributed to this article.

BY BEN OTTO

Prabowo Subianto with members of his coalition in Jakarta on Tuesday.

Getty

Images

Libya FuelTanker HitIn Fighting

A fuel storage tank was hit inheavy fighting around Tripoli air-port amid an escalation of violence,oil and airport officials said onWednesday.

Fighting between rival militiasfor control of the capital’s airporthas left at least 47 dead since July13—the worst clashes in six months.The fighting has also led to theevacuation of expatriate oil workersand prevented some staff fromreaching a key oil field.

Libya’s interim prime minister,Abdullah al-Thani, called on the mi-litias to stop the fighting and saidhis government was considering in-ternational support to help build aneffective army and police.

In statements posted on his offi-cial website, Mr. Thani said he hadruled out a direct foreign interven-tion. The fuel tank burst into flamesafter being hit by a missile, accord-ing to statements and videos postedon the airport’s Facebook page.

The fire was eventually put out.Libyan oil officials, who con-

firmed the incident, said the dam-age will make it even more difficultto supply Tripoli, which has alreadysuffered from acute shortages offuel.

Despite unrest in the capital, oiloperations elsewhere have regis-tered some progress. On its Face-book page, the state-run Sirte OilCo. said production at its oil fieldsin Eastern Libya has now restartedand output is 21,000 barrels a day.

BY BENOÎT FAUCON

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 21

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Connecticut Rethinks Tipster RightsConnecticut’s highest court is set

later this year to weigh in on a caseagainst UBS AG that could limit pro-tections for whistleblowers in thestate, a stronghold for the financialsector.

The Connecticut Supreme Courtwill consider whether a 2006 U.S.Supreme Court ruling that restrictedprotections for workers who exposealleged wrongdoing by their employ-ers should apply to cases broughtunder Connecticut law, which isfriendlier than federal law on em-ployee rights.

Richard Trusz, 58 years old, saidhe was fired from his Connecticut-based position as head of valuationsat UBS’s real-estate-investment arm,UBS Realty Investors LLC, in August2008 after confronting senior man-agement about properties he consid-ered overvalued, and therefore ledto excessive fees for clients includ-ing state pension funds. The unit Mr.Trusz led was responsible for deter-mining the market value of its realestate and mortgage investments.

Mr. Trusz later sued the Swissbank in federal court, saying his su-periors engaged in “acts of intimida-tion and retaliation” and “treatedhim differently from others whodidn’t complain” before terminatinghis employment.

A UBS spokeswoman said re-cently that Mr. Trusz’s claims were“thoroughly looked into both inter-nally and externally many yearsago.” She declined to comment onMr. Trusz’s valuation allegations andsaid the bank is continuing to seekdismissal of the lawsuit.

The state will remain a haven forcorporate whistleblowers if the Con-necticut Supreme Court sides withMr. Trusz. But if it applies the U.S.Supreme Court ruling, the state willfall in line with the federal standard.

“If the court interprets the lawnarrowly, whistleblower employees

will have less protection for report-ing corporate wrongdoing” in Con-necticut, said Jordan Thomas, a law-yer at Labaton Sucharow whorepresents whistleblowers but isn’tinvolved in Mr. Trusz’s case. “Thatwould be a setback for investors andthe general public.”

A ruling in Mr. Trusz’s favorcould limit employers’ flexibility tomake “tough decisions” on person-nel matters, said Gregory Keating, alawyer at Littler Mendelson whorepresents employers in whistle-blower cases. “Judges in federalcourt don’t want to sit around allday as glorified personnel depart-ments,” he said.

In March, a federal-district courtasked the Connecticut SupremeCourt to weigh in on whether a U.S.

Supreme Court decision applies tothe issues raised in Mr. Trusz’s law-suit, which was brought under statelaw. Connecticut has traditionallybeen a popular destination forhedge-fund managers and other fi-nancial firms because of its proxim-ity to Wall Street.

The Connecticut court will heararguments on whether the U.S. Su-preme Court ruling should apply inConnecticut cases in which an em-ployer is accused of subjecting anemployee to “discipline or dis-charge” for exercising rights guaran-teed by the state’s constitution, in-cluding freedom of speech andreligion.

That ruling held that when em-ployees make statements “pursuantto their official duties, the employ-

ees aren’t speaking as citizens forFirst Amendment purposes” andtherefore aren’t insulated from em-ployer discipline.

In a motion to dismiss the law-suit, UBS said Mr. Trusz was termi-nated because UBS Realty out-sourced a portion of its valuation-review function and made hisposition redundant. Mr. Trusz’sstatements about the valuations“were encompassed within his offi-cial duties,” the bank argues.

Despite the 2006 ruling, protec-tions for U.S. corporate whistleblow-ers have expanded in recent yearsthrough legislation and key courtdecisions.

Last month, for the first time,the Securities and Exchange Com-mission alleged in a civil administra-

tive action that a hedge-fund adviserillegally took retaliatory actionsagainst an employee. The SEC’smove was made possible by beefed-up whistleblower protections stem-ming from the 2010 Dodd-Frank fi-nancial overhaul.

The 2002 Sarbanes-Oxley Actalso enhanced whistleblower protec-tions by, among other things, requir-ing publicly traded companies to es-tablish internal procedures foremployees to report potentialwrongdoing and criminalizing retali-ation against whistleblowers undercertain circumstances. As protec-tions for corporate tipsters expand,companies are fighting back in courtagainst “potentially draconian rami-fications” of decisions in favor ofwhistleblowers, Mr. Keating said.

In an interview, Mr. Trusz saidstrong whistleblower protections arenecessary to defend those who aretrying to uphold their obligations toclients. “For me to get terminatedfor doing the right thing—that wasthe ultimate blow,” he said.

According to the lawsuit, Mr.Trusz informed his superiors inearly 2008 that certain propertiesheld by UBS Realty were overvalued.In the following months, he wasbarred from attending client meet-ings and his superiors refused todiscuss his concerns about the reli-ability of the valuations, accordingto his lawsuit.

In April 2008, Mr. Trusz filed acomplaint with the OccupationalSafety and Health Administration al-leging violation of the Sarbanes-Ox-ley Act. Mr. Trusz said the hostiletreatment continued during the sub-sequent OSHA investigation.

In November 2008, OSHA con-cluded its formal process after Mr.Trusz indicated that he intended topursue a lawsuit in federal court.The case is currently pending in theU.S. District Court in New Haven,Conn. Mr. Trusz is seeking back payand damages, among other things.

BY DANIEL HUANG

MARKETS

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Connecticut’s highest court may limit whistleblower protections there when it considers Richard Trusz’s firing from UBS.

Julie

Bidw

ellfor

TheWallS

treetJournal

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 7

Mayor Stephanie Miner said Syracuse, N.Y., has been in discussions with federal authorities to house minors in vacant buildings at a Sisters of St. Francis convent.

ReportsofAir-TrafficErrorsRoseInFiscalYear

U.S. air-traffic-control errorscontinued to climb in fiscal 2013rather than plateauing as federalaviation regulators previously pro-jected, according to data slated tobe released by the government.

There were roughly 6,700 in-stances of planes flying closer toeach other than permitted in U.S.airspace in the 12 months throughSeptember, up about 50% from a re-cord 4,394 events a year earlier, ac-cording to data compiled by theFederal Aviation Administration.Traffic volume was down roughly2%. Officials considered some 2,300midair events in fiscal 2013 seriousenough to warrant detailed analysis,according to the FAA’s data. In theprevious year, about 1,200 incidentsfit that category.

But the number of the most seri-ous, or “high risk,” midair closecalls dropped slightly during the lat-est period, according to one personwho has reviewed the FAA numbers.The agency categorized 38 suchnear-collisions in fiscal 2013, versus41 a year earlier.

Considered a key safety yard-stick, the annual statistics detailingso-called losses of separation, or vi-olations of air-traffic-control stan-dards, are closely watched by out-side experts, lawmakers and othergroups. The numbers don’t detailwhether the incidents resulted frommistakes by pilots or controllers,but they are seen as an importantwarning system for budding safetyhazards.

FAA officials had attributed therecent surge in reported air-traffic-control mistakes to new automatedflight-tracking systems that collectsubstantially more data and identifymany minor slip-ups that wouldn’thave been detected before.

The FAA has said that in thethree years ending in late 2012, thenew collection methods amountedto a tenfold increase in the totalnumber of available reports. FAA of-ficials and controllers had expectedthe uptick in both reports and inci-dents to subside in fiscal 2013.Some predicted a plateau in thenumber of midair losses of separa-tion.

The FAA hasn’t yet officially re-leased updated figures, but a finalversion of the report has been circu-lating in Washington. People whohave seen it didn’t indicate where orwhen the most serious close callsoccurred. An FAA spokeswomandidn’t have a comment.

After facing controversy foryears over the frequency of control-ler slip-ups, the FAA described thenew reporting procedures—alongwith changes in the way it catego-rizes and assesses midair inci-dents—as a safety enhancement.

Officials have said the system’sautomated features allow them tofocus on the most pressing hazards.Despite the influx of raw data, ac-cording to these officials, automatedfilters allow them to avoid wastingtime scrutinizing inconsequentialdeviations that don’t pose any sig-nificant danger to planes or passen-gers. By certain measures, comput-erized data collection has generatedas many as 900 additional reportsof losses of separation on somedays.

BY ANDY PASZTOR

MikeRo

yforTh

eWallS

treetJournal

U.S. NEWS

Cities Offer Shelter to MigrantsMunicipal LeadersWorkWith Federal Officials in Effort to House Unaccompanied Children

Leaders of several U.S. cities andat least one state have offered totake in some of the thousands of un-accompanied minors from CentralAmerica who have swarmed thesouthern U.S. border in recentmonths. The invitations follow vocalopposition in other places to hous-ing the children.

Los Angeles; New York City; Syr-acuse, N.Y.; and Dallas County inTexas are among localities that havesaid they would allow minors to behoused in federally funded facilities.Massachusetts Gov. Deval Patrickhas expressed willingness to shelteras many as 1,000 children at militarybases that were used for evacuees ofHurricane Katrina.

Border Patrol agents have appre-hended about 57,000 unaccompaniedminors trying to enter the countryillegally since October. Mostly fromHonduras, Guatemala and El Salva-dor, many are fleeing gangs and pov-erty. The Pew Research Center saidTuesday that 117% more unaccompa-nied children age 12 and youngerwere apprehended in the first eightmonths of this fiscal year, which be-gan Oct. 1, than in the entire previ-ous fiscal year.

The youngsters remain in federalcustody until they have receivedmedical screening and can be re-leased to an adult sponsor. But therecent surge in arrivals has caused ashortage of space and a rush by fed-eral officials to find additional hous-ing options.

Los Angeles Mayor Eric Garcetti,a Democrat, said that as a father andmayor, he couldn’t ignore the plightof children. “We are working to ad-dress the humanitarian crisis on ourborder,” he said.

He said the mayor’s Office of Im-migrant Affairs recently convened ameeting of 50 local organizations todiscuss how to help. They will workwith the federal government to iden-tify temporary shelters. The citywasn’t asked to provide resources orservices, a spokesman said.

“There has been an absence oflocal officials saying we want tohelp,” said Stephanie Miner, the

Democratic mayor of Syracuse. Shesaid the city of 150,000 has been intalks with authorities to house mi-nors in vacant buildings at a Sistersof St. Francis convent.

President Barack Obama hasasked Congress for $3.7 billion inemergency spending to bolster bor-der enforcement and to fund more

facilities to house minors and givethem legal assistance. The Houseand Senate are moving forward onseparate bills, with no clear deal insight. Senate Democrats are prepar-ing legislation to allocate $2.7 billionthis calendar year to the issue, aneffort expected to meet resistancefrom Republicans as too expensive.

Most places that have been re-ceptive to the minors already havesizable immigrant populations andare led by Democrats.

“These moderate to liberal may-ors and governors are speaking totheir constituents,” said Louis De-Sipio, a political-science professor atthe University of California, Irvine.“They are also giving the presidentsome coverage by saying, ‘We don’twant these kids crossing but we willbe responsible to the ones who arehere.’ ”

Towns in Arizona, California,Michigan and Maryland have re-sisted efforts to have migrantshoused there. Leaders say havingthem will encourage more illegal im-migration, undermine public safetyand health, and strain budgets.

Until minors are released to care-takers, they are housed in Depart-ment of Health and Human Servicesshelters. Agency spokesman KennethWolfe said the average length of stayper child is fewer than 35 days, withabout 9,000 minors now in HHS fa-cilities. The agency has 100 sites,but to meet soaring demand, it hasset up three extra shelters in Cali-fornia, Oklahoma and Texas.

HHS regulations say minors don’tleave a facility, even for recreation,until they are released to a sponsor.A fact sheet provided to Syracuse of-ficials says: “HHS pays for and pro-vides all services for the childrenthrough its network of grantees.This includes providing food, cloth-ing, education and medical screen-ing to the children.”

Local opponents still have criti-cized Dallas County Judge Clay Jen-kins for proposing that three vacantfacilities house minors. In Massa-chusetts, critics said they aim tothwart Mr. Patrick’s plan, as it wouldstrain their communities.

Syracuse’s Ms. Miner said therewas no cost tied to housing the chil-dren “that gives me pause or makesme concerned.”

“If a child breaks his arm, he willgo to our hospital,” she said, butotherwise, “all services are pro-vided at the facility.”

—Scott Calvertcontributed to this article.

BY MIRIAM JORDANYouth MovementLeaders of several U.S. cities have offered to host unaccompaniedminors who have entered the U.S. illegally. Apprehensions ofunaccompanied minors at the U.S.-Mexico border:

By age By select country

Note: Fiscal year ends Sept. 30

Source: Pew Research Center analysisof U.S. Customs and Border Protection data

35,314 39,472

3,445

7,460

FY2013 FY2014(first eight months)

12 andyounger

13–17years old

0 10,000 20,000

Honduras

El Salvador

Guatemala

Mexico

FY2013FY2014(firsteightmonths)

The Wall Street Journal

HouseGOPConsiders ImmigrationPlansWASHINGTON—House Republi-

cans are reviewing proposals tospend roughly $1.5 billion and deploythe National Guard to help deal withthe flood of migrants crossing thesouthern border.

At a closed-door meeting of HouseRepublicans on Wednesday, a groupof lawmakers pitched a set of mea-sures aimed at tightening border se-curity and speeding up the process ofreviewing Central American unaccom-panied children and families enteringthe U.S. in record numbers this year.

Their proposal includes changes toa 2008 antitrafficking law in order toreturn minors to their home coun-tries more quickly.

“That is the most critical point,”

said Rep. John Carter (R., Texas), amember of the GOP group. “The lawhas great big holes in it, and smartfolks have figured out how to getthrough those holes.”

The House plan would spend farless on the border than either thepresident’s request for $3.7 billion orSenate legislation that would provide$2.7 billion through the end of 2014.

Senate Democrats criticized theRepublican proposal. “If they reallywant to take these kids and shipthem back in five days without givingthem a decent right to claim asylum,no, I’m not going to change on that,”said Sen. Tom Harkin (D., Iowa).

—Kristina Petersonand Michael R. Crittenden

22 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

Europe ex-UK Small/Mid-Cap EquityFunds that invest primarily in the equities of small- and mid-cap companies incontinental Europe. At least 75% of total assets are invested in equities. Ranked on %total return (dividends reinvested) in Euros for one year ending July 23, 2014

Leading 10 PerformersFUND FUND LEGAL %Return in $US **RATING * NAME FUNDMGM'T CO. CURR. BASE YTD 1-YR 2-YR 5-YR

2 TR European Henderson Global GBPGBR 6.08 39.89 40.59 16.12GrowthOrd Investors

2 IP European Invesco Fund GBPGBR 10.45 31.63 29.25 17.76Small Companies Managers Limited

3 Invesco Cont Invesco Global USDIRL 7.89 27.52 34.91 25.12European SmCp EqA AssetManagement Limited

4 Ignis Ignis FundManager GBPGBR 6.92 26.95 32.37 20.89European Smlr Coms I Acc Limited

4 IP European Invesco Fund GBPGBR 7.71 26.57 30.02 21.44Opportunities Acc Managers Limited

3 Schroder Schroder Unit GBPGBR 7.67 25.61 28.46 16.88European SmCosAcc Trusts Limited

NS Taaleri Taaleritehtaan EURFIN 8.33 24.08 23.84 NSRhein Value A RahastoyhtiöOy

4 European F&CAsset GBPNLD 7.40 22.42 36.91 22.73Assets Ord Management PLC

3 Digital J.Chahine Capital EURLUX 3.80 20.82 25.67 17.71Stars Europe ex-UKAcc

2 Fourton Fourton Oy EURFIN 6.99 18.11 17.88 14.61Odysseus

NOTE: Changes in currency rateswill affect performance and rankings. Source: Morningstar, LtdKEY: ** 2YR and 5YR performance is annualized 1 Oliver’s Yard, 55-71 City RoadNA-not available due to incomplete data; London EC1Y 1HQUnited KingdomNS-fund not in existence for entire period www.morningstar.co.uk; Email: mediaservice@morningstar.com

Phone: +44 (0)203 107 0038; Fax: +44 (0)203 107 0001

MARKETS

Fund Scorecard

European StocksEke Out Slim Gains

The exposure of financial-report-ing problems at Deutsche Bank sentshares in Germany’s largest lenderlower Wednesday, but overall mar-kets clung to slim gains.

Deutsche Bank closed down 0.7%after falling about 3% in early trad-ing, following a Wall Street Journalreport that an examination by the

Federal Reserve Bankof New York foundthat the lender’s U.S.operations suffer from

a litany of serious problems, includ-ing shoddy financial reporting, inad-equate auditing and oversight andweak technology systems.

The bank’s share price had takena beating already this year, fallingmore than 30% from a high of morethan €38 ($51.17) in January, to justover €26 on Wednesday, and ana-lysts at Berenberg said that the re-port “perfectly illustrates the issuesfacing all large complex banks. Italso raises the question as to whythe market places such faith in tan-gible book value,” they wrote in anote.

Germany’s DAX 30 index gained0.2% to 9753.56, while France’s CAC40 index rose 0.2% to 4376.32 andthe U.K.’s FTSE 100 edged up lessthan 0.1% to 6798.15.

In London, GlaxoSmithKline fell4.7% as the company said it now ex-pects core per-share earnings to besimilar to 2013. That compares withGlaxo’s previous target of 4% to 8%growth.

The broad Stoxx Europe 600closed 0.1% higher at 342.86 as in-vestors weighed upbeat U.S. infla-tion data against concerns sur-rounding the Middle East conflictand tensions between Russia andthe West.

In the U.S., the broader marketsqueaked out a gain while blue chipsslipped.

The Dow Jones Industrial Aver-age fell 26.91 points, or 0.2%, to17086.63. The S&P 500 index gained3.48 points, or 0.2%, to 1987.01, top-ping its last record reached July 3.

The Nasdaq Composite Indexadded 17.68 points, or 0.4%, to4473.70, helped by Apple’s gain. Thestock advanced 2.6% after the tech-nology company beat forecasts forearnings. The iPhone maker re-ported 12% profit growth thanks, es-pecially, to demand for products inBrazil, Russia, India, and China—collectively known as the BRICcountries—where iPhone sales rose55%.

Biotech stocks rallied after a pairof better-than-expected earnings re-ports from companies in the sector.Shares have been under pressure inrecent sessions, after a report fromthe Federal Reserve noted that valu-ations of biotech, small-cap and so-cial-media stocks could bestretched.

Shares of Intuitive Surgical rose18%. The maker of robotic surgicalsystems reported a decline in itssecond-quarter earnings and reve-nue, but results topped expecta-tions. Biogen Idec beat second-quarter earnings expectations,fueled by sales of its multiple-scle-rosis treatments. Shares rose 11%.

In currency markets, sterling hita day’s low in Europe of $1.7060, af-ter minutes from the latest Bank ofEngland policy meeting showed thatnone of the policy makers had votedto change interest rates this month,even though “for some members thedecision had become more balancedin the past few months than earlierin the year,” the bank wrote in itsminutes. They added that althoughemployment was strong, wagegrowth had been “surprisinglyweak.”

Late in New York, the poundfetched $1.7034 from $1.7066 lateTuesday. The euro bought $1.3460from $1.3465, while the dollartraded at ¥101.52 from ¥101.47.

In commodity markets, crude oilfor September delivery gained 73cents, or 0.7%, to $103.12 a barrelon the New York Mercantile Ex-change. Gold for July delivery lost$1.60, or 0.1%, to $1,304.50 a troyounce on the Comex division ofNymex.

BY JOSIE COX

MARKETREPORT

Pressure Builds on Finance ChiefNews of the New York Fed letter

sent Deutsche Bank shares downnearly 3% in U.S. trading late Tues-day and 0.7% in Frankfurt onWednesday.

Mr. Krause joined Deutsche Bankas CFO in 2008 from luxury-carmaker BMW AG. The New YorkFed’s blast at his work contrastswith positive reactions he has re-ceived from many investors forshedding unwanted assets and help-ing rebuild the bank’s financial baseover the past two years.

The New York Fed’s criticismsare unlikely to cause Deutsche Bankto restate its financial results. Butthe content of the letter adds fuel tointernal criticism of Mr. Krause, ac-cording to people familiar with dis-cussions in the bank.

One of Mr. Krause’s biggest proj-ects since he became CFO has beenimplementing an enormous informa-tion-technology project dubbedStride, an acronym for Strategic Re-porting and Information DeliveryProgram. Stride, started in 2010, isdesigned to improve the lender’s fi-nancial reporting across all divi-

Continued from page 15 sions by consolidating into a singlesystem the more than 1,000 infor-mation-technology systems thatDeutsche Bank uses for financial re-porting.

But Stride’s progress has beenslow. It was originally expected tobe completed next year, but that hasbeen pushed back to 2016, partly be-cause of technical problems.

The slow pace has elicited criti-cism at meetings of Deutsche Bank’ssupervisory board, according to aboard member, who said that Mr.Krause has been struggling withseveral projects related to the im-provement of the finance depart-ment’s organization.

Deutsche Bank executives pri-vately acknowledge that Stride hasshortcomings.

The slow progress promptedDeutsche Bank to cut Mr. Krause’scompensation last year, according topeople familiar with the matter.

“We believe the Stride program,under Stefan Krause’s leadership,has been an instrumental compo-nent in helping us to further consol-idate and modernize our regulatoryand financial reporting,” the

Deutsche Bank spokesman saidWednesday. “The program is makingprogress step-by-step, but like anyambitious systems project, it is amultiyear initiative.”

In his letter, the New York Fed’sMr. Muccia said that Stride’s “scopewas limited and would not have ad-dressed the issues identified duringour review.” He said that discus-sions with supervisors from theNew York Fed led Deutsche Bank toexpand its scope and to devotingmore resources on it.

“As the bank hasn’t been able toremove shortcomings over such along period of time…there need tobe consequences for the CFO,” saidDieter Hein, an analyst at Germanfinancial-research company Faire-search in Frankfurt.

The publication of the New YorkFed letter is “horribly embarrass-ing” for Deutsche Bank, said DanDavies, an analyst at Exane BNPParibas in London.

But Mr. Davies said the issueshouldn’t be “taken out of propor-tion…The general inadequacy of sys-tems and controls is a big priorityof the Fed at the moment.”

Options Point to CautionOver Scottish Referendumthe cost of these sterling options toramp up further in the run-up to thevote.

“In English, this means thatwe’ve seen [foreign-exchange] in-vestors looking to pay a bigger pre-mium for downside protection onthe pound,” said Stephen Gallo, acurrencies strategist at Bank ofMontreal. “If we did see a pickup involatility over the coming twomonths, investors are betting itwould most likely stem from the re-sult of the Scottish referendum.”

Investors have been aware of thecoming vote for months. Strategistsand portfolio managers at the in-vestment firm BlackRock Inc. said ina note in March that an independentScotland would bring major uncer-tainties, costs and risks to bothScotland and the rest of the U.K.

“There is a lot to settle: a cur-rency union or a Scottish pound,Scotland’s opening balance sheet,division of the hydrocarbon bounty,financial regulation, European Unionmembership, tax matters, timeta-bles, and much more. Some balls arebound to be dropped,” they wrote.But these concerns don’t appear tohave troubled investors enough tomake them shy away from sterlingor from U.K. assets.

U.K. government bonds, for ex-ample, have been rising all year. Theyield on the U.K.’s 10-year debt hasfallen by half a percentage point to2.6%. Bond yields fall when pricesrise.

Now, as the vote date drawsnear, some buyers of currencies op-tions, both those seeking to protectagainst losses and those seeking toprofit from a drop in the pound, arepouncing.

“Speculators betting on a ‘yes’vote are buying one-year sterlingputs, expecting a big drop in thepound and a significant pickup involatility,” said Cameron Millar, atrader at Scottish-based foreign-ex-change consultant Positive Gamma.

Continued from first page

Mr. Millar expects the pound tofall up to 5% as an initial reaction toa “yes” vote, with sensitivity tonews headlines to continue for at

least nine months. He has been buy-ing nine- to 10-month options, alsokeeping in mind the U.K. generalelection in May 2015. “There is a lot

of money to be made here. They arecheap at this level,” he said.

Recent polls suggest that 37% ofthe Scottish vote will favor abreakup, but the 13% of the elector-ate describing themselves as unde-cided could swing the final tally. “A‘yes’ vote is much more than just atail risk,” Morgan Stanley said in arecent research note, suggestingthat the probability of a breakup is25%. In this scenario, the currencywould drop by up to 10%, the banksaid.

The negative consequences forthe currency would be considerable,said Valentin Marinov, a currencystrategist at Citigroup.

—Nick Cawleycontributed to this article.

Source: Thomson Reuters *As of 5 p.m. Wednesday BST The Wall Street Journal

The Early VoteSterling has beenclimbing againstthe euro…

How many eurosone pound buys*

…but the optionsmarket is signalingcaution ahead ofthe Scottishindependencereferendum

Implied volatility twomonths out in theeuro–sterling market;as volatility rises, so domarket premiums onthe options*

€1.28

1.18

1.20

1.22

1.24

1.26

Jan. Feb. March April May June July

9

4

5

6

7

8

%

Jan. Feb. March April May June July

BlackRock said in Marcha ‘yes’ vote would raisebig issues. ‘Some ballsare bound to be dropped,’the investment firm said.

6 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

U.S. NEWS

Rulings Cloud Health Law’s SubsidiesTwo U.S. appeals courts issued

conflicting rulings on whether con-sumers can get subsidies for healthcoverage bought on the AffordableCare Act’s federal exchange, escalat-ing a legal battle that could compli-cate fall insurance enrollment andjeopardize tax credits for millions ofAmericans.

In a blow to President BarackObama’s signature legislativeachievement, a panel of the U.S.Court of Appeals for the District ofColumbia Circuit, on a 2-1 vote, in-validated an Internal Revenue Ser-vice regulation that implemented akey piece of the 2010 health law.The regulation said subsidies forhealth insurance were available toqualifying middle- and low-incomeconsumers whether they boughtcoverage on a state or federally runexchange.

Two hours later, a three-judgepanel of the U.S. Court of Appealsfor the Fourth Circuit in Richmond,Va., reached the opposite conclu-sion, unanimously ruling that con-sumers in states relying on the fed-eral marketplace could receivesubsidies. That handed the WhiteHouse a victory that counteractedthe administration’s loss in theother case.

Tuesday’s rulings won’t have animmediate impact on the subsidiesthat an estimated 4.7 million Ameri-cans have received on the federal ex-change. But they raise a new cloudof legal unknowns that likely won’tbe settled before open enrollmentbegins Nov. 15, because the casescould take a year or more to con-clude in the courts.

If the two courts remain in con-flict, it is a near certainty the Su-preme Court will have to step in toresolve the dispute, setting the stagefor a third high-court ruling on thehealth law. Should the D.C. Circuit’sruling eventually prevail, it couldcripple the law by making subsidiesunavailable in as many as 36 stateswhere the federal government hasrun some or all of the insurance ex-changes.

The Obama administration said itwould ask the full D.C. appealscourt, which might be more sympa-thetic to its position, to reconsiderthe case.

“This just lays another layer ofuncertainty on top of an alreadyconfused environment,” said RuthKrystopolski, president of nonprofitSanford Health Plan, which sellsplans to individuals in North Dakotaand South Dakota.

Several insurers said they had nocurrent plans to change how they sell

policies through the federal ex-change. Hospital executives said thecases complicate efforts to plan an-nual budgets, because losing the sub-sidies would likely increase the num-ber of uninsured patients comingthrough their doors.

At issue was how to interpret asection of the health law allowingsubsidies when consumers buy insur-ance on an exchange “established bythe state.” The law gave states re-sponsibility for setting up exchanges,but more than two-thirds of thestates chose not to do so. Thosestates, mostly with Republican gov-ernors opposed to the law, decidedto rely on the federal government in-stead.

Individuals and employers whochallenged the subsidies in court ar-gued the law’s language made clearsubsidies weren’t available in thosestates without their own exchanges.The Obama administration arguedCongress intended the subsidies tobe available everywhere.

“You don’t need a fancy legal de-gree to understand that Congress in-tended for every eligible American tohave access to tax credits that wouldlower their health-care costs, regard-less of whether it was state officialsor federal officials who were runningthe marketplace,” White House presssecretary Josh Earnest said Tuesday.

The D.C. Circuit held the IRS reg-ulation allowing the subsidies na-tionwide wasn’t a permissible inter-pretation of the health law. “Wereach this conclusion, frankly, withreluctance,” Judge Thomas Griffith, aGeorge W. Bush appointee, wrote forthe court, saying the decision wouldlikely have significant consequencesfor millions of people. He was joinedby another Republican-appointedjudge. But he said the court had tointerpret the law the way Congresswrote it. Judge Harry Edwards, aJimmy Carter appointee, said in dis-sent that the ruling “portends disas-trous consequences.”

The Richmond court said lan-guage in the Affordable Care Act onthe subsidies was ambiguous andcould be read in different ways. “Ap-plying deference to the IRS’s deter-mination, however, we uphold therule as a permissible exercise of theagency’s discretion,” wrote JudgeRoger Gregory, originally nominatedby Bill Clinton. Joining the rulingwere two Obama appointees.

The average size of a federal sub-sidy for each enrollee getting one in2015 will be $4,250, and the govern-ment is expected to spend $17 billionin fiscal 2014 on exchange subsidies,according to research by the nonpar-tisan Congressional Budget Office.Exchange enrollees who selected

plans with tax credits pay an averageof $82 a month in premiums afterthe subsidy, which is 76% less thanthe full premium, according to theDepartment of Health and HumanServices.

Aetna Inc. said the tax creditsplayed a significant role in attractingpeople to exchange plans. Insuranceindustry advocates have warned thata win for the challengers in the casescould destabilize insurance marketsand lead to higher premiums for allexchange consumers.

“It could mean the collapse of theindividual insurance market in statesthat are affected,” if the subsidiesare ultimately struck down by thehigh court, said Timothy Jost, a pro-fessor at Washington and Lee Uni-versity School of Law who supportsthe health law.

Will Ferniany, chief executive ofUniversity of Alabama at Birming-ham Health System, said the deci-sions made it difficult to set nextyear’s budget, which is due to theboard in August. “Do we take a con-servative approach and assume thesepeople aren’t going to be insured, ordo we take an optimistic approachand assume it will be appealed [suc-cessfully]?”

Julie Thiets, 51 years old, of Deca-tur, Ga., gets an insurance subsidy ofmore than $600 a month through the

federal exchange. She said she isn’tsure if she would have signed up ifthere was a possibility she could losethat tax credit.

“To me, it was the whole benefitof signing up,” said Ms. Thiets, whoowns a small business that providesvideo tennis instruction. “It woulddevastate my life without it.”

The law requires most Americansto carry health insurance or pay atax penalty, a mandate that was up-held by the Supreme Court two yearsago. The subsidies were designed towork in tandem with the mandate tomake coverage more affordable forlower-income individuals.

The D.C. ruling also could hobblethe functioning of a delayed health-law provision that can requireslarger employers to pay penalties ifthey don’t offer affordable coverageto full-time workers and those work-ers get a subsidized exchange plan.The penalties are triggered when aworker receives federal subsidies forpurchasing insurance on an ex-change.

The administration’s legal optionsinclude an appeal to the SupremeCourt. But first it plans to ask theD.C. appeals court to rehear the case,with all active judges participating inthe review. The full court has a morefavorable political makeup for theadministration, with a majority ofjudges appointed by Democraticpresidents.

The White House’s Mr. Earnestsaid that given fierce Republican op-position to the law the prospects fora legislative move that might fix thelaw “seem rather unlikely.”

House Speaker John Boehner (R.,Ohio) said the court’s decisionshows House Republicans are rightin seeking to file a lawsuit accusingMr. Obama of overstepping his au-thority in implementing the law.

“The president has demonstratedhe believes he has the power tomake his own laws. That’s not theway our system of government wasdesigned to work,” Mr. Boehner said.

A senior administration officialindicated the White House is used tochallenges to the health law by now,and that the law would weather thisturn of events, as it has previoussetbacks. Officials emphasized therewould be no near-term impact onpolicyholders’ subsidies or premi-ums.

As with past health-law chal-lenges, multiple cases are workingtheir way through the federal courts.In addition to Tuesday’s cases, twoother similar lawsuits are being con-sidered by courts in Indiana andOklahoma.

—Anna Wilde Mathews, Carol E.Lee and Christopher Weaver

contributed to this article.

BY BRENT KENDALLAND STEPHANIE ARMOUR

Some 5.4 million people have bought health coverage in the 36 states where the federal governmentruns the insurance exchange. In each of those states, a big majority of consumers got a federal taxcredit to offset the cost of their premiums. A court ruling threatens that tax credit.

At Risk | Subsidies for health insurance in states using federal exchange

Source: Department of Health and Human Services The Wall Street Journal

State-run exchangeFederally run exchange

Nev.

Del.

Colo.

N.M.

Minn.

N.Y.

Ky.

Vt.

Conn.

Md.

R.I.

Wash.

D.C.

Hawaii

Mont.

Ariz.

Utah

Okla.

Mich.

MaineN.H.

N.J.

Texas

Wyo.

Kan.

S.D.

Fla.

N.D.

S.C.

Alaska

Mass.

Fla.

Texas

Mich.Mich.

Ariz. S.C.C.

Utah

Okla.

Kan.Calif.

Ore.

Enrolledparticipants

800,000

600,000

400,000200,000

Union Allowed to Organize Small Group at RetailerA group of 41 cosmetics and fra-

grances workers at a Macy’s store inMassachusetts is large enough to at-tempt to unionize, the National La-bor Relations Board decided in a rul-ing that could advance organizedlabor’s quest to unionize subsets ofworkers in varied industries.

In a 3-1 decision issued Tuesdaythat sided with the United Food andCommercial Workers union andraised concerns among businessgroups that it would lead to frag-mented workplaces, the board’sthree Democrats said the workers atthe store in Saugus, Mass., are an

appropriate bargaining unit andshare “a community of interest.”Their employer, Macy’s Inc., had ar-gued otherwise but failed to meet“its burden of demonstrating” thatthe smallest appropriate unit shouldinclude all employees at the store orat least all the selling employees, ac-cording to the written decision.

Macy’s said in a statement it was“disappointed” and considering itsoptions, including an appeal. “Orga-nizing a selected portion of a store’sselling associates into multiple col-lective-bargaining units is impracti-cal and an impediment to providinga consistent level of customer ser-vice,” Macy’s said.

The Republican board memberassigned to the case, Philip Misci-marra, filed a dissent that under-scores the partisan divide on thefive-member board.

Mr. Miscimarra said the unit “isnot appropriate under any standard”and the case “illustrates the frail-ties” of an earlier board ruling thathis colleagues cited in the Macy’sdecision.

In the 2011 case known as Spe-cialty Healthcare, the board decideda union could try organizing a groupthat consisted only of nursing assis-tants at a long-term-care facility.

Business groups feared the Spe-cialty Healthcare ruling would open

the door to similar NLRB decisionsin the health sector and other indus-tries, and would give unions an un-fair advantage by allowing them tocreate “micro units” of workers thatwould be easier to organize.

The National Retail Federation,which filed an amicus brief in theMacy’s case and lists the retailer asone of its members, said the latestruling was improper and accused theboard of overstepping its bounds toadvocate for unions.

“Recognizing individual groupsof employees that work in the samestore as unique bargaining units isnonsensical and impractical,” the re-tail group’s senior vice president of

government relations, David French,said. The NLRB is “once again sub-verting well-established labor lawand precedent in order to make iteasier for big labor to organize em-ployees,” he said. The decision “willimpact any large employer thatmaintains a diverse workforce,” headded.

The NLRB declined to comment.“Our decision is based solely on

the facts before us in this case, andwe do not reach the question ofwhether other subsets of selling em-ployees at this, or any other, retaildepartment store may also consti-tute appropriate units,” the NLRBruling said.

BY MELANIE TROTTMAN

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 23

Major stock market indexes Stock indexes fromaround theworld, grouped by region. Shown in local-currency terms.

PREVIOUS SESSION PERFORMANCERegion/Country Index Close Net change Percentage change Yr.-to-date 52-wk.

EUROPE Stoxx Europe 600 342.86 0.42 0.12% 4.4% 14.5%

Stoxx Europe 50 3037.79 1.92 0.06 4.1 12.3

Euro Zone Euro Stoxx 322.17 0.64 0.20 2.5 16.8

Euro Stoxx 50 3193.13 3.91 0.12 2.7 17.3

Austria ATX 2376.60 11.17 0.47 -6.7 3.4

Belgium Bel-20 3177.00 13.19 0.42 8.7 20.9

Czech Republic PX 951.28 -1.58 -0.17% -3.8 6.3

Denmark OMXCopenhagen 672.91 0.35 0.05 18.9 34.3

Finland OMXHelsinki 7698.35 39.80 0.52 4.9 24.4

France CAC-40 4376.32 6.80 0.16 1.9 11.6

Germany DAX 9753.56 19.23 0.20 2.1 17.3

Hungary BUX 18004.51 -100.35 -0.55 -3.0 -1.8

Ireland ISEQ 4742.49 18.51 0.39 4.5 17.2

Italy FTSEMIB 20831.26 -42.24 -0.20 9.8 28.3

Netherlands AEX 408.53 0.58 0.14 1.7 10.8

Norway All-Shares 699.85 1.85 0.27 16.1 28.9

Poland WIG 51540.81 -126.79 -0.25 0.5 10.3

Portugal PSI 20 6377.43 103.79 1.65 -2.8 12.8

Russia RTSI 1272.02 5.14 0.41% -11.8 -7.1

PREVIOUS SESSION PERFORMANCERegion/Country Index Close Net change Percentage change Yr.-to-date 52-wk.Spain IBEX 35 10659.10 10.20 0.10 7.5 32.0

Sweden OMXStockholm 452.43 0.18 0.04 6.8 18.2

Switzerland SMI 8605.10 10.89 0.13 4.9 8.6

Turkey BIST 100 82854.62 324.1 0.39 22.2 9.9

U.K. FTSE 100 6798.15 2.81 0.04 0.7 3.0

ASIA-PACIFIC DJAsia-Pacific TSM 1534.29 5.84 0.38 5.9 9.5

Australia SPX/ASX 200 5576.70 33.40 0.60 4.2 10.8

China Shanghai Composite 2078.49 3.01 0.14 -1.8 2.2

Hong Kong Hang Seng 23971.87 189.76 0.80 2.9 9.1

India S&PBSE Sensex 26147.33 121.53 0.47 23.5 30.1

Japan Nikkei Stock Average 15328.56 -14.72 -0.10% -5.9 4.1

Singapore Straits Times 3340.70 23.79 0.72 5.5 2.0

South Korea Kospi 2028.32 -0.61 -0.03 0.8 6.1

AMERICAS DJAmericas 501.15 0.80 0.16 7.6 16.8

Brazil Bovespa 57262.76 -720.56 -1.24 11.2 17.3

Mexico IPC 44209.70 -47.39 -0.11 3.5 8.4

Note:Americas index data are as of 3:00 p.m. ET. Sources: SIX Financial Information;WSJMarketDataGroup

Cross rates U.S.-dollar and euro foreign-exchange rates in global trading

USD GBP CHF SEK RUB NOK JPY ILS EUR DKK CDN AUD

Australia 1.0584 1.8029 1.1727 0.1548 0.0304 0.1708 0.0104 0.3100 1.4247 0.1911 0.9854 ...

Canada 1.0740 1.8296 1.1901 0.1571 0.0309 0.1733 0.0106 0.3146 1.4458 0.1939 ... 1.0148

Denmark 5.5396 9.4367 6.1381 0.8101 0.1591 0.8939 0.0546 1.6225 7.4571 ... 5.1579 5.2341

Euro 0.7429 1.2655 0.8231 0.1086 0.0213 0.1199 0.0073 0.2176 ... 0.1341 0.6917 0.7019

Israel 3.4143 5.8163 3.7832 0.4993 0.0981 0.5510 0.0336 ... 4.5961 0.6163 3.1790 3.2260

Japan 101.5010 172.9070 112.4679 14.8432 2.9161 16.3791 ... 29.7282 136.6347 18.3229 94.5069 95.9039

Norway 6.1970 10.5566 6.8666 0.9062 0.1780 ... 0.0611 1.8150 8.3420 1.1187 5.7700 5.8553

Russia 34.8074 59.2943 38.5682 5.0901 ... 5.6168 0.3429 10.1946 46.8556 6.2834 32.4089 32.8880

Sweden 6.8382 11.6489 7.5771 ... 0.1965 1.1035 0.0674 2.0028 9.2052 1.2344 6.3670 6.4611

Switzerland 0.9025 1.5374 ... 0.1320 0.0259 0.1456 0.0089 0.2643 1.2149 0.1629 0.8403 0.8527

U.K. 0.5870 ... 0.6505 0.0858 0.0169 0.0947 0.0058 0.1719 0.7902 0.1060 0.5466 0.5547

U.S. ... 1.7035 1.1080 0.1462 0.0287 0.1614 0.0099 0.2929 1.3461 0.1805 0.9311 0.9449

Source: ICAPPlc.

MSCI indexesDeveloped and emerging-market regional and country indexesfromMSCI as of July 23, 2014

Price-to- LOCAL-CURRENCYDividend earnings PERFORMANCEyield ratio MSCI Index Last Daily YTD 52-wk.

2.50% 17 MSCIACWI* 431.41 -0.66% 5.6% 21.2%

2.40 18 World (DevelopedMarkets) 1,750.75 -0.61 5.4 22.1

2.30 18 World ex-EMU 215.04 -0.56 6.2 21.5

2.30 18 World ex-UK 1,766.19 -0.58 5.6 22.1

3.00 16 EAFE 1,961.75 -0.77 2.4 19.7

2.70 12 EmergingMarkets (EM) 1,074.48 -1.04 7.2 14.3

3.20 17 EUROPE 117.06 1.31 4.4 19.8

3.10 19 EMU 198.01 -0.95 0.2 27.0

3.10 19 Europe ex-UK 124.64 1.30 3.6 20.5

4.10 14 EuropeValue 119.22 1.38 5.0 24.1

2.30 22 EuropeGrowth 110.61 1.25 3.7 15.6

2.30 18 EuropeSmall Cap 271.11 1.05 4.0 27.7

3.60 8 EMEurope 268.22 1.72 -2.3 -1.5

3.50 15 UK 2,005.88 0.98 0.7 9.2

3.30 16 Nordic Countries 213.99 1.49 6.1 23.7

4.20 5 Russia 726.28 1.39 -8.4 3.9

2.80 19 SouthAfrica 1,270.99 1.26 11.7 29.3

3.00 13 ACASIAPACIFICEX-JAPAN 503.89 -0.76 7.6 16.6

1.90 15 Japan 779.97 0.69 -3.1 10.9

3.40 9 China 63.67 2.00 0.9 16.7

1.40 19 India 975.18 1.42 19.3 29.0

1.10 10 Korea 588.30 0.45 -0.2 10.2

2.70 17 Taiwan 343.66 0.65 13.5 18.8

1.90 20 USBROADMARKET 2,246.65 -0.54 6.7 23.7

1.40 32 USSmall Cap 3,301.51 -0.75 2.3 21.4

3.40 17 EMLATINAMERICA 3,566.02 -0.86 11.4 11.9

*Twenty-four developed and 21 emergingmarkets Source:MSCI

S&P Dow Jones IndicesPrice-to-

Dividend earnings PERFORMANCE (euros) PERFORMANCE (U.S.dollars)yield* ratio* S&PDowJones Index Last Daily 52-wk. Last Daily 52-wk.

2.36%19.68 Global TSM 3418.63 0.18% 15.3%

2.80 19.91 GlobalDOW 1844.62 0.02% 15.0% 2637.72 0.00 16.9

2.90 15.20 Global Titans 50 245.63 0.26 12.3 247.00 0.23 14.2

3.14 21.72 DevEuropeTSM 3473.46 0.11 16.8

2.31 20.61 DevelopedMarketsTSM 3429.41 0.16 15.6

2.79 14.04 S&PBMIEmgMarkets 277.33 0.35 12.0

3.30 21.46 S&PEurope 350 1406.47 0.10 14.3 1701.33 0.05 16.4

3.14 26.06 S&PEuro 1375.80 0.16 16.5 1686.56 0.11 18.6

3.74 26.76 EuropeDow 1435.71 0.08 14.4 2052.86 0.05 16.3

3.44 9.74 BRIC50 426.63 0.48 14.2 547.64 0.46 16.1

1.87 21.27 U.S. TSM 20721.20 0.13 17.5

Kuwait Titans 30 -c 211.18 0.40 3.5

Price-to-Dividend earnings PERFORMANCE (euros) PERFORMANCE (U.S.dollars)yield* ratio* S&PDowJones Index Last Daily 52-wk. Last Daily 52-wk.

TurkeyTitans 20 -c 857.29 0.41% 15.3%

5.05%17.08 Global SelectDiv 267.87 0.52 19.4

5.22 17.46 Asia/Pacific SelectDiv 318.01 0.93% 7.5% 366.42 0.90 9.3

U.S. SelectDividend -d 1338.52 -0.13 17.1

3.08 29.38 S&PGlbNatResources 2177.70 0.27 10.1 2913.46 0.26 12.0

2.08 20.35 IslamicMarket 2930.41 0.23 17.3

2.38 18.13 IslamicMarket 100 3232.64 0.34 18.8

Islamic Turkey -c 4633.18 -0.01 5.9

3.24 23.42 Sustainability Europe 114.84 0.22 15.5 169.96 0.19 17.5

3.39 30.41 S&PGlb Infrastructure 1699.38 0.09 18.4 2584.73 0.08 20.5

2.05 16.88 Luxury 2011.12 0.19 5.3

DJCommodity 682.29 0.27 -2.0

*Fundamentals are based on data inU.S. dollar. Footnotes: a-inUSdollar. b-dividends reinvested. c-in local currency. Note:All data as of 2 p.m.ET. Source: S&PDowJones Indices

GLOBAL MARKETS LINEUP

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Commodities Prices of futures contractswith themost open interestEXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: ChicagoMercantile Exchange; ICE-US: ICE Futures U.S.MDEX:BursaMalaysiaDerivatives Berhad; LIFFE: London International Financial Futures Exchange; COMEX: Commodity Exchange; LME: LondonMetals Exchange;NYMEX:NewYorkMercantile Exchange;ICE-EU: ICE Futures Europe *Data as of July 22, 2014

ONE-DAY CHANGE Year YearCommodity Exchange Last price Net Percentage high low

Corn (cents/bu.) CBOT 370.25 2.00 0.54% 517.00 365.75Soybeans (cents/bu.) CBOT 1076.50 18.75 1.77 1,279.25 1,055.00Wheat (cents/bu.) CBOT 529.75 5.25 1.00 751.50 520.25Live cattle (cents/lb.) CME 158.225 0.350 0.22 159.300 130.900Cocoa ($/ton) ICE-US 3,199 68 2.17 3,204 2,650Coffee (cents/lb.) ICE-US 176.20 7.90 4.69 220.60 116.70Sugar (cents/lb.) ICE-US 16.95 -0.21 -1.22% 18.91 15.72Cotton (cents/lb.) ICE-US 68.10 0.19 0.28 84.74 67.10Rapeseed (euro/ton) LIFFE 329.25 7.00 2.17 386 301Cocoa (pounds/ton) LIFFE 1,939 14 0.73 1,950 1,651Robusta coffee ($/ton) LIFFE 1,994 1 0.05 2,216 1,568

Copper ($/lb.) COMEX 3.2080 unch. unch. 3.3855 2.8780Gold ($/troy oz.) COMEX 1307.20 -0.80 -0.06 1,390.80 1,207.00Silver ($/troy oz.) COMEX 20.970 -0.038 -0.18 22.160 18.650Aluminum ($/ton)* LME 2,039.00 32.00 1.59 2,039.00 1,686.50Tin ($/ton)* LME 22,160.00 10.00 0.05 23,770.00 21,410.00Copper ($/ton)* LME 7,065.00 76.00 1.09 7,422.00 6,430.00Lead ($/ton)* LME 2,226.00 31.00 1.41 2,242.00 2,033.00Zinc ($/ton)* LME 2,370.00 58.00 2.51 2,370.00 1,948.00Nickel ($/ton)* LME 19,000 100 0.53 21,100 13,425

Crude oil ($/bbl.) NYMEX 102.98 0.59 0.58 106.64 88.93Heating oil ($/gal.) NYMEX 2.8898 0.0262 0.91 3.0848 2.8405RBOB gasoline ($/gal.) NYMEX 2.8446 -0.0077 -0.27 3.0732 2.6607Natural gas ($/mmBtu) NYMEX 3.773 -0.012 -0.32 4.8850 3.7680Brent crude ($/bbl.) ICE-EU 108.13 0.80 0.75 115.09 102.75Gas oil ($/ton) ICE-EU 891.75 5.75 0.65 949.25 874.00

Sources: SIX Financial Information;WSJMarket Data Group

Currencies London close on July 23Per In

AMERICAS Per euro In euros U.S. dollar U.S. dollars

Argentina peso-a 10.9972 0.0909 8.1694 0.1224

Brazil real 2.9890 0.3346 2.2204 0.4504

Canada dollar 1.4458 0.6917 1.0740 0.9311

Chile peso 758.49 0.001318 563.46 0.001775

Colombia peso 2483.62 0.0004026 1845.00 0.0005420

EcuadorUS dollar-f 1.3461 0.7429 1 1

Mexico peso-a 17.4002 0.0575 12.9260 0.0774

Peru sol 3.7496 0.2667 2.7855 0.3590

Uruguay peso-e 30.918 0.0323 22.968 0.0435

U.S. dollar 1.3461 0.7429 1 1

Venezuela bolivar 8.55 0.116986 6.35 0.157480

ASIA-PACIFIC

Australia dollar 1.4247 0.7019 1.0584 0.9449

1-mo. forward 1.4277 0.7004 1.0606 0.9429

3-mos. forward 1.4339 0.6974 1.0652 0.9388

6-mos. forward 1.4430 0.6930 1.0719 0.9329

China yuan 8.3463 0.1198 6.2002 0.1613

Hong Kong dollar 10.4335 0.0958 7.7506 0.1290

India rupee 80.7119 0.0124 59.9580 0.0167

Indonesia rupiah 15469 0.0000646 11492 0.0000870

Japan yen 136.63 0.007319 101.50 0.009852

1-mo. forward 136.61 0.007320 101.48 0.009854

3-mos. forward 136.55 0.007323 101.44 0.009858

6-mos. forward 136.42 0.007330 101.34 0.009868

Malaysia ringgit-c 4.2667 0.2344 3.1696 0.3155

NewZealand dollar 1.5495 0.6454 1.1511 0.8688

Pakistan rupee 132.804 0.0075 98.655 0.0101

Philippines peso 58.161 0.0172 43.206 0.0231

Singapore dollar 1.6663 0.6001 1.2378 0.8079

South Koreawon 1378.51 0.0007254 1024.05 0.0009765

Taiwan dollar 40.351 0.02478 29.975 0.03336

Thailand baht 42.844 0.02334 31.828 0.03142

Per InEUROPE Per euro In euros U.S. dollar U.S. dollars

Euro zone euro 1 1 0.7429 1.3461

1-mo. forward 0.9999 1.0001 0.7428 1.3463

3-mos. forward 0.9997 1.0003 0.7427 1.3465

6-mos. forward 0.9994 1.0006 0.7424 1.3469

Czech Rep. koruna-b 27.459 0.0364 20.398 0.0490

Denmark krone 7.4571 0.1341 5.5396 0.1805

Hungary forint 307.26 0.003255 228.25 0.004381

Norway krone 8.3420 0.1199 6.1970 0.1614

Poland zloty 4.1371 0.2417 3.0733 0.3254

Russia ruble-d 46.856 0.02134 34.807 0.02873

Sweden krona 9.2052 0.1086 6.8382 0.1462

Switzerland franc 1.2149 0.8231 0.9025 1.1080

1-mo. forward 1.2146 0.8233 0.9023 1.1083

3-mos. forward 1.2140 0.8237 0.9019 1.1088

6-mos. forward 1.2130 0.8244 0.9011 1.1098

Turkey lira 2.8142 0.3553 2.0906 0.4783

U.K. pound 0.7902 1.2655 0.5870 1.7035

1-mo. forward 0.7904 1.2651 0.5872 1.7031

3-mos. forward 0.7908 1.2645 0.5875 1.7022

6-mos. forward 0.7917 1.2630 0.5882 1.7002

MIDDLE EAST/AFRICA

Bahrain dinar 0.5075 1.9706 0.3770 2.6527

Egypt pound-a 9.6271 0.1039 7.1516 0.1398

Israel shekel 4.5961 0.2176 3.4143 0.2929

Jordan dinar 0.9534 1.0489 0.7083 1.4119

Kuwait dinar 0.3805 2.6280 0.2827 3.5377

Lebanon pound 2035.97 0.0004912 1512.45 0.0006612

Saudi Arabia riyal 5.0486 0.1981 3.7505 0.2666

South Africa rand 14.1367 0.0707 10.5017 0.0952

United Arab dirham 4.9444 0.2022 3.6731 0.2723

a-floating rate b-financial c-government rate c-commercialrate d-Russian Central Bank rate.Source: ICAPPlc.

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 5

EUROPE NEWS

Recovered Ship Begins Last TripGIGLIO, Italy—The Costa Concor-

dia on Wednesday set out to com-plete the voyage to Italy’s northwestcoast that got cut short 30 monthsago when the massive cruise shipsank near this Tuscan island.

Sirens rang and applause brokeout from the island when the shipleft the port. Small groups of on-lookers climbed onto rocks to watchthe ship be dragged away fromGiglio, whose tourism business wasdamaged by the presence of thewreck. Many onlookers said theirapplause was directed at the morethan 500 salvage workers who havetoiled to get the ship ready.

“It is a great day for Giglio,” saidMario Solari, 49 years old, co-ownerof Pizzeria L’Archetto at the island’ssmall port. “This has been an openwound for 2½ years and now the is-land can begin the healing process.”

The Concordia will make the 320-kilometer journey at a snail’s pace,about two nautical miles an hour, toreduce to a minimum the stress onthe ship’s weakened hull. If all goesaccording to plan, the Concordia andits convoy of more than a dozen ves-sels will arrive in Genoa on Sunday.A 22-month operation to dismantleand scrap the ship will begin imme-diately.

Engineers and the salvage crewgot the ship to float last week and inrecent days some of its lower 13decks emerged after being underwa-ter since the sinking in January2012. Deck 4, where most of the 32people who died in the sinking werefound, was among the decks thatemerged in recent days. One body isstill unaccounted for as the Concor-dia begins its journey north toGenoa.

Little of the cruise ship’s formersplendor could be seen Wednesdayas the ship is supported and largely

obscured by 30 huge caissons thatkeep it afloat. The part of the hullstill visible is rusty and showing theeffects of resting so many monthsunder the water line.

The sight of the Concordia’sslowly decaying carcass just outsideof the island’s main port has becomeso indelibly etched in the minds oflocals that some islanders haveasked that the underwater platformsused to support the ship until it wasfloated last week be left in place asboth a memorial to those who per-ished and as an artificial reef to at-tract sea life.

Not everyone at the port onWednesday was feeling nostalgic oreven in the mood to celebrate theConcordia’s departure.

“I’m not sorry to see the ship go.Good riddance,” said Romina Brizzi,26, who could see the Concordiafrom a window in the waterfront to-

bacco shop where she works.Filippo Di Cristina, who works in

the family’s bakery close to the port,said Wednesday was just like anyother day: “I’m living today like I didyesterday and like I will tomorrow.This is no big deal.”

In January 2012, the Concordiahad just departed from the port ofCivitavecchia on the mainland southof Giglio when it slammed into rocksafter sailing too close to the islandin what was supposed to be a spec-tacle for passengers and onlookersin Giglio.

The operation to stabilize, up-right and refloat the ship has costmore than $1.2 billion. The wholebill is expected to top $2 billion oncethe costs to clean the local area, theremoval to Genoa and the disman-tling are tallied.

The salvage operation is beingcarried out by Titan-Micoperi, a

joint venture between Titan Salvage,a U.S. company owned by CrowleyMaritime Group, and Micoperi SRL,an Italian company specializing inengineering and installation of off-shore structures and undersea pipe-lines.

Francesco Schettino, the Concor-dia captain at the time of the sink-ing, is on trial and faces up to 20years in prison if convicted of caus-ing the shipwreck, manslaughter andabandoning ship. He is fighting thecharges and has argued that his nav-igational skills mitigated what couldhave been a worse disaster.

While he doesn’t dispute that heleft the ship well before hundreds ofpassengers, he argues he did it to bebetter positioned to help in the res-cue operation. That the ship was faroff its predetermined course when itstruck the submerged rocks isn’t indispute.

BY ERIC SYLVERS

Final Count321

30$2

20020

People who died in shipwreck

Body not yet recovered

Months since Costa Concordia’s sinking

Billion in total costs to stabilize, float and scrap ship

Nautical miles from shipwreck site to Genoa

Years ship’s captain could face in prison

Sources: Costa Crociere; legal experts

Photo: Italian Civil Protection Department/Associated Press

Europe SetsNew TargetFor SavingsOn Energy

BRUSSELS—European Unioncountries will have to strive to makeenergy savings of 30% by 2030, ac-cording to proposals unveiled by theEuropean Commission on Wednes-day.

The proposal follows weeks offierce lobbying by governments andindustry, and though it is more am-bitious than expected, it was imme-diately derided by green groups aslacking teeth.

Under the current proposal, EUgovernments should improve energyefficiency by 30% compared with2007 levels. But the commissioncaved in to pressure from Poland,Hungary and others not to make thetargets legally binding for now.

The Ukraine crisis has turned en-ergy efficiency into a key policy toolas a means of improving energy se-curity and reducing Europe’s depen-dence on Russian gas and oil im-ports.

It is also a cornerstone of abroader EU plan to tackle climatechange by cutting carbon-dioxideemissions by 40% by 2030, com-pared with 1990 levels.

But the measures have beenmired in controversy because of thesubstantial investments needed tomake the savings, such as improvinginsulation and heating in homes, re-furbishing public buildings and put-ting in place “smart” energy gridsthat make better use of electricity.

Meeting the 30% target couldcost €89 billion ($120 billion) annu-ally in upfront investments, thecommission said.

“Indicative targets don’t work—nobody takes them seriously,” saidBrook Riley of Friends of the EarthEurope, an environmental group.“Europe is crying out for a way toreduce dependence on imported en-ergy. The easiest, safest way to dothis is to use less energy. Insteadwe’ve got a bafflingly weak target.”

Mr. Riley said it was now up toGermany and Denmark to take thelead in pushing for a binding targetwhen the proposals are discussed byEU leaders in October.

Berlin has been leading the cam-paign to impose more stringent tar-gets of as much as 40% to send astrong political signal to Russia,while at the same time helping toslash energy import bills—the EUcurrently imports 56% of its oil andgas at a cost of €1 billion a day.

Its efforts were bolstered by asurprise intervention by the incom-ing European Commission president,Jean-Claude Juncker, who last weeksaid a 30% target should be “theminimum.”

But the EU’s energy chief,Günther Oettinger, swatted awaycriticism that the targets were tooweak.

“It is ambitious and at the sametime it is realistic,” Mr. Oettingertold reporters. “You need to haveobjectives that are achievable bothin Bulgaria and in London. Memberstates of course can go further ifthey like.”

It remains unclear when the pro-posal will be turned into legislation.In the worst-case scenario, the pro-cess could limp on until 2017, theyear slated for the commission’sbroad review on efficiency mea-sures.

BY VANESSA MOCK

EU Job Contender Slams ‘French Bashing’PARIS—When France’s Pierre

Moscovici took to Twitter to denyhe fell asleep during a euro crisismeeting in 2013, he slammed the re-ports as “French bashing.”

Now, as the former finance min-ister vies to become a top economiccommissioner for Europe—and toconvince doubters a Frenchman isup to the job of policing Europeanbudgets—he says he is plagued bythe same bias.

“We have to stop with facileFrench bashing,” Mr. Moscovici saidin an interview. “France is a seriouscountry that people can have confi-dence in and a French commis-sioner, whatever the portfolio, is acommissioner people can have con-fidence in.”

The 56-year-old Socialist has be-come a key piece in a complex gamethat has European capitals and po-litical parties wrangling for influ-ence in the renewal of the EuropeanCommission, the European Union’sexecutive arm, in the fall.

At the heart of the negotiationsare German and Northern Europeanconcerns about a French official tak-ing over budget-policing afterFrance repeatedly missed targets forbringing down its own deficit—in-cluding under Mr. Moscovici’s watchas finance minister.

“One aspect is, of course, howthe public, and not just in Francebut in all of Europe, would react if

such a post in such a situation werefilled with a French candidate of allthings,” German Finance MinisterWolfgang Schäuble said in a radiointerview last week.

The tensions underscore a lin-gering division over economic policybetween the euro zone’s two largesteconomies.

As France struggles to recoverfrom years of weak economicgrowth and rising unemployment,officials in Paris have pointed to theweight imposed by German-inspired

austerity on the region over thepast five years. Berlin, meanwhile, isreluctant to relinquish a tight holdon budgets and argues that doing sowould undermine confidence, fur-ther harming the tepid economic re-covery in the euro zone.

German officials have welcomedthe French government’s recentplans for tax cuts to help businessesrecover from the crisis but stressthat isn’t a reason to soften rules togive France yet more time to meetfiscal goals. “Time in itself doesn’t

create confidence,” said Mr.Schäuble.

As the finance minister who ne-gotiated with EU authorities to geta two-year delay to 2015 to bringFrance’s deficit within the EU ruleof 3% of economic output, Mr. Mos-covici has become a lightning rodfor the debate over a possible shiftin policy.

“A Moscovici appointment issymbolically and substantially sig-nificant,” said Mujtaba Rahman,euro-zone analyst at political risk

research firm Eurasia Group. “Weare looking at a world where Franceis set to get some more flexibilityand certainly a reinterpretation ofthe rules.”

Europe’s left-leaning bloc of gov-ernments are pushing for a Socialistto get the post at the EU’s executiveto counterbalance Luxembourg’sformer Prime Minister Jean-ClaudeJuncker, a center-right politicianwho has already secured the com-mission presidency. French Presi-dent François Hollande wants to

seize on the reshuffle to prioritizeeconomic growth and limit austerityby using all the possible flexibilityon budget rules.

“From the moment Francewishes to change the direction ofEurope toward growth and jobs,France is justified in asking for aneconomic portfolio,” Mr. Moscovicisaid.

In recent weeks, German officialshave been vocal in opposing thatlogic. The debate became heatedwhen Norbert Barthle—a seniorlawmaker in Angela Merkel’s Chris-tian Democratic Union—likened ap-pointing a French candidate to thetop economy job to “casting outdevils with Beelzebub.”

Mr. Schäuble stepped in to sayMr. Moscovici, with whom he has aclose working relationship, was agood finance minister and Germancriticism didn’t apply to him di-rectly.

“These kinds of decisions are verysensitive. The more we talk about it,the more difficult it becomes tomake a decision,” Mr. Schäuble saidthis week in a joint newspaper inter-view with France’s current financeminister, Michel Sapin.

Mr. Moscovici played down theconflict and said he never broke fis-cal rules, as the two-year extensionhe negotiated for France to meetdeficit targets is in line with theflexibility of EU treaties. “There isno antagonism between France andGermany,” he said.

BY WILLIAM HOROBIN

At issue are Germanconcerns about a Frenchofficial policing Europeanbudgets after Francemissed its deficit targets.Re

uters

24 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

Major players & benchmarks

Credit derivativesSpreads on credit derivatives are oneway themarket ratescreditworthiness. Regions that are treading in roughwaterscan see spreads swing toward themaximum—and vice versa.Indexes beloware for five-year swaps.

Markit iTraxx Indexes SPREADRANGE, in pct. pts.Mid-spread, sincemost recent roll

Index: series/version in pct. pts. Mid-price Coupon Maximum Minimum Average

Europe: 21/1 0.61 101.88% 0.01% 0.81 0.56 0.67

Eur. HighVolatility: 20/1 0.72 101.20 0.01 1.26 0.68 0.91

EuropeCrossover: 21/1 2.47 111.27 0.05 3.11 2.19 2.61

Asia ex-Japan IG: 21/1 1.04 99.83 0.01 1.06 0.99 1.02

Japan: 21/1 0.68 101.55 0.01 0.68 0.63 0.66

Note: Data as of July 22

SpreadsSpreads onfive-year swapsfor corporatedebt; based onMarkit iTraxxindexes.

In percentage points

3.00

2.00

1.00

0

–1

tAustralia

t

Japan

2014Feb. Mar. April May June July

Index roll

Source: Markit Group

Behind Asia's deals: Bank revenue rankings, JapanBehind every IPO, bond offering,merger deal or syndicated loan is one ormore investment banks. Here areinvestment banks ranked by year-to-date revenues from recent deals.

PERCENTAGEOFTOTALREVENUERevenue, Equity Debt Mergers&inmillions share capitalmarkets capitalmarkets acquisitions Loans

Nomura $426 20.8% 72% 17% 11% ...

Mizuho 289 14.1 35 37 8 20%

MorganStanley 252 12.3 46 25 29 ...

SumitomoMitsui Financial Group 239 11.6 53 21 12 13

DaiwaSecurities 173 8.4 64 27 9 ...

GoldmanSachs 103 5.0 28 14 59 ...

BankofAmericaMerrill Lynch 69 3.4 43 25 18 13

JPMorgan 60 2.9 19 18 54 9

DeutscheBank 49 2.4 34 9 56 ...

Source: Dealogic

Trackingcreditmarkets &dealmakers

Dow Jones Industrial Average P/E: 17LAST: 17086.63 t 26.91, or 0.16%YEAR TO DATE: s 509.97, or 3.1%OVER 52WEEKS s 1,544.39, or 9.9%

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

17500

17000

16500

16000

15500

1500025 2 9 16 23 30

May6 13 20 27

June3 11 18

July

High

CloseLow

50–daymoving average

t

Stoxx Europe 50: Wednesday's best and worst...

Previousclose, in STOCK PERFORMANCE

Company Country Industry Volume local currency Previous session YTD 52-week

Rio Tinto United Kingdom GeneralMining 4,399,288 3,391 1.62% -0.5% 13.0%

ABB Switzerland Industrial Machinery 15,409,556 21.39 1.62 -8.9 0.2

Glencore PLC United Kingdom GeneralMining 32,947,392 373.00 0.95 19.3 31.9

Vodafone Group United Kingdom Mobile Telecommunications 62,021,385 197.00 0.69 -19.7 -1.3

Reckitt Benckiser Grp United Kingdom Nondurable Household Products 706,624 5,125 0.69 6.9 10.7

GlaxoSmithKline United Kingdom Pharmaceuticals 22,930,954 1,482 -4.73% -8.1 -11.4

L'Air Liquide France Commodity Chemicals 553,059 98.35 -0.90 -4.3 0.4

Telefon L.M. Ericsson B Sweden Telecommunications Equipment 6,695,391 86.15 -0.81 9.7 14.8

Deutsche Telekom Germany Mobile Telecommunications 5,694,186 12.17 -0.77 -1.2 32.1

Daimler Germany Automobiles 4,872,012 65.58 -0.77 4.3 24.5

...And the rest of Europe's blue chipsLatest,in local STOCK PERFORMANCE

Company/Country (Industry) Volume currency Latest YTD 52-week

Financiere Richemont 1,144,010 90.80 0.67% 2.3% 2.9%Switzerland (Clothing & Accessories)Banco Bilbao Vizcaya Argn 22,092,388 9.20 0.63 3.9 40.9Spain (Banks)SAP 2,950,093 61.12 0.63 -1.9 10.9Germany (Software)British American Tobacco 1,864,040 3,550 0.61 9.6 3.0United Kingdom (Tobacco)BASF 1,985,026 83.57 0.59 7.8 19.7Germany (Commodity Chemicals)BHPBilliton 6,832,357 2,067 0.58 10.6 8.0United Kingdom (GeneralMining)Nestle 3,161,515 69.85 0.58 7.0 11.6Switzerland (Food Products)BNPParibas 4,113,034 49.01 0.51 -13.5 7.3France (Banks)Bayer 1,279,474 100.40 0.51 -1.5 18.8Germany (Specialty Chemicals)AXA 4,580,201 17.74 0.48 -12.2 7.2France (Full Line Insurance)BPPLC 16,655,277 500.80 0.46 2.6 6.4United Kingdom (Integrated Oil & Gas)National Grid 3,581,841 873.00 0.46 10.8 14.2United Kingdom (Multiutilities)Standard Chartered 3,184,749 1,222 0.45 -10.2 -19.4United Kingdom (Banks)Lloyds Banking Group PLC 112,351,893 73.63 0.45 -6.7 8.1United Kingdom (Banks)Siemens 1,419,264 93.94 0.43 -5.4 12.6Germany (Diversified Industrials)HSBCHldgs 11,720,783 607.30 0.40 -8.3 -17.0United Kingdom (Banks)Moet Hennessy Louis Vuitt 579,867 139.80 0.39 5.4 7.5France (Clothing & Accessories)INGGroep 11,966,747 10.08 0.30 -0.2 32.0Netherlands (Life Insurance)Banco Santander S.A. 47,363,041 7.45 0.27 18.0 51.1Spain (Banks)Zurich Insurance Group 304,858 273.50 0.26 5.8 8.0Switzerland (Full Line Insurance)

Latest,in local STOCK PERFORMANCE

Company/Country (Industry) Volume currency Latest YTD 52-week

Royal Dutch Shell A 2,107,380 2,424 0.23% 12.1% 9.3%United Kingdom (Integrated Oil & Gas)Diageo 3,297,123 1,824 0.22 -8.8 -9.7United Kingdom (Distillers & Vintners)BGGrp 4,043,888 1,205 0.21 -7.1 -0.5United Kingdom (Integrated Oil & Gas)RocheHolding Part. Cert. 733,302 266.50 0.19 6.9 15.3Switzerland (Pharmaceuticals)UBS 8,989,380 16.50 0.18 -2.5 -7.9Switzerland (Banks)Barclays 55,086,839 210.95 0.17 -22.4 -34.4United Kingdom (Banks)Total 3,618,512 51.41 0.12 15.5 28.9France (Integrated Oil & Gas)ENI 9,363,622 19.79 0.10 13.2 18.9Italy (Integrated Oil & Gas)Schneider Electric SE 1,072,264 67.73 -0.06 6.8 19.5France (Electrical Components & Equipment)Sanofi SA 1,459,245 76.93 -0.08 -0.2 -3.3France (Pharmaceuticals)AstraZeneca 1,611,961 4,421 -0.11 23.7 34.4United Kingdom (Pharmaceuticals)Allianz SE 876,307 128.85 -0.15 -1.2 10.2Germany (Full Line Insurance)Telefonica S.A. 7,622,852 12.16 -0.16 2.7 18.1Spain (Fixed Line Telecommunications)Anheuser-Busch InBev 924,880 83.69 -0.18 8.3 25.2Belgium (Brewers)Unilever 2,846,865 2,683 -0.19 8.1 -1.1United Kingdom (Food Products)Credit Suisse GroupAG 5,138,185 25.77 -0.27 -5.5 -8.2Switzerland (Banks)Novartis AG 3,163,615 80.20 -0.43 12.6 18.3Switzerland (Pharmaceuticals)Tesco 24,405,807 276.00 -0.49 -17.5 -24.8United Kingdom (Food Retailers &Wholesalers)Unilever CVA 4,256,398 32.28 -0.54 10.2 4.3Netherlands (Food Products)Deutsche Bank 10,848,019 26.48 -0.66 -23.6 -25.2Germany (Banks)

Sources: SIX Financial Information

DJIA component stocksVolume, CHANGE

Stock Symbol inmillions Latest Points Percentage

AT&T T 12.1 $35.93 –0.01 –0.03%AmExpress AXP 1.6 93.21 –0.16 –0.17Boeing BA 11.4 126.72 –3.02 –2.33Caterpillar CAT 3.7 108.54 –1.52 –1.38Chevron CVX 2.9 133.82 1.24 0.94CiscoSys CSCO 23.3 25.66 –0.28 –1.10CocaCola KO 15.2 40.90 –0.29 –0.70Disney DIS 3.0 86.10 –0.11 –0.13DuPont DD 5.1 65.45 0.50 0.77ExxonMobil XOM 5.0 104.35 0.80 0.78GenElec GE 22.8 25.98 –0.04 –0.15GoldmanSachs GS 3.1 176.74 1.72 0.98HomeDpt HD 3.0 81.04 0.50 0.62Intel INTC 22.5 34.50 –0.29 –0.83IBM IBM 3.1 193.70 –0.39 –0.20JPMorgChas JPM 8.7 59.01 0.34 0.58JohnsJohns JNJ 3.8 102.38 –0.09 –0.09McDonalds MCD 8.6 95.39 –0.88 –0.91Merck MRK 5.2 58.12 –0.31 –0.53Microsoft MSFT 48.0 44.86 0.03 0.07NikeB NKE 1.7 77.44 0.39 0.51Pfizer PFE 15.7 30.43 –0.06 –0.20ProctGamb PG 5.0 80.03 –0.07 –0.083M MMM 1.6 144.84 –0.28 –0.19TravelersCos TRV 2.3 91.69 0.06 0.07UnitedTech UTX 6.1 109.58 –1.28 –1.15UtdHlthGp UNH 2.0 85.97 –0.08 –0.09Verizon VZ 10.2 50.98 ... ...VISAClA V 1.7 221.32 0.06 0.03

WalMart WMT 3.1 77.02 0.38 0.50

Source: WSJ Market Data Group

Credit-default swaps: European companiesAt itsmostbasic, thepricingofcredit-defaultswapsmeasureshowmuchabuyerhastopaytopurchase-andhowmuch a seller demands to sell-protection from default on an issuer's debt. The snapshot below gives asensewhichway themarketwasmoving yesterday.

Showing the biggest improvement...CHANGE, in basis points

Yesterday Yesterday Five-day 28-day

DeutscheBk 74 –5 –6 11

BcoSANTANDER 79 –6 –6 4

Commerzbank 91 –6 –4 18

BcoBilbaoVizcayaArgentaria 83 –5 –7 4

SOCIETEAIRFRANCE 128 –7 –10 –34

BcoComercial Portugues 228 –13 –43 43

Zurich Ins 47 –3 –4 –2

IntesaSanpaolo 84 –5 –5 8

SwissReins 45 –2 –3 –2

Royal Bkof Scotland 83 –4 –5 11

And the most deteriorationCHANGE, in basis points

Yesterday Yesterday Five-day 28-day

Contl 80 3 7 16

Dexia Cr Loc 217 6 12 63

Tesco 89 2 5 9

DixonsRetail 77 1 –42 –57

ABVolvo 91 1 5 12

BayMotorenWerke 39 1 –1 3

BritAwys 183 2 8 8

Koninklijke 46 1 1 4

Prudential 64 1 2 2

SANTANDERUK 74 1 1 5

Source:Markit Group

BLUE CHIPS & BONDS

WSJ.com>>Follow the markets throughout the day, with updatedstock quotes, news and commentary at WSJ.com.

Also, receive emails that summarize the day’s trading inEurope and Asia. To sign up, go to WSJ.com/Email.

Below, a look at the Dow Jones Stoxx50, the biggest and best knowncompanies in Europe, including the U.K.

4 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

EUROPE NEWS

From left, Dutch King Willem-Alexander, Queen Máxima and Premier Rutte await the first bodies at Eindhoven on Wednesday.

Planes Bearing BodiesReach the Netherlands

Twomilitary transport planes car-rying the remains of some of the vic-tims ofMalaysia Airlines Flight 17 ar-rived in the Netherlands onWednesday.

A Dutch air force C-130 Herculescarrying 16 bodies landed first, and alarger Australian air force C-17with 24bodies touched down two minuteslater.

Trumpets sounded the Dutchequivalent of Taps, followed by amin-ute of silence. Relatives and dignitar-ies, including members of the Dutchroyal family, observed the proceedingsduring the first national day ofmourn-ing in the country in the past 50 years.

The 40 coffins with victims’ bodieswere carried off the planes in silenceby Dutch teams of eight airmen, sol-diers, sailors and marines. Marchingwith short, precise steps, the service-men laid each coffin into hearses,which left for Hilversum, southeast ofAmsterdam, where the process ofidentification can begin.

Outside Eindhoven air base, well-wishers paid their respects. A steady

trickle built to a throng as the air-crafts’ arrival neared. Some came onfoot, others by bicycle, to be usheredthrough the gates of themilitary baseby airmen and police toward amemo-rial at the foot of a statue of a plane.One by one, they placed flowers, smallgifts, handwritten cards and memen-tos.

Familymembers of the victims, theDutch king and queen, the Dutch primeminister and dignitaries from coun-tries that lost citizens were presentwhen the planes arrived.

Across the country, church bellsrang after the planes touched ground.In The Hague, on a square next to theparliament, hundreds of people ob-served a minute’s silence.

The Netherlands lost 193 nationalsin the crash of Flight 17 on July 17 andis leading the forensics effort and theinvestigation into the cause of the di-saster. In total, 298 people from 10 na-tions were on the flight fromAmster-dam toKuala Lumpurwhen itwas shotdown. There were no survivors.

After the hearses left the air base,the families and dignitaries broke intoshort bursts of applause. Some familymembers ventured onto the tarmac togreet the aircrewsmilling around out-side the giant planes they had just pi-

loted.Words and handshakeswere ex-changed, and quiet nods of thanksgiven to the men who had broughtloved ones back towhere their dignitycould finally be ensured.

At amilitary base in Hilversum, fo-rensics experts will begin the complextask of identifying the bodies and re-turning them to their families. About40 Dutch experts have equipped largewarehouse spaceswith special air-con-ditioning equipment and computersfor processing genetic information.

The remains will be laid out onmortuary slabs. The forensics expertswill focus on dental identification andDNA—the two fastest andmost accu-rate methods—and will use finger-prints as a last resort, a spokesman forthe Dutch forensic team said.

Forensic dental X-ray machineshave been installed in thewarehousesand DNA will be primarily collectedthrough hair samples and stored formatching process, the spokesman said.

Some human remains are still inthewreckage of the aircraft, a spokes-man for the internationalmission fromthe Organization for Security and Co-operation in Europe said on Tuesday.

—Margaret Coker, AlexanderKolyandr and Maarten van Tartwijk

contributed to this article.

By Alexis Flynn in EindhovenandMatina Stevis in

Amsterdam

Two Ukraine Fighters Downed Near Flight 17 Crash Sitethe rebels.

A decision to impose sectorwidesanctions could come as early asnext week, diplomats have said.

While Kiev says it has made sig-nificant advances against the rebelsin recent days—and nearly halvedthe territory they hold in the pastfive weeks—the continued Kremlinsupport for the insurgents raises theprospect of a bloody and drawn-outconflict. The rebels say they are re-treating in order to dig into asmaller number of towns, which arecloser to the border with Russiathat Ukraine’s army says it hasn’tbeen able to seal.

Russia has continued its supportto the separatists even since thecrash of Flight 17, sending tanks androcket launchers, U.S. intelligenceofficials said. “We don’t think theyhave stopped,” said one. “We thinkthey continue to do it.” Moscow de-

Continued from first page nies this.The shoot-down of the jets—an

attack the rebels took credit for butthat Kiev said it believed came fromRussian territory—marks the firsttime a plane has been brought downover Ukraine since Flight 17 wasdowned on July 17.

The Ukraine government has al-ready pointed at least once to mis-sile fire at its jets coming fromacross the border, a claim Russiahas denied.

The two planes were flying at analtitude of about 17,000 feet whenthey were hit, said Ukrainian secu-rity spokesman, Col. Andriy Ly-senko, too high for the rebels toreach with the weapons they arenow believed to possess.

The U.S. and Ukraine have pre-sented a case that Flight 17 wasbrought down in a missile strike firefrom a sophisticated Buk missilesystem likely provided by Russia

that was then smuggled back acrossthe porous border. Russia has rou-tinely denied aiding the insurgency.

“According to our preliminary in-formation, they [the planes] weredowned from abroad,” Col. Lysenkosaid. That account couldn’t be inde-pendently confirmed.

A message posted on a social-media page associated with rebelmilitary leader Igor Girkin, whogoes by the nom de guerre IgorStrelkov, claimed responsibility fordestroying the two planes usingshoulder-fired, surface-to-air mis-siles. Video posted on the siteshowed the remains of what ap-peared to be the planes smolderingin grassy fields in rebel-held terri-tory.

The shoulder-fired missiles havea substantially lower reach andwouldn’t be able to hit a plane at17,000 feet. Neither Russia nor therebels immediately responded to

Col. Lysenko’s claim.Moscow continued to come un-

der rhetorical fire from the West, aday after the European Unionagreed to escalate sanctions. “Rus-sia has in the past promised muchto defuse the conflict, but has rarelydelivered,” a German Foreign Minis-try spokeswoman said.

A spokesman for German Chan-cellor Angela Merkel said that re-ports continued to come in of Rus-sian weapons streaming across theborder and that the Kremlin didn’tappear to be interested in a com-prehensive investigation of thecauses of the Malaysia Airlinescrash. He said the Kremlin alsodidn’t appear to be willing to fullyexercise its influence on the rebels,who are led, the spokesman said,by longtime Russian intelligenceagents.

Mr. Putin has shown few signs ofbacking down. On Monday, Russian

defense officials presented an alter-nate version of events in the Flight17 crash, suggesting the Malaysianairliner had been possibly shotdown by the Ukrainian government,a theory that has been viewed withdeep skepticism in the West.

The following day Mr. Putin of-fered blistering criticism ofUkraine’s continued military opera-tion against the separatists, and ac-cused the West of trying to weakenRussia and of issuing ultimatums.

The Defense Ministry said thetwo Su-25 planes were broughtdown near the villages of Savur-Mohyla and Dmytrivka, which sitclose to the Russian border and arearound 20 kilometers from Torez,where the civilian jet was broughtdown a week ago. The pilots man-aged to successfully eject from theplanes, the ministry said.

—Matthew Dalton in Brusselscontributed to this article.

Flight 17 Flew Right OverActive Ukraine Air Battle

MOSCOW—When investigatorseventually sort through the wreck-age to determine why Malaysia Air-lines Flight 17 was shot down, theywill have to consider the plane’stragic trajectory: straight over thecenter of some of the hottest fight-ing in eastern Ukraine, where airpower had begun playing a crucialrole on the battlefield.

The plane entered that zone justhours after rebels had gotten theirhands on an antiaircraft missile sys-tem sophisticated enough to takedown a plane cruising at 33,000feet, U.S. and Ukrainian officials say.That missile system, the Buk, knownin the West as the SA-11 or Gadfly, isparticularly inept on its own at dis-tinguishing a civilian aircraft from amilitary one, military experts say.

The path of the Malaysia Airlinesflight took it directly over a stretchof the Russia-Ukraine border near atown called Snizhne where fightinghad raged for weeks. The territorywas critical for both sides, becauseUkrainian troops had effectively cutoff rebels from Russia by seizingand holding a thin strip of territoryalong that border.

Air power has become a factortipping the war in Ukraine’s favor inrecent weeks, not only as a meansto strike rebel positions, but also tospot targets for artillery and mis-siles. Artillery barrages have been akey tool for the Ukrainian militaryin making gains against separatistsforces, one U.S. official said. “Notthe only tool, but an importantone,” he said. In general, aerial ob-servation can dramatically improvethe accuracy of effectiveness oflong-range artillery, he said.

The rebels have no air force, al-though Ukrainian officials say theyhave been operating some drones.Intercepted radio transmissions re-leased by the Ukrainian governmenthave shown rebels prior to thedowning of the Malaysian flightwere having trouble using their ownartillery effectively because theydidn’t have forward observers fortheir guns. Lately, rebels have triedto even the score by acquiring anti-aircraft weapons that can reach tohigher altitudes.

Ukraine continues to lose lower-flying ground attack aircraft to mis-siles launched by the rebels. OnWednesday, the Ukraine military re-

ported that two ground attackSu-25s were shot down not far fromthe Malaysia Airlines crash site.

For reconnaissance flights, ana-lysts say the Ukrainians probablytried sending their planes higherand out of reach of the rebel antiair-craft systems. The delivery of theBuk system appears to have been aKremlin gambit to give rebels achance to shoot down the highest-possible planes that the Ukrainianscould fly over them. A question nowis why its crew unleashed a missileagainst a civilian aircraft.

Military experts say the Buk isideally deployed as just one compo-nent of a wider antiaircraft system.Doug Richardson, editor of IHSJane’s Missiles & Rockets, said thatwhile the Buk operating alone canidentify a friendly aircraft, it can’tdistinguish between enemy or neu-tral ones.

Ukraine’s security service saidthat about seven hours before theMalaysia flight fell from the sky, itintercepted a phone call from a pro-Russia militant to a rebel com-mander, calling the Buk “a beauty”that he had just brought fromacross the Russian border on a flat-bed truck. The missile system, hesaid, came with a crew to operate it,the recording said.

Ukraine’s security service identi-fied the rebel commander as a for-mer Russian military officer, SergeiPetrovsky. The caller told Mr.Petrovsky that “we need to unload itsomewhere and hide it,” accordingto the recording.

Mr. Petrovsky told him to ren-dezvous with an armored columnthat would escort the system out-side the city. Within two hours, thesystem had been deployed, Ukrainesecurity officials said.

Shortly after issuing orders todeploy the system, Mr. Petrovskytalked to another rebel commanderand complained about the heavyUkrainian artillery fire, which hesaid was “constant” and “only nowthere is a pause.”

When asked why he didn’t fireback with their own Grad system,Mr. Petrovsky replied that “Thething is that we have a Grad, butdon’t have a spotter, firstly,” accord-ing to the released recording.

“Thank God, today Buk M ar-rived,” he is heard saying on the re-cording. “It has become a little biteasier.”

BY ALAN CULLISON

European

Presspho

toAgency

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 25

PERSONAL JOURNAL

Amazon Fire Jumps Into the Phone FrayA Major New Smartphone Offers Innovations, but They Don't Make Up for Battery, App Issues

The big idea in Amazon’s firstsmartphone is that you can controlthe screen just by moving yourhead. Amazon’s Fire phone prom-ises to draw you into a 3-D world

where thingshappen without atouch.

But in reality,the Fire is the grown-up equiva-lent of a 9-year-old riding a bikewith his hands in the air. “Look,Ma, no hands!” It’s a neat gim-mick, but it won’t get you very far.

The $199 phone is packed witha number of such technologicalbells and whistles that seemclever, for about a day. Amazonhas taken worthwhile steps to sim-plify using the Android operatingsystem, but on the smartphonefundamentals, the Fire stumbles.u Over the past five days, I

couldn’t once get the Fire’s batteryto last to day’s end—a telephoniccardinal sin.u Don’t expect to get all the

apps you love: Though it runs on aversion of Google’s Android oper-ating system, Google apps likeMaps, Drive and YouTube arelocked out. And the Fire can’ttransfer most app purchases fromprevious phones.u The controls that track your

head, which Amazon calls “dy-namic perspective,” never becomeas natural and predictable as justtouching the screen with your fin-gers.

The root of the problem is Am-azon’s oversize ambitions for itsphone, which begins shipping thisweek. Entering the smartphonemarket so late, Amazon mighthave stuck to its mission of ever

cheaper, easier and more effi-cient—perhaps making an inexpen-sive handset or an extra long-last-ing battery.

Instead, Amazon CEO Jeff Be-zos said he wanted to engineer abetter smartphone user experi-ence. He smartly gave this first-generation Fire 32 GB of memory,but larded it up with other fea-tures of questionable utility andpriced it to compete with mature$200 handsets like the iPhone 5Sand Samsung Galaxy S5. (All threerequire a contract; the iPhone andGalaxy come with half the mem-ory.) The comparison seems al-most unfair, but it’s the one Ama-zon wants us to make.

The Fire does some things well.None is a reason most peoplewould switch. The screen holds upadequately in sunlight and mea-sures 4.7-inches, a great size tobalance grip and thumb reach. Theheadphones include flat cable andmagnetic buds that help preventtangles. It also has a user interfacethat clears away the clutter andconfusing layout of most Androidphones, including easy-to-readpanels that emerge from the sidesand a home-screen “carousel” withbig icons for your most-used apps.Too often, though, it wastes spaceunder those icons recommendingthings for you to buy.

All Fire owners get a free yearof Amazon’s $99 Prime shippingand media-streaming service,which defrays the phone’s cost.The most helpful original feature,borrowed from Amazon’s tablets,is a service called Mayday thatspeedily connects you with livetech support.

The Fire’s rear camera, whichincludes a lens that’s supposed to

stabilize images, is close to, butnot better than, the reigningchamp iPhone 5S. The Fire takesphotos at a higher resolution, butimages of night landscapes anddark restaurants lacked the detailand natural color I could pick upwith the iPhone.

The biggest reason I wouldn’tswitch to a Fire is its battery,which like the iPhone is sealed in-side and can’t be replaced. Thephone usually died after aboutthree-quarters of a day’s ordinaryuse—calling, surfing, emailing,mapping and listening to music—and often got warm to the touch.

In my battery torture test, whichinvolves streaming a video overWi-Fi with the screen at 50%, theFire lasted just 6 hours and 40minutes, 16% less than the Galaxy,and 25% less than the iPhone.

Amazon says the battery wasdesigned to last a full day for theaverage user. To ensure I didn’thave a lemon, I actually swappedout my first test model, whosebattery lasted less than four hoursin regular use.

Given the competition, Amazonmakes it harder than it should toswitch to the Fire. First, it’s avail-able only on the AT&T network inthe U.S. Second, because Amazonmade its own version of Android,the Fire doesn’t come withGoogle’s Play app store, so youmust re-buy all of your apps from

Amazon. Amazon added Uber,WhatsApp and Instagram for theFire’s launch, but apps I use regu-larly that still aren’t available in-clude Starbucks, LinkedIn andSnapchat. Amazon says it expectsa LinkedIn app soon and is in dis-cussion with these other app mak-ers.

The apps I missed most aremade by Google. Instead of GoogleMaps, Amazon made its own mapsapp. It got the location wrong ofthe house where I grew up, but itisn’t as flawed as Apple’s first at-tempt at maps in 2012.

These deficiencies make it diffi-cult to even have a debate overthe new technologies that Amazoncreated for the Fire. I give Amazoncredit for creatively entering thesmartphone game with two origi-nal ideas. I just don’t think youneed either.

One idea is that the Fire canmake it easier to compare pricesand shop—on Amazon, of course.A camera mode called Firefly con-ducts a visual search on what-ever’s in front of it, including aproduct, TV show, a phone num-ber, email or Web address. Thisworks best with products inclearly marked packages and signswith large type. It repeatedly readmy business card email as“geuffrey.fuwler@wsj.co”.

Amazon says Firefly works onmore than 100 million items—buteven if it were perfect, what prob-lem is it solving, exactly? Fireflydoesn’t add much to the ability wealready have to compare prices us-ing product-ID features in Ama-zon’s existing apps. I had the mosthope for the Fire’s 3-D-like “dy-namic perspective” technology.There’s no reason touch has to be

the only way we operate a phone;it requires lots of compromises, in-cluding poor typing and greasyscreens.

So Amazon’s big idea is makingthe Fire phone watch you, trackingyour face for cues. To do this, itadded four extra cameras to thefront of the phone and built soft-ware that moves the images on thescreen with you.

It makes for some pretty 3-Dicons and animated lock-screenimages. Inside the maps app, dy-namic perspective makes it looklike you’re one of Amazon’s droneshovering above renderings ofbuildings.

You have to learn how to com-mand the phone with your head orhow you hold the phone: Turn justa little bit to peek around build-ings on the map, or quickly flickthe phone to open a side panelwith other options. Tilting thephone back makes websites scrolldown, which is handy.

Soon enough, though, it startsto feel like a gimmick. This flickingand nodding only worked for meonly about three-quarters of thetime—just ineffective enough to bea deal-breaker. The hardest partwas getting the battery life at thetop of the screen to show up. Andtrust me, nobody wants to be thatperson on the train twitching athis phone.

The phone handset business isin need of new ideas, so I’m actu-ally rooting for Amazon to makeinroads that might disrupt the gi-ants. But Amazon’s first Fire isn’tgoing to spark much.

Write to Geoffrey A. Fowler atGeoffrey.Fowler@wsj.com or onTwitter @geoffreyfowler.

BY GEOFFREY A. FOWLER

FireThe Fire’scamera broughta lot of light to aphoto taken atnight using theHDRmode.

iPhone 5SThe same shotfrom an iPhone,also usingHDR, revealedmore color anddetail in brightareas. See morecomparisonshots atwsj.com/Tech

Shop atFirst SightThe Fire canrecognize 70million productsand ordermanyof them fordelivery.

Heads UpThe Fire’s Dynamic Perspective functionfollows users’ headmovements.

Trial by Fire | Some of the key features of Amazon’s Fire phone

Tangled Upin NothingGet to yourmusicmorequickly thanks toflat headphonecables withmagneticearpieces.

Don’tTouch ThatDialThe Firefly appcan read andsave phonenumbers,emails andWebaddresses.

WeCompare the Cameras

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PERSONALTECHNOLOGY

Amazon makes it harderthan it should to switch tothe Fire.

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 3

NEWS

U.S. Cites Progress on Gaza DiplomacyNo Letup in Violence as Kerry Talks With Palestinian, Israeli Leaders Face to Face; U.S. Extends Flight Ban

Secretary of State John Kerrysaid Wednesday there have been“steps forward” in diplomatic effortsto end fighting between Israel andHamas, the Islamist group that rulesGaza.

The top U.S. diplomat held face-to-face talks with both PalestinianPresident Mahmoud Abbas in theWest Bank and Israeli Prime Minis-ter Benjamin Netanyahu in Jerusa-lem for the first time since the con-flict flared on July 8, trying tobroker a cease-fire.

“We’re working hard....We havemade some steps forward,” Mr.Kerry said before meeting UnitedNations Secretary-General Ban Ki-moon in Jerusalem.

There was no letup in violence,however. Israel kept up attacks onthe Palestinian territory, focusing ontargets around the southern city ofKhan Younis. The coastal strip’s solepower plant was bombarded.

The Health Ministry in Gaza said

the Palestinian death toll since theconflict began rose by 61 overnightto 682 killed, with more than 4,100wounded. The dead included 161children and 66 women, it said.

Israel said three of its soldiersdied in Gaza on Wednesday, bringingto 32 the number killed since thearmy launched intensive aerial bom-bardments followed by a ground as-sault that began Thursday.

In addition to the 32 soldiers,three civilians have died in Israel.The latest was a worker from Thai-land killed Wednesday when arocket fired from Gaza struck an ag-ricultural collective in Hof Ashkelon,according to an official of that re-gion.

At Nasser Medical Center, KhanYounis’s main hospital with atrauma center, patients streamed inby ambulance and private car, manynursing gaping shrapnel wounds andbroken limbs.

Ayman Al Farrah, the chief ofemergency medicine, said that sincemidnight on Wednesday, they hadreceived 18 people dead on arrival,

including five children between theages of 5 and 12 years old, and twowomen.

The injured numbered close to100, he said.

“From the first day of this war,we’ve seen horrific injuries,” he said,mostly severe burns, brain injuries,blunt-force trauma and amputatedlimbs. “These are life-changing inju-ries. The weapons being used aredesigned for tanks, not for humanbeings.”

Israel said it began the Gaza op-eration to halt rocket fire by Pales-tinian armed groups on its territoryand to destroy a network of tunnelsleading from Gaza to Israel that areintended to allow fighters fromHamas’s military wing to carry outattacks against Israelis.

In Geneva, the U.N.’s top human-rights official said both sides mayhave committed violations of inter-national humanitarian law that pointto the possibility of war crimes.

Navi Pillay cited the cases of anIsraeli drone attack that killedthree children in Gaza City and an

Israeli strike that killed four chil-dren playing on a Gaza beach lastweek.

“These are just a few exampleswhere there seems to be a strongpossibility that international human-itarian law has been violated in amanner that amounts to warcrimes,” said Ms. Pillay, the U.N.High Commissioner for HumanRights.

She also said rocket and mortarfire by Hamas and armed Palestinianfactions into Israel were indiscrimi-nate and therefore were possiblewar crimes and crimes against hu-manity.

Mr. Kerry is shuttling across theMiddle East this week to promote acease-fire agreement proposed bythe Egypt. Israel accepted it lastweek but Hamas rejected it. U.S. of-ficials said the Egyptian initiativealso faced opposition from other re-gional governments.

Mr. Kerry met with EgyptianPresident Abdel Fattah Al Sisi andother senior Egyptian officials onTuesday to try to amend the cease-

fire plan.The U.N. chief said the interna-

tional community was showinggreater unity in a bid to bring abouta cease-fire in Gaza as soon as possi-ble.

Mr. Kerry flew into Ben GurionInternational Airport outside TelAviv early Wednesday, a day afterthe U.S. Federal Aviation Adminis-tration barred American air carriersfrom flying to Israel after a rocketfrom Gaza struck close to the air-port on Tuesday. Many Europeancarriers also suspended flights to Is-rael. The FAA on Wednesday ex-tended the ban for another 24 hours.

Mr. Netanyahu and other Israeliofficials have pressed the U.S. to liftthe ban, arguing the airport is se-cure. In a telephone conversation onTuesday, the Israeli prime ministerappealed directly to Mr. Kerry tohave the FAA ban lifted.

“The only consideration in issu-ing the notice was the safety and se-curity of our citizens,” State Depart-ment spokeswoman Jennifer Psakisaid.

BY JAY SOLOMONAND TAMER EL-GHOBASHY

AssociatedPress

With Flights Canceled, Travelers Stay GroundedBEN GURION INTERNATIONAL

AIRPORT, Israel—The flight board inthe arrivals hall of Israel’s main in-ternational airport was awash in redon Wednesday, denoting canceledflights from Amman, Paris, NewYork and beyond.

A day earlier, a rocket fired fromPalestinian militants in the GazaStrip struck a home near the run-ways here, prompting the U.S. Fed-eral Aviation Administration andmany European carriers to suspendflights to Israel for the first time inmore than 20 years. The FAA onWednesday extended the ban onAmerican carriers flying into the TelAviv airport for another 24 hours.

As of midday Wednesday, Israeliaviation officials said, more than aquarter of commercial air traffic hadbeen canceled, forcing thousands oftravelers to adjust itineraries.

Wheeling a suitcase toward a taxistand, Yogev Nahum, an Israeli tech-nology company salesman returningfrom a business trip to Greece, de-scribed a trip that was supposed tohave ended with his arrival in Israelon Tuesday.

He said his Aegean Airlinesflight from Greece was canceled “be-cause of an American decision,which the Europeans followed.” Hesaid he found his way back to TelAviv on El Al, Israel’s national car-rier.

The flight ban undercut Israel’seffort to portray itself as a countrythat can manage business as usual inthe midst of intermittent fire frommilitant groups at its borders.

“This is something that no Arab[enemy] had ever been able to do,”said Avraham Sela, a professor ofpolitical science at Hebrew Univer-sity. “Even if it would be only for 24hours and very limited in time, the

fact that international airlines de-cided not to fly to Israel—and nowthere are Israelis stuck abroad andpeople can’t leave according toschedule—means a lot. It means Is-rael as a hub of business and as aplace of pleasure is interrupted.”

Despite the disruptions, the air-port was far from empty on Wednes-day. Check-in lines for El Al ticketingcounters swelled with departingpassengers who had switched flightsfrom tickets booked with airlinesthat announced cancellations.

“This isn’t normal. But there isn’tpanic,” said Adi Shimri, as he called

numbers of open check-in countersto keep the line moving. “People un-derstand the situation, they’re justafraid they’ll lose their money.”

Mr. Shimri, a retired El Al flightattendant, had volunteered to easethe pressure on the carrier. “Thetourists are a little bit more scared.”

Samantha Workman, a recentuniversity graduate from Canadawho had come to Israel to work onan archaeological dig near the GazaStrip, emerged in the arrivals hallloaded down with backpacks. Shehad just returned from Greece afterfleeing Israel this month because ofrocket fire. “It was too stressful run-ning to a shelter four times a day,”she said.

With reservations on a returnflight to Canada in just a few days,Ms. Workman said she was crossingher fingers that the Polish airlineshe had booked on wouldn’t cancel.

In one darkened corner, in a

mezzanine between the check-in andthe arrival hall, university studentsplayed guitar and snoozed whilecamped out several hours becausethey had tickets on Turkish Air-lines, which canceled its flights.

On the other side of the airport’sdeparture hall, check-in counters ofEuropean and U.S. airlines that hadstopped service were all but empty.

The fight suspension by the FAAprompted Israeli officials and politi-cians—even President ShimonPeres—to fume at the U.S. for givingHamas a boost. But some Israelitravelers said they understood.

“If they made such a decision itmust have been for a good reason,”said Arik Shlomo, an Israeli who hadjust returned from Los Angeles withEl Al. “I wish they canceled myflight. I could have stayed an extraweek. I should have flown Delta.”

—Asa Fitch in Jerusalemcontributed to this article.

BY JOSHUA MITNICK

Death tolls from three recentIsrael-Hamas conflicts

Conflict Toll

The Wall Street Journal

ISRAELIS

Dec. 2008–Jan. 2009(22 days)

Nov. 2012(7 days)

July 2014(16 days)

Sources: Israel Foreign Ministry (Israelis);B’Tselem (Palestinians); Gaza HealthMinistry (2014)

13

6167

PALESTINIANS1,166

More than620*

35†

*Including 121 children†Including 3 civilians killed in Israel

U.S. Secretary of State John Kerrymeets with Israeli Prime MinisterBenjamin Netanyahu in Tel Avivon Wednesday for talks on acease-fire with Hamas in Gaza.

‘This isn’t normal. Butthere isn’t panic,’ said avolunteer with El Al.

26 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

HEARD ONTHE PITCH

SPORT

FromAccountant toTopTriathleteGwen Jorgensen was working as

an Ernst & Young accountant whenshe received an unusual recruitingpitch: Why not try triathlon?

The pitch came from crediblequarters—USA Triathlon, the sport’sgoverning body in America. But Jor-gensen felt as if the organizationmust have mistaken her for some-one else. She’d never done a triath-lon. She wasn’t a cyclist. During herswimming and running career at theUniversity of Wisconsin, she hadnever won gold, silver or bronze atthe NCAA championships.

Long ago, moreover, she’d tradedher childhood dream of an Olympiccareer for a new love: corporate tax-ation. “I loved Ernst & Young,” shesaid.

Today, no athlete in America ishotter than Jorgensen. She has wonfour consecutive World TriathlonSeries races this season—somethingno other female has ever done—making her the top-ranked womantriathlete on the planet. Instead ofErnst & Young, her income now de-rives from race purses as well assponsors such as Specialized, Asicsand Red Bull.

“It doesn’t seem real,” Jor-gensen, 28, said of her transforma-tion from accountant to world-lead-ing triathlete. Typical of triathletes,she comes across as less impressedwith her accomplishments than ob-sessed with her weakest leg: swim-ming. “I‘ve been swimming mywhole life and I don’t have a lot oftalent in it,” Jorgensen said in an in-terview from Spain, her Europeantraining base, emphasizing in par-ticular the difficulty of switchingfrom pools to open water.

Particularly gratified by her suc-cess is Mark Hellmer, her formerboss at Ernst & Young, who in 2010became an ally of USA Triathlon in

persuading Jorgensen to make theleap. “I told her, ‘You’ll always have aplace at EY to fall back on,” saidHellmer, a partner in the firm’sWashington, D.C., office, who callsthe outcome “surreal.” “I knew shewould do well, but I didn’t foreseeher becoming a world (leader).”

Two years ahead of the RioOlympics, Jorgensen representsAmerica’s best hope for winning itsfirst Olympic gold medal in triath-lon, a French-invented sport thatgained popularity only after catch-ing fire in California in the 1970s.Since triathlon became an Olympicsport in 2000, America has wononly one medal, a bronze in 2004.

Recognizing that the deficit re-flects the sport’s status as a recre-

ational pastime in America, USATriathlon about five years ago be-gan a recruiting program aimed atcollege runners and swimmers. Tolead the program it tapped BarbLindquist, a 2004 Olympic triathletewho came to the sport after swim-ming at Stanford.

NCAA champions in running orswimming tend to pursue theirOlympic dreams in those particulardisciplines. But Lindquist knew fromfirst-hand experience that persis-tence and a diversity of skills can el-evate a near-Olympic runner orswimmer into a world-class triath-lete.

“My joy in this job is giving asecond chance to athletes who nevermade it to the absolute top of their

sport,” said Lindquist.When Lindquist received a note

from a running coach of Jorgensen’ssaying that the young woman previ-ously had competed in the pool,Lindquist wasted no time makingcontact.

Jorgensen, who had recentlyjoined Ernst & Young after receivinga graduate degree in accounting, re-calls feeling skeptical. A Wisconsinnative, she was stationed in thefirm’s Milwaukee office, near all herfamily. And like many people, sheconflated triathlon with Ironman—the race involving 140.6 miles ofswimming, biking and running. Shewas relieved to learn that the Olym-pic distance is only about 32 miles.

In March of 2010, about a yearafter graduating college, she at-tempted her first triathlon, and didwell enough to achieve elite status.“I was shocked at how hard it was,”she said. “But I did well enough towonder what I could do if I reallytook it seriously.”

She was reluctant to cut back onher hours at Ernst & Young. “She wasworking 65 hours a week and totallyenjoying the people she worked withand the work that she was doing,” re-called Lindquist, who stepped up herrecruitment by contacting Hellmer,Jorgensen’s boss.

“I started encouraging Gwen togo part-time more than she wantedto,” recalled Hellman. “Gwen arguedthat her EY work provided a nicecounterbalance to all the training.”

Gradually, Jorgensen workedfewer hours while training more. Theturning point came when she quali-fied for the 2012 Olympics. A flat tireruined her chances at those Games,where she finished 38th. “When Icrossed the finish line in London, myonly thought was, ‘I want to go toRio. I want to win gold.’”

—Andrew Beatoncontributed to this article.

BY KEVIN HELLIKER

Gwen Jorgensen has won four consecutive World Triathlon Series races; above, at her most recent win in Hamburg in July, and below, in Chicago in June.

Getty

Images

(2)

Germany’s Löw to StayThrough Euro 2016

World Cup winner JoachimLöw will remain the Germanycoach through the 2016 EuropeanChampionship in France.

There was speculation Löwmight step down after Germanylifted its fourth World Cup titlewith a 1-0 victory over Argentinain the final in Rio de Janeiro onJuly 13, although Löw’s contractwas extended well before thetournament.

“At the moment, I can imaginenothing more beautiful than tocontinue working with this team,to guide it to the EuropeanChampionship in France, to de-velop the team and the individualplayers further,” Löw said in aninterview published on Wednes-day on the German Football Fed-eration (DFB) website.

“I am as motivated as I wason the first day with DFB. Wecelebrated a gigantic success inBrazil but there are other goalsthat we want to achieve. TheWorld Cup 2014 was a highlightfor all, but it was not a conclu-sion.”

Löw said he needed sometime to come to terms with hisemotions after the World Cup buthad not thought “even for a sec-ond” about stepping down.

Löw has been with the DFBsince 2004, and head coach since2006, but had never won a titleuntil the triumph in Brazil.

Germany and Argentina have arematch in a friendly in Düssel-dorf on Sept. 3, before Germanykicks off qualifying for Euro 2016against Scotland four days later.

Before then, the 54-year-oldLöw will have to find an assistantcoach and a new captain.

Hansi Flick, his assistantthroughout his tenure, is to bethe technical director at DFB.Philipp Lahm, captain since 2010,surprisingly ended his Germanycareer as soon as the team re-turned home.

Lahm informed him about hisdecision to retire from interna-tionals on the morning after thefinal, Löw said, calling it a greatloss for the team.

“I could not have wished for abetter captain, he did an out-standing job influencing, leadingand presenting the team,” Löwsaid. “I regret that he will not re-turn but I accept and respect hisdecision.”

—Associated Press

HEARD ONTHE PITCH

Agence France-Presse/Getty Images

Joachim Löw celebrates Germany’sWorld Cup victory in Berlin on July15, two days after the title win.

2 | Thursday, July 24, 2014 AM IM UK SW FR IT SP TK BR PL IS AE GR THEWALL STREET JOURNAL.

PAGE TWO

i i iBusiness & Finance

n French magistrates placedUBS under formal investigationfor money laundering, wideningan existing probe examiningwhether the bank helped richFrench people evade taxes. 15

n Daimler reported a sharprise in second-quarter operat-ing earnings, driven by recordsales in its Mercedes-Benz lux-ury car division, as the Germanauto maker races to catch upwith rivals BMW and Audi. 16

n Preparations for Apple’s lat-est iPhones are rippling throughAsian economies, boosting reve-nue at component makers andhelping underpin electronics ex-ports from some nations. 15

n Glaxo downgraded full-yearearnings expectations, as itssecond-quarter profit was hitby currency moves, weak salesof its respiratory drugs andthe continuing bribery investi-gation in China. 19

n Equity-research houses arescrambling to lobby Europeanregulators over tough newrules that could drasticallychange the way their researchis paid for and put some ofthem out of business. 19

n U.S. securities regulatorstook a step to reduce risk inthe $2.6 trillion money-marketmutual-fund industry. 19

n BHP said it plans to bolsteriron-ore output despite fallingprices and a glut in supplies ofthe steelmaking ingredient. 17

i i iWorld-Wide

n EU countries will have tostrive to make energy savingsof 30% by 2030, according toproposals unveiled by the Eu-ropean Commission. 5

nThe former French financeminister who is vying for a topeconomic post for Europe saidskepticism over a French candi-date for the job is unfounded andEurope must push for growth. 5

n A TransAsia Airways flightcrashed while trying to makeits second landing attempt inthe Penghu islands off thecoast of Taiwan, killing morethan 40 people. 9

nThailand’s military junta saidit won’t abuse the sweepingpowers it gave itself in an in-terim constitution over the newlegislature and councils responsi-ble for shaping the country’selectoral democracy. 9

n Prabowo Subianto will chal-lenge results from Indonesia’spresidential election, focusing afinal bid for leadership on whathis team suspects are irregulari-ties involving 21 million votes. 8

nHeavy fighting around Trip-oli’s airport hit a fuel tanker, offi-cials said, as an escalation of vio-lence in Libya damaged the oilinfrastructure for the first time. 8

n Leaders of several U.S. citiesand at least one state have of-fered to take in some of the un-accompanied minors from Cen-tral America who have swarmedthe border in recent months. 7

What’s News—

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Malaysia Airlines Crash StreamRead the latest updates on the Malaysia Airlines crash investigation.on.wsj.com/1nfndvO

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Images

Malaysia’s Risky TalksWith Rebels Paid Off

As attempts to retrieve the bod-ies and flight recorders from Malay-sia Airlines Flight 17 dragged onover the weekend, Prime MinisterNajib Razak risked a gambit that Eu-ropean leaders wouldn’t: sending of-ficials into a war zone to meet withheavily armed rebels whose govern-ment almost no one recognizes.

After a nervy journey throughcheckpoints that dot easternUkraine’s conflict zone, the teammet separatist leaders in their

stronghold of Donetsk,who handed over theflight recorders—

known as black boxes—and releasedthe bodies for repatriation via Ukrai-nian government-held territory.

While European governmentswrestled with how to get to the sitewithout legitimizing the rebels orrisking security, Mr. Najib put asidediplomatic protocol and safety fearsand sent in his team.

“What was key to him was theoutcome,” said a person close to theprime minister’s office. “He waslooking at people who controlled anarea of land. And on that land wasour plane, our bodies, our blackboxes.”

The success of their mission de-livered a political victory for Mr. Na-jib’s government, still reeling fromits missteps after the disappearanceof another Malaysia Airlines flight inMarch with 239 aboard.

But it also handed a gift to therebels in the form of an accord,signed by the top Malaysian officialpresent in Donetsk, calling the crashsite “the territory of the DonetskPeople’s Republic,” offering a levelof apparent recognition that eventhe rebels’ main backer—Russia—has steered clear of.

“It’s a tragic occasion, but we’veproven we can be a subject of an in-tergovernmental agreement,” saidSergei Kavtaradze, an aide to rebelleader Alexander Borodai.

That recognition could antago-nize Kiev and Washington, whichhave striven not to give any credibil-ity to the rebels, whose main leadersare Russian citizens with few ties tothe area.

Still, Mr. Najib’s intervention re-solved a diplomatically awkward sit-uation, enabling the bodies to be re-trieved and an investigation to beinitiated.

When Mr. Najib, 61 years old, re-ceived word of Malaysia’s secondaircraft disaster in less than fivemonths late Thursday, he immedi-ately went to the Kuala Lumpur air-port operations center and tookcharge.

There were 43 Malaysian passen-gers and crew members aboard theplane, making the country’s lossessecond only to the Netherlands. As apredominantly Muslim nation, Ma-laysians are used to quick burials,and the sight of bodies lying aroundthe crash area was particularly up-setting.

Mr. Najib—who has preservedMalaysia’s traditional stance of nottaking sides among the U.S., Russiaand China—worked the phones withforeign leaders, but steered clear ofjoining many Western leaders in

blaming the rebels for shootingdown the airliner.

Instead, he quietly began lookingfor a back channel to speak with theinsurgents, said one of the peopleclose to Mr. Najib’s office.

Known as a calm and pragmaticmediator, Mr. Najib reached out toMr. Borodai, a former Moscow PRman, through an unidentified inter-mediary.

Negotiating with another coun-try’s rebels violates an informal ruleof diplomatic protocol, and Mr. Najibfaced the danger of public embar-rassment and offending other na-tions if his attempt to negotiate adeal fell through and the talks be-came public.

“He felt we were at a completeimpasse and no one was getting any-where with this,” said a second per-son close to the prime minister’s of-fice. “The prime minister was reallyaware that there were risks. Peoplecould blame him for negotiatingwith terrorists.”

Mr. Najib spoke with Mr. Borodaiat least twice by telephone, said thepeople close to his office, makingclear that he wanted three things:the remains, the data recorders andaccess to the site for investigators.

Mr. Najib, under pressure fromthe opposition and even some of hisown advisers to take a tougher lineon the rebels, told almost no one ofhis negotiations.

At first, some rebels said theywould investigate the incident them-selves, or ship the flight recorders toMoscow. They also demanded acease-fire, which could have allowedthem to consolidate their hold oneastern Ukraine.

As talks progressed, Mr. Najib or-dered a 12-person team headed byCol. Mohammad Sakri of the Malay-sian National Security Council tohead from Kiev to the rebel-heldarea.

As the dozen Malaysian officialsin a convoy of rental cars negotiatedtheir way through checkpoints thatdot eastern Ukraine’s conflict zoneMr. Najib steeled their nerves in aphone call.

“Tell people it was Malaysia’splane and the team is going throughto recover our dead and the plane,and that it is only right,” Mr. Najibtold Col. Sakri, according to a personfamiliar with the call.

Mr. Kvatardze said the rebelswere surprised by the audacity theMalaysians showed in drivingthrough a zone that has been tornby a three-month conflict.

Arriving in the rebel-held re-gional capital of Donetsk early Mon-day afternoon, they headed into

talks with top insurgents at the seatof their flimsy political organizationknown as the “Donetsk People’s Re-public.”

The meeting took place on the11th floor of the regional assemblybuilding that the rebels seized inApril, a drab gray structure thatused to house the local CommunistParty headquarters.

Col. Sakri, a diminutive, bespec-tacled civil servant, stood in con-trast to the burly rebel gunmen whoguard the building. The meetinglasted several hours, only breakingwhen the Malaysians went to pray.

By the end of the discussions,Mr. Borodai was saying that hewould only pass the bodies andblack boxes to the Malaysia team,said one person close to the primeminister’s office. After a furtherphone call between Mr. Borodai andMr. Najib, the deal was sealed.

Just after 1 a.m., Col. Sakrisigned an agreement with a top sep-aratist official confirming the hand-over of the black boxes.

The stamp of the National Secu-rity Council of Malaysia is mis-spelled, “Sekurity,” suggesting ahasty effort to fulfill bureaucraticprotocol by having the stamp madelocally.

Col. Sakri thanked Mr. Borodai,calling him “His Excellency.”

“We don’t blame anybody, wedon’t believe anybody, we just wantto deliver the bodies as soon as pos-sible,” he said.

By Richard C. Paddockin Kuala Lumpur, Malaysiaand Alexander Kolyandr

in Donetsk, Ukraine

The success of Prime Minister Najib Razak’s efforts delivered a political victory.

European

Presspho

toAgency

ANALYSIS

THEWALL STREET JOURNAL. Thursday, July 24, 2014 | 27

OFF THE WALL

Doing Chores? It’s NeverToo Early for a Cocktail

margaritas all day.”The soap, introduced last fall

as a short-term promotion, soldso well that the company decidedto repurpose the fragrance for itsnew Mitch Heavy Hitter shampoo,launched this spring. This time,the Patrón name doesn’t appearon the package. “It was fun butnot something we would want tomarket on all the time,” says Ms.Firrell.

Jarden Corp.’s Yankee Candleaims to duplicate the precisenotes of the drinks for which itscandles are named. So far thisyear, Yankee Candle, based inSouth Deerfield, Mass., has intro-duced candles of margarita, san-gria and “the cool, golden aromaof a freshly poured draft beer.”

Sniffing its Margarita Timecandle, currently one of Yankee

Candle’s best sellers, yields notesof salt, tequila, and “freshsqueezed” lime, says Hope Mar-gala, the company’s executivevice president of brand, designand innovation. “We try to beas true to life as we can makeit,” she says. “It gives you thefragrance and the feelingwithout having to actually havea drink.”

BY ELLEN BYRON

From left, a lime andsea salt dish soapand all-purposecleaner fromMethod, a YankeeCandle Co. cocktail-inspired candle, astrawberry daiquiriquaff from PetEdge.

(Leftto

right)Metho

d;Yankee

Cand

le;P

etEd

ge

J enny, a golden retriever, hasnever sipped a daiquiri, buther owner likes her to smell

like one.Once a month, Mike Sunseri

bathes his dog with daiquiri, piñacolada or cosmopolitan-scentedshampoo, part of the BarktiniBlends line made by Lawrence-burg, Ky.-based Glo-Marr Prod-ucts Inc., which also makes a“Hair of the Dog” conditioner.

The fruity cocktail scentmakes washing the reluctantJenny more enjoyable, at leastfor Mr. Sunseri, a photographydirector from Versailles, Ky. “I’mthinking of which Caribbean is-land I can visit next,” he says.“Or scuba diving and which re-freshing cocktail would finish theday perfectly.”

Fragrances usually aim tomake everyday products—and thechores associated with them—more pleasant, typically evokingpine forests, lemon groves orflower gardens. Now, they prom-ise happy hour.

Scrubbing dishes, showering,lighting a candle or washing adog can all be opportunities toescape with a cocktail—or atleast the idea of one, productmakers say. Household staplesnow smell like margaritas, te-quila, piña coladas, daiquiris andbeer as they attempt to elicit ahappy buzz from even the mostmundane everyday tasks.

“Instead of spring cleaning,I’m on a spring break drinking amargarita,” says Michelle Arnau,the home-care general managerfor San Francisco-based MethodProducts PBC, of its lime and seasalt dish soap and all-pur-pose cleaner. The fragrancebecame a permanent part ofits product lineup in Aprilafter a brief run two yearsago. “When you can actuallyhave a fragrance that takesyou on an escape, it changesthe whole act of cleaningfrom that moment of ‘Ugh, Ihave to do it’ to ‘I actuallyreally enjoy it.’ ”

The quiet solitude of wash-ing dishes is particularly con-ducive to moments ofscented intoxication, Ms. Ar-nau says. “The fragrance bloom isamazing in a concentrated arealike that,” she says. “It transportsyou to wonderful places.”

The whiff of a cocktail can re-mind consumers of a tropical get-away, even if they’ve never beenon one, says Deborah Betz, a se-nior scent-design manager forhome care at New York-based fra-grance supplier International Fla-vors & Fragrances Inc.

Combining the fruit and coco-nut scents common in many cock-tails, along with citrus notes oflemon and lime, is especially po-tent at triggering an emotionalresponse, Ms. Betz says. “Itsmells like you just took a sipand you get that fizzing feelingin your nose,” she says. “Youhave to clean anyway, why notenvelop yourself with this won-derful feeling and daydream a lit-tle bit?”

Hello Products LLC’s mojito-mint flavored toothpaste, mouth-wash and breath spray were in-

spired in part by the Montclair,N.J.-based company trying tocounter the harsh warnings com-mon in oral-care advertising. “Ev-erything in this category seemsto be about fear and shame—ifyou don’t use it, you won’t get adate, or your next dental visitwill be a painful one,” says CraigDubitsky, Hello’s chief executive.“What we really want is an expe-rience, a vacation in yourmouth.”

Consumers who buy Hello’smojito mint toothpaste typicallyalso buy its pink grapefruit mintflavor, usually preferring grape-fruit in the morning and mojitofor bedtime brushing, Mr. Du-bitsky says. “No nightcap jokes,please,” he says.

For now, mojitos, cosmopoli-tans and hurricanes are on thewait list of future potential fra-grances for dog shampoos andcolognes made by pet-groomingsupplier PetEdge Inc. in Beverly,Mass. Instead, the March launchof its Pet Effects Tropics Collec-tion line stuck to what the com-pany deemed to be more main-stream quaffs, includingstrawberry daiquiri, appletini,mango margarita and piña colada,hoping to appeal to the broadestpossible audience of groomers,owners—and dogs.

“Now there is a need to createa spa-like environment for dogs,and fragrance does that,” saysLori Haraske, PetEdge’s directorof product development. “A fewyears ago to think that your dogmight smell like an appletiniwould be a little odd, but it’s notthat odd anymore,” she says. “Ifyou love the smell, why wouldn’tyou want your little fella to smell

like it, too?”Of course, not ev-

eryone conjures up avacation when they

face work, no matterthe cocktail fragrance.

Heather Crotsley, a mar-keting director in Lancaster,Pa., can easily recall funnights out with friendswhen she uses her “Seno-rita Margarita” shampoo,

shower gel and bubble bath,made by Coty Inc.’s Philoso-

phy brand. “But I’m not go-ing to look forward to do-

ing dishes just because the soapsmells like margaritas,” says Ms.Crotsley. “You’re not relaxedwhen you’re doing work, you’rebusy thinking about all the otherthings you have to get done.”

Some products aim for justthe idea of a drink, rather thanre-creating its exact smell. WhenJohn Paul Mitchell Systems cre-ated a men’s body soap with te-quila brand Patrón Spirits Co.—both companies were co-foundedby John Paul DeJoria—productdevelopers deliberately avoidedmaking it smell too much like theliquor, preferring instead to em-phasize notes from the agaveplant used to make it. The result-ing scent still resembles the “es-sence” of the drink, executivessay.

“We didn’t want people to bein the shower smelling like te-quila,” says Kristin Firrell, JohnPaul Mitchell’s vice president ofproduct development. “Peoplewould think you’ve been drinking

VOL. XXXII NO. 121

THURSDAY, JULY 24, 2014

The Heat Index on Amazon FirePERSONALJOURNAL25

DJIA 17086.63 g 0.16% Nasdaq 4473.70 À 0.40% Stoxx Eur 600 342.86 À 0.12% FTSE 100 6798.15 À 0.04% DAX 9753.56 À 0.20% CAC 40 4376.32 À 0.16% Euro 1.3461 g 0.06% Pound 1.7035 g 0.13%

EUROPE EDITION

WSJ.com

Options Point to CautionOn Scottish Referendum

Opinion polls suggest, andLondon’s politicians hope,that Scottish voters will passon the chance to break theircenturies-old bond with therest of the U.K. in a referen-dum in September. But betsare starting to build on a dropin the pound in the event of asurprise “yes” vote for inde-pendence.

For most of this year, de-spite the run-up to the Sept.18 vote, sterling has beenheading one way: up. It ranksamong the best-performingmajor currencies in the worldthis year, gaining about 5%against the euro and morethan 3% against the dollar.The currency now stands at

its strongest levels in almostsix years against the buck, re-flecting a rebounding econ-omy and the chance that theBank of England will be thefirst major central bank tobump up interest rates.

The macroeconomic back-drop offers little reason tosuspect an imminent reversalin the pound. But options con-tracts that would pay out ifsterling slides at the time ofthe Sept. 18 independencevote are increasingly in de-mand.

“Investors are buying op-tion expiries for the 19th…il-lustrating a pickup in buyinginterest to hedge for a poten-tial surprise vote,” said PeterKinsella, a currencies strate-gist at Commerzbank AG.

The cost of options is ex-pressed in percentage termsbased on calculations reflect-ing expected price movementsand demand for the option it-self. Mr. Kinsella said thatsince Friday, when two-monthoptions for sterling againstthe dollar began to includethe Sept. 18 vote date, thecost has jumped from lessthan 5% to about 5.4%.

That is a modest rise, stillwithin the range of the pastmonth, but many analystsnote that 5.4% is higher thanthe equivalent rates for theeuro against the dollar, for ex-ample. They say they expect

Please turn to page 22

BY CHIARA ALBANESE

Ukrainian JetsDowned NearCrash Site

Two Ukrainian fighter jetswere shot down Wednesdayover separatist-held territorynot far from the site of theMalaysia Airlines crash, asfighting between Kiev forcesand pro-Russia rebels esca-lated despite intensified at-tempts at diplomacy.

While Kiev made signifi-cant advances against rebelsin the country’s east in recentdays, Ukrainian and U.S. offi-cials say Russian weapons arecontinuing to pour over theborder, indicating RussianPresident Vladimir Putin hasno intention of backing downand denting Western hopesthat the tragedy would forcehim to change his course.

Mr. Putin’s defiance, de-spite increased internationalpressure since the downing ofthe flight from Amsterdam toKuala Lumpur that killed 298people, poses a challenge forU.S. and European Union offi-cials who have for monthstried to offer him a diplomaticroute to step back fromUkraine.

With Mr. Putin appearingundeterred from continuing tofuel a conflict in Ukraine’s eastin what diplomats and analystssay is an attempt to crippleKiev’s move westward, seniorEU diplomats will meet Thurs-day to decide on new sanc-tions targets. They will alsodiscuss a plan to impose sanc-tions on entire sectors of theRussian economy, includinghigh-tech goods and oil andgas exploration equipment.

EU foreign ministers thisweek said they would activate

that plan if Russia didn’t useits sway over the rebels to al-low access by internationalinvestigators to the crash siteand stop the flow of weaponsand men across the borderfrom Russia. With progressbeing made on the first condi-tion, an EU diplomat said gov-ernments will be focusing onwhether Mr. Putin has scaledback his alleged support for

Please turn to page 4

By Anton Troianovskiin Kiev, Ukraine,

and Lukas I. Alpertin Moscow

Heard on the Street: Bank ofEngland focuses on pay..... 28

The Costa Concordiaresumes a voyage cuttragically short in 2012Europe .................... 5

Is this the end to thePutin Puzzle?Opinion ................. 13

Doubts plague DeutscheBank’s balance sheetBusiness ................ 15Heard......................28

Inside

$1.75 (C/V) - KES 250 - NAI 375 - £1.70

The coffin of one of the victims of Malaysia Airlines Flight 17, downed over eastern Ukraine, is carriedfrom an aircraft during a Dutch national reception ceremony at Eindhoven airport on Wednesday.

InvestigatingFlight 17

International leaders voicedgrowing impatience as aDutch-led team ofinternational expertswaited for safe access tothe Ukraine crash site ofMalaysia Airlines Flight 17.Articles on pages 10-11

Reuters

Copyright © 2013, Oracle and/or its affiliates. All rights reserved.

Oracle CloudApplications

More Enterprise SaaS ApplicationsThan Any Other Cloud Services Provider

ERPFinancialsProcurementProjectsSupply Chain

HCMHuman CapitalRecruitingTalent

CRMSalesServiceMarketing

28 | Thursday, July 24, 2014 THEWALL STREET JOURNAL.

HEARDON THE STREETEmail: heard@wsj.com FINANCIAL ANALYSIS & COMMENTARY WSJ.com/Heard

BOE PaysAttentionTo PayGrowth

Last year, the substantialpay package granted to in-coming Bank of England Gov.Mark Carney was attractingattention. This year, the focusfor the BOE is very much onwhat is happening to every-one else’s wages.

The minutes from the Julymeeting of the central bank’sMonetary Policy Committeeshowed another unanimousvote in favor of holding ratesat 0.5%. While that was un-surprising, the tone of theminutes was slightly moredovish than expected: Bothsterling and gilt yields fell.

True, there were signs of agrowing belief that with theU.K. expanding at an annualpace of 3% or more and unem-ployment falling rapidly, theeconomy might be able to tol-erate a small rise in rates. Butthere also were hints that pol-icy makers are worried aboutthe outlook for global growth,and concern about the failureof wages to reflect the pickupin the economy.

The wage conundrum willonly have deepened ahead ofthe preparation of the BOE’sAugust Inflation Report—akey venue for the committeeto update its thinking aboutthe economy. At July’s meet-ing, policy makers knew thatconsumer-price inflation sur-prisingly had jumped to 1.9%.But they didn’t have the latestwage data, which showed reg-ular pay rising just 0.7%, thelowest annual growth rate onrecord.

This is a real headache forthe BOE. On the one hand,there might simply be a lon-ger lag than expected betweenthe fall in unemployment anda rise in wages. Wage infla-tion could thus pick up quitesharply, quite quickly—as eco-nomic-survey data have beensuggesting. But an alternativeexplanation is that there arestructural changes to theworkforce, such as a willing-ness to accept lower wages oran increase in older peopleworking, impeding growth inwages.

If the first case is true,then delaying might meanthat the BOE has to raiserates more quickly than itwould like. But if it is the lat-ter, then some MPC membersfear that raising rates whilereal wages still are fallingcould derail the recovery.

The timing of the first rateincrease, then, remains un-clear. The BOE’s next movewill be determined by theeconomic data. But there is aclear message as to what datato watch particularly closely:Investors should pay attentionto wages. —Richard Barley

Fed Up With Deutsche MisstepsJust what Deutsche Bank

needed: another reason for in-vestors to doubt its balancesheet.

The German banking gianthas been called out by exam-iners at the Federal ReserveBank of New York for report-ing unreliable numbers aboutits U.S. operations since 2002,according to The Wall StreetJournal. The regulator voicedconcerns about systems andcontrols at the bank’s U.S. armand even whether its report-ing in general is reliable or ac-curate.

That raises questionsabout Deutsche Bank’s booksoverall: The U.S. operationsreportedly could equal nearlyone-quarter of the firm’s totalbalance sheet.

Investor reaction wassomewhat muted Wednesday,possibly because many al-ready take a dim view ofDeutsche. The stock trades atjust half of book value. Apartfrom its troubled domestic ri-val, Commerzbank, the onlybig European banks that tradeat lower multiples of price-to-book value are Italy’s BancaMonte dei Paschi di Sienaand Banco Espírito Santo ofPortugal.

In Deutsche’s favor, it ap-

pears to have time to sort outthese issues and has commit-ted to spending an extra €1billion ($1.35 billion) in sys-tems investment and staff in-creases to deal with this andother regulatory demandssince December, when theNew York Fed sent its letter.

That said, internal controlshave taken on greater impor-tance with U.S. regulators af-ter problems in this area weresaid to have played a role inJ.P. Morgan’s “London whale”trading debacle.

Furthermore, Deutsche al-ready is undercapitalized in

the U.S. by its own estimationand may have riled the Fed bylobbying against its proposalsfor foreign-bank capital re-quirements. These were ad-opted earlier this year.

Deutsche’s exact capitalposition in the U.S. isn’t nowreadily apparent in regulatoryfilings due to a change in itsstructure in 2012. But in itslast filing as a bank-holdingcompany in December 2011,the U.S. operations had totalassets of $355 billion and Tier1 capital of negative $5.68 bil-lion.

Also, any doubts at the Fed

about the bank’s asset valua-tions and controls could leadto demands that it hold morecapital or to restrictions thatcrimp its fixed-income tradingbusiness.

Investors were never ex-pecting Deutsche’s U.S. busi-nesses to be able to pay divi-dends up to the group after ascheduled capital review in2016 because of its low capitalbase—another potential rea-son behind the muted share-price reaction Wednesday.

However, any limitationson its fixed-income tradingoperations in the U.S. wouldhurt its ambitions to boostprofits by becoming the onlysignificant European presenceleft in this global market—akey pillar of its plan to gener-ate a 12% return on equity by2016.

The German bank’s leader-ship says the investor skepti-cism it faces relates mainly tothose return targets, as wellas some residual fear aboutthe cost of litigation settle-ments. That may be short-sighted.

This latest embarrassmentis actually another reason forshareholders to ascribe ahigher cost of equity to theGerman bank to account for

the uncertainty in its busi-nesses as well as the risks.That raises the bar for the re-turn the bank needs to gener-ate to create value.

The bank’s leadership can’tafford more slips, particularlyAnshu Jain, the co-chief exec-utive who previously ran theinvestment bank and headedits U.S. operations. Deutscheraised €8 billion in equity thisyear, having pledged last yearafter a nearly €3 billion capi-tal raise that it wouldn’t needto do more.

Deutsche Bank says it nowhas enough capital for all“known challenges.” Its valua-tion shows, though, that mar-kets don’t necessarily buy thisline.

Indeed, even after the cap-ital raisings, the bank’s lever-age ratio at 3.4% remains wor-ryingly low given its heft.Only Crédit Agricole and So-ciété Générale are worse onthis measure in Europe andeven adjusting for accountingdifferences it falls short ofmost U.S. rivals.

If missteps in the U.S.mean Deutsche Bank mustcome back to shareholders formore equity, that should leadto changes at the top.

—Paul J. Davies

U.S. Takes Wind From Glaxo SailsGlaxoSmithKline investors

can be forgiven for feelingwinded after the U.K. pharma-ceuticals company reportedweak first-half results and cutits guidance for the year.

Sales growth is now un-likely at constant currencies;earnings per share are ex-pected to be flat on the samebasis. The reason: Glaxo’sprized respiratory business isin a pinch.

How Glaxo would manageas Advair faces competitionhas always been a concern.There aren’t yet generics ofAdvair, Glaxo’s biggest drug,which accounted for one-quar-ter of sales last year. But salesfell 14% in the year’s first half,led by a 24% drop in the U.S.

Competition has rampedup even without direct copies.Big U.S. pharmacy-benefitsmanagers, newly focused onhealth-care costs, are playingsimilar products against eachother to secure discountprices. Express Scripts ex-cluded Advair from its list ofmedicines covered by insurersfor this year in favor ofcheaper alternatives.

That also could weigh onthe launch of Glaxo’s succes-sors to Advair. Sales of newrespiratory drugs, Breo andAnoro, fell well short of ex-pectations in the second quar-ter, coming in one-fifth and38% below Deutsche Bankforecasts, respectively.

Glaxo says forward-lookingdata look promising for the

drugs. But the company con-cedes it is taking much longerto establish new products inthe U.S. primary-care marketthan in the past. Meanwhile,mounting U.S. price competi-tion may affect not justGlaxo’s existing products but

also coming ones, like a triplecombination of respiratorydrugs that has just enteredlate-stage development.

There were a few brighterspots. HIV drug Tivicay is do-ing well; emerging-marketssales growth is holding up de-

spite a bribery probe in China.But there wasn’t enough to

distract investors from therespiratory sucker-punch.Glaxo is bulking up in con-sumer health care through itsdeal with Novartis, but first-half sales fell 2% thanks toproduct-supply issues. Glaxois slowing its share repur-chases because of the strengthof the U.K. pound. And, after asuccessful 2013, Glaxo’s devel-opment pipeline is unlikely togenerate much excitement inthe near term.

At 13.4 times forecast 2015earnings, Glaxo is trading at a12% discount to a Europeansector average boosted bytakeover speculation aroundAstraZeneca. For now, Glaxodoesn’t have the breath toclose that gap.

—Helen Thomas

Puffed OutSales of Glaxo’s Advair

The Wall Street Journal

Source: the company

£1.5

0

0.5

1.0

billion

1Q 2013 1Q 2014

2Q ‘14:£1.1billion

GSK headquarters, London

Another DefaultAverted in China

Another default scare inChina has ended with a bail-out mystery.

Last week, Chinese con-struction company HuatongRoad & Bridge Group warnedit might default on a 400 mil-lion yuan ($64.5 million) bondcoming due Wednesday. Itwould have been only the sec-ond bond default ever inChina, after Shanghai ChaoriSolar Energy Science &Technology missed interestpayments on a bond in March.

It wasn’t to be. The con-struction company repaid theamount due before Wednes-day’s deadline.

It isn’t clear how the com-pany came up with the moneyso quickly after warning ofimpending default. The situa-tion is reminiscent of anothernear default earlier this year,when a trust product backedby loans to a coal companyand sold to investors by In-dustrial & Commercial Bankof China, the nation’s largestbank, was rescued at the 11thhour by an anonymous thirdparty. Many investors suspectlocal government involvementin these types of bailouts.

The market could have ab-sorbed the impact of an out-right Huatong default withouttriggering much angst. Corpo-rate-bond yields have ticked

up slightly since Huatong’swarning last week, but theystill are down from levels justafter the Chaori default.

Meanwhile, in the com-pany’s “shadow banking” sec-tor, a handful of trust prod-ucts have failed to makescheduled payments this year.But a widely anticipated waveof defaults has so far failed tomaterialize. Looser monetaryconditions, intended to easethe economic slowdown, havemade it easier for stressedborrowers to roll over loans.

China is only storing uptrouble for later. Credit Su-isse estimates that over thenext nine months some 4.2trillion yuan of trust loans arescheduled for repayment. Andtotal credit continues to ex-pand, at around 19% in thesecond quarter, according toStandard Chartered. That ismore than twice the pace ofeconomic growth and infla-tion, meaning the Chineseeconomy still is levering up,not down.

Policy makers showed ear-lier this year they were readyto allow small-scale defaultsto get investors used to as-sessing risk. But like a ner-vous parent, China doesn’twant anyone to get hurt justyet. It is time to take off thetraining wheels. —Aaron Back

Strength TestPrice/book value ratios forselect European banks

The Wall Street Journal

Source: FactSet

1.6

0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

%

’13 ’142012

UBS

DeutscheBank

Barclays

Deutsche Bank headquarters,Frankfurt

Competition rose forAdvair, even withoutgeneric versions.

Bloomberg

New

s

Bloomberg

New

s