The Wall Street Journal

Fired Chinese Insurance Regulator Charged With Bribery, Abuse of Power

Xiang Junbo was fired last April amid concerns the industry’s sizzling expansion had saddled the
financial system with risk
James T. Areddy
April 16, 2018 7:17 a.m. ET
https://www.wsj.com/articles/fired-chinese-insurance-regulator-charged-with-bribery-abuse-of-
power-1523877446?mod=searchresults&page=3&pos=20&ns=prod/accounts-wsj

SHANGHAI—Chinese prosecutors indicted the country’s former chief insurance regulator on

charges of abusing his power and taking bribes, a year after he was fired amid concerns the
industry’s sizzling expansion had saddled the financial system with risk.

Xiang Junbo, whose firing last April underscored the severity of a shake-up in China’s financial
sector, faces charges that also include using his positions to promote the interests of others,
according to a statement from the nation’s top prosecutors office Monday.
Specifics of the allegations against Mr. Xiang, 61 years old, weren’t released, and he hasn’t
commented publicly or through a lawyer since his ouster and subsequent notices from Chinese
authorities that he was under investigation.

China’s insurance industry grew quickly after Mr. Xiang became its chief regulator in 2011. He
was a proponent of allowing insurers to expand by harnessing technology including the internet
for marketing. Insurers began offering nontraditional policies that were more like savings
accounts or high-yield investments.

By late 2016, insurers had fallen under the spotlight as Chinese leaders tried to control capital
outflows and began to openly fret that the financial system was building debt too rapidly and
creating systemic risks. That prompted a late-stage appeal by Mr. Xiang for insurers to return to
providing basic insurance coverage.

Over the past year, the comedown for China’s insurance industry has been rough. Several
companies have been penalized. In recent weeks, authorities seized control of once-highflying
Anbang Insurance Group Co. and pumped in nearly $10 billion to ensure its viability, while
Anbang’s founder stood trial on fraud charges. Last week, the watchdog agency Mr. Xiang led
was officially combined into a bank regulatory agency and named the China Banking and
Insurance Regulatory Commission with a mandate of “guarding against and resolving significant
financial risks.”
In Monday’s single-sentence summary of the indictment from China’s Supreme People’s
Procuratorate, Mr. Xiang was accused in vague terms of taking advantage of his positions and
authority to seek benefits for others and for himself illegally accepting huge amounts of money
and property. The prosecution covers Mr. Xiang’s 13 years at the insurance regulatory agency,
China’s central bank and a commercial bank where he held senior positions.
The Wall Street Journal
JPMorgan Reports Record Earnings, Boosted by Tax Law
Return on equity, a key measure of profitability, hits highest level in at least a decade
https://www.wsj.com/articles/jpmorgans-reports-higher-earnings-
1523616848?mod=searchresults&page=4&pos=14
Peter Rudegeair and Emily Glazer
Updated April 13, 2018 11:45 a.m. ET
JPMorgan Chase & Co. said Friday that its quarterly profit surged 35% to an all-time high, as a
strong economy and nearly a quarter-billion dollars in tax savings boosted results.

The first-quarter results were punctuated by big gains in profitability and trading, especially for
desks that specialize in stocks. The bank’s total revenue rose 12% to 27.91 billion.

The New York firm, the largest U.S. bank by assets, reported a profit of $8.71 billion, or $2.37 a
share, up from $6.45 billion, or $1.65 a share. Analysts polled by Thomson Reuters had expected
earnings of $2.28 a share. Shares, though, fell 2.7% to $110.37 in midday trading as investors
took profits after a mini-rally for bank stocks over the past week.

JPMorgan’s trading revenue increased 13% to $6.57 billion from $5.82 billion a year earlier.
Fixed-income trading revenue rose 8.0% to $4.55 billion, while stock-trading revenue grew 26%
to a record $2.02 billion. Excluding accounting adjustments, bond-trading revenue was flat.

Chief Financial Officer Marianne Lake said on a conference call with reporters that the volatility
that characterized stock markets and fueled trading revenue there didn’t carry over into fixed-
income markets. She added that better results in trading emerging-market bonds and
commodities didn’t override weakness in other businesses or the higher-than-usual performance
in last year’s first quarter.

Volatility also helped suppress results in JPMorgan’s investment bank, spooking companies from
issuing new debt. Fees there fell 10% to $1.7 billion, mainly because of an 18% drop in revenue
from underwriting bonds.

JPMorgan’s return on equity, a closely watched measure of profitability, rose to 15% in the first
quarter, compared with 11% a year ago. It is now at the highest level in at least a decade.

A lower tax bill thanks to last year’s policy changes was a big contributor to that milestone.
JPMorgan paid an effective income-tax rate of 18.3% in the first quarter, compared with 48.7%
in the fourth quarter of 2017 and 22.7% in last year’s first quarter.

Many commercial and corporate clients, while also likely helped by the tax law, don’t seem to be
overly eager to expand just yet. Ms. Lake said it is too early to broadly see higher earnings or
cash flow as a result of the overhaul, although she expects that to change in coming quarters.
“We have to recognize that tax reform is in its early stages,” Ms. Lake said on the conference
call with reporters.

The boost from still low—but rising—interest rates has been a major focus for investors, as an
increase in rates can help the profitability of big consumer lenders like JPMorgan. Net interest
income rose 10% to $13.3 billion, and the bank’s loan book expanded by 4% to $934 billion.

The bank also is investing more in its own business. Costs increased 5% to $16.1 billion
from $15.3 billion a year earlier. The bank said in late February that total costs are expected to
rise to around $62 billion in 2018 from $58.5 billion in 2017.
JPMorgan set aside $1.17 billion in the first quarter to cover loans that could potentially turn bad
in the future. That compares with $1.31 billion in the fourth quarter of 2017 and $1.32 billion in
the first quarter of 2017. The bank lost $1.34 billion to loan defaults, or 0.61% of its overall
portfolio, compared with a 0.79% charge-off rate in the first quarter of 2017.

Legal costs totaled $70 million in the first quarter, compared with a benefit of $207 million in the
fourth quarter of 2017 and $218 million a year earlier.

The Wall Street Journal

Beset By Late Filings, WageWorks Hires Outside Firm for Finance Help
Software company last week shuffled top ranks after audit found weaknesses in financial reporting
Maria Armental
April 9, 2018 6:06 p.m. ET
https://www.wsj.com/articles/beset-by-late-filings-wageworks-hires-outside-firm-for-finance-
help-1523311569?mod=searchresults&page=6&pos=16
WageWorks Inc., WAG which recently shuffled its top ranksafter discovering financial
irregularities, is turning to an outside firm to fill its chief financial officer post on a temporary
basis.
On Monday, the company said it had signed a contract with Randstad Holding U.S. subsidiary
Tatum under which Ismail “Izzy” Dawood will be paid $23,000 a week in addition to
reimbursement for other expenses and a housing allowance.
Mr. Dawood formerly served as CFO of Santander Consumer USA Holdings Inc., the troubled
U.S. car-loan unit of Banco Santander SA
Mr. Dawood, who would be responsible for the company’s accounting and financial matters until
a permanent CFO is hired, will work with WageWorks’s auditors to finalize fourth-quarter and
fiscal 2017 financial results and 2017 audit.

Last week, WageWorks replaced some of its top leaders—including its chief executive officer—
and said it needed to restate financial results from the past two years after an audit found
“material weaknesses” in its reports. The shakeup resulted in Joseph Jackson stepping down as
CEO and Colm Callan resigning as CFO.

The California company, which administers employee-benefits programs such as health-savings

accounts and benefits programs for transit and parking, has said it would launch a search for a
permanent finance chief.

Mr. Dawood will also evaluate WageWorks’s finance and accounting operations and make
recommendations to strengthen them, the company said. He is eligible to receive a completion
bonus of $200,000 upon meeting certain milestones if he remains in an interim capacity.

Why Kraft Heinz’s Operating Cash Flow Is Getting Sliced

Some companies are seeing reductions in their operating cash flow and free cash flow because of a
new accounting rule.

https://blogs.wsj.com/moneybeat/2018/04/02/why-kraft-heinzs-operating-cash-flow-is-getting-
sliced/
Michael Rapoport
Apr 2, 2018 9:00 am ET
At some companies, key measures of cash flow aren’t what they used to be.

Companies like Kraft Heinz and Xerox are seeing reductions in their operating cash flow and
free cash flow because of a new accounting rule now taking effect, according to a report last
week from Zion Research Group. The rule indicates some cash that companies get from selling
trade receivables should be moved out of operating cash flow and into a different section of the
cash-flow statement that isn’t used to measure corporate performance.
Total cash flow from all sources remains the same. But many investors use operating cash flow
and free cash flow to gauge a company’s health and its ability to do things like pay dividends.

Anything that changes those measures could change investor perceptions of a company and, in
turn, its value. The rule could force investors to take extra steps to ensure they are getting a fair
picture of performance, and might prompt companies to change some of their practices as well.

“It’s something to look at under the spotlight,” said Janet Pegg, a Zion research analyst. Other
companies will be affected also, she said, and investors should ensure they’re looking at a
company’s cash-flow numbers in the proper light, adjusting them if necessary and making sure
they’re comparable with competitors.

The new rule from the Financial Accounting Standards Board, which sets accounting rules for
U.S. companies, covers several different changes to how cash flow is reported, but the Zion
report focuses on only one: What happens when companies securitize their trade receivables, or
money owed to a company for products it has sold but that it hasn’t yet collected.
Creating and selling those securities lets a company monetize those receivables more quickly and
relieves it of the risk that its creditors won’t pay. In exchange, the company receives cash plus a
“beneficial interest” giving it a share of the collections on the receivables.

In the past, companies have classified both the cash and the collections on the beneficial interest
as cash flow from operations. That is as opposed to the other types of cash flow, financing or
investing cash flow.

That is important; operating cash flow and free cash flow, or operating cash minus capital
expenditures, are the cash-flow measures typically used to assess the health of the company’s
business.

But the FASB’s new rule indicates that beneficial interests are effectively investments – so cash
from collections on the receivables under those circumstances will now go into investing cash
flow instead.

At some companies, that means large amounts shifting out of operating cash flow and into
investing cash flow. At Kraft Heinz, the new rule knocked $2.3 billion off its 2017 operating
cash flow, the Zion report notes, reducing it to $527 million. Xerox Corp.’s 2017 operating cash
flow was reduced by $234 million, erasing all of its cash flow from operations. Kraft Heinz
declined to comment; Xerox said it has disclosed the impact of the change and has already
factored it into its 2018 cash-flow guidance.

Some companies also have indicated they will end or modify their securitizations of receivables,
Ms. Pegg said. Others could start reporting “adjusted” measures of operating cash flow that add
back in the amounts being switched to investing cash flow.

Anglo American CFO Strives For Fiscal Discipline

Mining company will stick to financial targets, build one large project at time amid rebound in
commodities, finance chief says.
https://www.wsj.com/articles/anglo-american-cfo-strives-for-fiscal-discipline-
1522341661?mod=searchresults&page=11&pos=8
Nina Trentmann
March 29, 2018 12:41 p.m. ET
Anglo American NGLOY -1.52% PLC could loosen its purse strings due to a rebound in
commodity prices, but it wouldn’t repeat spending mistakes it made in years past, according to
finance chief Stephen Pearce.
The company’s goal is to raise productivity while cutting costs. Nearly one year into his tenure,
Mr. Pearce has set strict financial targets and pledged to stick to one big project at a time. So far,
Anglo American’s capital spending is down to $2.2 billion in 2017, from a high of $6.1 billion in
2013.

The laser focus on costs comes after some hard lessons. Anglo American notched four straight
years of losses starting in 2012, posting its largest net loss of $5.6 billion in 2015. The
company had plowed billions into multiple large projects during the tail end of the yearslong
commodities boom. But as the price of copper, coal, iron ore and other resources plunged to
multiyear lows, Anglo American was forced to shed assets and write down billions from the
value of its mines.
“We are fundamentally different from what we used to be,” Mr. Pearce said in an interview with
CFO Journal.

Anglo American has continued to reduce net debt, which totaled $4.5 billion at the end of 2017,
down from $8.5 billion at the end of 2016. The company also slashed head count by 45%
between 2012 and 2017 to around 69,000, cutting about 11,000 positions throughout 2017 alone.

“We are running a more conservative balance sheet now,” said Mr. Pearce. That means not
getting “too excited if today’s [commodity] prices are high,” but to think about where
commodity prices will be in 30 or 40 years from today.

Mr. Pearce is continuing the efforts to curb costs and spending instilled by his predecessor René
Médori. The London-based mining company expects to reduce costs by $3 billion to $4 billion
annually between 2018 and 2022, in part by squeezing the existing assets harder, Mr. Pearce
said. He previously served as finance chief at Australian mining company Fortescue Metals
Group Ltd. , a role he held since March 2010.
The company currently has 36 assets in 13 countries, down from 68 at the end of 2013.

“If you overextend the balance sheet, it can take you a couple of years [to recover] and you will
miss out,” Mr. Pearce said.

The miner set strict financial targets after those immediate rescue measures. Anglo American
aims to keep net debt at 1.0 times to 1.5 times to earnings before interest, tax, depreciation and
amortization during a prolonged period of low commodity prices. Anglo American’s net debt to
ebitda ratio was 0.5 times as of Dec. 31, 2017, compared with a high of 2.6 times on Dec. 31,
2015.

The finance chief’s efforts are bearing fruit. Earnings rose 48% to $3.3 billion at the end of 2017,
compared with $2.2 billion at the prior year end.

The company’s improved results are getting attention from shareholders. Volcan Investments
Ltd., the firm’s largest shareholder, last September said it was “encouraged by the performance
of Anglo American” and planned to increase its stake.

Volcan currently holds 19.35% of Anglo American’s outstanding shares, up from 11.44% in
September, according to FactSet.

Many analysts also consider the restructuring successful. “Anglo American has done an
exceptionally good job in fixing its balance sheet,” said Christopher LaFemina, a mining analyst
at Jefferies LLC.
A rebound in commodity prices is also lending Anglo American a helping hand. Commodity
prices are up 17% from last year, according to a basket of raw materials tracked by the S&P
GSCI index.

Analysts expect the rally in resource prices to continue. Platinum, which accounts for around
17% of Anglo American’s revenue, is forecast to reach $1,012.77 a troy ounce, up 6.8% from
$948 an ounce in 2017, according to IHS Markit. Thermal coal is primed for a 19% jump to
$104.10 a metric ton, but iron ore prices are forecast to pull back 3.4% to $68.54 a metric ton.

But when commodities prices next turn lower, Mr. Pearce is confidence Anglo American’s
efforts to keep down costs make the company better prepared to ride out the rough patch. “We
have the right building blocks in place,” he said.

At Quellaveco, the large copper deposit in southern Peru that will cost roughly $5 billion to
develop, the miner is searching for a syndication partner to shoulder costs. Anglo American is
looking to reduce its current 82% stake to around 50% to 70%, a spokesman said. The remaining
18% is owned by Mitsubishi Corp.
Trucks used to haul ore will run an average 6,000 hours a year instead of 4,500 hours, generating
additional savings, said Mr. Pearce. Anglo American also wants to use less water and energy and
overhaul the operation of its mines. “Cents ultimately become dollars,” Mr. Pearce said.