The Wall Street Journal - 21.10.2019

© 2019 Dow Jones & Company. All Rights Reserved. ** THE WALL STREET JOURNAL. Monday, October 21, 2019 |B1

TECHNOLOGY: U.S. STILL USING BANNED CHINESE SURVEILLANCE GEAR B4

BUSINESS&FINANCE

HSBC Holdings PLC started
2019 with a chief executive
poised for growth and focused
on making its 238,000 employ-
ees the “best version of them-
selves.” It is ending the year
with a new boss cutting thou-
sands of jobs, culling clients
and putting businesses on the
block.
The change in approach
was triggered by storm clouds
in the bank’s two most impor-
tant markets. Violent antigov-
ernment protests have rocked
Hong Kong, while the U.K.
economy is being tested by
uncertainty over its planned
exit from the European Union.
The bank, among the
world’s largest by assets, is
also under strain in China, the
country it is counting on for
profit. It angered some offi-
cials by sharing information
with U.S. prosecutors about
one of its clients, Huawei
Technologies Co.
For HSBC’s board, the
tougher conditions were a
wake up-call that it is still too
much bank in too many coun-
tries. Its response in August

BOX OFFICE

‘Maleficent’ sequel

tops the box office,

but disappoints as

a Disney entry B2

HEARD ON THE

STREET

GM faces questions

about union deal’s

effect on costs B10

flicts that can arise from a reg-

ulatory regime that enlists

company employees to act on

behalf of both their employer

and the regulator that oversees

its products. In some cases,

Boeing engineers or managers

may have decision-making

power on behalf of the FAA

pertaining to the very same

systems and components they

design or build for the com-

pany. Such issues are at the

heart of the escalating congres-

sional debate around the way

the MAX was approved.

Rep. Peter DeFazio of Ore-

gon, the Democratic chairman

of the House committee, indi-

cated that at the hearing later

this month he plans to ask Boe-

ing Chief Executive Dennis

PleaseturntopageB2

sure had compromised safety.

Boeing was conducting the

survey the same months a se-

nior company pilot involved in

the development of the 737

MAX messaged a colleague

that Boeing’s test pilots were

“so damn busy, and getting

pressure” from the program

officials overseeing the air-

craft’s development that they

lacked sufficient time to help

sort out technical issues from

the two aviators, according to

a transcript of internal mes-

sages reviewed by the Journal

and disclosed by Boeing to

congressional investigators on

Friday.

These glimpses into Boeing’s

internal culture provided by

survey results during develop-

ment of the MAX highlight con-

as of November 2016 also indi-

cated that 15% of those who re-

sponded encountered such situ-

ations “several times” or

“frequently.” The survey results

were provided to the commit-

tee by an individual, rather

than as part of Boeing’s formal

process of turning over docu-

ments, and were reviewed by

The Wall Street Journal.

The survey, which hasn’t

been reported before, wasn’t

specifically focused on the MAX

but covered employees across a

range of Boeing commercial-

airliner programs; it came near

the end of the MAX’s multiyear

federal approval process. Boe-

ing declined to comment on the

survey, but a board member

has said an internal review

found no signs that undue pres-

nal Boeing survey showing

roughly one in three employees

who responded felt “potential

undue pressure” from manag-

ers regarding safety-related ap-

provals by federal regulators

across an array of commercial

planes. Workload and schedule

were cited as important causes.

Such conflicts could become

problematic, the survey found,

when it came to Boeing engi-

neers who played dual roles de-

signing certain systems on be-

half of the plane maker and

then certifying the same sys-

tems as safe on behalf of the

Federal Aviation Administra-

tion, as part of a decades-old

agency program that effectively

outsources such regulatory

work to company employees.

The summary of the survey

LastWeek: S&P 2986.20À0.54% S&PFIN À1.55% S&PIT g0.86% DJTRANS À2.11% WSJ$IDX g0.91% LIBOR3M 1.953 NIKKEI 22492.68À3.18% See more at WSJ.com/Markets

U.S. lawmakers probing the
737 MAX jet crisis are ratchet-
ing up scrutiny of Boeing Co.
leaders as new details point to
management pressure on engi-
neers and pilots in its com-
mercial-aircraft unit.
Investigators for the House
Transportation and Infrastruc-
ture Committee looking into
the design and certification of
the 737 MAX have received de-
tails of a three-year-old inter-

BYANDREWTANGEL

ANDANDYPASZTOR

Boeing Workers Pressed on Safety

Employee survey

showed some felt

undue pressure to

approve its systems

Desperate for cash, shale

companies are trying to court

investors with a new and po-

tentially risky financial instru-

ment that resembles mortgage

bonds.

The companies are floating

a type of asset-backed security

that involves existing oil and

gas wells. Producers transfer

ownership interests in the

wells to special entities that

then issue bonds to be paid off

by the output from the wells

over time.

Raisa Energy LLC, a Den-

ver-based oil-and-gas company

backed by private-equity firm

EnCap Investments LP, closed

the first such offering in Sep-

tember and several others are

planned before the end of the

year, said people familiar with

the transactions. The bonds

will pay nearly 6% interest on

the best-quality wells, the peo-

ple said, with higher rates on

riskier assets.

The investments are draw-

ing attention from insurance

companies, large money man-

agers and other investors of

asset-backed securities. They

represent a new avenue for

shale companies as the indus-

try’s traditional investors sour

on the sector following years

of disappointing returns.

While similar in structure

to securities backed by mort-

gages and auto loans, the se-

curities pose potential risks

because projecting the long-

term output from shale wells

remains an inexact science.

Shale drilling only became a

widespread method of extract-

ing oil and gas in the past two

decades. Modeling future pro-

duction has proven difficult

because of the complex geol-

ogy of shale basins and large

variability from one well to

the next, engineers say.

Thousands of shale wells

drilled in the past five years

are pumping less oil and gas

than their owners forecast to

investors, The Wall Street

Journal previously reported.

Investors will have to rely

on companies’ estimates to

model potential returns, said

Harrison Williams, managing

principal at Core Energy Advi-

sors, which advises producers

on asset sales.

“The pitfalls are in the un-

derwriting: Is the oil and gas

there and will it come out?”

Mr. Williams said. “Sometimes

predicting reserves has a large

component of art as well as

science.”

Fixed-income investors are

PleaseturntopageB5

BYCHRISTOPHERM.MATTHEWS

ShaleFirms

Gamble on

Bonds Tied

To Wells

operation in Syria, attacks on

Saudi oil production and social

unrest spanning from Hong

Kong to Barcelona.

In response, some investors

are boosting holdings of cash

and other assets that tend to

hold their value when markets

turn rocky. Others are recom-

mending strategies that could

protect against a swift down-

turn.

Investments that prioritize

safety from volatility could be-

come even more popular after

Saturday’s vote by the U.K.

Parliament, which potentially

further extends a three-year-

plus period of deep uncer-

tainty. The vote forced the

government to ask formally

for another Brexit delay, al-

though Prime Minister Boris

Johnson urged EU leaders not

to grant an extension, and his

government said there was

still time to leave, as planned,

at the end of the month.

To capture just how much

recent flare-ups around the

world compare with previous

levels of political upheaval,

professors at Northwestern

University, Stanford University

and the University of Chicago

created a variety of indexes

that measure levels of global

uncertainty.

One index, which captures a

range of political and eco-

nomic uncertainties, rose in

August to its highest level on

record in data that go back to

1997. It was even more extreme
      than after previous events
      such as the 9/11 terrorist at-
      tacks, the SARS outbreak in
      Hong Kong, the European debt
      crisis and the 2016 U.S. presi-
      dential election.
      The most recent reading in
      September was the fourth
      highest on record.
      “I think political uncer-
      tainty is clearly far higher
      than it has been for a long
      time,” said Nick Bloom, an
      economics professor at Stan-
      ford and one of the creators of
      the uncertainty indexes.

He said a “toxic combina-

tion” of low growth and rising

income inequality has contrib-

uted to more extreme political

uncertainty.

A separate index that fo-

cuses only on uncertainty in

global trade policy has surged

to around 100 so far this year.

From 1996 through 2018, its

average level was about 2.

“The number of political

risks that could seriously

move markets [is] as high as

we have seen,” said Erik

Knutzen, multiclass chief in-

vestment officer at Neuberger

Berman, who has recently in-

creased his holdings of cash.

PleaseturntopageB9

The U.K. Parliament’s deci-
sion to postpone a final vote
on the country’s exit from the
European Union marks the lat-
est geopolitical development
likely to swing financial mar-
kets, highlighting the extreme
levels of uncertainty that some
investors worry isn’t being
properly accounted for with
U.S. stocks near all-time highs.
The U.S.-China trade war,
Britain leaving the EU and im-
peachment proceedings in the
U.S. are just some of the major
political obstacles facing in-
vestors. Adding to the uncer-
tainty are the Turkish military

BYSTEVENRUSSOLILLO

Global Risks Send Investors on Haven Search

Note: Uncertainty indexes were developed by professors at Northwestern University, Stanford University and University of Chicago. Callouts for the SARS outbreak and financial crises refer to early stages of each.
Sources: Economic Policy Uncertainty (uncertainty indexes); FactSet (S&P 500, crude oil)

Attackon

Saudioil

facilities

S&P500

3100

Record close

2800

2900

3000

July Oct.

Brentcrude-oilfuturesprice

$70

55

60

65

a barrel

July Oct.

Indexofglobaleconomic-policyuncertainty,monthly

Stocksarenearnewhighsandtheimpactonmarkets

ofpotentiallydisruptiveeventshasbeenlimited.

Indexofglobaltrade-policyuncertainty,quarterly

100 Trump presidency

0

50

2000 ’10 ’19

300

0

100

200

2000 ’10 ’19

9/11attacks

onU.S.

SARS

outbreak

Global

financial

crisis

European

debtcrisis

Brexitvote

2016U.S.

election

was to swap out chief execu-

tive John Flint, a 30-year vet-

eran of the bank who im-

proved financial performance

but underwhelmed a chairman

looking for quicker fixes.

Chairman Mark Tucker—

the first outsider in the post—

asked Noel Quinn, head of

commercial banking, to be in-

terim CEO. Mr. Quinn has told

colleagues he aims to make

the job permanent. Some ana-

lysts predict an announcement

as soon as December.

The 57-year-old’s plan to

earn it: Exit low-growth busi-

nesses and ax costs to better

compete with international ri-

vals such as JPMorgan Chase

& Co. and Citigroup Inc.

Mr. Quinn has sped up

plans to sell HSBC’s large

French retail bank and is going

deeper with the job reductions

that were started this year.

In August, the bank’s fi-

nance chief said the lender

needs to be harder on low-

profit customers in Europe

and “reprice them or exit.”

Now, thousands of clients in

HSBC’s global banking and

markets business and com-

PleaseturntopageB6

BYMARGOTPATRICK

Tough Conditions Test

HSBC’s Fill-In CEO

dollar settlements in past

cases, including a record $660

million settlement between the

Archdiocese of Los Angeles and

about 500 plaintiffs in 2007.

Insurance companies have

historically paid between 20%

and 80% of settlements be-

tween churches and victims,

said research firm Dowling &

Partners in a July note to cli-

ents.

The legal disputes under-

score the complexity of litigat-

ing decades-old claims and the

uncertainty about how much

money will ultimately be avail-

able to compensate victims.

Twenty-two states and Wash-

ington, D.C., have laws going

into effect this year that ex-

PleaseturntopageB2

Insurance companies are ex-

pected to see a wave of law-

suits thanks to new state laws

encouraging child sex-abuse

victims to come forward.

Most institutions that al-

leged abusers were affiliated

with, such as churches or

schools, are expected to try to

use liability insurance to cover

some of the cost of defending

against these lawsuits and pay-

ing potential damages.

But almost every aspect of

these insurance contracts could

end up under dispute.

In some cases, it might be

difficult to find a contract at

all.

“The insurance litigation

wave is just beginning,” said

Robert Chesler, an attorney at

Anderson Kill, which repre-

sents insurance policyholders.

The total potential insur-

ance cost is difficult to esti-

mate, but analysts say it could

reach billions of dollars. Dio-

ceses in California and Minne-

sota have reached multimillion-

BYNICOLEFRIEDMAN

ANDIANLOVETT

Insurers Brace for Increase in

Payouts for Sex-Abuse Cases

Ofthemorethan700childsexual-abusecasesfiledin

NewYorkbetweenAug.14andSept.23,nearly550

targetCatholicdioceses.

Source: WSJ analysis of New York state court records

CasesbyCatholicdiocese

Buffalo

NewYork

Brooklyn

RockvilleCentre

Rochester

Albany

Syracuse

Ogdensburg

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