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(ZH) The "Nightmare Scenario" For Beijing: 50 Million Chinese Apartments Are Emp

The "Nightmare Scenario" For Beijing: 50 Million Chinese Apartments Are Empty

Back in 2017, we explained why the "fate of the world economy is in the hands of China's housing bubble." The answer was simple: for the Chinese population, and growing middle class, to keep spending vibrant and borrowing elevated, it had to feel comfortable and confident that its wealth would keep rising. However, unlike the US where the stock market is the ultimate barometer of the confidence boosting "wealth effect", in China it has always been about housing as three quarters of Chinese household assets are parked in real estate, compared to only 28% in the US, with the remainder invested financial assets.

Source: Xinhua

Beijing knows this, of course, which is why China periodically and consistently reflates its housing bubble, hoping that the popping of the bubble, which happened in late 2011 and again in 2014, will be a controlled, "smooth landing" process. For now, Beijing has been successful in maintaining price stability at least according to official data, allowing the air out of the "Tier 1" home price bubble which peaked in early 2016, while preserving modest home price appreciation in secondary markets.

How long China will be able to avoid a sharp price decline remains to be seen, but in the meantime another problem faces China's housing market: in addition to being the primary source of household net worth - and therefore stable and growing consumption - it has also been a key driver behind China's economic growth, with infrastructure spending and capital investment long among the biggest components of the country's goalseeked GDP. One result has been China's infamous ghost cities, built only for the sake of Keynesian spending to hit a predetermined GDP number that would make Beijing happy.

Meanwhile, in the process of reflating the latest housing bubble, another dire byproduct of this artificial housing "market" has emerged: tens of millions of apartments and houses standing empty across the country.

According to Bloomberg, soon-to-be-published research will show that roughly 22% of China’s urban housing stock is unoccupied, according to Professor Gan Li, who runs the main nationwide study. That amounts to more than 50 million empty homes.

The reason for the massive empty inventory glut: to keep supply low and prices artificially elevated by taking out as much inventory off the market as possible. This, however, works both ways, and while it helps boost prices on the way up as the economy grow and speculators flood the housing market with easy money, the moment the trend flips the spike in supply as empty units are offloaded will lead to a panic liquidation of homes, resulting in what may be the biggest housing market crash ever observed, and putting the US home bubble of 2006 to shame.

Indeed, as Bloomberg notes, the "nightmare scenario" for Chinese authorities is that owners of unoccupied dwellings rush to sell when cracks start appearing in the property market, causing a self-reinforcing downward price spiral.

Worse, the latest data, from a survey in 2017, also suggests Beijing’s efforts to curb property speculation - which alongside shadow banking and the persistent threat of sudden bank runs (like the one discussed last week) is considered by Beijing a key threat to financial and social stability - have failed.

"There’s no other single country with such a high vacancy rate,” said Gan, of Chengdu’s Southwestern University of Finance and Economics. “Should any crack emerge in the property market, the homes to be offloaded will hit China like a flood.”

How did the Chinese researcher obtain this troubling number? To find the percentage of vacant housing, thousands of researchers spread out across 363 Chinese counties last year as part of the China Household Finance Survey, which Gan runs at the university.

Gan said that the vacancy rate, which excludes homes yet to be sold by developers, was little changed from a 2013 reading of 22.4%. And while that study showed 49 million vacant homes, Gan puts the number now at "definitely more than 50 million units."

Meanwhile, Beijing - which is fully aware of these stats, and is also aware that even a modest price decline could be magnified instantly as millions of "for sale" units hit the market at the same time - is worried. That's why Chinese authorities have imposed buying restrictions and limited credit availability, only to see money flooding into other areas. Rampant price gains also mean millions of people are shut out from the market, exacerbating inequality.

In fact, China's president Xi famously said in October last year that "houses are built to be inhabited, not for speculation", and yet a quarter of China's housing is just that: empty, and only serves to amplify speculation.

While holiday homes and the empty dwellings of migrants seeking work elsewhere account for some of the deserted properties, Gan found that investment purchases have been the biggest factor keeping the vacancy rate high. That’s despite curbs across the country meant to discourage buying of multiple dwellings.

There is another economic cost to this speculative frenzy: the drop in supply puts upward pressure on prices and crowds young buyers out of the market, according to Kaiji Chen, who co-authored a Fed paper called “The Great Housing Boom of China."

And, as Americans so fondly recall, the result of chasing unaffordable homes for the purpose of price speculation has resulted in yet another unprecedented debt bubble: according to Caixin, outstanding personal home mortgages in China have exploded sevenfold from 3 trillion yuan ($430 billion) in 2008 to 22.9 trillion yuan in 2017, according to PBOC data

By the end of September, the value of outstanding home mortgages had surged another 18% Y/Y to a record 24.9 trillion yuan, resulting in a trend that as Caixin notes, has turned many people into what are called “mortgage slaves."

It has also resulted in yet another housing bubble: home mortgage debt now makes up more than half of total household debt in China. As of the third quarter, it accounted for 53% of the 46.2 trillion yuan in outstanding household debt.

For now, few are losing sleep over what will be the next massive housing bubble to burst. An example of a vacant home is a villa on the outskirts of Shanghai that 27-year-old Natalie Feng’s parents bought for her. The two-story residence was meant to be a weekend escape for the family of three. In reality, it’s empty most of the time, and Feng says it’s too much trouble to rent it out.

"For every weekend we spend there, we need to drive for an hour first, and clean up for half a day," Feng said. She joked that she sometimes wishes her parents hadn’t bought it for her in the first place. That’s because any apartment she buys now would count as a second home, which means she’d have to make a bigger down payment.

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What is troubling is that despite relatively stable home prices, the foundations behind the housing market are cracking. As the WSJ recently reported, in early December, a group of homeowners stormed the sales office of their Shanghai complex, "Central Washington", whose developer, Shanghai Zhaoping Real Estate Development, was advertising new apartments at a fraction of the prices of the ones sold earlier in the year. One apartment owner said the new prices suggested the value of the apartment she bought from the developer in March had dropped by about 17.5%.

“There are people who bought multiple homes who are now trying to sell one to pay off the mortgage on another,” said Ran Yunjie, a property agent. One of his clients bought an apartment last year for about $230,000. To find a buyer now, the client would have to drop the price by 60%, according to Ran.

Meanwhile, in a truly concerning demonstration of what will happen when the bubble finally bursts, last month we reported that angry homeowners who paid full price for units at the Xinzhou Mansion residential project in Shangrao attacked the Country Garden sales office in eastern Jiangxi province last week, after finding out it had offered discounts to new buyers of up to 30%.

"Property accounts for roughly 70 per cent of urban Chinese families’ total assets – a home is both wealth and status. People don’t want prices to increase too fast, but they don’t want them to fall too quickly either,” said Shao Yu, chief economist at Oriental Securities. "People are so used to rising prices that it never occurred to them that they can fall too. We shouldn’t add to this illusion," Shao added, echoing Ben Bernanke circa 2005.

But the biggest surprise once the music finally stops may be that - as a fascinating WSJ report revealed one year ago - China's housing downturn is likely far, far worse than meets the eye, as under Beijing’s direction more than 200 cities across China for the last three years have been buying surplus apartments from property developers and moving in families from condemned city blocks and nearby villages. China’s Housing Ministry, which is behind the purchases, said it plans to continue the program through 2020.The strategy, supported by central-government bank lending, has rescued housing developers and lifted the property market.

In other words, while China already has a record 50 million empty apartments, the real number - when excluding the government's own stealthy purchases of excess inventory - is likely significantly higher. It is this, and not China's stock market, that has long been the biggest time bomb for Beijing, and if Trump and Peter Navarro truly want to crush China in their ongoing trade war, they should focus on destabilizing the housing market: the Chinese stock market was, and remains just a distraction.

To summarize:

China has more than 50 million vacant apartments
Mortgage loans have grown 8-fold in the past decade
Prices are kept steady thanks to constant government purchases of surplus inventory
Home prices are already cracking, with some homebuilders forced to cut prices by 30%.
Homebuyers revolt, forming angry militias and storm homesellers' offices when prices dip

For now, China has been able to maintain the illusion of stability to preserve social order. However, should the housing slowdown accelerate significantly and tens of millions in empty units suddenly hit the market, then the "working class insurrection" that China has been preparing for since 2014...

NYP : Compensation soars for hedge fund managers

The wallets of hedge fund managers are looking fatter this year.

Total compensation for hedge fund portfolio managers is expected to climb 40 percent, to $1.4 million, in 2018, according to Institutional Investor’s second annual All-American Buy-Side Compensation Survey.

The hedgies on average reported a 25 percent jump in base pay — to $346,164 — and more than $1 million in variable compensation.

Portfolio managers at hedge funds with more than $5 billion in assets are feeling even more flush, as they are expected to earn $2.8 million in total compensation.

The big gains are due in part to bonuses for 2017 performance — when hedge funds returned 8.6 percent — being paid in 2018.

This year hasn’t been kind to hedgie portfolios, which are down 1.7 percent this year, according to a report by Hedge Fund Research Wednesday.

October was a particularly brutal month for hedge funds, as they suffered their worst month in seven years after plunging nearly 3 percent, HFR noted.

Nevertheless, Institutional Investor noted that hedgies were “broadly optimistic” about their future paychecks, even amid fears of an economic slowdown.

NYP : FDA reportedly plans to pull flavored e-cigarettes from stores

FDA reportedly plans to pull flavored e-cigarettes from stores

Sales of flavored e-cigarettes to teens are about to go up in smoke.

The Food and Drug Administration is planning to pull flavored e-cigs from shelves of convenience stores and gas stations in order to crack down on what it has called the “epidemic” of teen e-cig use, according to reports.

Details of the FDA’s plans are expected to be announced next week and will reportedly take effect immediately, according to the Wall Street Journal and Washington Post reports.

The FDA is also mulling a ban on menthol cigarettes due to their greater addictive qualities, the Journal said in a separate report.

In an effort to get ahead of the regulators, popular e-cig brand Juul plans to stop selling its fruity flavors — such as creme and mango — at retail locations, according to a CNBC report Friday.

Sales of the flavored pods will still be available to buy online, where Juul relies on age-verification technology, according to CNBC sources.

It was not clear if Juul’s plan to pull its products would come before the FDA’s announcement.

Juul has attracted heightened scrutiny from the FDA, as its sleek design, flavored pods and high-nicotine content are said to appeal to teens.

NYP : Millennials are sticking with cryptocurrency

Millennials are sticking with cryptocurrency

Millennials have their own thoughts on investing, and a large part of the cohort are still interested in bitcoin.

These young people, many of whom have soured on conventional investing, are becoming increasingly interested in cryptocurrency, according to a new study.

About 25 percent of those recently surveyed said they are using or holding cryptocurrency, which was born about a decade ago. And another 30 percent of millennials said that they want to investigate it further.

“Anyone that has crypto tells me they wish they bought it sooner,” according to Deidre Campbell, Global Chair of Financial Services at Edelman and the author of the study.

It is ironic that many millennials love these alternative currencies, since it has been a lousy year for returns on them. After a fat 2017, bitcoin was recently down for the year about 55 percent. Other coins, like ether and litecoin, have dropped more, according to Markets Insider.

BitMex CEO Arthur Hayes recently said the cryptocurrency bear market will likely continue for another year to 18 months.

Still, millennials are unusual investors. They are skeptical of many of the financial institutions and strategies that their parents used.

Two years ago, a Facebook survey found that only 8 percent of millennials trusted financial institutions.

The report also found that many write their own financial plans and have also achieved “financial independence and have maxed out their 401(k) plans,” Edelman said.

The Edelman survey defines affluent millennials as those between the ages of 24 and 38 who make $100,000 in individual or joint income, or have some $50,000 in investable assets.

Edelman surveyed some 1,000 affluent millennials (as well as 500 non-affluent millennials), along with 500 affluent GenXers, ages 39 to 52.

WSJ : Once Censored, Billionaire Saudi Prince Returns to Spotlight

Once Censored, Billionaire Saudi Prince Returns to Spotlight

Prince al-Waleed bin Talal has emerged from a corruption probe to seize his previous role as the kingdom’s unofficial business ambassador

DUBAI—Billionaire Saudi Prince al-Waleed bin Talal has returned as the kingdom’s public face for global investors, emerging a year after his detention to help the royal family survive the crisis over journalist Jamal Khashoggi’s killing.

Prince al-Waleed was the best known internationally of the Saudi businessmen, government officials and royals detained last year in what Saudi authorities called a corruption crackdown. Prince al-Waleed wasn’t publicly charged, but his three-month imprisonment raised doubts about his quasi-diplomatic role as Saudi Arabia’s unofficial business ambassador.

In the months after Prince al-Waleed was released following an undisclosed settlement with the government he kept a low profile. Now, he is providing the kingdom with a friendly face for Western investors and foreign officials after executives began to publicly shun Crown Prince Mohammed bin Salman, the de facto ruler, over a Saudi government hit squad’s killing of Mr. Khashoggi.

Prince Mohammed’s office called Prince al-Waleed’s office in October and asked him to attend a Saudi business conference that international executives had largely boycotted, according to people close to both men. The next day, the billionaire stood by the embattled ruler—at the same Riyadh Ritz-Carlton hotel where Prince al-Waleed had been detained. He accompanied Prince Mohammed on a handshake tour through the conference, taking selfies in a display meant to reassure Western investors, these people said.

Prince Mohammed, right, appeared to be looking at Prince al-Waleed, left, during the conference in Riyadh.

Prince Mohammed, right, appeared to be looking at Prince al-Waleed, left, during the conference in Riyadh. PHOTO: AMR NABIL/ASSOCIATED PRESS

Another sign of Prince al-Waleed’s return to the royal court’s graces is his fresh spree of deals with international investors. Among them, he completed $300 million in French business investment in Saudi Arabia last week, said people familiar with those deals, and invested another $500 million in Western tech firms. He also is in talks with Leonard Blavatnik, owner of Warner Music Group, and other executives to invest in his Riyadh-based entertainment company, Rotana Media Group, the people familiar with the deals say.

Spokespeople for Warner Music and Mr. Blavatnik’s holding company Access Industries didn’t respond to requests for comment.

Prince al-Waleed, 63 years old, was a familiar international face before Prince Mohammed and his father, King Salman, rose to power in 2015. Prince al-Waleed met with heads of state, signed what he called strategic business deals for Saudi Arabia, appeared on U.S. cable news stations and took large positions in American companies, including Twitter Inc. and Citibank.

Prince Mohammed had tried to sideline Saudi deal makers like Prince al-Waleed and replace them with companies and executives affiliated with the Public Investment Fund, the Saudi sovereign-wealth fund that the ruler is using to diversify the kingdom’s oil-dependent economy.

In the months after his January release from detention, Prince al-Waleed was banned from traveling internationally without Prince Mohammed’s approval, people who know him say. When the billionaire was freed, the crown prince held a veto right over investments at his firm, Kingdom Holding Co., The Wall Street Journal has reported, citing people familiar with the matter.

Prince al-Waleed has denied that. Prince al-Waleed hasn’t asked for a lifting of his travel restrictions, the people said, conducting his recent business from Saudi Arabia.

Many executives have still welcomed Prince al-Waleed’s comeback, with one executive calling him indispensable. “Without him, we would have put talks on hold,” another person involved in recent business discussions said of Prince al-Waleed.

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Some executives who know Prince al-Waleed are skeptical of his charm offensive, unsure if he is truly speaking freely. One Western investor said Prince al-Waleed’s entreaties to do business in Saudi Arabia would only work if there were no more scandals.

“It can’t happen again,” he said.

People who know Prince al-Waleed say he has mixed feelings about his new role. Mr. Khashoggi was a friend who once worked for one of the prince’s television projects. “What took place at the Saudi consulate was clearly horrific…despicable, unspeakable, and tragic,” Prince al-Waleed told Fox News.

Prince al-Waleed has repeated government denials that Prince Mohammed was involved in Mr. Khashoggi’s death. “I believe the Saudi Crown Prince will be 100% cleared,” he told the news channel.

People who know Prince al-Waleed say he chose to support Prince Mohammed and prop up the royal family at a time of crisis. They say he supports changes that Prince Mohammed has undertaken, such as allowing women to drive and opening up the economy to foreign investment.

Meanwhile, Prince al-Waleed has looked to rebuild strained international business relationships, especially in the U.S. and France.

At his Riyadh office last month, he invited executives from France’s sovereign fund, Caisse des Depots et Consignations, to invest in Saudi Arabia with him, said people familiar with the meeting. On his desk during the meeting was a recent picture of himself and the crown prince, both smiling, alongside miniature models of his aircraft and properties.

Two weeks ago, Five Capital—CDC’s joint fund with Prince al-Waleed’s Kingdom Holding—closed two longstanding deals, according to people familiar with the matter. The fund, along with French startup Webedia, have agreed to buy Saudi Arabia’s main video and music streaming platform, Uturn, said Herve Cuviliez, chief executive of Webedia unit Diwanee.

Diwanee will be merged with Uturn in a transaction worth about $100 million when its shares are transferred to the new owners in coming days, he said. “It was very important to have Prince Al-Waleed as a partner,” Mr. Cuviliez. “He has lots of experience investing in technology companies and a huge reach in Saudi Arabia.”

Five Capital has also resumed talks with the kingdom’s Public Investment Fund to support Saudi companies abroad, the people said.

A spokesman for Kingdom Holding said Prince al-Waleed wasn’t available for comment. Officials at Uturn and the Saudi royal court didn’t respond to a request for comment.

Prince al-Waleed has said he retains control over his assets, unlike others who were detained at the Ritz-Carlton, including his 95% stake in Kingdom Holding.

Over the summer, Kingdom and Rotana resumed investment in technology firms, spending a combined $500 million in the parent company of social-media platform Snapchat and Paris-based music-streaming website Deezer.

WSJ : At Netflix, Who Wins When It’s Hollywood vs. the Algorithm?

At Netflix, Who Wins When It’s Hollywood vs. the Algorithm?

As the company plunges deeper into originals, its L.A. wing is doing the once-unthinkable: overriding the metrics

Netflix Inc.’s executives were torn. On the one hand they trusted the company’s algorithm. On the other they were worried about ticking off Jane Fonda.

After the streaming-video giant released the second season of the comedy “Grace and Frankie” in 2016, its product team put up an image to promote the show to U.S. subscribers that only included Ms. Fonda’s co-star, Lily Tomlin. Tests showed that more users clicked on the show when the photo didn’t include Ms. Fonda.

The decision set off a high-pitched internal debate. The Los Angeles-based content team was concerned that Netflix risked alienating Ms. Fonda, and that the move could even violate her contract, while the tech group in the Los Gatos, Calif., headquarters argued the company shouldn’t ignore the data, according to people familiar with the discussions.

In the end, Netflix chose to put images that included Ms. Fonda back in the mix.

Analytics is deeply embedded in Netflix’s DNA. The company mines reams of data on its subscribers’ tastes to help determine which shows to bet on and how to promote them. But as Netflix plunges deeper into Hollywood production —it is set to release 700 new original shows and movies this year, including new seasons of older shows—it is learning to temper its love of data models and cater to the wishes of A-listers and image-conscious talent, even when they may be at odds with the “algorithm.”

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Some shows at risk of being canceled due to poor performance have gotten a reprieve because Netflix doesn’t want to damage relationships with key producers or actors, people familiar with Netflix’s deliberations say. Stars have inserted language in their contracts giving them approval over everything from the short video that plays when users hover over a photo to the trailers promoting Netflix shows and movies.

At times, the efforts to appease stars don’t sit well with the company’s technology and product teams, triggering heated discussions between the Hollywood and Silicon Valley arms of the company, the people say.

There’s a “natural tension” between the two sides, said Bob Heldt, an executive in Netflix’s engineering team who left last year. “People in L.A. don’t believe numbers as much as people in Silicon Valley.”

The tech side is “never going to get the reasons for wanting to do anything that is beyond pure metrics,” a former Netflix content executive said.

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Josh Evans, a former Netflix technology executive, said that while the tech team is more “data-driven and analytical” and the Hollywood side more “relationship-oriented” the two sides manage to reach common ground.

In a statement, Netflix spokesman Richard Siklos said “open debate across teams is an important part of trying to do our best for our members at Netflix.”

Many companies, including news outlets, struggle with how much to let insights from data influence their decision-making, and industry experts believe such tensions will come up more often as tech companies like Apple Inc., Facebook Inc. and Alphabet Inc.’s Google seek to make inroads in Hollywood.

“It’s all very encouraging to hear that there is a debate,” said Tom Nunan, a veteran television and movie executive. “It reassures the Hollywood community that there is a beating heart in the chest of this great power. There is a limit as to what an algorithm can do in terms of predicting the future.”

‘Moment of Truth’

Netflix has been burning through cash—analysts expect it to spend more than $12 billion this year on movies and shows—and some in its tech operation have raised the question “Are we killing enough shows?” according to one former tech executive who left last year.

Some engineers fear that the sheer volume of programming is overwhelming customers. Their goal is to have customers click on a show in the first 10 seconds on Netflix—called “the moment of truth” inside the company. “If they decide not to watch something, that’s a moment we lost,” one engineer said.

Last year, executives from the tech and content teams hotly debated whether to renew “GLOW,” a show about professional women wrestlers in the 1980s whose co-executive producer is Jenji Kohan, creator of “Orange Is The New Black,” a flagship Netflix show. The tech side argued the show should be canceled because of lackluster viewership, people familiar with the situation said. The Hollywood side felt it was worth continuing the show, given the importance of Ms. Kohan to Netflix and the critical acclaim GLOW had received.

“There were serious conversations from the tech side pressuring the Hollywood side not to renew it for a second season,” said one participant in a heated discussion over the show. GLOW ultimately survived.

Ms. Kohan didn’t respond to requests for comment made through her representative. A person close to her said she expressed dissatisfaction with Netflix’s initial marketing plan, which executives said was based on internal data to attract viewers. She felt it catered to males when the show was really geared to women, the person said.

Another tussle involved “Lady Dynamite,” a comedy starring Maria Bamford from “Arrested Development” creator Mitch Hurwitz. It had relatively low viewership for its first season in 2016, but was a favorite with critics as well as Netflix Chief Content Officer Ted Sarandos. After intense internal debate, with some tech-side executives wanting it canceled, the show was given a second season. The content and marketing teams challenged the product side to find ways to boost its performance, according to people familiar with the discussions. Despite those efforts, it wasn’t renewed for a third season.

Some of the issues Netflix faces are old hat to traditional TV networks, who have long given leeway to powerful producers. Ryan Murphy, a prolific producer for Fox and FX, was able to keep the horror drama “Scream Queens” on Fox for two seasons despite anemic ratings. Mr. Murphy recently signed a big deal to create for Netflix.

It’s not uncommon in Hollywood for top talent to object when they think their show isn’t being marketed properly. With Netflix, those differences sometimes aren’t with a human studio executive, but a digital algorithm.

“The algorithm became this Wizard of Oz. It was this all-knowing, all-seeing, ‘Don’t f—with us’ algorithm,” said one Hollywood executive who as an agent has represented key talent in negotiations with Netflix.

The shift in Netflix’s center of gravity toward Hollywood has become clear in some top personnel decisions. Chief Executive Reed Hastings asked his longtime chief product officer, Neil Hunt, to step down last year, installing in his place Greg Peters, an executive who had a little more background in the content business. Messrs. Peters and Sarandos are now both viewed internally as potential successors to Mr. Hastings, people familiar with the matter said.

The surprise resignation of Chief Financial Officer David Wells, announced in August, was partly because Mr. Hastings believed the CFO should be in Hollywood for Netflix’s next phase and Mr. Wells wasn’t interested in moving, people familiar with the matter said.

Netflix’s content and marketing teams have grown vastly, in part by poaching people from the traditional studio and TV network world. High-ranking executives from those teams began to outnumber those from the tech and product teams in the past few years, former executives said. Current executives say the top levels of both teams are about equal in size.

Some current and former employees say people who came to Netflix from traditional studios brought hierarchical approaches that were antithetical to Netflix’s culture, which encourages managers to brief people under them and then trust them to make big day-to-day decisions.

Trust the ‘Algorithm’

As Netflix wades deeper into creating original series, employees have debated whether the algorithm should give those programs higher visibility compared with the reruns Netflix licenses.

Mr. Hunt, the former chief product officer who left Netflix last year, and his team wanted to avoid any bias toward original content, while the Hollywood-side executives argued that the company’s future depended on success with originals.

In the end, the company decided to recommend shows to users based on what they’ve watched, but new titles, most of which are originals, do get prominent placement on viewers' personalized main screens. The company’s algorithm also does select originals more often in queuing up videos for viewers after they finish a series or movie.

A constant tug of war between Netflix’s Hollywood and Silicon Valley arms has been the question of how to market a show. Some on the tech side felt it wasn’t worth spending heaps of money on marketing, including on billboards in Los Angeles, because the streaming service’s algorithm would surface the right content to the people who would want to watch it.

Hollywood executives, influenced in part by producers who felt their shows were getting lost in Netflix’s catalog, felt a marketing push was essential, people familiar with the discussions said.

“The product team would be saying, ‘If your show is good, don’t worry, the algorithm will find the right people for it,’” said one former executive who left the L.A. office last year. Over time, the product side learned that marketing certain shows made sense, the executive said. Now, Netflix ads on billboards in L.A. are ubiquitous.

Mr. Hunt and his product executives argued at one point that it was a waste of money for Netflix to pay for trailers to market original films, people familiar with the discussions said. They said the product team could edit movies themselves to create short clips that might attract more clicks.

Netflix has over time hired professionals from the trailer-making industry. Though when Adam Sandler made his first movie for Netflix in 2015, he was annoyed that the streaming service put up a trailer for “The Ridiculous 6” that he hadn’t approved and that didn’t have the guitar riffs he wanted in the background. After his production company complained, Netflix changed it to suit his tastes, people familiar with the matter said.

“We’ve had many happy collaborations—and trailers—with Adam Sandler all the way from that first film to his new comedy special,” said Mr. Siklos, Netflix’s spokesman.

Promotional images for shows have been a frequent topic of debate. “In some cases, the content team would tell us this particular actor really cares about only showing his face and not the whole cast on the image and it’s in the contract,” said Carlos Gomez-Uribe, a former vice president overseeing algorithms who left in 2016.

Feedback also went the other way, he said. When the product team discovered multiple images of a particular show helped people choose what to watch, the content team had to renegotiate many studio contracts. “You rarely completely agree,” Mr. Gomez-Uribe said, but ultimately the relationship was “incredibly productive.”

Tech staffers themselves concluded that data has limits as a guide. In the case of Ms. Fonda’s show, the product team discovered that a promotional image of a vibrator, part of a “Grace and Frankie” plotline, also did very well in testing to attract clicks, a person familiar with the matter said. But they decided that probably went a step too far.

Netflix executives say they proactively talk to big-name talent, including Seth Rogen, Shonda Rhimes and Hasan Minhaj, to walk them through how the algorithm works.

“Image testing is really novel to them,” a Netflix executive said. “We have to explain to them that we are going to drive 10-20-35% more viewing for our title when we can personalize what the image is going to be.”

Rashida Jones of “Parks and Recreation” fame was upset when Netflix wanted the sequel of “Hot Girls Wanted,” her documentary about sex workers, to have the title of the original as part of its name. She wanted the sequel to be called “Turned On.”

Mr. Sarandos, the chief content officer, told her that the sequel would perform better with the callback to the first documentary. Mr. Siklos characterized the conversation as “a creative discussion.” He said, “We have creative discussions like these with our partners all the time.”

Some former executives said they believed the original film performed well partly because some subscribers clicked on it thinking it was pornography. A person close to Netflix rejected that notion.

Ms. Jones consented to a compromise: The sequel is now called “Hot Girls Wanted: Turned On.”

WSJ : Tanker Owners Cash In on Iran Sanctions and Trade Tensions

Tanker Owners Cash In on Iran Sanctions and Trade Tensions

Freight rates for supertankers more than quadrupled in October on oil-supply uncertainty, but some see the boon as temporary

U.S. sanctions on Iran and the trade battle with China have become a boon for owners of tankers, with daily freight rates at their highest in two years as ships shift their routes to load up crude from other oil-producing countries.

Crude exports from Iran, the world’s fifth-biggest oil producer, have fallen about 50% since May when the U.S. pulled out of a landmark deal curbing Iran’s nuclear program. A new set of sanctions against Tehran took effect at the start of this month.

Oil traders and tanker brokers said Saudi Arabia has moved to fill the void of more than one billion barrels a day. Meanwhile, China has stopped importing U.S. crude as it pushes back against American tariffs on Chinese-made goods. Beijing is now sourcing crude oil from as far as West Africa.

Before the trade dispute, China accounted for about a quarter of U.S. crude exports. Those are now moving to other markets like South Korea, the Netherlands and the U.K., according to Peter Sand, chief shipping analyst at Bimco, an international association representing shipowners.

This has significantly changed the routes and sailing times of very large crude carriers, or VLCCs, the supertankers that move oil across the oceans for the world’s energy giants. As buyers prepare for winter and the demand for heating oil peaks, freight rates more than quadrupled from September to October, to $45,000 a day.

“We are making some good money for the first time since the beginning of 2017,” said the chief executive of an Asia-based company with more than two dozen tankers, who asked not to be named. “Uncertainty is historically good for freight rates, and this time it’s happening during the high season. The question is how long it will last.”

A U.S. decision to grant waivers to eight countries that allow them to continue buying Iranian crude is softening the impact of the sanctions and providing needed revenue to state-run National Iranian Tanker Co., the country’s flagship shipping company.

Singapore and London brokers say around 65% of NITC tankers are moving oil cargoes to the countries with U.S. waivers, including China, India, Japan, South Korea, Italy, Turkey and Greece.

These markets traditionally buy around 70% of Iran’s oil exports. The White House wants the flow to wind down, but tanker brokers say that is unlikely to happen soon, as a halt could push oil prices to around $100 a barrel, potentially undermining U.S. economic growth.

The brokers said more NITC ships could be used as other tanker operators stay clear of Iran, fearing punitive action by Washington. NITC owns 38 VLCCs out of a global fleet of 733, and several smaller tankers. The company didn’t respond to requests for comment.

“The big picture is that Iran crude exports won’t grind to a halt, and about a billion barrels a day will continue to move out,” Mr. Sand said. “That’s more or less what they exported during the previous sanctions from 2012 to 2016 and it will bottom out around there.”

VLCCs need daily charter rates of around $25,000 to break even, but rates were hovering well below that level since April 2017 until the October surge.

Patrick Rodgers, chief executive of Belgium-based Euronav, one of the world’s largest tanker operators, told The Wall Street Journal in October that he expects most of the 10 biggest tanker owners to be in the red this year.

Although crude hasn’t been taxed in the U.S.-China trade showdown, China has stopped buying it from the U.S. over the past two months. Brokers said they see increased China-destined cargoes from Nigeria, Angola and Libya, and that freight rates have increased because of the longer sailings.

But industry executives say the rate increases could be short-lived as the buyers and sellers adjust to new trading patterns.

“The October spike [in freight rates] is a dead cat bounce,” Mr. Sand said. “Tanker overcapacity is significant and oil demand will be muted because of still bloated reserves. Pressure on rates will resume in 2019.”

A Greek tanker owner that has been shipping Iranian crude for the past 25 years expects downward pressure on freight rates to start as early as December.

“Once the new routes settle in and seasonal demand eases, we will likely be back to miserable charters,” he said. “I don’t see a sustainable recovery in freight rates before 2020.”

FT : How Goldman’s high-flying Italian partner was embroiled in scandal

How Goldman’s high-flying Italian partner was embroiled in scandal

Andrea Vella was placed on leave by the bank after being caught up in the 1MDB affair

Andrea Vella rose up the ranks at Goldman Sachs on the back of his skill at assessing risk in an industry where structuring complex transactions had become more lucrative than traditional advisory work.

But it is hard to imagine the Italian knew the risk he was taking when he flew to Abu Dhabi in 2012 on a trip that contributed to his current status as a significant link between one of the world’s biggest banks and the worst corruption scandal in Malaysian history.

Mr Vella was last week placed on leave by Goldman after the US Department of Justice effectively identified him as “co-conspirator #4” in a scheme that embezzled $2.7bn from 1MDB, Malaysia’s state investment fund, which was a client of the US bank.

Two of Mr Vella’s former colleagues at Goldman’s Asia business — Tim Leissner and Roger Ng — have been charged with bribery and money-laundering.

In court documents filed in the case against Mr Leissner, the DoJ alleged that an Italian partner at the bank was a co-conspirator, a description that quickly led to Mr Vella and prompted Goldman to suspend him.

The March 2012 Abu Dhabi trip proved fateful because it connects Mr Vella, an aeronautical engineer who joined Goldman as a partner in 2007, with Jho Low, the Malaysian national charged with masterminding the fraud scheme.

People familiar with the situation said Mr Vella had always insisted he did not know Mr Low had any involvement with 1MDB when Goldman agreed to raise $6.5bn in debt for the Malaysian fund.

The DoJ indictment said Mr Vella, Mr Low and Mr Leissner all travelled to Abu Dhabi in March 2012 to work on the fundraising. It also alleged that Mr Vella attended another meeting with Mr Low and was separately told by a Goldman colleague about the arrangements to pay bribes and kickbacks to Malaysian officials.

Neither Mr Vella nor Goldman Sachs had any advance warning that the Italian would be implicated before the DoJ’s indictment landed, people familiar with the situation said. “To say he’s shell-shocked would probably be an understatement,” said one of Mr Vella’s friends and former colleagues. Mr Vella declined to comment.

The Goldman executive is believed to be in Hong Kong where the 45-year-old lives with his wife and three sons in a large hillside home in Repulse Bay, an exclusive area of the city popular with bankers. The residence has a large front garden and magnificent seaviews. Until recently his wife could be spotted around Hong Kong at the wheel of a Maserati.

The son of a doctor, Mr Vella grew up in Rome and studied aeronautical engineering at the University of Rome. His first banking job was at JPMorgan Chase, where he led derivatives marketing for southern Europe before joining Goldman as a partner in 2007.

After arriving in Asia in 2010 he quickly rose through the ranks to become co-head of the bank’s financing group for the region by 2014. A year later he took on the role of co-head of investment banking in Asia-Pacific ex-Japan, alongside Morgan Stanley veteran Kate Richdale.

“He had an incredible ability to take a mathematical problem and simplify it for a layman in a way that nobody else quite had the ability to do,” recalled one banker who worked with Mr Vella at JPMorgan.

A former Goldman colleague said Mr Vella was “very smart, very competitive and very driven,” and “liked being the star in the room”. The former colleague added: “He was very good at thinking through risk, and you make much more money in APAC investment banking by taking risk (than by advisory work).”

Some who worked with Mr Vella said his rise was fuelled by an appetite for risk in frontier markets that stood out even among his colleagues at one of the world’s most profitable investment banks.

In his early days, Mr Vella embraced Wall Street’s workaholic culture. “He told me early on that to be successful in this business you don’t have time for hobbies, you need to focus on it 100 per cent,” recalled the former Goldman colleague.

As he grew more senior, he indulged a love of skiing, hiking and, more recently, rock-climbing and gave the impression of an enviable work-life balance. “If I had to pick one guy at Goldman Sachs I wanted to emulate it would have been him,” said a second banker who worked for him at Goldman.

His career was hardly plain sailing though, even before the 1MDB scandal.

In 2014, Mr Vella was one of the most prominent witnesses when the Libyan Investment Authority sued Goldman Sachs over a $1.2bn derivatives contract that lost hundreds of millions of dollars in value.

The Libyans ultimately lost their claim that Goldman had mis-sold the derivatives, but not before an embarrassing two-and-a-half year court battle which included Mr Vella being accused of taking off his shoe and banging it on a table in anger at a colleague — a claim he denied.

Last month, Mr Vella lost his management responsibility and was shifted to a chairman position at the bank — as was Ms Richdale — in a titular demotion. Mr Vella told friends he was relaxed about that: he could spend more time working with clients and less time on conference calls.

Now — with no DoJ charges to answer, but no obvious path to clearing his name from the indictment’s implications — Mr Vella’s road back to client work is unclear.

FT : Piyush Gupta: predicting disruption

Piyush Gupta: predicting disruption

DBS chief understood fintech’s threat to legacy banks long before his peers did

When the Development Bank of Singapore was looking for a chief executive, one name stood out. “There really was no contest,” says one board member. “He was so impressive.”

But Piyush Gupta, a respected executive at Citigroup who had served in senior banking roles across Asia, had reservations.

Nearly a decade ago DBS was regarded as conservative. “I was worried that Temasek [the investor and the bank’s largest shareholder] would be a back-seat driver,” he recalls, “and whether I could transcend what was then regarded as the government-department culture of the place”.

Mr Gupta thought turning DBS, Singapore’s largest bank, into a meritocracy would be his greatest leadership challenge. The bank was losing market share. “It was not run as a professional, meritocratic organisation.” But it turned out he would face a second, even bigger problem.

Several years into his tenure, Mr Gupta noticed fintech start-ups in China, a market to which Singaporean banks have always paid close attention. He understood that they would pose a threat to conventional financial institutions, such as DBS. But few of his counterparts shared his alarm.

“The chairman of ICBC wasn’t worried. Citi and Wells Fargo people weren’t concerned,” Mr Gupta recalls. “But I was paranoid.”

So in 2014, the year Alibaba listed in New York, Mr Gupta requested a meeting with Jack Ma, the charismatic founder of the e-commerce group and its Ant Financial unit, and Mr Ma’s chief lieutenant, Joe Tsai. To this day, many other bank chief executives have not met the founders of Alibaba nor Tencent, the tech giant, despite the Chinese companies’ impact on financial services, from online lending and wealth management to payments and digital wallets.

“It was clear that their ambition was to change financial services,” he says. “They weren’t concerned about footprints. Instead, they were all about the use of data.

“Alibaba and Jack Ma catalysed my paranoia,” Mr Gupta continues. “I knew I needed to think like them and be like them. Now I try to get everyone in the bank to ask: ‘What would [Amazon’s Jeff] Bezos do? Not ‘What would [JPMorgan’s] Jamie Dimon do?’”

Mr Gupta’s office is testimony to that belief. At first glance it appears to be full of conventional chief executive clutter.On his coffee table and shelves are books such as Above Singapore, (photographs), Lee Kuan Yew— a Tribute, and 100 Years of Citi in Asia. Photographs feature the chief meeting former US presidents George W Bush and Barack Obama, and UK prime ministers Tony Blair and David Cameron. There is one with cricket star Sachin Tendulkar, who happens to be the face of DBS in India.

But the books on his desk and behind his desk are the ones that matter, and they tell a different story. At the top of one pile is Laszlo Bock’s Work Rules! Insights from Inside Google, while on the top of the second is The Four: The Hidden DNA of Amazon, Apple, Facebook and Google by Scott Galloway. Mr Gupta has immersed himself on what he refers to as “a journey of discovery”.

When Mr Gupta says he is trying to get everyone in the bank to think like Mr Ma or Mr Bezos, he means everyone. One of his most difficult and bold decisions was to transform the entire bank — rather than incubate fintech in a standalone unit, as other big banks have done.

“He started with the customer,” recalls the board member. “And he discovered that customers are cheaper to service and will do more with DBS through technology than through our staff.”

For example, hackathons address both social challenges —such as how the bank might contribute to the provision of healthcare for older people — to the most practical commercial issues, such as how to improve the efficiency of ATMs. New technology is being applied in back-office functions, such as human resources and audit.

The transformation is evident in DBS outside Singapore as well as within it. In India, for example, the bank has virtually no physical footprint but a growing virtual one.

Meanwhile, Mr Gupta’s paranoia has proved prescient. Singapore has shown itself to be far more open to fintech start-ups than many other centres, notably rival Hong Kong.

Regulators’ support of innovation is forcing banks to react defensively, while for the past four to five years, by contrast, Mr Gupta has been on the offensive.

That stance is the result of his belief that traditional banks are treated unfairly, because new ventures are subjected to fewer regulations in most markets. “They can have losses forever while my bank can never,” he says. “They don’t have onerous reporting rules like we do.”

This means that Mr Gupta is unlikely to engage in bold acquisitions, either of traditional banks or of fintech outfits, though he notes that he did once consider Standard Chartered, of which Temasek is also the largest shareholder. But he decided against it.

“Banks are yesterday’s story,” he declares. “Also Standard Chartered is four times our size. And there is a lot of regulatory uncertainty.” As for fintech companies, he says “small partnerships make more sense than big M&A”. DBS has taken stakes in fintech where it sees strategic value, for example in Kasisto, a chatbot AI start-up from New York.

Mr Gupta is the first Indian chief executive of a bank that has only ever known westerners and Chinese at the helm. But after serving in executive roles in east Asia for 20 years, and in Singapore for eight years, there was no cultural mismatch: “Indians have a long history of leadership in Singapore,” he says.

With the bank’s market share significantly improved, Mr Gupta has one final challenge, and it is only partly in his hands: the appointment of his successor. “There is such an enormous gap between Piyush and everyone else,” says the board member. “Can we really have confidence that the momentum will outlive Piyush? Can any successor really ensure that there is no reversal?”