About Me
- dharma
- I believe in "Baptism by fire" that will transform me from an average joe to a true blue bee's knees in corporate finance and investment banking
Tuesday, September 30, 2008
Sensex to tank below 9000
Long term investors would be well advised to sit on the sidelines until sensex breaches 9000.Below 9000 its an excellent opportunity to ride the long term story of India
Saturday, September 27, 2008
Hank Henry Paulson at his best
Hank Paulson’s vacillating statements ever since the financial crisis broke out
Treasury secretary Paulson has significantly altered the way he talks about the financial crisis as the year has progressed. These vacillating statements have cost him a lot of credibility amongst lawmakers in the US who are now refusing to approve the bail out package of $700 billion, what has now come to be termed as the “Paulson Plan”
Lets have a look at some of the statements made by the treasury secretary in the last one year:
Dec 2007: The Magic here is that investors and servicers are coming together to ensure that we don’t have a market failure
Feb 27,2008: I don’t think the American taxpayer needs to step in with more taxpayer dollars. We are so far away from a situation that calls for a bailout
May 6,2008: There is no doubt things feel better today than they were in March (post Bear sterns bailout), the worst is likely to be behind us.
July 2, 2008: To address the perception that some institutions are too big to fail, we must improve tools at our disposal for facilitating the orderly failure of a complex financial institution.
July 20, 2008: America’s banking systems are safe. We are a strong and sound banking system. Our regulators are on top of it. This is a very manageable situation.
Sept 18, 2008: If we don’t pass this $700 billion bailout package, then heaven help us all (his statement at the congress)
Treasury secretary Paulson has significantly altered the way he talks about the financial crisis as the year has progressed. These vacillating statements have cost him a lot of credibility amongst lawmakers in the US who are now refusing to approve the bail out package of $700 billion, what has now come to be termed as the “Paulson Plan”
Lets have a look at some of the statements made by the treasury secretary in the last one year:
Dec 2007: The Magic here is that investors and servicers are coming together to ensure that we don’t have a market failure
Feb 27,2008: I don’t think the American taxpayer needs to step in with more taxpayer dollars. We are so far away from a situation that calls for a bailout
May 6,2008: There is no doubt things feel better today than they were in March (post Bear sterns bailout), the worst is likely to be behind us.
July 2, 2008: To address the perception that some institutions are too big to fail, we must improve tools at our disposal for facilitating the orderly failure of a complex financial institution.
July 20, 2008: America’s banking systems are safe. We are a strong and sound banking system. Our regulators are on top of it. This is a very manageable situation.
Sept 18, 2008: If we don’t pass this $700 billion bailout package, then heaven help us all (his statement at the congress)
Thursday, September 25, 2008
Four banks vie for lehman india's assets
Lehman India's assets are valued at Rs.3300 crore and could be taken over by SBI, Barclays, Standard Chartered and BNP paribas. Out of these 3300 crore assets, 700-800crore alone comprise of structured products and capital protection plans.
RBI's reflex action on Lehman
Last week stood out for global knee-jerk regulatory responses to the turmoil in the financial markets. Regulators worldwide introduced measures to outlaw short selling of securities
The United Kingdom’s Financial Services Authority (‘FSA’) announced a four-month ban on short selling in securities of UK-based financial institutions by declaring that any increase in a short position or creation of a new short position in any UK bank or UK insurer, or their parent companies would amount to “market abuse”.
The United States’ Securities Exchange Commission (‘SEC’)announced tougher measures to punish “naked” short sales until October 1. Unlike the FSA, the SEC has not banned short-selling. It has only tightened enforcement against “naked” short sales.
A “naked” short sale is a sale by a person without being covered by an earlier purchase position, or an earlier holding, or a prior borrowing of the stock being sold. All other short sales are termed “covered” short sales and not universally prohibited.
Most jurisdictions treat short sellers on a footing unequal with “long” players. Different jurisdictions have imposed varying levels of prohibitions and regulations in relation to short selling. Many jurisdictions have banned naked short sales while others have introduced measures such as the “uptick rule” (permitting short sales only when the price is rising) or limits on the quantum of aggregate short sale position in any stock (as a percentage of the share capital), or price limits (linking the price in a short sale to the previously traded price).
Under fear of exposure of Australian banks to Wall Street banks that are now in the doldrums, the Australian Securities Exchange has imposed a complete ban on naked short sales until further orders. France, Portugal and Ireland too are reported to have taken similar measures against short-selling.
In December last year, the Securities and Exchange Board of India (‘SEBI’) and the Reserve Bank of India (‘RBI’) had announced their intent to bring in institutional involvement in short-selling by permitting foreign institutional investors and local institutions to sell short. A stock lending and borrowing mechanism was introduced this year to enable covered short selling, but it did not lead to major volumes due to universal opposition to the mandatory seven-day tenure for borrowing stock witin which positions have to be covered, preventing a longer term call on specific stocks in the cash segment.
India too has had a long history of regulating short sales. Each of the newly elected coalition central governments in the recent past has been vindictive with falling stock prices that would follow government formation. Ministers have summoned bankers to threaten them with action, and enforcement agencies have been unleashed on select players (Shankar Sharma of First Global is a prime example). The Indian corporate sector is perceived by market players to be the strongest lobby against short-selling.
Last week, it was not SEBI, but the RBI that contributed to India’s share of knee-jerk regulatory action. In a measure that sent panic signals across India’s money markets, and brought back memories of capital controls, the RBI took the unprecedented step of suspending the operations of Lehman Brothers’ Indian subsidiaries, citing the bankruptcy of the foreign parent.
Lehman Brothers Capital Pvt. Ltd was prohibited from contracting further liability from any “institution in India or outside” and from “making any foreign currency remittance”. Lehman Brothers Fixed Income Securities Pvt. Ltd. was prohibited from making any remittance to its overseas affiliates (including payment of dividend).
While many nationalists felt proud of the RBI for its timely alertness, it may prove to be a bad precedent. How much money could actually have been sent out by the Indian entities, and how such remittance could risk the Indian market system remained undisclosed. The RBI action would lead to an expectation that the central bank could take such measures each time a foreign parent of an Indian subsidiary goes bust.
The signal to the market was one of a panic-stricken RBI, so desperate, that it had to pre-empt outflow at any cost. The market speculated that the undisclosed exposure of the Indian market system to the local Lehman entities could be so huge that the RBI had to strive to protect every dollar from flowing out of India.
Such indistinct case-specific suspension of the law would only lead to foreign investors perceiving a regulatory risk to their investments in India. In times of financial stress their investments could get blocked without any grievance redressal mechanism in place.
The United Kingdom’s Financial Services Authority (‘FSA’) announced a four-month ban on short selling in securities of UK-based financial institutions by declaring that any increase in a short position or creation of a new short position in any UK bank or UK insurer, or their parent companies would amount to “market abuse”.
The United States’ Securities Exchange Commission (‘SEC’)announced tougher measures to punish “naked” short sales until October 1. Unlike the FSA, the SEC has not banned short-selling. It has only tightened enforcement against “naked” short sales.
A “naked” short sale is a sale by a person without being covered by an earlier purchase position, or an earlier holding, or a prior borrowing of the stock being sold. All other short sales are termed “covered” short sales and not universally prohibited.
Most jurisdictions treat short sellers on a footing unequal with “long” players. Different jurisdictions have imposed varying levels of prohibitions and regulations in relation to short selling. Many jurisdictions have banned naked short sales while others have introduced measures such as the “uptick rule” (permitting short sales only when the price is rising) or limits on the quantum of aggregate short sale position in any stock (as a percentage of the share capital), or price limits (linking the price in a short sale to the previously traded price).
Under fear of exposure of Australian banks to Wall Street banks that are now in the doldrums, the Australian Securities Exchange has imposed a complete ban on naked short sales until further orders. France, Portugal and Ireland too are reported to have taken similar measures against short-selling.
In December last year, the Securities and Exchange Board of India (‘SEBI’) and the Reserve Bank of India (‘RBI’) had announced their intent to bring in institutional involvement in short-selling by permitting foreign institutional investors and local institutions to sell short. A stock lending and borrowing mechanism was introduced this year to enable covered short selling, but it did not lead to major volumes due to universal opposition to the mandatory seven-day tenure for borrowing stock witin which positions have to be covered, preventing a longer term call on specific stocks in the cash segment.
India too has had a long history of regulating short sales. Each of the newly elected coalition central governments in the recent past has been vindictive with falling stock prices that would follow government formation. Ministers have summoned bankers to threaten them with action, and enforcement agencies have been unleashed on select players (Shankar Sharma of First Global is a prime example). The Indian corporate sector is perceived by market players to be the strongest lobby against short-selling.
Last week, it was not SEBI, but the RBI that contributed to India’s share of knee-jerk regulatory action. In a measure that sent panic signals across India’s money markets, and brought back memories of capital controls, the RBI took the unprecedented step of suspending the operations of Lehman Brothers’ Indian subsidiaries, citing the bankruptcy of the foreign parent.
Lehman Brothers Capital Pvt. Ltd was prohibited from contracting further liability from any “institution in India or outside” and from “making any foreign currency remittance”. Lehman Brothers Fixed Income Securities Pvt. Ltd. was prohibited from making any remittance to its overseas affiliates (including payment of dividend).
While many nationalists felt proud of the RBI for its timely alertness, it may prove to be a bad precedent. How much money could actually have been sent out by the Indian entities, and how such remittance could risk the Indian market system remained undisclosed. The RBI action would lead to an expectation that the central bank could take such measures each time a foreign parent of an Indian subsidiary goes bust.
The signal to the market was one of a panic-stricken RBI, so desperate, that it had to pre-empt outflow at any cost. The market speculated that the undisclosed exposure of the Indian market system to the local Lehman entities could be so huge that the RBI had to strive to protect every dollar from flowing out of India.
Such indistinct case-specific suspension of the law would only lead to foreign investors perceiving a regulatory risk to their investments in India. In times of financial stress their investments could get blocked without any grievance redressal mechanism in place.
Future of Financial systems
Global financial markets literally rode on a roller-coaster last week, first dropping sharply in response to news about the Lehman Brothers bankruptcy filing and then recovering just as sharply as the US government bailed AIG out and several central banks announced their willingness to pump in large amounts of liquidity to provide markets with a lifeline. At the end of the week, if one were to just go by stock market index values around the world, it might seem like nothing had happened.
However, many people would agree with the view that the events of the week represent a major discontinuity in global finance. The structures and operating boundaries of all the players in the game today, private and public, will be examined and re-examined. Whether this will result in a broadbased co-ordinated set of reforms is too early to assess. At the end of the process, the conclusion might well be that radical solutions that address today's problems actually exacerbate other risks. These are issues to think seriously about over the coming weeks and months. Meanwhile, the immediate concern is with the survival of the existing system. Is it now in irreversible decline or showing signs of resilience?
The “irreversible” decline view undoubtedly has several adherents and events over the next few days may well prove them right. But, let's examine the arguments in support of the “resilience” view. Two sets of factors need to be taken into consideration. One of them is structural, reflecting a long-term trend. The other is cyclical, providing an opportunity for the kind of policy response that we saw last week without provoking fears of a broader macroeconomic fall-out.
The structural trend that has been in evidence over the past few years and whose impact is likely to continue is the globalisation of financial exposures. Emerging economies, as a group, have clearly been significant contributors to global growth over the past decade. However, their increasing openness to international capital has provided greater opportunities to global investors to tap into the returns that the growth offers (as well as expose themselves to the risks).
Diversification as a way to mitigate risks is the first rule of portfolio management. The ability to diversify portfolios globally has provided financial institutions with access to a range of asset classes whose price movements are less and less correlated with each other. For example, investments in China and India, whose returns are predominantly generated from domestic markets, are likely to be able to resist the pressures that investments whose returns are more closely linked to the US and other vulnerable markets are facing.
The cyclical opportunity stems from lower oil prices. Even as recently as a few weeks ago, with prices hovering around the $150/barrel mark, the willingness of central banks to infuse even small doses of liquidity to shore up asset prices would have been in doubt. As much priority that central banks may give to the integrity of their financial systems, managing inflation still remains their primary responsibility and the trade-off between the two was acute in the first half of the year.
That the US Federal Reserve went against the grain in January, sharply lowering rates, highlighted the seriousness of the financial problem. However, given the macroeconomic risks of easing interest rates too early in the cycle, there was clearly an argument to be made in favour of more selective, targeted solutions focused on vulnerable institutions, despite the obvious moral hazard arguments against such solutions. The practical consideration of saving the situation first and worrying about the nuances later will almost always prevail.
However, as the inflationary threat recedes, particularly in countries that had fully passed on the oil price increases to domestic consumers, central banks can shift from targeted bail-outs to more traditional approaches, lowering interest rates and cash reserve requirements to stimulate economic activity as well as asset prices. Virtually all major central banks should be entering this phase over the next few months if the oil price situation remains favourable. Of course, another shock to the system could well materialise, completely disrupting current calculations, but barring that, macroeconomic conditions are becoming increasingly supportive of the “resilience” view.
What implications do these events have for emerging economies? Obviously, the benefits of globalisation from the viewpoint of global investors do look like risks as far as the destination countries are concerned. As we saw, the exchange rate is usually the first casualty of sudden and large portfolio movements. The difference between the Asian crisis of 1997 and today is the huge foreign exchange buffer that emerging economies have built up to protect themselves against just such an eventuality. For the time being, they generally appear to have withstood the shock. Their currencies have depreciated sharply but no panic has set in about their ability to meet all obligations, even in the worst case.
In a sense, their ability to weather this shock vindicates their decision to “buy” insurance in the form of huge reserves, paying the price in terms of domestic monetary and financial distortions. But, as is becoming evident from the debate in India, it is always tempting to justify slow movement on reforms by arguing that a more liberal domestic environment would have made the domestic financial system even more vulnerable to the global turbulence. The reforms agenda should not be held hostage to the current crisis; rather, further reforms should be seen as an opportunity to find a more efficient and sustainable balance between growth, returns and risk.
The one thing that this crisis has brought to the fore is that both mature and emerging economies now face essentially the same set of questions about the future of their financial systems. How are intermediation and investment activities to be structured? How is risk to be measured and provided for? What systemic roles should the government play? And, how best can governments and regulators in increasingly integrated markets co-ordinate to ensure that effective safety nets are in place and shocks can be contained? The answers to these will chart out the future of global and domestic financial systems, however they emerge from the current catastrophe.
However, many people would agree with the view that the events of the week represent a major discontinuity in global finance. The structures and operating boundaries of all the players in the game today, private and public, will be examined and re-examined. Whether this will result in a broadbased co-ordinated set of reforms is too early to assess. At the end of the process, the conclusion might well be that radical solutions that address today's problems actually exacerbate other risks. These are issues to think seriously about over the coming weeks and months. Meanwhile, the immediate concern is with the survival of the existing system. Is it now in irreversible decline or showing signs of resilience?
The “irreversible” decline view undoubtedly has several adherents and events over the next few days may well prove them right. But, let's examine the arguments in support of the “resilience” view. Two sets of factors need to be taken into consideration. One of them is structural, reflecting a long-term trend. The other is cyclical, providing an opportunity for the kind of policy response that we saw last week without provoking fears of a broader macroeconomic fall-out.
The structural trend that has been in evidence over the past few years and whose impact is likely to continue is the globalisation of financial exposures. Emerging economies, as a group, have clearly been significant contributors to global growth over the past decade. However, their increasing openness to international capital has provided greater opportunities to global investors to tap into the returns that the growth offers (as well as expose themselves to the risks).
Diversification as a way to mitigate risks is the first rule of portfolio management. The ability to diversify portfolios globally has provided financial institutions with access to a range of asset classes whose price movements are less and less correlated with each other. For example, investments in China and India, whose returns are predominantly generated from domestic markets, are likely to be able to resist the pressures that investments whose returns are more closely linked to the US and other vulnerable markets are facing.
The cyclical opportunity stems from lower oil prices. Even as recently as a few weeks ago, with prices hovering around the $150/barrel mark, the willingness of central banks to infuse even small doses of liquidity to shore up asset prices would have been in doubt. As much priority that central banks may give to the integrity of their financial systems, managing inflation still remains their primary responsibility and the trade-off between the two was acute in the first half of the year.
That the US Federal Reserve went against the grain in January, sharply lowering rates, highlighted the seriousness of the financial problem. However, given the macroeconomic risks of easing interest rates too early in the cycle, there was clearly an argument to be made in favour of more selective, targeted solutions focused on vulnerable institutions, despite the obvious moral hazard arguments against such solutions. The practical consideration of saving the situation first and worrying about the nuances later will almost always prevail.
However, as the inflationary threat recedes, particularly in countries that had fully passed on the oil price increases to domestic consumers, central banks can shift from targeted bail-outs to more traditional approaches, lowering interest rates and cash reserve requirements to stimulate economic activity as well as asset prices. Virtually all major central banks should be entering this phase over the next few months if the oil price situation remains favourable. Of course, another shock to the system could well materialise, completely disrupting current calculations, but barring that, macroeconomic conditions are becoming increasingly supportive of the “resilience” view.
What implications do these events have for emerging economies? Obviously, the benefits of globalisation from the viewpoint of global investors do look like risks as far as the destination countries are concerned. As we saw, the exchange rate is usually the first casualty of sudden and large portfolio movements. The difference between the Asian crisis of 1997 and today is the huge foreign exchange buffer that emerging economies have built up to protect themselves against just such an eventuality. For the time being, they generally appear to have withstood the shock. Their currencies have depreciated sharply but no panic has set in about their ability to meet all obligations, even in the worst case.
In a sense, their ability to weather this shock vindicates their decision to “buy” insurance in the form of huge reserves, paying the price in terms of domestic monetary and financial distortions. But, as is becoming evident from the debate in India, it is always tempting to justify slow movement on reforms by arguing that a more liberal domestic environment would have made the domestic financial system even more vulnerable to the global turbulence. The reforms agenda should not be held hostage to the current crisis; rather, further reforms should be seen as an opportunity to find a more efficient and sustainable balance between growth, returns and risk.
The one thing that this crisis has brought to the fore is that both mature and emerging economies now face essentially the same set of questions about the future of their financial systems. How are intermediation and investment activities to be structured? How is risk to be measured and provided for? What systemic roles should the government play? And, how best can governments and regulators in increasingly integrated markets co-ordinate to ensure that effective safety nets are in place and shocks can be contained? The answers to these will chart out the future of global and domestic financial systems, however they emerge from the current catastrophe.
Monday, September 15, 2008
Mortgage crisis spigot - The FED's fiscal profligacy
The massive bailouts of Fannie Mae and Freddie Mac show unfortunate trends once again in the U.S. corporate world: failed executives get rewarded while trusting shareholders get bupkis.
Freddie Mac’s CEO Richard Syron could get nearly $15 million, according to news accounts. Over at Fannie Mae, CEO Daniel Mudd could receive an exit package worth $9.2 million, including stocks he already holds.
Big rewards, indeed, for executives who helped cause one of the biggest federal bailouts in history. Sloppy accounting and overstating the firms’ capital on hand precipitated the Sept. 7 bailout plan. In it, the hybrid groups will be under federal conservatorship with the power of the U.S. taxpayer to back them up.
The plan, led by Treasury Secretary Henry Paulson, has generally been hailed as a needed measure to buck up confidence in the U.S. financial system and prevent further deterioration in the mortgage securities business. Fannie and Freddie were deemed too big to fail. The bailout is also intended to reassure all-important foreign borrowers that their loans will somehow be secured.
What about shareholders? So sorry, out of luck. The takeover pretty much erased the value of their holdings
Freddie Mac’s CEO Richard Syron could get nearly $15 million, according to news accounts. Over at Fannie Mae, CEO Daniel Mudd could receive an exit package worth $9.2 million, including stocks he already holds.
Big rewards, indeed, for executives who helped cause one of the biggest federal bailouts in history. Sloppy accounting and overstating the firms’ capital on hand precipitated the Sept. 7 bailout plan. In it, the hybrid groups will be under federal conservatorship with the power of the U.S. taxpayer to back them up.
The plan, led by Treasury Secretary Henry Paulson, has generally been hailed as a needed measure to buck up confidence in the U.S. financial system and prevent further deterioration in the mortgage securities business. Fannie and Freddie were deemed too big to fail. The bailout is also intended to reassure all-important foreign borrowers that their loans will somehow be secured.
What about shareholders? So sorry, out of luck. The takeover pretty much erased the value of their holdings
Lessons from ICICI…
After a 33-year stint at ICICI Bank, Ms. Kalpana Morparia who is now the CEO of JP Morgan India is not letting her learning at ICICI Bank go waste. Having been at the helm of affairs of India’s largest and fastest growing private sector bank, Ms Morparia knows the tricks of the trade and is practicing all caution in her new role. While most foreign banks are targeting large-scale retail expansion, JPMorgan has no immediate plans to chase retail customers. The financial firm will get into retail banking only when credit bureaus are in place. Credit bureaus collate the credit history of individual borrowers and share them with commercial banks. In case of any default, a borrower gets blacklisted and finds it difficult to access fresh loans. Thus having witnessed some retail bad loans pile up at ICICI Bank, Ms Morparia certainly knows better this time
Saturday, September 13, 2008
Poi Solla Porom: Situational comedy with a message
Youngsters rule the roost in this movie and it’s such a refreshing change to feel the freshness and earnest desire of the crew to bring out a quality product to the theatres.
Positives:
ü Novel title introduction, Tight screenplay, Intelligent direction, Seamless
editing, excellent scenario building and rib tickling second half
ü A sort of comeback for yesteryear actor Mouli..What an amazing sense of
comic timing this legend has got.. ..Where was he all these days?? The
Mouli – Nazar combo strikes gold for Poi Solla Porom
ü Finally a plum role for Karthik Kumar.... Something that was long due for
this deserving actor..nice transformation of the character from a nonchalant
son to finally taking up the onus and responsibility to turn the tables on
Nasser. The “poi” game really starts here, with a host of other characters,
just post the interval and takes off on jet speed.
ü Wonderful, apt, able and excellent supporting cast, the movie allows us to
discover a new set of talent for tamil cinema, actress Piya looks cute as
Karthik’s love interest though she can improve upon her lip sync going
forward, Omar as Karthik’s brother and Big FM Balaji as Mouli’s secretary
deserve a special mention..They are the ones we need to support and keep a
watch on
ü Message that gets driven down: Beware of real estate sharks and land grabbers
ü Good background score, situational songs, no item numbers or dream sequences
Negatives:
1. The first half can be pruned by about 10 minutes to maintain the tempo of
the movie
2. How much ever I tried to wear the hat of a critic, I couldn’t find anything
more than Point 1 above… You just can’t find fault with this movie guys…
just let your hair down and have fun.:):)
This movie is sure to bring a smile on your face while u leave the cinema hall.
When we audience can ensure the success of distasteful movies like “kuruvi”, “vaathu”. “Kozhi” etc etc at the box office, why not support and root for clean, good, light hearted cinema.
Go watch PSP with your family and don’t forget to pass on the word:)
Positives:
ü Novel title introduction, Tight screenplay, Intelligent direction, Seamless
editing, excellent scenario building and rib tickling second half
ü A sort of comeback for yesteryear actor Mouli..What an amazing sense of
comic timing this legend has got.. ..Where was he all these days?? The
Mouli – Nazar combo strikes gold for Poi Solla Porom
ü Finally a plum role for Karthik Kumar.... Something that was long due for
this deserving actor..nice transformation of the character from a nonchalant
son to finally taking up the onus and responsibility to turn the tables on
Nasser. The “poi” game really starts here, with a host of other characters,
just post the interval and takes off on jet speed.
ü Wonderful, apt, able and excellent supporting cast, the movie allows us to
discover a new set of talent for tamil cinema, actress Piya looks cute as
Karthik’s love interest though she can improve upon her lip sync going
forward, Omar as Karthik’s brother and Big FM Balaji as Mouli’s secretary
deserve a special mention..They are the ones we need to support and keep a
watch on
ü Message that gets driven down: Beware of real estate sharks and land grabbers
ü Good background score, situational songs, no item numbers or dream sequences
Negatives:
1. The first half can be pruned by about 10 minutes to maintain the tempo of
the movie
2. How much ever I tried to wear the hat of a critic, I couldn’t find anything
more than Point 1 above… You just can’t find fault with this movie guys…
just let your hair down and have fun.:):)
This movie is sure to bring a smile on your face while u leave the cinema hall.
When we audience can ensure the success of distasteful movies like “kuruvi”, “vaathu”. “Kozhi” etc etc at the box office, why not support and root for clean, good, light hearted cinema.
Go watch PSP with your family and don’t forget to pass on the word:)
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