Tuesday, September 30, 2008

ICICI Bank in jittery

Last fortnight US financial crisis, will leave its mark through out the financial markets in the World. Today, when ICICI bank, India's largest private bank, overseas exposure to subprime was not revealed correctly, this phenomenon led to sudden negative reaction in the market, as Indian consumers lined in front of the bank's ATM. Even ICICI bank behaved negatively at the BSE bourses, with price quoting at 2 years low.

With such a negative sentiments towards the Bank financial status, led Mr K.V. Kamath to reveal about the financial condition of the bank. He said, that the financial condition of bank is robust, and it has enough balance to sustain depositors withdrawals. Besides, he also asked SEBI to probe into the fall of ICICI bank shares, as according to him it is due to some market makers, which are causing devaulation of the shares, in order to get un wanted advantage into banks operations.

But the question to ask now, touchwood it should not happen, but if ICICI bank fails, what will happen to Indian banking system?

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Monday, September 29, 2008

UK financial industry in Crisis.

Last fortnight it was US financial industry, this week it is the turn of UK. Fortis, one of the largest bank in the UK region filed for bankruptcy. Three countries Belgium, Netherlands and Luxembourg, pumped in 16.5Bn$ to revive the ailing bank, after Investors loss confidence into the Fortis. With the outcome of the news, both Asian and European market remained week, with BSE sensex ended 18 months low. So it is sure that the market sentiments are all time low, and markets will remain tensed for much bigger time.

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Saturday, September 27, 2008

Offshoring Strategy after Bailout

Last week turbulence in the US financial Market put US president at his toes, which made him to request for the 700Bn$ bailout pay package from Federal reserve. But the question is what happen to the Offshoring strategy after this bailout. Will these International Investment Banks, can still able to leverage their offshore strategy? The answer to this question is may be or maybe not.

So first consider the negative aspect i.e. May be not :-)

1. The first step these ailing bank will do to sustain or rebuild the faith among their customers, so in order to do that they may spend more money on the positive advertisement of their image and financial products, which means some offshore budget cut.

2.In this ailing market conditions, some of the majors mergers and acquisition has taken place, which might have sucked up the revenue from the balance sheet of the major banks at the Wall streets.

3. Prior to US president 700bn$ package, 10 major banks already pooled together 70bn$, to improve the liquidity situation in the market.This action also hurt their revenue, and tighten their hands for more leverage.

Now consider the positive aspect, the May be one

1. One prominent reason for more leverage of Offshore strategy is to gain the competitive edge. During recent Subprime crisis, we saw that some of the major banks post some gargantuan losses, while their competitors sailed through untouched. Now, its the time of these competitors to gain that competitive edge, which means they will certainly redefine their offshore strategy, to get that winning edge.

2. Recently we saw some major acquisitions at Wall Street, which means the Acquirer has to merge different entities with its operations, which might be a goldpie for the offshore service provider.

So from my opinion the Offshoring leverage can be slided to either end. So lets wait and watch.

Mohit Kumar
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Thursday, September 25, 2008

US Presidential Bailout Meeting

For few days US Capitol Hill is one of the busiest and highly focussed place in the World. Everybody is waiting for the decision on the massive bailout package of 700Bn$. Though inspite of the initial hiccups most of the Cabinet members have given their consent on the bailout package, but before making one of the crucuial decsion of his life, US President called members of the cabinet and future presidential candidates Mr. John Mcain and Mr. Barack Obama, to have their final consent on this issue.

Though disbursement amount and purpose is already been decided, but US treasury and Federal Reserve, still have to work on the underlying disbursement framework. Some Industry specialist are saying that Govt. will buy the bad debts of the ailing bank, and will hold it till maturity, while others are saying Govt. should demand equity rights in the assets of the banks.

Lets wait for the outcome of the US Presidential bailout meeting.

Thanks&Regards/Liebe Gruss,
Mohit Kumar
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Wednesday, September 24, 2008

Nomura acquired Lehman Brothers

Last week it was UK bank , Barclays acquisition of Lehman Brothers North American operations, yesterday it was Japanese bank Nomura. Nomura, Japanese Investment bank has shown great interest in Lehman Asia and Europe Investment banking operations. According to Nomura officials, though at wall street Investment banking business faced a set back, as cleared from the change of banking status of banking majors, Goldman Sachs and Morgan Stanley, but still lot to be tapped in the Investment banking space in Asia and Europe. Besides, with Nomura eying Lehman operations will certainly save some 5500 odd jobs in the Asia and European belt of the bankrupt Investment bank.

Mohit Kumar
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Tuesday, September 23, 2008

700 Bn $ bail out request by US president.

The current US financial crisis let the US president to lookout for 700Bn$ bail out package from federal reserve and the Congress.But the question is if the federal reserve and congress approve this bail out amount, who will bear the burden of this bailout? Is it the US taxpayers, or the next govt. Recent survey shows that US taxpayers are very reluctant to bear this bailout, and they are asking federal reserve not to approve it. But US treasury head, Henry Paulson supported this move by the US govt. He said, that the bailout is necessary in order to revive US economy and also the World economy. He further added that the bailout will certainly help the tax payers, will create more jobs in the economy, and will certainly help in streamlining US financial system.

What do u think about the US 700Bn$ bailout plan. Post ur comments below.

Mohit Kumar
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Monday, September 22, 2008

Goldman Sachs and Morgan Stanley change their LOB.

It seems that US financial crisis is still not over, today two another biggest Investment banks, Goldmann Sachs and Morgan Stanley at Wall Street approach federal reserve to change their LOB from Investment banking to more regulated Commercial or retail banking.

Reason behind the decision :
Recent fall of Merrill Lynch and Lehman Brothers really hit the backbone of the financial industry in US. Even these two Investment banks were also had the substantial exposure to subprime mortgage loans on their books, which resulted in heavy quarter looses. As in this difficult times its very difficult to get loans from the money market, so they decided to move to more safer and regulated commercial banking space.

Impact on this decision :
These banking operation of these banks will be more regulated. They can approach Federal Reserve for the bailout loans without any hassle.

Mohit Kumar
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Sunday, September 21, 2008

Barclays acquired Lehman

Last monday 15.09.08 which saw one of the major upheaval in the US financial market, when 158 year old, Lehman Brothers, US fourth largest Investment , filed for Chapter 11 bankruptcy. The day also saw the acquisition of US prime brokerage firm Merrill Lynch by BOA. While Merrill Lynch found its buyer at the US soil itself, but somehow Lehman failed to get attention from both US federal reserve and US ailing financial community.

With no taker for the ailing Investment Bank, Barclays UK 3rd larget bank sensed great oppurtunity in acquiring some portion of Lehman Brother. It filed for the acquistion of Lehman Brother North America division for whopping 1.75Bn$. The deal involves the sale of Lehman Investment banking fixed income and equity sales, trading and research divisons.

Mohit Kumar
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Friday, September 19, 2008

FSA temporary call off short selling

Yesterday it was the call by NY Attorney General to probe in the high level of short selling trade, today it was the turn of UK markert regulator Financial Security Authority (FSA). In order sail smoothly in these turbulent financial times without any major setback from the major UK financial banks, FSA wants to act faster, so they temporary called off short selling in the securities.I hope this steps may ease the ailing UK financial markets, and even FSA will get some time to probe in the financial conditions of its banks.

Mohit Kumar
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Thursday, September 18, 2008

NY At. General order probe into short selling.

With the recent financial turmoil in the US market, which caused biggest banking institutions debacle. Some analyst and investors on the wall street are blaming on naked short selling procedure for such a failure of the banking system.With continuous rumors of the ailing banks further aggravated short selling in the market. In order to investigate this issue, NY Attorney General has asked regulators to probe into this issue, and make short selling more regulated and open.

Mohit Kumar
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Wednesday, September 17, 2008

Impact on Indian economy with Lehman and Merrill Fall

Its often said when US sneezes everybody in the World catches the cold. So how come India be kept aloof with latest financial turbulence in the US economy. Indian economy will certainly be impacted by this financial crisis. Some of the sectors which will affected are :

1. Stock Market : With the Chapter 11 bankruptcy filed up by Lehman Brothers and Merrill Lynch bail out by BOA, FII have also started pulling out their money from the Indian Capital Markets. The trend will certainly continue till the financial scenario become much more stable.

2. Tourism : US citizens posed the major chunks of foreign tourists in India. With people loosing their jobs, inflation at all time high, and the improvement in US economy seems to be distant dream for everybody in US. With such kind of gloomy environment,people like to save their money rather than spending on vacation, which certainly affect the Indian Tourism Industry.

3.IT /ITeS Industry : For most of the Indian IT behemoth US is still the biggest revenue grosser, of which BFSI holds the greatest pie. As 9 out of 10 major Investment banks already posed huge amount of looses, which resulted in the cut of their IT budget, the end result no new bidding , even existing IT project are on hold or in pipeline, such kind of negative sentiments led to gloomy atmosphere in the IT space of the country.

4. Finance Industry : With the globalization of Indian economy, there is not only inflows of capital but outflows also. Some of the major banks in India did had some exposure in this ailing financial units. For e.g. India largest private bank ICICI Bank hold a 80million$ positions in Lehman Bonds.

5. Education : Even the Indian education system did not keep itself aloof from the recent fall of these financial institutions. The students of the Indian premier management Institutes IIM and ISB, who already accepted Pre-Placement Offers (PPO) from Lehman Brothers and Merill Lynch, now find the offers useless and have to look for different oppurtunity elsewhere.


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Monday, September 15, 2008

Another Black Monday At Wall Street

15.09.2008 can be marked as another black monday at Wall Street, with some of the major investment banks Lehman Brothers, Meryll Lynch and insurance companiy AIG declared their bankruptcy. Dow Jones plunge by more than 4.4% or 500 points today, its highest fall since 9/11 tragedy, even the Indian sensex did not remain untouch with the wall street disastor, in the early trading hours it loose more than 800 points. Even somebody on the Street is comparing this as worst day in the financial industry after Great Depression of 1929.

Besides, scene at the Lehman headquarters are really bad Feer of loosing their jobs, apprehension of their future work, was looming over the mind of every banker and employee working in these banking stalwarts. Subprime Crisis really hit the backbone of the US financial Industry and the overall world economy. But the question is whom to blame? Govt. Financial Institutions, Regulators, Speculators, Rating Agencies, or Investors. Every body played their role in bringing the world economy to stand still, and bringing another black day in US financial history.

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Sunday, September 14, 2008

Africa : The world largest untapped market

Africa as a continent is always consider to be a land of miserable people suffering from hunger, diseases, poverty , endless civil war etc. But recent wharton studies shows that Africa can be the potential market with 900 million potential consumers. With huge reserve of natural resources, young population, companies and organizations from every nook and corner of the world are coming to this continent to set up their shops from banking, telecom, infrastructure, in order to grab the first pie of potential African customers, and to harness the available natural resources.

Apprehensions By Investors:
1. Years of Civil War.
2. Unstable govt.
3. Closed Economy.
4. Lack of educated skilled labor.
5. Lack of Infrastructure.
6. High level of Corruption.

Benefits for Investors :

1. Huge natural resources like oil, water, etc., which can be tapped for industrial purposes.
2. 900 million strong customer base.
3. High number of young population, which can be molded according to the requirement.
4. Close proximity to both Europe and US, which can be easy for trade.
5. Huge opportunity to tap population surviving at bottom of pyramid.

Sectors which can be tapped :

1. Oil
2. Infrastructure
3. Education
5. Banking


Wednesday, September 10, 2008

Is India really a Investment friendly country ?

In 1991-92 India opened it markets for Foreign Investors, though it was by pressure, but they opened it. After 1991-92 Indian economy grows stupendously, suprising normal hindu growth rate of 4-5% to growth rate of 9-10% in last financial quarter. But the question is even though Indian economy is posing such a sound growth rate, but really Indian shores are that investment friendly as they pose to be. There are multiple reason both in past and present which really clarifies this fact. First example was Posco, a south korean, steel giant proposal of 10billion$ investment in state of Orissa. The proposal is still hanging without any decision by the govt.
Second example is Tata's Nano factory in Singur, the recurrent opposition by the Mamta banerjee party, is making Tata to move out of Singur, which also cause a delay in their pet Nano project.
By looking at these two instances, the Indian shores are not as friendly as it seems. So if Indian economy really want to continue with its current growth rate, then its govt. hast to take really investment friendly decision, though these decisions may to be in favor for some people, but in the end it will be good for overall community, and also improves India's image as global investment destination.


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Wednesday, September 3, 2008

Is Indian Realty Market also into Subprime ?

Just alike US housing market, Indian Realty market went through it highs starting 2003. In a span of two years, house prices in some of the metropolitan areas in India were doubled or tripled. But since the january sensex fall, Indian Realty sector was also in setback, be with the realty stocks or the housing prices. So can we say that Indian Realty boom was also a housing bubble and some traits of subprime lending is also in there. The question is little bit debatable, but as per my point of view Indian real estate market is far from Subprime, though there were speculation in the market but still I believe that its not in Subprime lending.

Here are some observations to support my point. But before I move with my observation, some facts about Subprime Crisis.

By Definition, Subprime lending generally refers to lending offered to those people who don't have required credit score.

Subprime Mortgage crisis did not only involves lending to risky customers, but it also involved beautification of these mortgages in tranches, which were afterwards sold to investors. This beautification techinque is known as securitization.

Securitization is a structured finance process where different assets are pooled together and offered as collateral to third party investments. The most common kind of securitzation assets are MBS(Mortgage Backed Securites) and CDO(Collateral Debt Obligations).

One more reason of Subprime Crisis is that most of the subprime loans were attached with adjustable rate mortgages (ARM). The most common type of ARM in US mortgage industry is 2/28 and 3/27. Most of the ARM comes with either very low initial rate, also known as teaser, or with no rate at all for first few years. But after some time, the teaser rates will be reset to be more realistic rates. With ARM most of the mortgage borrowers fall into lenders net, and borrowed loans which they never ever thought of.

Now, I will answer why the Indian Realty Market is not into Subprime.

1. First of most of the lending in India is done to prime lenders, I will not say there are no subprime lending , but the percentage of lending for houses are done to prime borrowers, with good credit history.

2. No concept of teaser rates, though interest rates may differ from lender to lender, but all rates are governed by the rates defined by central bank .

3. There is nothing call as Securitzation exist in Indian Financial Market, though recently RBI have announced Securitzation of govt. bonds, but the concept is still in its nascent stage.

4. Even in 2003, when Indian housing boom started, the lending interest rate were somewhere around 7-9%, even difficult for a prime borrowers to borrow the money beyond its capacity.

5. One more reason of Subprime crisis and lower interest was that, US govt want to revive there economy after the Dotcom bubble, so they reduced the market interest rates from 6.5% to 1%, which caused a spurt of borrowing amoung americans, while in India no such action was ever taken by any of the govt. in 61 years of Independence. Indian economy growth was more due to external factors like, more open market, infusion of investment both from Private and Institutional investors, raising of FDI in some of the key verticals.

So based on my observation, Indian realty was at its boon time, but it never in domestic subprime crisis.


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