Noble Group rising from Asia

Noble Group has been on the rise, more so, over the last year in 2009.

The company’s revenues rose 54% during 2008 to USD 36b (annual) (the worst crisis in a long time) but declined in 2009 to USD 21.6b (revenue until 3rd quarter), the Executive Chariman won the best businessman of the year award in Asia, the Chinese Government’s CIC, invested close to USD 1bn in return for a 15% stake in the company.

This means the Chinese imports will be routed through this company. The company’s stock listed in Singapore has risen from under SGD 1 to over SGD 3 over the last 1 year. According to Nomura, it is expected to rise to SGD 4.40 in 2010.

The company owns and ships coffee, grains, iron ore, coal, oil, carbon credits, soya beans etc i.e. all kinds of commodities around the world. It has operations in Latin & North America, Asia and Europe. They also own ships and farms and form an end to end supply chain from production to shipping to sales. They have offices in 40 countries with over 100 offices.

It aims to grow a further 20% p.a. over the next 5 years and double its size from current revenues of USD 36bn to over USD 72bn which will be quite commendable since they have been rising at a stronger pace in the past and with the Chinese support should actually do even better.

They raised money not only from the Chinese Govt this year but also from bonds offering approx. 6.3% returns p.a. maturing in 2020 (USD 850mn in size). Despite the recent Dubai and Greek fiascos, the bonds have continued their upward journey in the last month. Meanwhile, 2 of the deep pocketed Chinese banks have also arranged syndicated loans for this company to the tune of USD 2.4b during 2009.

All this cash accumulated in the current global crisis will help them come out on top and achieve a very strong growth trajectory in the coming years.

The bond happens to be on the recommended list of Morgan Stanley, BNP with Bank of America Merrill Lynch praising the company.

Stay tuned and keep investing with an eye on the future….

Noble’s Elman Seeks ‘Selective’ Acquisitions, 20% Annual Growth
Source: Bloomberg: Dec 23rd, 2009

TBTF: Thirty companies deemed to be Too Big to Fail

Today’s Financial Times has the news article on a list drawn by the Financial Stability Board declaring 30 companies including 6 large insurance companies deemed to be Too Big To Fail.

It will be interesting to see how these companies will shape up over the coming 12 months.

Some interesting omissions are Lloyds Bank, no additional bank from Canada besides RBC. CALYON is not on the list as well. Even Rabo Bank of Netherlands, the only AAA bank in the world does not make the cut. The reason: It is only present in Netherlands, for the most part, and hence not interwined with the rest of the world.

Not a single bank from Asia which is because they are not as interconnected in the global financial system as their counterparts from US and Europe and more importantly are very well regulated and strongly capitalized.

Banks
US
Bank of America Merrill Lynch
Citigroup
Goldman Sachs
JPMorgan Chase
Morgan Stanley
Canada
Royal Bank of Canada
UK groups
Barclays
HSBC
Royal Bank of Scotland
Standard Chartered
Switzerland
Credit Suisse
UBS
France
BNP Paribas
Société Générale
Spain
BBVA
Santander
Japan
Mitsubishi UFJ
Mizuho
Nomura
Sumitomo Mitsui
Italy
Banca Intesa
UniCredit
Germany
Deutsche Bank
Netherlands
ING

Insurance groups
Aegon
Allianz
Aviva
Axa
Swiss Re
Zurich

Thirty financial groups on systemic risk list
By Patrick Jenkins and Paul J Davies in London

Published: November 29 2009 23:30 | Last updated: November 30 2009 08:17

Coming to Delhi

With holiday season upon us and Dubai having Eid as well as UAE National day celebrations with many holidays, I shall be visiting Delhi from 26th Nov to 2nd Dec. If you are in Delhi and would wish to meet up, please do drop me a line.

A Guide to Banking Services in Dubai

Almost anyone from any part of the world can open an account in Dubai.

However, banks can be classified into 3 broad types in Dubai, as follows.

1. Retail banks offering local banking services including chequing (though, not for non-residents), loans, deposits & investments. These are regulated by the Central Bank of UAE. Such banks are from various countries but it is better to deal with locally based banks for business as well as regular chequing accounts since they offer the convenience of many branches and many more ATM’s. As per current practice, with the exception of UK, only 1 bank is allowed to operate in the UAE from each country with the added restriction of one branch in each emirate, so you shall find one bank with relatively few branches by a foreign bank, however, local banks have tens of branches and some have many more.

2. Private & Corporate Banks in DIFC. These banks do not offer chequing accounts nor loans in AED (local currency - dirhams). They are allowed to offer only corporate banking & private banking services for high value clients, above USD 500,000 in net worth and market services from various countries and can also book business in DIFC (which follows separate and strong rules & regulations) and are regulated by the DFSA.

3. Representative banks from various countries. These are present in DIFC as well as outside under the supervision of the Central Bank of UAE. Such banks 'represent' the countries they are from and offer services predominantly to nationals of their own countries, i.e. opening accounts, doing investments, providing loans from their country of origin. One exception is Switzerland from where they pretty much provide all kinds of investment service to all type of nationalities. You can find banks from most countries of the world operating under representative offices in Dubai.

If someone wishes to open a basic bank account, all they have to do is to visit a local branch, provide their UAE residence visa, sometimes a letter from employer (depending on the bank), copy of passport and voila, you shall receive a cheque book and ATM card with access to online banking. This process is different for non-residents. Non-residents also need to provide a bank reference letter from any country along with passport and they can receive a savings bank account and fixed deposit services, without a cheque book and invest in deposits as well as wide variety of investments.

There is no restriction on the currencies that you may invest in and capital/money can flow freely without any Govt restrictions to any other part of the world.

Investment products are provided by locally based banks as well as from DIFC based banks from various countries catering to both residents as well as non-residents for which almost all banks have specialised divisions usually called "Priority Banking" or "Wealth Management" and for high value clients are called “Private Banking”.

Some banks also offer weekly/monthly draws whereby a client who has placed money in a fixed deposit with/without interest, could potentially receive AED 1m or thereabouts if he/she wins that week/month. Such promotions are quite popular with a few banks, however, one local bank has been extremely successful in this marketing strategy to attract many clients. Due to extremely high competition in Dubai, banks come out with innovative strategies and marketing ploys to attract new customers.

Dubai has the highest concentration of banks in the world, when compared to any other city, despite a relatively small population size, which makes the banks extremely competitive.

Loans are usually not provided to non-residents and are available based on UAE residence visa (businesspersons or salaried employee) for cars, homes, personal purposes etc. Credit cards are usually not available for non residents but exceptions are possible in some cases.

Most banks provide investment services through their private banking divisions to place money or investments abroad from a very wide variety of locations. A few locations where business may be booked are: Singapore, HK, India, Jersey, Guernsey, Zurich, Geneva, London, Delaware (US) etc.

All in all, Dubai is a very attractive, well located, favorable for banking and a safe place to maintain a bank account or use the location to seek services from various parts of the world, by dealing with bankers who are physically based in Dubai.

Dubai is the most sought after financial service providing location across Middle East and Africa. Bahrain is another one but is not as large as Dubai is today although it used to be until the early 90's.

US Govt. can now 'officially' view European bank account activity

We all know that since Sep 2001, US Govt has had access to passenger data of all passengers on all airlines touching down in the US.

Now, it is also confirmed that US Govt shall gain access to all bank account activity (in addition to the airlines) regardless of nationality or origin (if the a/c is based in EU). The agreement has also confirmed that access shall be granted to the SWIFT international payment transfer system. SWIFT is used by pretty much all banks worldwide for transfer of money from one party to another or within same remitter/beneficiary accounts. However, what is alarming, that in the name of terrorism, all transactions are now being watched by the Big Brother, thus making invasion of privacy 'offically legal", despite being in different parts of the world. this only means that you can run away but you cannot hide and that the world is actually a very small place.

The following news was just released by German newspaper - Deutsche Welle. I am confident that this will not be captured/relayed by any of the major media organisations worldwide.

EU to share consumers' financial data with US

Excerpts:

US and European negotiators have completed a draft agreement that would give American law enforcement access to Europeans' financial data to combat terrorism. The deal has consumer and privacy advocates up in arms.

Author: Brett Neely
Editor: Susan Houlton

Where to Invest?...

Although everyone has been led to believe by the same economists (who could not predict the crisis in the first place) that we are out of the woods, though some still do remain skeptical. The ones who remain skeptical are the same perma bears who have been skeptical since beginning of the year, 2009. You may however, be very surprised to note that while economists, pundits and investors alike have been skeptical of the recovery, however, some investments have generated phenomenal returns. These profitable returns have, in fact, come from the BRIC nations, where Latin America has generated over 100% returns in the period Jan-Oct 09 (YTD), India has generated over 80-100%, while China has generated over 50-60%. Europe and US have generated positive returns too, in the range of 40-50% in Europe and 20-30% in the US. Additionally, investors who invested in Energy and Global Emerging Markets combined also made profits of 20-30% in Energy and 50%-60% in Global Emerging Market investments. Asia was another important region where investors profited from 50%-60% returns this year.

But the most surprising place to invest has been bonds, where Emerging Market bonds have rallied over 40%-50% while developed economy bonds have risen by 20%-30%.

The only laggard this year has been Japan, which also is close to losing its status as the 2nd largest economy in the world to China soon, as calculated by the size of their GDP.

Coming back to bonds, which are considered safe and have seen a huge resurgence this year. Investors have been scrambling to invest in bonds while companies and Govts worldwide are issuing new bonds. The bonds from developed countries and companies from those countries have been slow but the large corporations from emerging markets around the world have issued trillions of dollars worth of bonds and all have been oversubscribed due to the overwhelming demand. Countries such as Iran, Russia, Philippines, UAE, Venezuela, Croatia, China (to create their bond market, not to collect any more money than they already have) have issued bonds.

Due to rising demand and investor appetite, the yields have continued to fall. Compared to 6 months ago, bond prices have rallied to anywhere between 20% to 50% up, depending on the company's credit risk / sector and the bottoming of the equity markets in Mar/Apr 09.

Some good ideas this year include investing in alternate currencies such as GBP and EUR to yield higher returns of say, 5% pa in the bond along with the rise of the GBP or EUR, by say 10-15% (from 1.40 GBP to 1.65 today) or (EUR from 1.25 to 1.50 levels). Along with the increase in the bond prices of anywhere between 10% to 50%, a yield of 30-40% was not at all difficult to reach in the past year. However, going forward this return has reduced to about 15% since the capital appreciation on bonds has almost come to an end and if difficult to find, but returns of 5-6% on an unleveraged basis are possible along with an additional return of 10% on the currency gain. Hence, 15% on an annual basis is quite achievable, in my opinion, over the next 6-12 months.

Some bonds that may offer such returns include the Al Dar bond of Abu Dhabi, Vedanta Resources from UK, or Rep of Venezuela (in USD). Amex, Gazprom and Goldman Sachs also offer returns of approx 5-6% in GBP while in EUR, ANZ bank, Rep of Venezula and Rep of Philippines offer the opportunity to obtain a return of approx. 5-6% pa. Please review your risk profile and investment horizon with a qualified investment advisor before investing in any investments.

Whether the current crisis gets worse or not, at the end of the term of the bond (approx 4-7 years), the company or the country is bound to repay the bond else it will trigger another global crisis. The trick is to identify the bond that has the least likelihood of default at the end (i.e. the company will do well over the next few years and make enough profits or its stock is doing well etc) but perhaps has some difficulties today i.e. cash crunch, litigation etc.

The investment opportunities in the future will mostly come out of gains in currencies against USD since USD is expected to continue to weaken. For example, the Bond fund of UBS investing in Brazilian bonds has risen over 50% YTD primarily because it takes exposure to Brazilian Real which has risen from 2.50 to 1.70 against the USD (up by 32%). Such investments will continue to yield results until US gets out of its quagmire of fiscal deficit and low interest rates compounded by the falling real estate and a widespread financial crisis that gobbled up giants such as Bear Stearns, Merrill Lynch, Citi, Lehman Bros, Fannie Mae and Freddie Mac, AIG, 100 banks in US, Madoff, UBS, Iceland, Latvia etc etc. A spending equal to the annual GDP of USA has been approved by the US Congress, the amount of this spending is beyond enormous at USD 14 trillion dollars. This will continue to create financial problems for the US no matter what anyone says, in the coming years. Someone cannot just continue to spend to cover past problems. This only creates worse problems in the future.

In short, if a suitable allocation is done across all investment sectors, regions worldwide etc then profits continue to accrue since some market will always continue to go up, regardless of what the economists or the TV presenters or the media continue to propagate to meet their own agendas.

Stay tuned....

Financial crisis continues unabated around the world...

The financial crisis started in the US somewhere in June 2007 (over 2 years ago) with the subprime mortgages. The problems of subprime engulfed various banks and gobbled up Bear Stearns (an old and venerable investment banking giant in Mar 08) and by September 2008 also bankrupted Lehman Bros (over 160 year old investment bank). It also seriously affected major names such as Goldman Sachs, Citibank, UBS, AIG, Fannie Mae and Freddie Mac among other major financial institutions. The crisis continues unabated around the world and is not yet finished, despite the ever rising stock markets.

The subprime crisis became a housing crisis which further transformed into a liquidity crisis which is now affecting the hotel industry in the US, in Sept 2009.

This latest article on Bloomberg outlines the crisis surrounding the hotel industry just in the 5 star category. I guess the smaller hotels and motels are having concerns of their own.

The main point that I want to make is that since the global crisis has impacted various sectors over the last 2 years, it will most likely impact other sectors too. For example, the car industry has also been seriously dented around the world, especially in the US.

Countries like Iceland suffered immensely. We have also noted that the travel industry around the world including places as far and wide as India, Cyprus, UAE and Thailand have been impacted negatively.

Many major financial frauds have been uncovered such as Madoff in US and Satyam in India besides Stanford in the US.

In my opinion, there is much more yet to come, in the near future since many able bodied educated workers (both blue and white collared) are sitting idle, job losses in thousands continue around the world, Govt. intervention by printing more money and spending on infrastructure projects will cause serious inflation concerns possibly by next year. Major shipping lines continue to announce that this year's orders are even lower than last year's X'mas orders and many cargo ships lie idle around the world. Meanwhile, oil price continues its upward journey from mid 30 levels to above 70 levels in less than 6 months. Stock markets indicate euphoria which mostly will end up in tears shortly. Whether the stocks decline in Sept...or Oct...or Nov....is anybody's guess. But decline, they must.

It is only to be expected that if hotels are going through rough times due to lack of tourism, then the airlines also must be having cash flow problems when tourism is less and eventually some of them will fold up, sooner or later!

Stay tuned...

Microsoft has had its first annual decline in sales over a previous year, which highlights the point that variety of sectors are getting impacted in unimaginable ways.

Excerpt:

Upscale hotels are suffering from “a heightened focus on prudent corporate travel expenditures,” as well as the pullback in vacation travel, Day said.

Microsoft Corp., coping with its first annual sales decline, said in July it would slash $3 billion in operating expenses, including travel spending.

The number of luxury-brand rooms in the U.S. as of the end of July rose 9.1 percent from a year earlier to 100,000, Loeb said.

Luxury Hotels in U.S. Risk Default as $850 Rooms Remain Empty
By Nadja Brandt

Sept. 24 (Bloomberg)

World's Safest Banks

The recent release of 2009's ranking of safest banks from around the world is more interesting than ever before, mainly due to the composition of the rankings while undergoing the unprecedented global financial crisis.

The rankings are a combination of a bank's long term credit ratings and its total asset size. This ranking has been published each year for the past 18 years and is a recognised and trusted standard of credit worthiness of the banks from around the globe.

Some interesting facts to note are:

All 5 top Canadian banks appear in the ranking.

UK based, Lloyds Banking Group is no more amongst the ranking of safest banks in the world, rather it is not there even in the Top 50 any longer. Last year in 2008, pre HBOS merger, it was ranked as the 6th safest worldwide.

ASB Bank from New Zealand is considered more safer than HSBC, post crisis! As well as all Canadian banks except CIBC & BMO.

None of the Indian banks appear, mainly because the ceiling of the country ranking of India, at BBB- (S&P), inhibits any of them to be a part of the safest banks in the world despite India's banking system being ranked as the most robust throughtout the crisis.

U.A.E. has one bank as the 50th ranked safest bank in the world, being NBAD from Abu Dhabi. Abu Dhabi is the richest city in the world today due to its conservative and prudent approach of saving money over the last several decades being the 5th largest oil producer in the world.

National Bank of Kuwait also made it at a higher than UAE ranking of 38th.

Only 4 US banks made it to the list with the highest being a 32nd ranking.

Almost all top French banks made it to the list, totalling 6.

WORLD'S 50 SAFEST BANKS 2009
Global Finance Magazine
New York, Aug 25, 2009

Out on Summer Vacation and Just back

I have been away on fantastic holidays in NY, all over California and Toronto, Canada and just returned to Dubai...hopefully, should have some update while trying to understand this crazy world where stocks keep on rising while unemployment keeps on rising...go figure!

Canadian Banks: Stable, Growing and Profitable

Canada's GDP is expected to decline by about 2.13% in 2009 (total GDP is less than 10% of USA) and unemployment will rise to around 9-10% levels in 2009. Most of this malaise is attributable to the big brother, USA, since more than 80-85% trade is done with USA while Canada also happens to be the No.1 oil exporter to USA. With a cost advantage to most US companies of 10-20% with the lower priced loonie, lots of goods such as cars and medicines are manufactured in Canada which is now taking a beating with the US owned companies going through concerns such as lower sales and lack of bank funding among other things. US economy is certainly going through a very rough phase mostly due to lax regulation, lack of financing, still declining real estate prices, rising unemployment, greed on Wall Street and wasteful spending by the Govt.

However, despite real estate prices declining a bit in Canada and some loan losses hurting Canadian banks, most banks except CIBC have come out unscathed from the global financial crisis.

Infact, RBC and TD bank have both risen to the Top 25 most profitable banks in the world in 2008.

The World’s 25 Most Profitable Banks in 2008

RBC comes out at No. 10 in the world and TD follows with a 24th ranking. Only one bank from USA, Bank of America shows up at 22nd ranking in the top 25 list. This is a stark reminder to what happened with the globalisation of the US banking industry in 2008 and how the new world will shape up in the future. 5 Chinese banks show in the Top 25 while one is from Russia. Two from Spain and France while one each from Brazil, Sweden, Italy, Belgium, Australia, Japan etc comprise the list.

This indicates how much of global ranking the US banks have lost in the past 2 years alone and have been replaced by various other nations despite being the leaders in globalisation over the last few decades and expanding in all kind of countries worldwide but the setback in their home turf led them to mark extensive declines not only in their workforces but in their outreach and their future ambitions including their market capitalisations and hurting their debt/capital ratios. HSBC is getting out of consumer finance in USA while RBS from UK sells assets across Asia, Bank of America's merger with Merrill leads to job losses worldwide and other banks such as Citi, JP Morgan, Morgan Stanley continue with retrenchment worldwide.

A very interesting article in the USA Today outlines how Canada has become a leader in the regulatory regime and has been following prudent banking regulations in managing their banks.

U.S. regulators could learn from Canada's banks

By David J. Lynch, USA TODAY

Our northern neighbor sometimes seems so similar to the United States that it's hard to tell where the USA ends and Canada begins. Here's one way: Canada is the place with healthy banks, taxpayers unscathed by megabillion-dollar bailouts and no need to overhaul financial regulation because it was done right the first time.

As U.S. officials scramble to prevent a crisis sequel, the ability of Canadian banks to navigate the current financial storm is earning global plaudits. The World Economic Forum in October ranked the country's financial institutions No. 1 in the world for solvency. U.S. banks came in 40th, two rungs behind Botswana.

A few months ago, a report from WEF ranked Canada as the No. 1 nation worldwide in terms of the soundness of their banks.

Ireland is having a crisis of their own design just like UK, USA and Iceland, however, one of their newspapers sung praises for the Canadians.

Canadian bank system gets the balance right

The reasons for Canada’s sturdy banking system are many and varied: prudent lending and cautious borrowing; a tight government rein over the country’s property and mortgage market; strict capital requirements to ensure banks set aside plenty of capital for the bad times; intensive and constant regulatory spot-checks; and, of course, a national culture of fiscal conservatism.

Canada, unlike Ireland, does not subsidise mortgages with tax relief. “Canada has no policy incentives that push people to get into homes,” says Terry Campbell of the Canadian Bankers’ Association, though it has roughly the same level of home ownership (67 per cent of households) as the US.

Why Canada has a stronger system

- It has a more robust regulatory regime to supervise its banks.

- The banking regulator conducts regular forensic inspections of the banks and continuously demands information.

- Canadian banks have higher capital reserves and must have a minimum tier-one ratio of 7 per cent. Some 75 per cent of this must be held in ordinary shares or common equity.

- The banks are cautious lenders and Canadians are prudent borrowers.

- Customers are not allowed to take on mortgages of more than 80 per cent of a property’s value unless they buy mortgage default insurance from the government- owned Canada Mortgage and Housing Corporation (CMHC) or two state-sponsored private insurers. The minimum deposit is 5 per cent and maximum term is 35 years.

- An investor must seek government approval to acquire more than 10 per cent of a bank.

- Just 30 per cent of bank loans, all insured against default, are sold to investors in securitisation deals. This motivates the banks to ensure they hold high-quality loans.

- The five biggest banks control between 80 and 85 per cent of the domestic market.

- Canadian finance minister Jim Flaherty says bank mergers are “not a priority”. This has stopped any one bank becoming too large.

- The CMHC monitors housebuilding to ensure it does not rise significantly above 225,000 new units a year, suppressing price fluctuations.

- The biggest bank, Royal Bank of Canada, pays bonuses in its capital markets division based on pretax net income rather than revenue.

World crisis puts bank mergers out of mind

03/07/09
By Pav Jordan

Any talk of mergers in Canada has now been out of sight or out of fashion since it has been proven by the global crisis that big is not necessarily better.

Why India is the America of the 60's/70's/80's and why it will be the fastest rising market in the coming future?

As strange as it may sound but going into rural villages across India is the new strategy to ever increasing growth amongst the 1.3 billion population of India. Many companies have started retooling their sales forces, redsigning successful products (backed by strong marketing brands) and relaunching them differently in the rural context. Rural is defined differently by various people. Some may define rural as a "mindset", others as based on "lifestyle needs" and some as "agri dominated" or even by "location denominated". However, anyway you define it, one thing is for sure, that this market in India offers an exciting opportunity for existing and new companies in India to benefit from India's rapidly changing dynamics. If you think of it, even America a few decades ago, had many "rural areas" and still does. Once these "rural" areas got "urbanized" growth continued dramatically over the last few decades. However, once this was successfully completed, the great American giant corporations moved to generate lot of their growth/revenues from abroad instead of from within USA. This is what will define the next generation of global companies from whom we can make good profits if invested carefully in the high growth industries/stocks around the world.

India has a large amount of population estimated to be over 80% of its population living outside of the few major metro cities. Many of these people earn decent income, watch same global TV channels and aspire for higher education and aspire to joining the larger middle class which today is estimated to be between 250m-350m at the minimum. They offer a tremendous opportunity in the coming years for companies that can penetrate this segment and much more companies are doing it in a focused manner now.

Many local and international companies have formulated different policies to attract this "rural' consumer whose growth in income, needs and spending power (partly due to no taxation in India on farm income) is a major shift not only due to insulation of this portion of the population from the global financial crisis in general but any setback in the "urban" centres across India. The good farm prices with good monsoons have only enhanced the lucre of this segment of the population which has the purchasing power equal to or better than an "urban" Indian or "urban" dweller of any major city around the world.

The numbers are there to speak for themselves. India's GDP grew by a healthy 5.8% in Q12009 despite the global calamity. "Rural" centres did offer some contribution to this growth. The stock markets grew not only because of the growth but due to the return of political stability and a whiff of further liberalisation and divestment of state owned assets which will continue to benefit the rapid infrastructure development and further growth of India.

Excerpts:

"Several factors have led to an increase in rural purchasing power," says Pankaj Gupta, practice head, consumer & retail, Tata Strategic Management Group. "The increase in procurement prices [the government sets the minimum support price -- MSP -- for many farm products] has contributed to a rise in rural demand. A series of good harvests on the back of several good monsoons boosted rural employment in agricultural and allied activities. Government schemes like NREGS [National Rural Employment Guarantee Scheme, which guarantees 100 days of employment to one member of every rural household] reduced rural underemployment and raised wages. Also, farmers benefited from loan waivers [introduced in the last Union Budget]. The increase in rural purchasing power is reflected in rural growth across a number of categories. For example, in the financial year 2009 [April-March], FMCG [fast moving consumer goods] rural volume growth is estimated to be 5% to 12% higher than urban growth across a number of categories."

International companies from as diverse backgrounds such as Coke, LG, Philips, Adidas/Reebok aside from Indian giants are making huge strides and continue to generate ever increasing revenue growth from the emerging markets:

* Affordability -- Godrej introduced three brands of Cinthol, Fair Glow and Godrej (soap) in 50-gram packs, priced at 10 cents; Adidas and Reebok increased their sales by 50% in rural markets by reducing prices.

* Size and design changes -- Videocon introduced a washing machine without a drier for US$60; Philips launched a low-cost smokeless chulha (stove); DCM Shriram developed a low-cost water purifier especially for rural areas.

* Improving product acceptance -- LG Electronics developed a customized TV (cheap and capable of picking up low-intensity signals) for the rural markets and christened it Sampoorna. It sold 100,000 sets in the first year; Coca-Cola provided low-cost iceboxes as regular power outages meant families could not depend on refrigerators.

Perhaps the ultimate sign that rural India has arrived is in the allocation of talent. "In the old days, the weakest people in organizations, the ones without a star career path, held the reins of the rural marketing divisions," says Bijoor. "Today, things have changed. Sharper and sharper brains from within the organization are being diverted to rural strategy formulation." When the whiz kids go to villages, you know the cows have come home. (emphasis added)

Great article by Wharton with concise analysis (which I like)

Why Companies See Bright Prospects in Rural India
Published: June 18, 2009 in India Knowledge@Wharton

Bill Clinton's legacy, crisis and more

Clinton is not entirely blameless for repealing the Glass Seagall Act born during the depression era circa 1930's and replacing it with a new act. This new Act allowed banks to get into investment banking activities. This, in short, means that actual mortgages of clients could be converted into bonds (vetted by the rating agencies) and then sold to unsuspecting investors far and wide. This is one of the major contributing reasons of the sub-prime crisis. Had local banks not been allowed to transfer "risk" from themselves to an investor, they would have not indulged in sub-prime loans and also would have been much more careful in follow ups with non paying customers and ensured that the mortgage was always given to the customers who would repay it back to the bank. The change of the law removed this most crucial control wherein the bank did not have much reason to ensure that it acted in the best interest of its own self and of course, today we have seen what happens when a bank does not have control over its customers or the loans that it gave and meanwhile the investors also come and file a lawsuit and then...the bank goes bankrupt. This is quite familiar to us with exactly the same things happening in US, UK, Iceland, Ireland etc.

However, this common sense control was removed and the banks continued to sell mortgages which after a 90 day period (if the owner had not defaulted by then on the monthly payment) were legally allowed to be converted into a securitized asset "bond" (by virtue of this law approved by Clinton).

Anyhow, now it too late to play the blame game and of course, with all due respect, it was not entirely Clinton's fault, it was partly his advisers and partly the bureaucracy and the way the system works prodded by bankers (especially the ones too big to fail) and regulators and the rating agencies....and the list goes on.

In fact, Clinton also admits that NOT regulating derivatives during his administration between 1992-2000 was his fault. This is a sign of a great man because no one else has admitted this yet including Greenspan and many others.

I strongly recommend that you set aside a few minutes and read all the pages of this article.

Excerpts:

When the subject came up during our conversation in Chappaqua, Clinton calmly dissected the case against him and acknowledged that in at least some particulars his critics have a point. In almost clinical form, as if back at Oxford as a Rhodes scholar, he broke down the case against him into three allegations: first, that he used the Community Reinvestment Act to force small banks into making loans to low-income depositors who were too risky. Second, that he signed the deregulatory Gramm-Leach-Bliley Act in 1999, repealing part of the Depression-era Glass-Steagall Act that prohibited commercial banks from engaging in the investment business. And third, that he failed to regulate the complex financial instruments known as derivatives.

The first complaint Clinton rejects as “just a totally off-the-wall crazy argument” made by the “right wing,” noting that community banks have not had major problems. The second he gives some credence to, although he blames Bush for, in his view, neutering the Securities and Exchange Commission. “Letting banks take investment positions I don’t think had much to do with this meltdown,” he said. “And the more diversified institutions in general were better able to handle what happened. And again, if I had known that the S.E.C. would have taken a rain check, would I have done it? Probably not. But I wouldn’t have done anything. In other words, I would have tried to reverse everything if I had known we were going to have eight years where we would not have an S.E.C. for most of the time.”

However, it is true that many small banks have gone under. 36 banks have already closed in USA this year in 2009, more than the entire 2008. This does not include many banks worldwide who are having problems. Read here about small community banks in Minnesota having problems:
Analysts warn bank failures loom in Minnesota




It is indeed a fascinating article and you will come out enriched after having read it.

The Mellowing of William Jefferson Clinton

I love Clinton's picture too!

Hell in Crisis: How greed corrupted all

These caricatures while funny tend to accurately depict the boom and consequently the greed that enveloped all the mighty and powerful be they businessmen, executives, Government servants or anyone in positions of power. This eventually led to the downfall and meltdown of the financial markets and brought us where we are today in the financial landscape. Everyone played this game of power wherein the high and mighty kept on dancing (or paying bonuses) mainly because everyone was doing so and too many people/companies were making too much money at the same time. The executives and businessmen were paying off to subordinates because they were making too much money because the company was making too much money. The executives and subordinates alike were spending more in luxury items, large houses, traveling, food etc because they were making easy money and the circle went round and round. All the brakes and controls were thrown to the winds and all rules were bent because money continue to be made. Leveraging, back room dealings, uncontrolled growth, manipulations, low interest rates leading to excessive risk taking, lack of Government & regulatory control and mostly greed all made a lethal mix to bring us to this day today.

Now that companies have stopped making money (stopped dancing), so the Governments (who received large bribes - read donations - and tax revenues) are not happy and neither are the folks who received large amounts of easy money. Hence the music has literally stopped and the world has come upon a crisis.

Good quality, ethical compass, value for money and customer service have all made a sudden and swift comeback.

Anyone who has not been doing so in the past is and will be suffering by virtue of no easy money, no job/income and hence the cycle of money rotating in the system has to reduce dramatically which is being currently supported to an extent by the spending of all Governments in infrastructure projects. We have seen the beginning of this catastrophe over the last few months whereby non financial companies have also gone into a meltdown which include car companies as different as GM, Chrysler, Toyota, Jaguar; Retailers such as large malls in America and other stores; TV companies such as Sony and Panasonic; real estate companies such as Trump (USA), Nakheel (Dubai) and DLF (India) etc; Telecom companies such as BT, not including the hedge funds, mortgage companies, banks and insurance companies that have gone under around the world. Read here the job cuts of first quarter of 2009 across countries and industries.

Another job loss tracker is here from Forbes.com. Please note this is only for announced lay offs of Top 500 US companies. It does not include anyone outside of the top 500 companies or in Govt sector or in independent outlets or in small businesses or self employed etc. Regardless, it is an interesting indicator.

There indeed is a crisis that does not seem to abate just like an oncoming tsunami - of 2004 - that was also never witnessed before!

Today, when America loses 500,000 jobs per month, it is claimed that things are improving, which effectively shows that how bad the things become! If you think about it, until about 2 years ago, America was on a huge growth trajectory and new jobs were being added around the world including USA whereas now with millions of jobs being lost just in 2009 (if we include job losses of 2007 and 2008 the numbers are really staggering and easily go above 15-20m job losses only in America), the media continues to put a positive spin on the news that losing 500,000 jobs is better!

Everyone needs to get over their high horses and realise how bad things have become and will continue to be, for some more time to come.

However, it is certainly true, what a learned economist characterized as TWINE - The World Is Not Ending.

Things shall improve, as eventually everything does, just like a new dawn after a dark night but it will take some more time and loads of patience.


Hell in Crisis
by Edward Sorel and Richard Lingeman
June 2009

Rothschild name shines and we feel proud in our association with them

Rothschild deserves accolades for its even stronger performance despite the ongoing financial crisis. Their due diligence, caring for their client's money, winning the best Private bank in 2008 award for 5 different categories in Luxembourg (consistently over the last several years) says it all. Kudos to my colleagues at Rothschild!

Now, Bloomberg delivers an article contrasting the remarkable differences between Madoff and the best in class Rothschild Private Bank and unmasks how Rothschild manage money for their clients. Rothschilds have not disappointed their clients and have followed the age old practices of being a conservative and staid private banker.

It is a privilege that my bank, Axis Bank from India, has a strong partnership with the same private banking group (Banque Privee Edmond de Rothschild Group) and it makes me feel proud to be associated with them so closely. Wishing them many more glorious awards and articles in the future and lucky for us being a partner with such an esteemed organisation!

Some excerpts:

“Madoff has become a filter for everyone’s perception of whether banks were doing their job,” said Leslie Gaines-Ross, chief reputation strategist at the Weber Shandwick consulting firm in New York and author of “Corporate Reputation: 12 Steps to Safeguarding and Recovering Reputation,” (John Wiley & Sons Inc., 2008). “Rothschild is one of the few that is still admired and holds true to its reputation.”

"Baron Benjamin, head of the Geneva arm of the Rothschild family that financed the Suez Canal and Wellington’s victory at Waterloo, is betting that heritage will help his firm grow. Rothschild had no investments with Madoff."

"Rothschild and Madoff are “poles apart,” said Cedric Tille, a professor at the Graduate Institute in Geneva and a former economist for the Federal Reserve Bank of New York. “Many private banks in Geneva have enough tradition to sell themselves as cool heads who don’t fall for the latest fad.”

"'Look for Safety’

Banque Privee Edmond de Rothschild Group received 1.7 billion francs of new assets in the first quarter. Pictet & Cie. and Mirabaud & Cie., two Geneva-based banks that trace their roots back to the 19th century, also attracted clients after avoiding Madoff, who’s in a Manhattan jail awaiting sentencing on charges that carry a maximum prison term of 150 years."

"Rothschild depends on its record of preserving customers’ savings to set itself apart, said Werner Rutsch, co-author of “Swiss Banking -- Where Next?” (Neue Zuercher Zeitung, 2008). "

"Madoff reported annual returns of 8.5 percent to 11.7 percent during the past five years, according to Notz Stucki. Rothschild’s $746 million Prifund Alpha Uncorrelated dollar fund rose at an annual rate of 5.9 percent in the same period. Funds that invest in other firms’ hedge funds gained 3.47 percent, data compiled by Chicago-based Hedge Fund Research Inc. show. "

"While Rothschild snubbed Madoff, he has mirrored his forebears with investments in Bordeaux vineyards, Brie de Meaux cheese and a slice of the French Alpine resort of Megeve. The promotion of what the bank calls its “art de vivre” reinforces the values and family history that are part of Rothschild’s marketing strategy, Cocca said."

"Rothschild produces wine at four properties in France’s Medoc region, close to the Lafite and Mouton Bordeaux vineyards owned by the French branch of the family, and in partnership with South Africa’s Rupert family on a Huguenot farm 50 miles from Cape Town."

Bloomberg:
Rothschild Difference With Madoff Becomes Geneva’s Obsession
Last Updated: May 7, 2009 18:01 EDT
By Warren Giles in Geneva

Investment Downturn & Divorce

This is a very interesting story and has far reaching consequences for high net worth investors, top businessmen, fund managers, bankers who divorced and agreed to a settlement over the last couple of years, especially those who may have even become unemployed or facing business downturn. The financial settlements hammered out previously will continue to stand inspite of unemployment or decline in portfolio values or loss of business income etc.

A fund manager who kept his money in investments and negotiated a settlement with his wife, went back to court to adjust his payment as agreed in the settlement because the value of his investments declined tremendously due to global financial downturn.

However, the court argued that, the fact, that the banker kept his money in 'speculative investments" does not give him the privilege to change the agreement.

Moral of the story: Don't divorce and don't keep your end of the money in investments at the same time! ...and ...Keep your wife and your money at home!

Some excerpts:

"However, three senior judges on Wednesday warned that even a dramatic “financial eclipse” would not justify reopening settled deals, voluntarily reached by both sides. Mr Myerson, the Court of Appeal emphasised, had knowingly taken a “speculative position” on Principle Capital’s fortunes.

“Why should the court subsequently relieve him of the consequences of his speculation by rewriting the bargain at his behest?” said Lord Justice Thorpe, one of the most senior family judges."

"Should he fail to make those payments, Ingrid Myerson has several options, says Kate Landells, a lawyer at Withers, including asking for a court summons against him or trying to force her ex-husband into bankruptcy."

Fund manager loses bid to scrap divorce deal
By Megan Murphy, Law Courts Correspondent
Published: April 1 2009 12:08 | Last updated: April 1 2009 23:21

Swiss banks ban travel by Private Bankers outside Switzerland

In some further interesting developments for Switzerland, towards its slowing banking stature, bankers have been cautious and in some cases banned from travelling.

This has to be very bad for Swiss banks to not allow their top private bankers to travel outside Switzerland.

Private Banking, by default, is a relationship driven business where Private Bankers must meet their clients for various reasons including strengthening relationships, providing personalized services & advice and review investment portfolios among other things. With the fear of prosecutions and arrests looming heavily over private bankers, the decision by many large banks, including UBS, not to allow their top private bankers to travel abroad especially in Europe is a clear sign of distress.

The US, French and German governments in particular have aggressively pursued UBS and other Swiss banks including banks from Bahamas etc to declare all undeclared private banking accounts. According to reliable estimates, there is over USD 11 trillion lying in Swiss banks. This amount is usually undeclared in the countries of citizens to whom it belongs. There is a very fine line between Swiss legal interpretation of Swiss banking secrecy and banking secrecy as defined in other countries around the world. This line seems to be breaking down or at the very least narrowing down causing troubles in the minds of many clients around the world who were cloaked in secrecy behind the Swiss laws.

The fact that bankers are scared to travel to meet their top clients is a scary thought and in future Swiss bankers will continue to loosen their legal veil of secrecy and hence continue to lose their assets to other nations especially if the private banker is unable to travel for fear of prosecution (which essentially means that something illegal was indeed being done) and if Switzerland is same as any other country such as London, Singapore, Dubai or any other offshore tax free nation, then all other tax free nations (for non residents) will receive more client assets than they have received previously and have strong laws to protect the client with an assurance of no taxes and of course, the anonymity (of not being on the radar of US and other Governments who currently are aggressively pursuing Switzerland).

Excerpt:

"The restrictions come ahead of next week’s Group of 20 summit where a clampdown on tax havens is set to be discussed.

Under pressure from other countries, Switzerland, which is estimated to account for about a third of the world’s $11,000bn in clandestine personal wealth, agreed this month to ease its bank secrecy laws and accept international standards on tax transparency."

Swiss banks ban top executive travel

In the Financial Times
By Richard Milne in Geneva
Published: March 26 2009 19:08 | Last updated: March 26 2009 19:08

China and Russia propose a new currency instead of USD

It may be surprising but both China and Russia are proposing strongly to the IMF to come up with an alternate to a USD as an international reserve currency.

They have a point!

The point is that since China, Japan and Russia etc have been holding USD reserves and have thus invested in USD bonds, therefore, they are suffering due to the global imbalance. With United states having a deficit both in current account and its fiscal budget, it has to continue to issue more and more bonds which China, Russia, Japan and other nations have to buy (because for every new issue, there has to be a new buyer else the issue cannot be completed). Hence the fiscally and economically positive countries have ended up holding investments in a country, like USA, where there is no fiscal balance. This causes the imbalance in an interconnected world.

And now, if these countries holding the investment sell the investments, they cause a bigger imbalance, hence the conundrum and the question of an alternative currency.

We are certainly living through interesting times and this decade may be one of the worst over the past hundreds of years:

- Beginning in 2000, with a Technology Bust
- In 2001, denoted by 9/11
- Between 2002 until 2007, the best boom years in stocks and investments with wars in Iraq and Afghanistan and some of the worst terrorist events the planet has ever seen
- In 2008, the worst declines ever, descending into chaos with the financial landscape changing forever and getting worse

It appears that, going forward, with a proposed new currency solution being put forth by some of the strongest fiscal nations who wish to protect themselves, led by the BRIC nations, it seems we will see some more interesting times in 2010 and onwards in the ever changing financial landscape of the world.

This will become a very big issue very soon and will have great implications for all countries with millions of dollars shifting away from USD into other currencies via the proposed basket of currencies.

Financial Times:
China calls for new reserve currency
By Jamil Anderlini in Beijing
Published: March 23 2009 12:16 | Last updated: March 24 2009 00:06

Reuters:
Falling greenback fuels BRIC dollar reserve rethink
Mon Mar 23, 2009 3:00pm EDT

Dubai flagship companies not sold to Abu Dhabi

Many rumours have been flying around Dubai over the past 3 months and I have heard from people that they knew that Nakheel and Emirates Airlines had been sold (or partially sold) to Abu Dhabi. Well, that is not the case, and I am sorry to disappoint many people with the inside information!

I have had a strong opinion that this is not at all possible.

Abu Dhabi emirate, which is the capital city of UAE, and Dubai emirate have always had a long established and solid relationship spanning many decades.

Today, none less than the President of UAE has vindicated my opinion and in an interview to a new newspaper from Abu Dhabi confirmed that Abu Dhabi has not bought and is not interested in Dubai flagship companies.

Although Abu Dhabi is much more richer than Dubai and is more conservative in its approach to everything, however, according to long established traditions spanning centuries between various regions and countries in the Middle East, financial interference in times of need has never occured and nor should it occur. Additionally, Abu Dhabi and other countries and emirates have benefited from Dubai's rising gobal profile and the capability of UAE to provide a crime free safe haven in the entire Middle East and Africa. This has allowed all the nations in Middle East to benefit financially as well as gain a greater international profile while providing investment opportunities to all without any restrictions. It was unfathomable that Abu Dhabi or anyone else would try to stifle this long term growth strategy due to the financial crisis and further compound the problems here.

Abu Dhabi and Dubai are simply like good old friends who help each in their times of need, just like Kuwait helped Dubai to finance the dredging of Dubai creek in 1965.

A friend in need, is a friend indeed!

Economy is resilient, says Khalifa
WAM
Published: March 15, 2009, 23:05

President His Highness Shaikh Khalifa Bin Zayed Al Nahyan, has denied rumours that the Abu Dhabi government is seeking to acquire companies owned by the Dubai government and said there are misinterpretations about the relations between the emirates.

Is CNBC worth watching? Have a look!

Awesome show from Comedy Central's Jon Stewart! Enjoy!

The Daily Show With Jon StewartM - Th 11p / 10c

CNBC Gives Financial Advice

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

Dubai's glitter less shiny

According to this latest article in The Toronto Star, which is a very balanced article, Dubai is going through a downturn. Most points mentioned in the article are quite correct.

However, I would like to balance it further with a few more points as my perspective.

Dubai always has had a transient population. Every couple of years, most people leave Dubai for one reason or another. Hence, it is very difficult to find a professional with over 5-10 years of local experience in Dubai. Most people you meet would have been in Dubai for less than 4-5 years. Whereas most businessmen, at least the successful ones, usually have been based in Dubai for over 10-20 years. This is mostly true because a successful businessman cannot leave any city/country purely because he is successful.

Of course, Dubai has started losing jobs in the last few months and especially after Dec 2008. However, most of these jobs were created over the last 2-3 years and hirings were happening at a very rapid pace. Now the market is balancing the overshooting of the job growth and salary growth. Cost of living including rents just went through the roof especially since 2005. This is getting corrected with inexperienced and less qualified people unfortunately losing jobs because the liquidity and profits of real estate sector are unable to be re-invested into the system to further enhance the growth and reducing the future growth potential and causing job losses and lack of profits. Many real estate speculative investors and speculative developers are having extremely difficult times and in turn are bringing real estate and other sectors down.

Another thing that has not worked in Dubai's favour is the falling currencies of Europe, UK, Russia and India. Majority of new money was indeed coming into Dubai from these 4 regions. Additionally, the lower price of oil and ongoing crisis in almost countries is not helping either. Banks have slowed their lending for personal loans, mortgages and project finance.

Dubai may hit a bottom by June when most schools close and the global crisis becomes worse and the heat of Dubai makes the retail sector even worse than it already is today. The opening of 3 new large malls in last 4 months with another one slated to open in a month or two is definitely not helping. although the Govt has raised new money last week and CDS spreads (Credit Default Swaps) of Dubai have declined, the mood of average people in the city is definitely not improving with the growing uncertainty.

Persian Gulf's 'City of Gold' losing its glitter

Oakland Ross
MIDDLE EAST BUREAU
Mar 01, 2009 04:30 AM, EST

Canadian Banks are rock solid

Canadian financial system has been strong and 'different' than its big brother: USA. It has been clearly shown in the ongoing financial crisis that not only the Canadian banks have not fallen apart but have been strong and actually looking to strengthen their US franchise and grow in other parts of the world. They have been prudent, conservative and cautious with strong support by the Govt. The budget surplus and high commodity and oil prices have only strengthened the system over the last few years without taking any careless risks. Now, more US companies have reason to invest in Canada given that the Canadian dollar has weakened by 20% over the past 6 months, just like Microsoft (mentioned in the article below) did in 2007 and large US auto manufactures did in other years, more companies may do so in the future.

The latest article from Fareed Zakaria of Newsweek is well written and talks about how the Canadian financial system evolved over the last few decades, both politically and business wise.

The Canadian banking system was declared as the second strongest financial system in the world, after Denmark. With over 33 million citizens and growing by 250,000 every year, Canada is doing just fine.

Worthwhile Canadian Initiative
By Fareed Zakaria

Canadian banks are typically leveraged at 18 to 1--compared with U.S. banks at 26 to 1.
Published Feb 7, 2009
From the magazine issue dated Feb 16, 2009

Swiss Banking secrecy gets a severe body blow

In continuation of my earlier entry of Feb 3, 2009, here is further update on UBS with details on how the swiss banking is now falling to its knees, partly due to UBS's wrong doings.

UBS has finally agreed under an agreement to pay USD 780 million to US Govt and admitted to evasion of US taxes by actively suggesting to US citizens/clients to 'hide' money in Switzerland over the years. Now, more than 19,000 clients, including Canadian citizens, have been impacted and their names will be disclosed to the US Govt shortly.

Swiss banking, as the article states, was for many centuries clearly the leader in the secretive swiss banking for the rich and famous and of course, the connected and 'in the know'. However, with the financial landscape changing dramatically in 2008, with the demise of Lehman, Bear Stearns, many US and non US banks, Merrill Lynch etc, now it is the turn of European banks to have grave financial problems in 2009. Iceland has had its share, now UK is going through bailouts and assistance from the Govt and leading banks such as Lloyds have been downgraded from their esteemed Aaa status by Moody's. Barclays, RBS and HSBC are under pressure although I rate HSBC to be the least impacted due to their conservative nature and large client base, however, same cannot be said for Barclays and RBS among other smaller banks. HBOS is already gone and various European banks including in France and Eastern Europe are declaring large losses.

Clients are shifting assets from the rapidly falling financial institutions, but the million dollar question is: Which banks are safe?

Banks in Far East, lately with the exception of HK, are safe along with state supported banks in the Middle East, India continues to be a safe haven. In Latin America also the banks that are doing fine.

The banking crisis which is part of the larger financial crisis is kind of restricted to banks and countries that allowed high leveraging without effective regulatory oversight in US UK, Europe only. Most other nations, thus far, do not have had to cope with failing banks since their respective central banks were sitting awake at the switch.

While UBS continues losing its star bankers and its stature along with the lustre of swiss banking secrecy that attracted billions of dollars to its doors. Now Switzerland must act, because Singapore, Dubai and London are the recipients of the money sloshing around.

Can you hear the ching-a-ling of the new financial landscape of 2010 and onwards?

A Swiss Bank Is Set to Open Its Secret Files
By LYNNLEY BROWNING
Published: February 18, 2009

UPDATE:
9.07PM, Dubai

Barely I have penned my thoughts that two different writers, write exactly the same things:
1. that Swiss banking secrecy may come to an end
2. that Singapore has already announced tax incentives for fund houses etc to relocate to Singapore

20 February 2009 - David Bain

Comment: The end of Swiss banking secrecy?

20 February 2009 - Matt Turner

Singapore offers tax incentive in wealth play

UBS brings Swiss banking to its knees

It is common knowledge that wealthy clients from across the world maintain numbered accounts or keep money in named accounts that are quite often not declared in their resident countries for tax purposes. US citizens also fall in this list of clients, and according to UBS, about 19,000 American citizens have had accounts at UBS bank alone that were apparently undeclared and hence taxes were not paid (not including accounts with various other banks in Switzerland or other nations). This is a serious crime in US or anywhere. However, this may be the very first time in the history of banking that any country is making serious investigations on an official level on bank accounts with a bank in another nation.

Few weeks ago we noted that UBS senior executive was reported as absconding. No further news on that just yet.

However, besides the Justice Deptt in USA, now the IRS has started a separate investigation in US on accounts at UBS. this does not bode well for its clients many of whom have had accounts at UBS for a very long time.

Excerpt:
The Internal Revenue Service, which is participating in a broad federal investigation into UBS and its offshore private banking services, is widening its scrutiny to include ordinary accounts owned by Americans who work overseas, according to a person briefed on the issue.

I.R.S. Is Said to Broaden UBS Inquiry

On another note, UBS has been weakened dramatically with many of their top performing bankers leaving them. However, according to the latest article in the New York Post, UBS may be planning to sell its US securities arm with over 10,000 advisers to Wachovia!

BANKS' URGE 2 MERGE
UBS, WACHOVIA UNIT DEAL

UBS has certainly brought the entire Swiss banking system to its knees, almost single handedly!

Dubai Property Prices continue their fall: Research from Landmark Properties

Dubai Property Prices May Fall Up to 50 Per Cent: Research

Finally, there is some research that seems quite on the spot. Read this article here from Khaleej Times, a local English newspaper based on a research report from Landmark Properties.

There is actually fear in the market with many job losses (estimated between 8-10,000 within Dec and Jan 2009), lack of project as well as mortgage finance, almost no retail level sales except in well developed areas, very low new employment visas, currency fluctuations in UK, Europe, India, Russia and elsewhere, real estate & stock downturns in all countries, slowing international trade, lower margins, falling tourism etc. Many new projects have been put on hold which was obviously expected.

People who have lost jobs are forced to sell their furniture, cars and homes since they need to leave Dubai within 30 days. The Govt is working on a resolution to this strict rule. Additionally, Dubai Govt has increased budgeted spending for 2009 by 42%. Across GCC, over USD 2 trillion will be spent on various infrastructure projects in the coming 5 years as per published research reports. While, continued saving from oil revenues of various Gulf states continue to remain invested in the Gulf region and provide some buffer from the downturn.

However, people who are able to re-enter or stay in the country even without a residence visa, for example, from US, UK, European countries etc who are allowed 60 days visit visa upon arrival at the airport, are also in a very tough situation due to lack of job opportunities and extremely high cost of living which is unable to support their lavish lifestyles.

Most people due to their high earnings, not only turned into speculators but spent most of their incomes on flashy cars, flashy bars and flashy apartments filled with consumer items. With no new entrants to the labour market and many people losing jobs, the retail sales in the malls have also dropped considerably. With 3 major malls opening in the past 4 months, it has been harded than ever to survive for the retail stores too. Dubai Mall opened in Nov, followed by The Walk in Jumeirah Beach Residence and Marina Mall in Dec. With so many new stores at extremely high rents, it is quite challenging for all the stores since most stores just duplicate their presence and have same stores in almost all malls across Dubai.

I believe banks, who are the largest employer in the region and the city, similar to Govt, will have lower revenues and profits during 2009, Govt will see revenues declining from customs, airport fees due to declining international trade and slow tourism growth. Other entities will have to rethink their growth strategies and forced to reduce salary and other fixed costs by removing employees.

Some of the benefits will be lower cost of living, lower traffic congestion (combined with new metro opening in Sep 2009), better customer service in retail stores, hotels, restaurants, malls etc.

Unfortunately, for the speculators, the real estate prices will continue to decline and reduce their wealth to the extent leveraged and invested in the, thus far, booming real estate market.

The speculators, unlike real users, made lots of money due to their 'connections' in the property sector, developers happily played along, but in the current scenario both the speculator and developer are under tremendous pressure and many of them will lose lots of money just the way they made lots of money previously because leverage works both ways. I am sure many developers must be thinking why they did not sell most of their properties to end users who would have stabilised the market, but alas, it is now too late to think that way! The chickens have already come home to roost!

An interesting Youtube video is here from CBS news of USA

02 February 2009
DUBAI - Prices of residential and commercial property in Dubai are predicted to plunge this year by up to 50 per cent and 40 per cent respectively as the real estate market reels under pressures of a correction sparked by weak demand, findings by a new market research show.

Residential rents of both apartments and villas are also forecast to drop by 25 per cent while commercial rents are poised "to fare even worse," according to the report by Landmark Advisory, the research wing of a Dubai-based property company.

"Apartment prices will fall on an average by 20 per cent, with individual declines ranging between 10 and 50 per cent depending on the development. Average villa prices are likely to remain relatively stable with up to 10 per cent average drop with lower quality units bearing the brunt of these declines," the report said. Villa rents are expected to fall on average by 25 per cent with low quality units hardest hit.

According to the report, residential prices peaked in October 2008, fell through to December, and continue to fall. "Assuming that the current downturn will affect prices in line with historical average of 35.5 per cent, then Dubai's average price floor will fall from a peak Dh1,556 to Dh1,000 per square foot."

Office sale prices are predicted to drop 35-40 per cent due to corporate downsizing as companies consolidate their offices to reduce overhead, the report said. Land prices that fell significantly in 2008 will fall by up to 50 per cent. While warehouse prices are likely to increase 30-40 per cent due to undersupply and untapped leasing potential, rents will rise by 10 per cent."

Another steep fall, the report said, will be in the case of labour camps. Prices will fall by 30-40 per cent while rents are head for up to 35 per cent fall as construction contract volumes plummet by 75 per cent.

Landmark's forecast is in line with those made by Global Investment House. Noting that properties in the secondary market have fallen as deep as 40 per cent, Global said: "Looking ahead in 2009, we expect to see further price correction for freehold properties in the range of 15-30 per cent, however, and rents to decline by 15-25 per cent in 2009 due the lack of demand in line with the economic slowdown which forced many Dubai firms to downsize or halt their expansion plans which will likely result in a decline in the number of expatriates in Dubai.

The Landmark report notes that during the transition from a supply-driven property market to a demand-driven one, prices are no longer dictated by developers. "In the year ahead, consumer preferences, access to capital, and income levels will reshape demand patterns and redefine the market. As new supply encounters slowing demand, the market will reward developers who deliver quality and punish who do not."

The report said the average income levels in Dubai were likely to stagnate due to redundancies and lower salaries. "The financial crisis has slowed demand: personal incomes, job security, and confidence are declining. An improvement of confidence among banks and investors will be the critical first step towards the recovery of the property market. Despite special access to government funds, banks have reverted to austere lending practices that restrict the availability of much-needed capital. The availability of financing will be critical factor for boosting the economy and rehabilitating real estate transaction volumes. Until the recovery of the property market, developers, investors, and landlords must adapt flexible and innovative approach to survive," it said.

By Issac John

© Khaleej Times 2009

An extremely sorry day for the international banks

I have been thinking for more than a few weeks now, that the Dec 31, 2008 results of most large international banks will be pretty dire. Unfortunately, my thoughts are kind of becoming real. I am fearing that when results of all financial institutions and other industry leaders are announced for the full year 2008, the story will be much rough and pretty bad for all. The coming few quarters will not be good as well. Rising unemployment, bad financial system with no lending, falling retail sales are not good signs for all of us! However, today's banking news is going to go into history as one of baddest news day of them all, especially for the large well known banks.

UBS ex-Global Head of Private Banking is announced as a fugitive by US courts in a case for helping Americans evade US taxes (that's a big no, no!, to fight IRS!)
Ex-UBS Executive Raoul Weil Declared a Fugitive by U.S. Judge

HSBC announces lower profit guidance, halving its dividend and expectation to raise almost USD 30 billion as capital
HSBC Falls on Report It May Need to Raise $30 Billion (Update3)

Citibank sells Smith Barney, announces withdrawal from China, has received over USD 700 billion funding
Can Pandit save Citigroup?
Breaking Up the Citi

Deutsche announces a huge loss of EUR 4.8billion (USD 6.4 billion)
Deutsche Stumble Poses New Capital Questions
2nd UPDATE: Deutsche Bank Warns Of 4Q Loss Around EUR4.8 Billion

Standard Chartered loses its CEO who will become UK Trade Minister
StanChart's Davies steps down for government role

Barclays to cut over 2,100 jobs
Barclays plans to cut another 2,100 jobs

RBS bank sold its China stake under pressure from its new owners - the UK Govt
British bank RBS says has sold Bank of China stake

So much news on one day that it makes your head spin......Can it get any more worse?

The Financial World: How it Collapsed and How to Repair It?

The End of the Financial World as We Know It

By MICHAEL LEWIS and DAVID EINHORN
Published: January 3, 2009

How to Repair a Broken Financial World

By MICHAEL LEWIS and DAVID EINHORN
Published: January 3, 2009

These are 2 very well research and insightful articles and a must read to understand the ways and means of how the financial world collapsed and the how the seeds of the crisis were sown in the early years. The comments on SEC are actually disparaging. SEC was informed over the years, multiple times, that Madoff was a fraud. However, their political undertones did not allow them to investigate Madoff and help consumers protect their savings! It is kind of true that laws are made to protect the rich! While SEC slept, investors lost money and the main reason why SEC was created was lost to the very people who were under oath to uphold the laws of the country and the people to whom they were meant to serve.

The ratings agencies, in my opinion, have been pretty useless and do not have a very independent track record. But most investors do get guidance from them without using other analytical tools and sound judegement which is a must.

Excerpt:
"Over the last 20 years American financial institutions have taken on more and more risk, with the blessing of regulators, with hardly a word from the rating agencies, which, incidentally, are paid by the issuers of the bonds they rate. Seldom if ever did Moody’s or Standard & Poor’s say, “If you put one more risky asset on your balance sheet, you will face a serious downgrade.”

The second part proposes solutions in order to come out of the current crisis and the ineptitude of the various players in the crisis i.e. Govt, regulators, banks. All the players did not play the role they were supposed, and instead all of them went after short term gains which kept on turning into long term gains for a few years, until everyone hit a brick wall and brought down the entire edifice of the world's financial system.

One of the solutions is to close the ratings agencies and I totally agree with it. There should be a Govt entity, like the UN, or from each country's Govt that has a debt market to evaluate risks instead of a private company, funded by the investment companies causing a serious conflict of interest. If someone who understood this previously and was an investor would normally take all ratings with a pinch of salt but most investors, which is talking about more than 70-80% of all investors do not understand this simple concept or simply refuse to accept a logical explanation that rating agencies have always had a vested interest.

Risk Mismanagement and VaR

This article in the NYT is a fascinating, although a long, read if you want to understand how the financial experts got it so wrong despite all the tools they had and were unable to protect even themselves.

Money managers use a concept called VaR (Value at Risk). This formula helps determine if there is any 'value' i.e. amount at risk in a portfolio of holdings, be it a bank's total portfolio, mutual fund holding portfolio or any other bundle of investments and how much is the 'value' at risk.

Most top notch investment banks use this concept and claim that 99% of the times they are able to predict the VaR and this helps them manage risks. but the uncertainty and unpredictability of the 1% is what breaks the back especially because these events have never occurred before and more importantly, have not been planned for. Therefore, such highly improbable events cause the greatest damage including the current financial crisis. Such events are earthquakes, depression due to bank failures, depression due to housing prices (current crisis) and are usually catastrophic.

Excerpt:
“VaR is a useful tool,” he said as our interview was nearing its end. “The more liquid the asset, the better the tool. The more history, the better the tool. The less of both, the worse it is. It helps you understand what you should expect to happen on a daily basis in an environment that is roughly the same. We had a trade last week in the mortgage universe where the VaR was $1 million. The same trade a week later had a VaR of $6 million. If you tell me my risk hasn’t changed — I say yes it has!” Two years ago, VaR worked for Goldman Sachs the way it once worked for Dennis Weatherstone — it gave the firm a signal that allowed it to make a judgment about risk. It wasn’t the only signal, but it helped. It wasn’t just the math that helped Goldman sidestep the early decline of mortgage-backed instruments. But it wasn’t just judgment either. It was both.

Why Goldman Sachs avoided the brunt of the crisis unlike other major investment banks:
"So Goldman called a meeting of about 15 people, including several risk managers and the senior people on the various trading desks. They examined a thick report that included every trading position the firm held. For the next three hours, they pored over everything. They examined their VaR numbers and their other risk models. They talked about how the mortgage-backed securities market “felt.” “Our guys said that it felt like it was going to get worse before it got better,” Viniar recalled. “So we made a decision: let’s get closer to home.”

Alan Greenspan said last year during a Congress testimony: “The whole intellectual edifice, however, collapsed in the summer of last year because the data input into the risk-management models generally covered only the past two decades, a period of euphoria. Had instead the models been fitted more appropriately to historic periods of stress, capital requirements would have been much higher and the financial world would be in far better shape today, in my judgment.”

However, the writer of the book "The Black Swan" and "Fooled by Randomness", Nicholas Taleb who is a Professor and an author of widely read and followed books claims that the concept of VaR is pretty useless.

Taleb: Yet even faulty historical data isn’t Taleb’s primary concern. What he cares about, with standard VaR, is not the number that falls within the 99 percent probability. He cares about what happens in the other 1 percent, at the extreme edge of the curve. The fact that you are not likely to lose more than a certain amount 99 percent of the time tells you absolutely nothing about what could happen the other 1 percent of the time. You could lose $51 million instead of $50 million — no big deal. That happens two or three times a year, and no one blinks an eye. You could also lose billions and go out of business. VaR has no way of measuring which it will be.

VaR is a guide to at least some future trend forecasts. It may not be the best tool but it is the best that experts have come out with thus far over the course of history to get a future trend line on what to expect. Of course, it must be used with intelligent inputs from other mediums as well, as the article explains.

Excerpt:
One risk-model critic, Richard Bookstaber, a hedge-fund risk manager and author of “A Demon of Our Own Design,” ranted about VaR for a half-hour over dinner one night. Then he finally said, “If you put a gun to my head and asked me what my firm’s risk was, I would use VaR.” VaR may have been a flawed number, but it was the best number anyone had come up with.

Risk Mismanagement

By JOE NOCERA
Published: January 2, 2009

India versus China

I believe that the current economic slump will cause more economic harm to China than India in the near term. One of the reasons for this line of thought is because China is mostly the 'manufacturer' for the world whereas India distinguishes itself as the 'service provider' of the world. As we have known that over the last 20-30 years, the computer 'revolution', the phone 'revolution' and the travel 'revolution' has changed the way we, the people of the world, deal with each other and made all of us more integrated and hence more easily 'service oriented".

Compared to 50 years ago, more companies have opened and succeeded in the 'service providing' retail industry sector than any other. For example, coffee chains, hotel chains, tourism related companies, airlines, insurance sector, banks, health care, cafes, supermarkets, telecom companies, software and outsourcing industries are all in the service sector and all of them have come out of nowhere in the past 50 years. And by the way, in today's world, most of them are necessities more than anything else. If they are not for some people, they will become so, in the next couple of years. This continues to create additional demand on an almost daily basis. If such industries have cropped up in the last few decades in addition to manufacturing or in support of manufacturing, then more such companies will get created and succeed in the future. Another distinct advantage of the service industry is that some of them do not have to be geographically close to the consumer, i.e. outsourcing, tax return specialists, research in almost every industry, telecom, insurance among others, thus saving on long term expensive fixed costs and providing them flexibility of adapting to changes. With the advent of health care tourism in places such as Thailand and India and coming up in Dubai in the near future, service oriented industries will continue to prosper, partly due to exchange rate benefits in the emerging markets and wait list problems or availability of sufficient providers in their home countries. I also believe that any company CEO is more than willing to 'outsource' business keeping in mind the bottom line in order to maximise profits, which is the most important reason a corporation exists.

Over the long term, however, I believe that both countries will become superpowers over the coming decades, at least economically speaking, while politically they may share some of the burden of international decision making.

Despite many issues in both India and China that are emerging market economies, it has been rightly pointed out in the NYT article that both countries have grown using different models and are yet successful.

2009 may be an opportune time to invest slowly and in selective companies or industries in each of them.

A very interesting read.

The Next World Order
By GURCHARAN DAS
Published: January 1, 2009

Happy New Year!