At the moment, California’s Inland Empire — the local name for San Bernardino and Riverside Counties east of Los Angeles — would seem an inhospitable place for starting a business.
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J. Emilio Flores For The New York Times
Mike Stull, center right, the Director of the Inland Empire Center for Entrepreneurship, with Monty Dill, far left, Shawn Barker and Felix Zuniga, far right, all of whom are entrepreneurs.
Entrepreneurial Edge
James Flanigan writes about small businesses mainly in California and the West.
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The Inland Empire is a major hub of freight transportation.
Unemployment has already reached 9.5 percent, a third higher than the national average. And 350,000 homes have been foreclosed on — one house in three in an area with a population of 4.3 million. Commercial construction and expansions have halted, leaving unfinished projects and vacant buildings. The forecast is that “it will take three years, to 2011-2012, for the area’s economy to come back,” said John Husing, an economist whose company, Economics and Politics Inc., issues quarterly reports on the Inland Empire economy.
Yet the area, which had one of the nation’s fastest-growing economies in the last decade, has been attracting newcomers and small businesses. One of its advantages, paradoxically, is the result of its economic travails: low real estate prices for both houses and factories. But the other is the concerted support for small enterprises and start-up companies from the area’s universities and nonprofit organizations — programs that were set in place long before the current downturn.
That is why energy and hope were evident at a recent gathering of small-business owners at the Inland Empire Center for Entrepreneurship, a part of the College of Business and Public Administration at California State University, San Bernardino.
One of the business owners was Shawn Barker, a student in the master of business administration program who started a company, Virclom Technologies Services, last October to provide tutoring in mathematics and physics to high school and college students. Mr. Barker, who holds a degree in physics from Talladega College in Alabama, records lectures by teachers, adapts them to iPods and other formats and distributes them to students. “Our technology allows students to review the material and reinforces learning,” said Mr. Barker, who is looking to sell the service to school districts.
He also hopes to automate the distribution system so that students can download tutorials from servers. That improvement will cost about $100,000, he estimated, and Mr. Barker is seeking to attract financing from angel investors or grants from federal and state governments. This is a difficult time to raise capital, Mr. Barker acknowledged, but he has sent descriptions of his company’s innovations to members of Congress and feels confident, he said, because “the new administration and Secretary of Education Arne Duncan are in favor of new approaches.”
Felix Zuniga, who holds a master’s degree in business from California State in San Bernardino, started Armada Business Services last September to help independent truck owner-operators cope with many demands of regulation, financing, insurance and management. The Inland Empire is a major center for freight transportation. Trucks carry cargo containers 60 miles from the ports of Los Angeles and Long Beach to rail terminals in San Bernardino County, where they are transferred to railroad cars for transport to other parts of the United States.
But these are difficult times for truck owners. International trade volumes are down in the recession even as truck owners need to meet new environmental regulations by modifying engines. At the same time, banks and other lenders are pulling back on financing for small-business owners. “Truckers have a high failure rate, an average 14 months from going into business to failing,” Mr. Zuniga said. But perhaps adversity can mean opportunity, he said. “It’s when times are tough that the owners especially need our help.”
More than start-ups find opportunities in the current climate. Gem Power L.L.C. is an eight-year-old company that developed software under research contracts for the United States Navy to recharge and extend the life of batteries. “We can double or treble the life of any battery, whether for computers or heavy machinery,” said John James, Gem Power’s president.
The company is now trying for commercial work for its battery-charging systems, marketing to police and fire departments. The commercial effort follows recommendations of a feasibility study by faculty and students at the California State Entrepreneurship Center, which also operates a computer laboratory under a Defense Department program.
Like similar efforts to help small business at the nearby University of California, Riverside, the Inland Empire Center for Entrepreneurship ranges beyond academia to get involved in the business community. The center finances its $2 million annual budget independently, said Michael Stull, an associate professor of business and the director of the center, “by selling consulting and technical assistance services to public agencies.” And the center organizes an annual Spirit of Entrepreneurship award ceremony to encourage and publicize local innovators.
Thursday, January 15, 2009
Bank of America Said to Be Near Accord on U.S. Aid
Jan. 15 (Bloomberg) -- Bank of America Corp., the biggest U.S. bank by assets, is nearing an accord on a financial aid package from the U.S. that may include $15 billion to $20 billion in capital, said a person familiar with the matter.
The bank may also get a $120 billion “backstop” to help it cope with troubled assets, said the person, who declined to be identified because the accord hasn't been publicly announced. Bank of America needs the package to cushion losses tied to its purchase of Merrill Lynch & Co. earlier this year, said three people familiar with the matter.
Bank of America moved up its fourth-quarter report to tomorrow amid speculation that bigger-than-expected losses at Merrill Lynch are putting a strain on its new parent. The switch from Jan. 20 may provide investors with details on what kind of help the U.S. will give to the Charlotte, North Carolina-based bank as it tries to absorb New York-based Merrill Lynch.
``The motivation is to try and basically get information to the market sooner rather than later because of all the anxiety that's out there,'' said Bert Ely, chief executive officer of Ely & Co., a bank consulting firm in Alexandria, Virginia. It's a ``very tense situation now,'' he said.
An announcement may come as early as 6 a.m. New York time, the person said. The bank said in an earlier statement it would present results starting an hour later.
The U.S. already injected $25 billion into the combined company to bolster it against the global credit crunch. Details of the aid package were reported earlier by The Wall Street Journal.
Bank of America told regulators in December it might abandon the takeover because of Merrill's worse-than-expected results. The government insisted the Merrill deal proceed because its collapse would renew turmoil in the financial system, said the people, who declined to be identified because talks are private.
The bank may also get a $120 billion “backstop” to help it cope with troubled assets, said the person, who declined to be identified because the accord hasn't been publicly announced. Bank of America needs the package to cushion losses tied to its purchase of Merrill Lynch & Co. earlier this year, said three people familiar with the matter.
Bank of America moved up its fourth-quarter report to tomorrow amid speculation that bigger-than-expected losses at Merrill Lynch are putting a strain on its new parent. The switch from Jan. 20 may provide investors with details on what kind of help the U.S. will give to the Charlotte, North Carolina-based bank as it tries to absorb New York-based Merrill Lynch.
``The motivation is to try and basically get information to the market sooner rather than later because of all the anxiety that's out there,'' said Bert Ely, chief executive officer of Ely & Co., a bank consulting firm in Alexandria, Virginia. It's a ``very tense situation now,'' he said.
An announcement may come as early as 6 a.m. New York time, the person said. The bank said in an earlier statement it would present results starting an hour later.
The U.S. already injected $25 billion into the combined company to bolster it against the global credit crunch. Details of the aid package were reported earlier by The Wall Street Journal.
Bank of America told regulators in December it might abandon the takeover because of Merrill's worse-than-expected results. The government insisted the Merrill deal proceed because its collapse would renew turmoil in the financial system, said the people, who declined to be identified because talks are private.
Mizuho Financial to Name New CEO, Replacing Maeda
an. 16 (Bloomberg) -- Mizuho Financial Group Inc., the Japanese bank that posted Asia’s largest subprime-related losses, will name a new chief executive officer today to replace Terunobu Maeda, who has led the company since 2002.
The Tokyo-based lender will also name new CEOs of its two main banking units, spokeswoman Masako Shiono said by telephone. The appointments will be announced in a press conference at 11:30 a.m. local time.
Maeda, 64, will be replaced by Takashi Tsukamoto, the current deputy president of the group company, the Nikkei newspaper reported earlier, without saying where it got the information. Tsukamoto, 58, joined Dai-Ichi Kangyo Bank, one of Mizuho’s predecessor companies, in 1974 and became deputy president of the group company in June 2008.
Maeda has remained at the post “much longer than anybody expected,” said Stephen Church, a research partner at JapanInvest, a Tokyo-based research firm. “He has been a very active manager, but has a low profile.”
Mizuho Bank Ltd. CEO Seiji Sugiyama will be replaced by his deputy Satoru Nishibori, while Mizuho Corporate Bank Ltd. chief Hiroshi Saito will be succeeded by deputy Yasuhiro Sato, the Nikkei said. Maeda will probably become chairman of the group company, according to the report.
Subprime Losses
Mizuho, the second-largest Japanese bank by revenue, posted about 672 billion yen ($7.5 billion) in credit losses and writedowns tied to the collapse of the U.S. subprime-mortgage market on Maeda’s watch, according to Bloomberg data. The amount represents almost one-quarter of total subprime-related losses by Asian financial firms.
The company joined Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, and Sumitomo Mitsui Financial Group Inc. in slashing profit forecasts in October as the nation’s deepening recession fueled rising bad loans and tumbling markets eroded the value of their stockholdings.
Mizuho, which invested $1.2 billion in Merrill Lynch & Co. last year, has announced plans to raise 355 billion yen to shore up its balance sheet after net income plunged 71 percent to 94.6 billion yen in the fiscal first half ended Sept. 30.
The bank’s shares have dropped 47 percent in the past 12 months, the ninth-biggest decline among 84 lenders tracked by the Topix Banks Index. The shares rose 0.4 percent to 241 yen as of 11 a.m. trading break in Tokyo.
Maeda, a University of Tokyo graduate, joined Fuji Bank Ltd. in 1968. The company merged with Industrial Bank of Japan Ltd. and Dai-Ichi Kangyo in 2000 to form Mizuho, then the world’s largest bank by assets.
The Tokyo-based lender will also name new CEOs of its two main banking units, spokeswoman Masako Shiono said by telephone. The appointments will be announced in a press conference at 11:30 a.m. local time.
Maeda, 64, will be replaced by Takashi Tsukamoto, the current deputy president of the group company, the Nikkei newspaper reported earlier, without saying where it got the information. Tsukamoto, 58, joined Dai-Ichi Kangyo Bank, one of Mizuho’s predecessor companies, in 1974 and became deputy president of the group company in June 2008.
Maeda has remained at the post “much longer than anybody expected,” said Stephen Church, a research partner at JapanInvest, a Tokyo-based research firm. “He has been a very active manager, but has a low profile.”
Mizuho Bank Ltd. CEO Seiji Sugiyama will be replaced by his deputy Satoru Nishibori, while Mizuho Corporate Bank Ltd. chief Hiroshi Saito will be succeeded by deputy Yasuhiro Sato, the Nikkei said. Maeda will probably become chairman of the group company, according to the report.
Subprime Losses
Mizuho, the second-largest Japanese bank by revenue, posted about 672 billion yen ($7.5 billion) in credit losses and writedowns tied to the collapse of the U.S. subprime-mortgage market on Maeda’s watch, according to Bloomberg data. The amount represents almost one-quarter of total subprime-related losses by Asian financial firms.
The company joined Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, and Sumitomo Mitsui Financial Group Inc. in slashing profit forecasts in October as the nation’s deepening recession fueled rising bad loans and tumbling markets eroded the value of their stockholdings.
Mizuho, which invested $1.2 billion in Merrill Lynch & Co. last year, has announced plans to raise 355 billion yen to shore up its balance sheet after net income plunged 71 percent to 94.6 billion yen in the fiscal first half ended Sept. 30.
The bank’s shares have dropped 47 percent in the past 12 months, the ninth-biggest decline among 84 lenders tracked by the Topix Banks Index. The shares rose 0.4 percent to 241 yen as of 11 a.m. trading break in Tokyo.
Maeda, a University of Tokyo graduate, joined Fuji Bank Ltd. in 1968. The company merged with Industrial Bank of Japan Ltd. and Dai-Ichi Kangyo in 2000 to form Mizuho, then the world’s largest bank by assets.
HSBC Sticks With China as RBS, UBS Sell Investments
Jan. 16 (Bloomberg) -- HSBC Holdings Plc, the biggest investor in China among global banks, is sticking to its bet on the world’s fastest-growing major economy as rivals sell out and analysts say the lender may need fresh capital.
Established in 1865 in Shanghai, HSBC has more than $12 billion invested in Chinese financial companies, including Bank of Communications Ltd. and Ping An Insurance (Group) Co. The London-based company has kept its holdings, while Royal Bank of Scotland Group Plc and UBS AG sold shares of Chinese lenders in the past month.
HSBC’s commitment to China, where it owns more branches than any foreign bank, may pay off should the country’s economy skirt the recession roiling the U.S. and Europe. The strategy also puts pressure on Chief Executive Officer Michael Geoghegan to come up with cash to cover a funding shortfall that analysts at Morgan Stanley estimate to be as much as $30 billion.
“China has got to be the right place to be in the longer term,” said Julian Chillingworth, chief investment officer at London-based Rathbone Brothers Plc, which manages about $21 billion and holds HSBC shares. “In the next five years, HSBC’s business in China is going to grow.”
HSBC fell 7 percent in London trading yesterday to the lowest in almost a decade. The stock has dropped 14 percent since Jan. 13, when Morgan Stanley analysts, led by London-based Michael Helsby, said HSBC may need to sell shares and cut the dividend by 50 percent to shore up its balance sheet.
Goldman Sachs Group Inc. today downgraded HSBC to “sell” from “neutral,” citing the deepening U.S. economic slump.
China Ties
Among HSBC’s Chinese investments is a 19 percent stake in Bank of Communications, the nation’s fifth-largest. The holding was worth $6.7 billion at yesterday’s closing price, after BoCom dropped 44 percent in the past year. HSBC also owns 16.8 percent of Ping An, China’s second-biggest insurer; 8 percent of closely held Bank of Shanghai; and 49 percent of a fund-management venture with Shanxi Trust & Investment Corp. Ping An and Bank of Communications shares aren’t subject to lockup restrictions.
While 55-year-old Geoghegan faces pressure to raise funds, he may balk at eroding ties with China, where HSBC was the first bank to win approval to invest in a local lender. The company bought its stake in Bank of Shanghai in 2001.
“A presence in China is core to HSBC’s strategy,” said Sandy Chen, a London-based analyst at Panmure Gordon & Co., who recommends clients sell the stock. “Beginning to signal a pullback from China is directly opposite to market perceptions of what makes a safe haven.”
‘Long Haul’
HSBC reaffirmed its commitment to China on Jan. 8, when the company said there are no plans to reduce its holding in Shanghai-based Bank of Communications. HSBC made the statement after Hong Kong billionaire Li Ka-shing sold a $511 million stake in Beijing-based Bank of China Ltd.
David Hall, an HSBC spokesman in Hong Kong, declined to comment on the bank’s other Chinese assets.
HSBC has “a very long-term view of China and wants to be here for the long haul,” said Cameron Odgers, a Beijing-based analyst at China International Capital Corp.
Paring the Bank of Communications stake would probably damage HSBC’s business in China, said Bonnie Lai, a Hong Kong- based analyst at CCB International Securities Ltd. HSBC is awaiting government approval for a planned credit card joint venture with Bank of Communications, and also wants permission to raise its holding in the Chinese lender beyond the regulatory maximum of 20 percent.
“If they sell this time, the likelihood of approval will be smaller,” Lai said.
Banks Cash Out
HSBC and BoCom have close ties, said Zhu Kepeng, head of Bank of Communications’s board office. The banks’ chairmen have met twice a year since 2003, and senior executives from the companies get together monthly, he said. Bank of Communications Chairman Hu Huaibang has met with senior HSBC managers, including Chairman Stephen Green, three times since taking the job on Oct. 10, Zhu said.
HSBC, Royal Bank of Scotland, Bank of America Corp. of Charlotte, North Carolina, Zurich-based UBS and Goldman Sachs in New York were among foreign banks that spent a combined $22 billion between 2004 and 2006 to purchase stakes in Chinese lenders.
The overseas firms touted the strategic nature of their investments and pledged to work with their Chinese counterparts on everything from risk management to information technology systems.
As the deepening global financial crisis coincides with the end of so-called lockup periods for their holdings, some banks are cashing out. Edinburgh-based Royal Bank of Scotland sold its $2.37 billion stake in Bank of China on Jan. 13, two weeks after UBS divested all its shares. Bank of America sold $2.8 billion of shares in China Construction Bank Corp. on Jan. 7.
Sticking with BoCom may produce longer-term benefits for HSBC, said fund manager Leo Gao.
“HSBC’s commitment won’t go unnoticed by the Chinese government,” said Gao, who oversees the equivalent of $2.3 billion at APS Asset Management in Shanghai. “They would be rewarded big in the future.”
Established in 1865 in Shanghai, HSBC has more than $12 billion invested in Chinese financial companies, including Bank of Communications Ltd. and Ping An Insurance (Group) Co. The London-based company has kept its holdings, while Royal Bank of Scotland Group Plc and UBS AG sold shares of Chinese lenders in the past month.
HSBC’s commitment to China, where it owns more branches than any foreign bank, may pay off should the country’s economy skirt the recession roiling the U.S. and Europe. The strategy also puts pressure on Chief Executive Officer Michael Geoghegan to come up with cash to cover a funding shortfall that analysts at Morgan Stanley estimate to be as much as $30 billion.
“China has got to be the right place to be in the longer term,” said Julian Chillingworth, chief investment officer at London-based Rathbone Brothers Plc, which manages about $21 billion and holds HSBC shares. “In the next five years, HSBC’s business in China is going to grow.”
HSBC fell 7 percent in London trading yesterday to the lowest in almost a decade. The stock has dropped 14 percent since Jan. 13, when Morgan Stanley analysts, led by London-based Michael Helsby, said HSBC may need to sell shares and cut the dividend by 50 percent to shore up its balance sheet.
Goldman Sachs Group Inc. today downgraded HSBC to “sell” from “neutral,” citing the deepening U.S. economic slump.
China Ties
Among HSBC’s Chinese investments is a 19 percent stake in Bank of Communications, the nation’s fifth-largest. The holding was worth $6.7 billion at yesterday’s closing price, after BoCom dropped 44 percent in the past year. HSBC also owns 16.8 percent of Ping An, China’s second-biggest insurer; 8 percent of closely held Bank of Shanghai; and 49 percent of a fund-management venture with Shanxi Trust & Investment Corp. Ping An and Bank of Communications shares aren’t subject to lockup restrictions.
While 55-year-old Geoghegan faces pressure to raise funds, he may balk at eroding ties with China, where HSBC was the first bank to win approval to invest in a local lender. The company bought its stake in Bank of Shanghai in 2001.
“A presence in China is core to HSBC’s strategy,” said Sandy Chen, a London-based analyst at Panmure Gordon & Co., who recommends clients sell the stock. “Beginning to signal a pullback from China is directly opposite to market perceptions of what makes a safe haven.”
‘Long Haul’
HSBC reaffirmed its commitment to China on Jan. 8, when the company said there are no plans to reduce its holding in Shanghai-based Bank of Communications. HSBC made the statement after Hong Kong billionaire Li Ka-shing sold a $511 million stake in Beijing-based Bank of China Ltd.
David Hall, an HSBC spokesman in Hong Kong, declined to comment on the bank’s other Chinese assets.
HSBC has “a very long-term view of China and wants to be here for the long haul,” said Cameron Odgers, a Beijing-based analyst at China International Capital Corp.
Paring the Bank of Communications stake would probably damage HSBC’s business in China, said Bonnie Lai, a Hong Kong- based analyst at CCB International Securities Ltd. HSBC is awaiting government approval for a planned credit card joint venture with Bank of Communications, and also wants permission to raise its holding in the Chinese lender beyond the regulatory maximum of 20 percent.
“If they sell this time, the likelihood of approval will be smaller,” Lai said.
Banks Cash Out
HSBC and BoCom have close ties, said Zhu Kepeng, head of Bank of Communications’s board office. The banks’ chairmen have met twice a year since 2003, and senior executives from the companies get together monthly, he said. Bank of Communications Chairman Hu Huaibang has met with senior HSBC managers, including Chairman Stephen Green, three times since taking the job on Oct. 10, Zhu said.
HSBC, Royal Bank of Scotland, Bank of America Corp. of Charlotte, North Carolina, Zurich-based UBS and Goldman Sachs in New York were among foreign banks that spent a combined $22 billion between 2004 and 2006 to purchase stakes in Chinese lenders.
The overseas firms touted the strategic nature of their investments and pledged to work with their Chinese counterparts on everything from risk management to information technology systems.
As the deepening global financial crisis coincides with the end of so-called lockup periods for their holdings, some banks are cashing out. Edinburgh-based Royal Bank of Scotland sold its $2.37 billion stake in Bank of China on Jan. 13, two weeks after UBS divested all its shares. Bank of America sold $2.8 billion of shares in China Construction Bank Corp. on Jan. 7.
Sticking with BoCom may produce longer-term benefits for HSBC, said fund manager Leo Gao.
“HSBC’s commitment won’t go unnoticed by the Chinese government,” said Gao, who oversees the equivalent of $2.3 billion at APS Asset Management in Shanghai. “They would be rewarded big in the future.”
Satyam May Take 3 Months to Restate Accounts, Delaying Bailout
Jan. 15 (Bloomberg) -- Satyam Computer Services Ltd.'s new auditors may take three months to clear up an alleged $1 billion fraud at India's fourth-largest software exporter, delaying access to government funds.
Satyam fell 32 percent today after the government said it has no plans for a bailout until the board seeks aid. Satyam won't know how much it needs until auditors confirm assets and assess how much clients owe, director Deepak Parekh said. ``The government doesn't bail out every sick company,'' he said.
The delay may restrict funding Satyam needs to convince customers including Nestle SA and Telstra Corp. to remain and help protect the Hyderabad-based company's 53,000 jobs. Satyam has lost 89 percent of its market value since chairman Ramalinga Raju said Jan. 7 he'd fabricated $1 billion in cash and assets.
``It will need a lot of convincing by the new management to make Satyam's clients stay,'' said Viswanathan Vasudevan, who helps manage $300 million at Aquarius Investment Advisors Pte. in Singapore. ``Any added uncertainty or delay in a rescue plan for the company may only lead to exits by customers.''
The government appointed three more directors today and said it may expand the board as needed later. Tarun Das of the Confederation of Indian Industry, T.N. Manoharan, a chartered accountant, and Suryakant Balkrishna Mainak of the Life Insurance Corp. of India joined three directors appointed last weekend.
KPMG and Deloitte Touche Tohmatsu were hired yesterday to restate Satyam's accounts. PricewaterhouseCoopers LLP's Indian affiliate said yesterday that its audit reports could no longer be relied on.
The Institute of Chartered Accountants of India has started proceedings against Satyam's auditor, Prem Chand Gupta, minister for company affairs, told reporters in New Delhi today
Money Owed
The extent of aid needed will depend on the money Satyam is likely to receive as payment from customers for work it has rendered, Parekh told Bloomberg. Satyam has 17 billion rupees ($347 million) of pending payments from clients, he said. The audit will take eight to 12 weeks, Parekh said.
``The company has not asked for any package, they may not need that,'' minister Gupta said.
Satyam is seeking executives to replace managing director Rama Raju and chief financial officer Srinivas Vadlamani. The executives and founder Ramalinga Raju will seek bail tomorrow after having been remanded to custody until Jan. 23.
Former interim Chief Executive Officer Ram Mynampati had asked the government to provide 1.5 billion rupees in assistance to help the company meet payments on health insurance costs for employees based in the U.S., Economic Affairs Secretary Ashok Chawla told reporters in New Delhi today. Mynampati served for less than three days before the government sacked the board.
Shares Decline
Satyam's shares fell 9.55 rupees to 20.30 rupees at the 3:30 p.m. local time close, while the benchmark Sensitive Index lost 3.5 percent.
Nestle, the world's largest food company and a Satyam client, said this week it is considering alternative solutions to avoid disruption of information technology operations. Telstra, Australia's largest telephone company, said Satyam's disclosure will be a factor when it cuts two out of its four major information technology suppliers this year.
Satyam, founded in 1987, has offices from the U.S. to the U.K., Brazil and Australia. The company writes software and manages computer systems for companies such as General Electric Co. and ArcelorMittal, the world's largest steelmaker.
Satyam fell 32 percent today after the government said it has no plans for a bailout until the board seeks aid. Satyam won't know how much it needs until auditors confirm assets and assess how much clients owe, director Deepak Parekh said. ``The government doesn't bail out every sick company,'' he said.
The delay may restrict funding Satyam needs to convince customers including Nestle SA and Telstra Corp. to remain and help protect the Hyderabad-based company's 53,000 jobs. Satyam has lost 89 percent of its market value since chairman Ramalinga Raju said Jan. 7 he'd fabricated $1 billion in cash and assets.
``It will need a lot of convincing by the new management to make Satyam's clients stay,'' said Viswanathan Vasudevan, who helps manage $300 million at Aquarius Investment Advisors Pte. in Singapore. ``Any added uncertainty or delay in a rescue plan for the company may only lead to exits by customers.''
The government appointed three more directors today and said it may expand the board as needed later. Tarun Das of the Confederation of Indian Industry, T.N. Manoharan, a chartered accountant, and Suryakant Balkrishna Mainak of the Life Insurance Corp. of India joined three directors appointed last weekend.
KPMG and Deloitte Touche Tohmatsu were hired yesterday to restate Satyam's accounts. PricewaterhouseCoopers LLP's Indian affiliate said yesterday that its audit reports could no longer be relied on.
The Institute of Chartered Accountants of India has started proceedings against Satyam's auditor, Prem Chand Gupta, minister for company affairs, told reporters in New Delhi today
Money Owed
The extent of aid needed will depend on the money Satyam is likely to receive as payment from customers for work it has rendered, Parekh told Bloomberg. Satyam has 17 billion rupees ($347 million) of pending payments from clients, he said. The audit will take eight to 12 weeks, Parekh said.
``The company has not asked for any package, they may not need that,'' minister Gupta said.
Satyam is seeking executives to replace managing director Rama Raju and chief financial officer Srinivas Vadlamani. The executives and founder Ramalinga Raju will seek bail tomorrow after having been remanded to custody until Jan. 23.
Former interim Chief Executive Officer Ram Mynampati had asked the government to provide 1.5 billion rupees in assistance to help the company meet payments on health insurance costs for employees based in the U.S., Economic Affairs Secretary Ashok Chawla told reporters in New Delhi today. Mynampati served for less than three days before the government sacked the board.
Shares Decline
Satyam's shares fell 9.55 rupees to 20.30 rupees at the 3:30 p.m. local time close, while the benchmark Sensitive Index lost 3.5 percent.
Nestle, the world's largest food company and a Satyam client, said this week it is considering alternative solutions to avoid disruption of information technology operations. Telstra, Australia's largest telephone company, said Satyam's disclosure will be a factor when it cuts two out of its four major information technology suppliers this year.
Satyam, founded in 1987, has offices from the U.S. to the U.K., Brazil and Australia. The company writes software and manages computer systems for companies such as General Electric Co. and ArcelorMittal, the world's largest steelmaker.
Wednesday, January 14, 2009
BBVA’s Perez Samano to Sell Mexican Inflation Bonds
Jan. 14 (Bloomberg) -- Jorge Perez Samano, the biggest manager of Mexican peso-denominated bonds, plans to start selling his inflation-linked debt holdings next month as the government cuts energy prices to combat a deepening economic slump.
Perez Samano, who manages 480 billion pesos ($34 billion) at BBVA Bancomer SA in Mexico City, said he expects inflation to peak in January and slow to 4.5 percent by year-end. Annual inflation reached 6.5 percent in December, the highest in seven years, as a weakening peso drove up prices on imports.
“We may be getting out of our positions in the first few days of February,” Perez Samano, 52, said in an interview in his office in northern Mexico City. Bancomer’s biggest government- regulated pension fund held 33 percent of its assets in inflation-linked bonds as of November. Slowing inflation “could cause a drop in appetite” for the securities, he said.
President Felipe Calderon is increasing energy subsidies to put more money in consumers’ pockets, part of a stimulus package aimed at keeping Latin America’s second-biggest economy growing amid the global recession.
Yields on Mexico’s 5 percent inflation-linked bonds due in 2016 rose five basis points, or 0.05 percentage point, today to 3.62 percent, according to ING Groep NV’s local unit. The yield has fallen 2.48 percentage points since peaking at 6.1 percent on Oct. 24.
Rate Cuts
Calderon’s plan will allow the central bank to reduce its key lending rate by a half percentage point to 7.75 percent at a Jan. 16 policy meeting, said Perez Samano, who is head of asset management at Bancomer, Mexico’s biggest bank. His prediction matches the median forecast in a Bloomberg survey of 21 economists. A rate cut would be the first since April 2006.
Speculation the central bank will keep lowering rates through year-end makes Mexican fixed-rate bonds attractive even after a two-month rally, Perez Samano said. He predicts Banco de Mexico will cut the benchmark rate to 7 percent by December.
Yields on Mexico’s benchmark bonds maturing in 2024 have fallen 3.59 percentage points after reaching a 3 1/2-year high of 11.4 percent in November. The yield on Mexico’s medium- and long- term bonds may fall to as low as 7.4 percent in the first half of the year, said Perez Samano.
The yield on the 2024 bonds rose eight basis points today to 7.81 percent at 5 p.m. New York time. The price on the securities fell 0.79 centavo to 119.87 centavos per peso, according to Banco Santander SA.
Modelo, America Movil
Perez Samano said he has no plans to buy stocks soon after paring holdings in his government-regulated pension fund in December. His fund held 5.9 percent of assets in local stocks as of November, below the 7.9 percent average of the 18 funds in the pension fund system. The fund is the third worst in the pension system in the three years through November, according to government data.
Mexican stocks will keep declining over the next few months as the U.S. recession trims demand for the country’s exports and curbs investment and immigrant remittances, Perez Samano said. The Bolsa index has fallen 9 percent this year to 20,369.23.
“The Mexican Bolsa doesn’t have many drivers in the first quarter,” Perez Samano said. “Growth will be close to zero.”
Economists that cover Mexico are forecasting the economy will contract 0.1 percent in 2009, according to the average of 32 estimates in a central bank survey published last month. Gabriel Casillas, an economist at UBS AG in Mexico City, forecast yesterday that the economy will shrink 2 percent this year, compared with a previous estimate of 0.2 percent growth.
Perez Samano said he may start buying stocks if the Bolsa falls below 19,000. He listed Grupo Modelo SAB, the brewer of Corona beer, and America Movil SAB, Latin America’s largest mobile-phone company, as stocks he would be interested in.
Perez Samano, who manages 480 billion pesos ($34 billion) at BBVA Bancomer SA in Mexico City, said he expects inflation to peak in January and slow to 4.5 percent by year-end. Annual inflation reached 6.5 percent in December, the highest in seven years, as a weakening peso drove up prices on imports.
“We may be getting out of our positions in the first few days of February,” Perez Samano, 52, said in an interview in his office in northern Mexico City. Bancomer’s biggest government- regulated pension fund held 33 percent of its assets in inflation-linked bonds as of November. Slowing inflation “could cause a drop in appetite” for the securities, he said.
President Felipe Calderon is increasing energy subsidies to put more money in consumers’ pockets, part of a stimulus package aimed at keeping Latin America’s second-biggest economy growing amid the global recession.
Yields on Mexico’s 5 percent inflation-linked bonds due in 2016 rose five basis points, or 0.05 percentage point, today to 3.62 percent, according to ING Groep NV’s local unit. The yield has fallen 2.48 percentage points since peaking at 6.1 percent on Oct. 24.
Rate Cuts
Calderon’s plan will allow the central bank to reduce its key lending rate by a half percentage point to 7.75 percent at a Jan. 16 policy meeting, said Perez Samano, who is head of asset management at Bancomer, Mexico’s biggest bank. His prediction matches the median forecast in a Bloomberg survey of 21 economists. A rate cut would be the first since April 2006.
Speculation the central bank will keep lowering rates through year-end makes Mexican fixed-rate bonds attractive even after a two-month rally, Perez Samano said. He predicts Banco de Mexico will cut the benchmark rate to 7 percent by December.
Yields on Mexico’s benchmark bonds maturing in 2024 have fallen 3.59 percentage points after reaching a 3 1/2-year high of 11.4 percent in November. The yield on Mexico’s medium- and long- term bonds may fall to as low as 7.4 percent in the first half of the year, said Perez Samano.
The yield on the 2024 bonds rose eight basis points today to 7.81 percent at 5 p.m. New York time. The price on the securities fell 0.79 centavo to 119.87 centavos per peso, according to Banco Santander SA.
Modelo, America Movil
Perez Samano said he has no plans to buy stocks soon after paring holdings in his government-regulated pension fund in December. His fund held 5.9 percent of assets in local stocks as of November, below the 7.9 percent average of the 18 funds in the pension fund system. The fund is the third worst in the pension system in the three years through November, according to government data.
Mexican stocks will keep declining over the next few months as the U.S. recession trims demand for the country’s exports and curbs investment and immigrant remittances, Perez Samano said. The Bolsa index has fallen 9 percent this year to 20,369.23.
“The Mexican Bolsa doesn’t have many drivers in the first quarter,” Perez Samano said. “Growth will be close to zero.”
Economists that cover Mexico are forecasting the economy will contract 0.1 percent in 2009, according to the average of 32 estimates in a central bank survey published last month. Gabriel Casillas, an economist at UBS AG in Mexico City, forecast yesterday that the economy will shrink 2 percent this year, compared with a previous estimate of 0.2 percent growth.
Perez Samano said he may start buying stocks if the Bolsa falls below 19,000. He listed Grupo Modelo SAB, the brewer of Corona beer, and America Movil SAB, Latin America’s largest mobile-phone company, as stocks he would be interested in.
News Analysis: Banks in Need of Even More Bailout Money
WASHINGTON — Even before word came on Tuesday that Citigroup might split into pieces to shore up its finances, an unpleasant message was moving through Congress and President-elect Barack Obama’s transition team: the banks need more taxpayer money.
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Ben S. Bernanke, right, said that the bailout program needed to pour more into banks that already received federal money.
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In Michigan, Bank Lends Little of Its Bailout Funds (January 14, 2009)
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In all likelihood, a lot more money.
Mr. Obama seems to know it; a week before his swearing-in, he is lobbying Congress to release the other half of the financial industry bailout fund. Democratic leaders in Congress seem to know it, too; they are urging their rank and file to act quickly to release the rescue money. And Ben S. Bernanke, the chairman of the Federal Reserve, certainly knows it.
On Tuesday, Mr. Bernanke publicly made the case that one of the most unpopular and most scorned programs in Washington — the $700 billion bailout program — needs to pour hundreds of billions more into the very banks and financial institutions that already received federal money and caused much of the credit crisis in the first place.
The most glaring example that the banking system needs even more help is Citigroup. Though it already has received $45 billion from the Treasury, it is in such dire straits that it is breaking itself into parts.
Like many banks, Citi is finding that its finances keep deteriorating as the economy continues to weaken.
Even some of the bailout program’s harshest critics acknowledge that things most likely would be even worse without it, and that the bailout had accomplished its most important goal, which was to prevent a complete collapse of the financial system.
Since last September, no major banks have failed and the credit markets have thawed somewhat.
But analysts said the problems are still acute, if less apparent on the surface. Banks have received $200 billion in fresh capital from the Treasury since last fall and have borrowed hundreds of billions of dollars more from the Fed. But in the meantime, the economy fell into a severe downturn last fall that is likely to continue until at least this summer.
Industry analysts estimate rising unemployment and business failures will lead to another $500 billion to $750 billion of losses in coming months. That could bring total losses from the credit crisis to $1.5 trillion to $1.8 trillion, twice as high as earlier estimates.
Citigroup is not alone. JPMorgan Chase, Bank of America, Wells Fargo and most other big banks all expect enormous losses as millions of consumers default on their mortgages, credit cards and automobile loans. Other losses are expected on loans made to commercial real estate developers, small businesses and for highly leveraged corporate buyout deals.
Mr. Bernanke bluntly warned on Tuesday that the government would probably have to infuse more money into financial institutions in the months ahead.
“More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets,” Mr. Bernanke said in a speech to the London School of Economics.
Mr. Bernanke, tacitly acknowledging the unpopularity of the bailout program, said the public was “understandably concerned” about pouring hundreds of billions of taxpayer dollars into financial companies — especially when other industries were getting the cold shoulder.
But, he insisted, there was no escape. “This disparate treatment, unappealing as it is, appears unavoidable,” Mr. Bernanke said. “Our economic system is critically dependent on the free flow of credit.”
Mr. Obama and his economic team have assured Congress that they would use a sizable chunk of the new money from the Troubled Asset Relief Program to help distressed homeowners refinance mortgages and escape foreclosure. That would be a big shift from the Bush administration, which refused to use TARP for reducing foreclosures.
Lawrence H. Summers, Mr. Obama’s choice to head the White House National Economic Council, assured Democratic lawmakers in writing on Monday that the administration would use some of the money to help reduce foreclosures.
But Mr. Bernanke appears to be warning Mr. Obama and Congressional Democrats that most of the remaining $350 billion — and possibly more — has to go to shoring up banks if they are to resume lending at normal levels.
During the first three quarters of 2008, banks were able to raise enough capital to offset more than their hundreds of billions in losses by tapping the giant government bailout fund as well as some early private investors.
But that was only a stopgap.
“The capital raises finally caught up with the losses,” said Michael Zeltkevic, a partner at Oliver Wyman, a consulting firm specializing in the finance industry. “It doesn’t make the situation better, but at least we caught up.”
The new tidal wave of losses stems from the worsening economy and rising unemployment, and analysts say it will take several quarters before it peaks.
Regulators require banks to keep a healthy cushion of capital. But this time around, the banks are struggling to plug their deepening holes. Private investors are scarce. For all but a small group of healthy banks, bankers and analysts say, the government may be the only investor left.
“Most banks are going to be in a defensive posture,” said Christopher Whalen, a managing partner with Institutional Risk Analytics. “You are probably not going to see the industry expand its overall balance sheet until 2010 or 2011.”
Mr. Obama’s economic team is planning a broad overhaul of the program to impose more accountability and more restrictions on executives at companies that receive government money.
Policy makers are also looking at reviving the original idea of TARP — have Treasury buy up unsalable mortgage-backed securities from financial entities.
Henry M. Paulson Jr., the Treasury secretary, had dropped the idea, concluding it would be more efficient to inject capital directly into banks by buying preferred shares.
Mr. Bernanke revived the idea, along with several other approaches, in his speech in London. So did Donald L. Kohn, vice chairman of the Federal Reserve, in a hearing on Tuesday before the House Financial Services Committee. He suggested the Treasury could buy the unwanted securities directly, or set up special banks to buy them.
Some analysts, even those who agree that the government needs to prop up the banking system with more taxpayer money, were skeptical about TARP.
Adam S. Posen, deputy director of the Peterson Institute for International Economics, said that the Bush administration had been right to inject capital into banks but wrong in not pushing banks hard enough to fix their problems or accounting.
“The problem isn’t that we’ve wasted money,” Mr. Posen said. “The problem is that we’ve put too few conditions on the banks.”
Skip to next paragraph
Enlarge This Image
Pool photo by Shaun Curry
Ben S. Bernanke, right, said that the bailout program needed to pour more into banks that already received federal money.
Multimedia
Bernanke Takes QuestionsVideo
Bernanke Takes Questions
Tracking the $700 Billion BailoutInteractive Feature
Tracking the $700 Billion Bailout
CNBC Video: Bernanke Speech Parts 1 | 2 | 3
Text of Bernanke Speech
Today's Business: Edmund L. Andrews on Bernanke's Speech
Related
In Michigan, Bank Lends Little of Its Bailout Funds (January 14, 2009)
Times Topics: Credit Crisis -- The Essentials | Credit Crisis - Bailout Plan
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* Read All Comments (126) »
In all likelihood, a lot more money.
Mr. Obama seems to know it; a week before his swearing-in, he is lobbying Congress to release the other half of the financial industry bailout fund. Democratic leaders in Congress seem to know it, too; they are urging their rank and file to act quickly to release the rescue money. And Ben S. Bernanke, the chairman of the Federal Reserve, certainly knows it.
On Tuesday, Mr. Bernanke publicly made the case that one of the most unpopular and most scorned programs in Washington — the $700 billion bailout program — needs to pour hundreds of billions more into the very banks and financial institutions that already received federal money and caused much of the credit crisis in the first place.
The most glaring example that the banking system needs even more help is Citigroup. Though it already has received $45 billion from the Treasury, it is in such dire straits that it is breaking itself into parts.
Like many banks, Citi is finding that its finances keep deteriorating as the economy continues to weaken.
Even some of the bailout program’s harshest critics acknowledge that things most likely would be even worse without it, and that the bailout had accomplished its most important goal, which was to prevent a complete collapse of the financial system.
Since last September, no major banks have failed and the credit markets have thawed somewhat.
But analysts said the problems are still acute, if less apparent on the surface. Banks have received $200 billion in fresh capital from the Treasury since last fall and have borrowed hundreds of billions of dollars more from the Fed. But in the meantime, the economy fell into a severe downturn last fall that is likely to continue until at least this summer.
Industry analysts estimate rising unemployment and business failures will lead to another $500 billion to $750 billion of losses in coming months. That could bring total losses from the credit crisis to $1.5 trillion to $1.8 trillion, twice as high as earlier estimates.
Citigroup is not alone. JPMorgan Chase, Bank of America, Wells Fargo and most other big banks all expect enormous losses as millions of consumers default on their mortgages, credit cards and automobile loans. Other losses are expected on loans made to commercial real estate developers, small businesses and for highly leveraged corporate buyout deals.
Mr. Bernanke bluntly warned on Tuesday that the government would probably have to infuse more money into financial institutions in the months ahead.
“More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets,” Mr. Bernanke said in a speech to the London School of Economics.
Mr. Bernanke, tacitly acknowledging the unpopularity of the bailout program, said the public was “understandably concerned” about pouring hundreds of billions of taxpayer dollars into financial companies — especially when other industries were getting the cold shoulder.
But, he insisted, there was no escape. “This disparate treatment, unappealing as it is, appears unavoidable,” Mr. Bernanke said. “Our economic system is critically dependent on the free flow of credit.”
Mr. Obama and his economic team have assured Congress that they would use a sizable chunk of the new money from the Troubled Asset Relief Program to help distressed homeowners refinance mortgages and escape foreclosure. That would be a big shift from the Bush administration, which refused to use TARP for reducing foreclosures.
Lawrence H. Summers, Mr. Obama’s choice to head the White House National Economic Council, assured Democratic lawmakers in writing on Monday that the administration would use some of the money to help reduce foreclosures.
But Mr. Bernanke appears to be warning Mr. Obama and Congressional Democrats that most of the remaining $350 billion — and possibly more — has to go to shoring up banks if they are to resume lending at normal levels.
During the first three quarters of 2008, banks were able to raise enough capital to offset more than their hundreds of billions in losses by tapping the giant government bailout fund as well as some early private investors.
But that was only a stopgap.
“The capital raises finally caught up with the losses,” said Michael Zeltkevic, a partner at Oliver Wyman, a consulting firm specializing in the finance industry. “It doesn’t make the situation better, but at least we caught up.”
The new tidal wave of losses stems from the worsening economy and rising unemployment, and analysts say it will take several quarters before it peaks.
Regulators require banks to keep a healthy cushion of capital. But this time around, the banks are struggling to plug their deepening holes. Private investors are scarce. For all but a small group of healthy banks, bankers and analysts say, the government may be the only investor left.
“Most banks are going to be in a defensive posture,” said Christopher Whalen, a managing partner with Institutional Risk Analytics. “You are probably not going to see the industry expand its overall balance sheet until 2010 or 2011.”
Mr. Obama’s economic team is planning a broad overhaul of the program to impose more accountability and more restrictions on executives at companies that receive government money.
Policy makers are also looking at reviving the original idea of TARP — have Treasury buy up unsalable mortgage-backed securities from financial entities.
Henry M. Paulson Jr., the Treasury secretary, had dropped the idea, concluding it would be more efficient to inject capital directly into banks by buying preferred shares.
Mr. Bernanke revived the idea, along with several other approaches, in his speech in London. So did Donald L. Kohn, vice chairman of the Federal Reserve, in a hearing on Tuesday before the House Financial Services Committee. He suggested the Treasury could buy the unwanted securities directly, or set up special banks to buy them.
Some analysts, even those who agree that the government needs to prop up the banking system with more taxpayer money, were skeptical about TARP.
Adam S. Posen, deputy director of the Peterson Institute for International Economics, said that the Bush administration had been right to inject capital into banks but wrong in not pushing banks hard enough to fix their problems or accounting.
“The problem isn’t that we’ve wasted money,” Mr. Posen said. “The problem is that we’ve put too few conditions on the banks.”
HSBC, UBS May Be Liable on Madoff as Fund Custodians
Jan. 15 (Bloomberg) -- HSBC Holdings Plc and UBS AG may be liable for as much as $3.2 billion of losses linked to Bernard Madoff in a dispute over the duties of financial custodians at funds in Luxembourg and Ireland.
At stake is the image of the European fund industry, French Finance Minister Christine Lagarde wrote in a Jan. 12 letter to the European Commission and Luxembourg Prime Minister Jean- Claude Juncker. European funds’ assets grew 59 percent to 6.8 trillion euros ($9 trillion) over the past six years, partly because rules protecting investors made them attractive.
“If they aren’t required to pay the money, then investor protection doesn’t mean anything and people might as well just invest in offshore funds,” said Isabelle Wekstein-Steg, a lawyer at Wan Avocats in Paris who is representing 10 French retail investors and two institutions that face Madoff-related losses at Luxembourg funds. “UBS didn’t do its job of knowing at all times where the assets were, and the same with HSBC.”
Custodians are charged with oversight of funds and they manage cash inflows and payments to investors. Those looking to recoup money would have to prove the banks failed to fulfill their duties, according to nine lawyers surveyed by Bloomberg News. HSBC has said it isn’t liable and UBS declined to comment on the issue.
HSBC and UBS’s custodian roles for the Luxembourg funds are limited because they were set up by investors specifically looking to place money with Madoff, said Paul Mousel, co-head of the financial services practice at law firm Arendt & Medernach in Luxembourg. He’s representing both banks.
HSBC shares fell 5.4 percent to HK$66.25 in Hong Kong at 10:51 a.m. local time, after Morgan Stanley analysts said the bank may have to raise as much as $30 billion and cut its dividend as earnings slide. The benchmark Hang Seng Index dropped 4.4 percent.
‘Very Small Role’
“The arrangements that were put in place from the beginning are arrangements that gave to the custodian a very, very, very small role to play, especially regarding the safekeeping of the securities, which allegedly would have been purchased by the investors’ moneys,” Mousel said.
He said he’s not aware of any lawsuits filed on the issue. On Jan. 9, Wekstein-Steg sent a letter to Luxembourg’s financial regulator on behalf of her clients requesting that custodians reimburse their investments.
It’s impossible to say whether the custodian has any exposure without seeing the contracts of each fund, according to Julian Randall, a lawyer at Barlow Lyde & Gilbert LLP in London.
“What is clear is that there is unlikely to be any point to suing Madoff himself, and those who have lost money will be looking very hard at anyone, like HSBC, who was close to the action and also has assets,” he said.
Ponzi Scheme
If investors do pry money from the custodians, it would add to the combined $81.7 billion in writedowns and credit losses UBS and HSBC have reported since the start of the global financial crisis in 2007.
London-based HSBC has $1 billion of “potential exposure” after making loans to institutional clients who invested with Madoff, it has said. Madoff’s firm collapsed last month after he told his sons it was a $50 billion Ponzi scheme, according to a complaint filed by the U.S. Federal Bureau of Investigation.
HSBC spokesman Patrick McGuinness declined to comment beyond the company’s Dec. 15 statement that it “does not believe its custodial arrangement should be a source of exposure to the group.”
UBS, based in Zurich, has said it doesn’t have material exposure to Madoff’s firm and declined to comment on the liability issue.
What Investors Wanted
“Bernard L. Madoff Investment Securities LLC and Madoff’s collective investment vehicles were not on the UBS Wealth Management recommended list as direct investment options,” spokeswoman Tatiana Togni wrote in a Jan. 12 e-mail in response to questions. At the $1.4 billion LuxAlpha Sicav-American Selection fund in Luxembourg, for which UBS is a custodian, “UBS has supported wealthy individuals by establishing a fund structure at their request.”
Funds sold in the European Union to retail customers must follow rules on how money can be invested, called the Undertaking for Collective Investment in Transferable Securities, or UCITS. The rules also set out the responsibilities of custodian banks. Liability is determined under national laws in each member state.
The EU said yesterday that it’s reviewing how rules that require EU-regulated mutual funds to safeguard clients’ assets are enforced around the 27-country bloc.
Ireland, Luxembourg
France’s Lagarde said in her letter that not all member states impose the strict obligation for custodians to reimburse investors for assets that were entrusted to them, as France does.
Luxembourg Budget Minister Luc Frieden said French criticism of investor protection rules in the country is unjustified. The laws for custodian banks in Luxembourg are “identical” to those in France, he said.
Luxembourg and Ireland have worked to become distribution centers for investment funds, said Bernard Delbecque, director of economics and research at the European Fund and Asset Management Association. Luxembourg accounted for 30 percent of the overall 5.2 billion euros of assets in UCITS funds in Europe at the end of September, he said. Ireland ranked third with 11 percent, behind France.
This month, financial regulators in both countries said in separate statements that custodians retain responsibility for monitoring and supervising funds, even if assets are placed with a third party.
Luxembourg’s rules specify that the custodian’s role should be seen as supervisory, “which implies that the depositary must have knowledge at any time of how the assets of the UCI have been invested and where and how these assets are available,” according to a document by the country’s central bank.
Redemptions Suspended
UBS is the custodian for LuxAlpha and the $419 million Luxembourg Investment Fund-U.S. Equity Plus, both of which are covered by UCITS. HSBC is the custodian for the $226 million Herald LUX-US Absolute Return Fund and Dublin-based $1.1 billion Thema International Fund Plc. The net asset values are the most recent provided by each fund, according to Bloomberg data.
The Thema and Herald funds are managed by Bank Medici AG, the Austrian bank founded by Sonja Kohn, whose clients invested $3.2 billion in Madoff funds. The Luxembourg Investment Fund is managed by UBS, and LuxAlpha by Access International Advisors, whose chief executive offer, Thierry Magon de la Villehuchet, was found dead Dec. 23 at his office in New York.
All four funds have suspended redemptions.
Two investors in the Thema fund said they invested in European funds to benefit from the added protection that brought.
Respected Bank
Bernd Greisinger, a money manager in Liechtenstein who runs the BG Umbrella Fund for LRI Invest SA, said he chose Thema because it was a European-regulated fund that had to be deposited in a bank. Greisinger put in an order at the end of November to sell Thema shares for $2 million to $3 million. He hasn’t received the funds, he said.
Glenn Gramolini, a Geneva-based manager of Themis MN Fund PLC, which invested in Thema six years ago, said he bought the fund because the money was in the custody of a respected bank.
“Nowhere in the prospectus was it written that the funds would be handed to Madoff,” he said. “He would have been managing the funds. I would never invest in the funds when a manager is a custodian.”
At stake is the image of the European fund industry, French Finance Minister Christine Lagarde wrote in a Jan. 12 letter to the European Commission and Luxembourg Prime Minister Jean- Claude Juncker. European funds’ assets grew 59 percent to 6.8 trillion euros ($9 trillion) over the past six years, partly because rules protecting investors made them attractive.
“If they aren’t required to pay the money, then investor protection doesn’t mean anything and people might as well just invest in offshore funds,” said Isabelle Wekstein-Steg, a lawyer at Wan Avocats in Paris who is representing 10 French retail investors and two institutions that face Madoff-related losses at Luxembourg funds. “UBS didn’t do its job of knowing at all times where the assets were, and the same with HSBC.”
Custodians are charged with oversight of funds and they manage cash inflows and payments to investors. Those looking to recoup money would have to prove the banks failed to fulfill their duties, according to nine lawyers surveyed by Bloomberg News. HSBC has said it isn’t liable and UBS declined to comment on the issue.
HSBC and UBS’s custodian roles for the Luxembourg funds are limited because they were set up by investors specifically looking to place money with Madoff, said Paul Mousel, co-head of the financial services practice at law firm Arendt & Medernach in Luxembourg. He’s representing both banks.
HSBC shares fell 5.4 percent to HK$66.25 in Hong Kong at 10:51 a.m. local time, after Morgan Stanley analysts said the bank may have to raise as much as $30 billion and cut its dividend as earnings slide. The benchmark Hang Seng Index dropped 4.4 percent.
‘Very Small Role’
“The arrangements that were put in place from the beginning are arrangements that gave to the custodian a very, very, very small role to play, especially regarding the safekeeping of the securities, which allegedly would have been purchased by the investors’ moneys,” Mousel said.
He said he’s not aware of any lawsuits filed on the issue. On Jan. 9, Wekstein-Steg sent a letter to Luxembourg’s financial regulator on behalf of her clients requesting that custodians reimburse their investments.
It’s impossible to say whether the custodian has any exposure without seeing the contracts of each fund, according to Julian Randall, a lawyer at Barlow Lyde & Gilbert LLP in London.
“What is clear is that there is unlikely to be any point to suing Madoff himself, and those who have lost money will be looking very hard at anyone, like HSBC, who was close to the action and also has assets,” he said.
Ponzi Scheme
If investors do pry money from the custodians, it would add to the combined $81.7 billion in writedowns and credit losses UBS and HSBC have reported since the start of the global financial crisis in 2007.
London-based HSBC has $1 billion of “potential exposure” after making loans to institutional clients who invested with Madoff, it has said. Madoff’s firm collapsed last month after he told his sons it was a $50 billion Ponzi scheme, according to a complaint filed by the U.S. Federal Bureau of Investigation.
HSBC spokesman Patrick McGuinness declined to comment beyond the company’s Dec. 15 statement that it “does not believe its custodial arrangement should be a source of exposure to the group.”
UBS, based in Zurich, has said it doesn’t have material exposure to Madoff’s firm and declined to comment on the liability issue.
What Investors Wanted
“Bernard L. Madoff Investment Securities LLC and Madoff’s collective investment vehicles were not on the UBS Wealth Management recommended list as direct investment options,” spokeswoman Tatiana Togni wrote in a Jan. 12 e-mail in response to questions. At the $1.4 billion LuxAlpha Sicav-American Selection fund in Luxembourg, for which UBS is a custodian, “UBS has supported wealthy individuals by establishing a fund structure at their request.”
Funds sold in the European Union to retail customers must follow rules on how money can be invested, called the Undertaking for Collective Investment in Transferable Securities, or UCITS. The rules also set out the responsibilities of custodian banks. Liability is determined under national laws in each member state.
The EU said yesterday that it’s reviewing how rules that require EU-regulated mutual funds to safeguard clients’ assets are enforced around the 27-country bloc.
Ireland, Luxembourg
France’s Lagarde said in her letter that not all member states impose the strict obligation for custodians to reimburse investors for assets that were entrusted to them, as France does.
Luxembourg Budget Minister Luc Frieden said French criticism of investor protection rules in the country is unjustified. The laws for custodian banks in Luxembourg are “identical” to those in France, he said.
Luxembourg and Ireland have worked to become distribution centers for investment funds, said Bernard Delbecque, director of economics and research at the European Fund and Asset Management Association. Luxembourg accounted for 30 percent of the overall 5.2 billion euros of assets in UCITS funds in Europe at the end of September, he said. Ireland ranked third with 11 percent, behind France.
This month, financial regulators in both countries said in separate statements that custodians retain responsibility for monitoring and supervising funds, even if assets are placed with a third party.
Luxembourg’s rules specify that the custodian’s role should be seen as supervisory, “which implies that the depositary must have knowledge at any time of how the assets of the UCI have been invested and where and how these assets are available,” according to a document by the country’s central bank.
Redemptions Suspended
UBS is the custodian for LuxAlpha and the $419 million Luxembourg Investment Fund-U.S. Equity Plus, both of which are covered by UCITS. HSBC is the custodian for the $226 million Herald LUX-US Absolute Return Fund and Dublin-based $1.1 billion Thema International Fund Plc. The net asset values are the most recent provided by each fund, according to Bloomberg data.
The Thema and Herald funds are managed by Bank Medici AG, the Austrian bank founded by Sonja Kohn, whose clients invested $3.2 billion in Madoff funds. The Luxembourg Investment Fund is managed by UBS, and LuxAlpha by Access International Advisors, whose chief executive offer, Thierry Magon de la Villehuchet, was found dead Dec. 23 at his office in New York.
All four funds have suspended redemptions.
Two investors in the Thema fund said they invested in European funds to benefit from the added protection that brought.
Respected Bank
Bernd Greisinger, a money manager in Liechtenstein who runs the BG Umbrella Fund for LRI Invest SA, said he chose Thema because it was a European-regulated fund that had to be deposited in a bank. Greisinger put in an order at the end of November to sell Thema shares for $2 million to $3 million. He hasn’t received the funds, he said.
Glenn Gramolini, a Geneva-based manager of Themis MN Fund PLC, which invested in Thema six years ago, said he bought the fund because the money was in the custody of a respected bank.
“Nowhere in the prospectus was it written that the funds would be handed to Madoff,” he said. “He would have been managing the funds. I would never invest in the funds when a manager is a custodian.”
Satyam Fraud May Delay India Economic Rebound, Limit Investment
Jan. 15 (Bloomberg) -- An Indian economic recovery may be delayed as alleged fraud at Satyam Computer Services Ltd. undermines investment, one of two key growth drivers.
“The financial irregularities at Satyam will deal a further blow to investor sentiment at a time when global and domestic risk appetite is already depressed,” said Tehmina Khan, an economist at Capital Economics Ltd. in London. “Overseas investors will be even more wary of returning to India.”
India’s economy is being pummeled as the global recession cuts demand for exports and job losses hurt consumer spending. The stock market tumbled 12 percent in the four days after Satyam’s former chairman Ramalinga Raju on Jan. 7 admitted he had been falsifying the company’s accounts for years and had overstated its assets by more than $1 billion.
The loss of confidence may make it harder for Indian companies to secure borrowings from overseas to fund investment, which accounted for about one third of economic growth in the quarter to Sept. 30.
“This has happened at a very crucial time when the economy is facing a slowdown,” said Shubhada Rao, an economist with Yes Bank Ltd. in Mumbai.
Some foreigners are already heading for the door. Overseas funds have sold 18.77 billion rupees ($384 million) of local shares since Satyam’s Raju admitted to the fraud, compared with purchases worth 9.75 billion rupees between Jan. 1 and Jan. 6, according to data from the Securities & Exchange Board of India.
Investors Flee
Overseas borrowings and the sale of new shares on the stock market provided Indian industry with about 40 percent of total funding in the year to March 31, 2008, according to Capital Economics’ Khan.
“These sources of funding have dried up as overseas investors have fled and confidence in equity markets has evaporated,” she said.
Foreign investment into India was already slowing before the Satyam revelations, as the world’s worst financial crisis since the Great Depression prompted funds to withdraw from emerging markets.
India may experience capital outflows of between $10 billion and $15 billion in the six months to March 31, compared with inflows of $107 billion in the prior fiscal year, according to Chetan Ahya, an economist at Morgan Stanley in Singapore.
“To the extent that capital inflows have suddenly witnessed a sharp fall, India is now continuing to face a growth shock,” Ahya said.
Stimulus Package
The pace of expansion in India’s $1.2 trillion economy has slowed for two straight quarters. The government is forecasting 7 percent growth this fiscal year, the slowest since 2003, as exports plunge and industrial production slows.
To spur growth and stimulate consumer demand, Prime Minister Manmohan Singh’s government on Jan. 2 unveiled a second stimulus package to inject capital into banks and allow overseas investors to double purchases of debt. On the same day, the central bank slashed interest rates for the fourth time in less than three months.
Singh has also eased overseas borrowing rules for Indian companies to enable them to access funds for business expansion from abroad. The government in September last year allowed companies building roads, ports, utilities and other infrastructure projects to borrow as much as $500 million from overseas, compared with an earlier limit of $100 million.
To minimize the damage to India’s image caused by the Satyam imbroglio, the government last week sacked the board of the company and arrested Raju. The government is also open to the idea of extending financial help to Satyam, according to Trade Minister Kamal Nath.
Shares Plunge
Satyam shares have plunged 83 percent since Raju’s Jan. 7 admissions, compounding a record slump in Indian equities as the global credit crunch forced the company’s customers including Citigroup Inc. to cut spending on computer services.
“The government is concerned about the fate of the thousands of employees and shareholders of Satyam,” Prem Chand Gupta, minister for corporate affairs said Jan. 13. “No stone will be left unturned to safeguard their interest.”
At stake are the jobs of more than 50,000 employees at India’s fourth-largest software company and the work it does for overseas clients, including ArcelorMittal, the world’s largest steelmaker, and Telstra Corp., Australia’s biggest phone company.
“The Satyam fraud case will tarnish the image of the entire Indian software-services industry, which resurrected the Indian economy and helped India establish itself on the global map,” said C.L. Bansal, who teaches corporate law at Management Development Institute in Gurgaon, near the capital New Delhi.
Prompt Action
Indian technology firms including Tata Consultancy Services Ltd., the nation’s largest software exporter, Infosys Technologies Ltd., and others had revenues of $52 billion last fiscal year, equal to about 5.5 percent of gross domestic product, according to the National Association of Software and Service Companies.
“The promptness with which the government has responded underlines the fact that it wants this over with quickly and prevent any impact on the image of the country as an attractive investment destination,” the Management Development Institute’s Bansal said.
India will need about $500 billion in the five years to 2012 to build the infrastructure required to sustain economic growth at around 8 percent and help reduce poverty, according to Prime Minister Singh, who is seeking re-election before May.
Still, the biggest hurdle to foreign investment in India may be the global credit crunch rather than concerns that the Satyam scandal will scare off investors, some analysts said.
“Indian companies will indeed have problems raising funds overseas in the coming year -- as they are already -- but this has more to do with conditions in international credit markets than any corporate fraud in India,” said James McCormack, head of Asia-Pacific sovereign ratings at Fitch Ratings Ltd.
“The eventual recovery of the Indian economy will thus depend on the international economy and international capital markets, not investor concern with respect to Indian corporate governance,” he said.
“The financial irregularities at Satyam will deal a further blow to investor sentiment at a time when global and domestic risk appetite is already depressed,” said Tehmina Khan, an economist at Capital Economics Ltd. in London. “Overseas investors will be even more wary of returning to India.”
India’s economy is being pummeled as the global recession cuts demand for exports and job losses hurt consumer spending. The stock market tumbled 12 percent in the four days after Satyam’s former chairman Ramalinga Raju on Jan. 7 admitted he had been falsifying the company’s accounts for years and had overstated its assets by more than $1 billion.
The loss of confidence may make it harder for Indian companies to secure borrowings from overseas to fund investment, which accounted for about one third of economic growth in the quarter to Sept. 30.
“This has happened at a very crucial time when the economy is facing a slowdown,” said Shubhada Rao, an economist with Yes Bank Ltd. in Mumbai.
Some foreigners are already heading for the door. Overseas funds have sold 18.77 billion rupees ($384 million) of local shares since Satyam’s Raju admitted to the fraud, compared with purchases worth 9.75 billion rupees between Jan. 1 and Jan. 6, according to data from the Securities & Exchange Board of India.
Investors Flee
Overseas borrowings and the sale of new shares on the stock market provided Indian industry with about 40 percent of total funding in the year to March 31, 2008, according to Capital Economics’ Khan.
“These sources of funding have dried up as overseas investors have fled and confidence in equity markets has evaporated,” she said.
Foreign investment into India was already slowing before the Satyam revelations, as the world’s worst financial crisis since the Great Depression prompted funds to withdraw from emerging markets.
India may experience capital outflows of between $10 billion and $15 billion in the six months to March 31, compared with inflows of $107 billion in the prior fiscal year, according to Chetan Ahya, an economist at Morgan Stanley in Singapore.
“To the extent that capital inflows have suddenly witnessed a sharp fall, India is now continuing to face a growth shock,” Ahya said.
Stimulus Package
The pace of expansion in India’s $1.2 trillion economy has slowed for two straight quarters. The government is forecasting 7 percent growth this fiscal year, the slowest since 2003, as exports plunge and industrial production slows.
To spur growth and stimulate consumer demand, Prime Minister Manmohan Singh’s government on Jan. 2 unveiled a second stimulus package to inject capital into banks and allow overseas investors to double purchases of debt. On the same day, the central bank slashed interest rates for the fourth time in less than three months.
Singh has also eased overseas borrowing rules for Indian companies to enable them to access funds for business expansion from abroad. The government in September last year allowed companies building roads, ports, utilities and other infrastructure projects to borrow as much as $500 million from overseas, compared with an earlier limit of $100 million.
To minimize the damage to India’s image caused by the Satyam imbroglio, the government last week sacked the board of the company and arrested Raju. The government is also open to the idea of extending financial help to Satyam, according to Trade Minister Kamal Nath.
Shares Plunge
Satyam shares have plunged 83 percent since Raju’s Jan. 7 admissions, compounding a record slump in Indian equities as the global credit crunch forced the company’s customers including Citigroup Inc. to cut spending on computer services.
“The government is concerned about the fate of the thousands of employees and shareholders of Satyam,” Prem Chand Gupta, minister for corporate affairs said Jan. 13. “No stone will be left unturned to safeguard their interest.”
At stake are the jobs of more than 50,000 employees at India’s fourth-largest software company and the work it does for overseas clients, including ArcelorMittal, the world’s largest steelmaker, and Telstra Corp., Australia’s biggest phone company.
“The Satyam fraud case will tarnish the image of the entire Indian software-services industry, which resurrected the Indian economy and helped India establish itself on the global map,” said C.L. Bansal, who teaches corporate law at Management Development Institute in Gurgaon, near the capital New Delhi.
Prompt Action
Indian technology firms including Tata Consultancy Services Ltd., the nation’s largest software exporter, Infosys Technologies Ltd., and others had revenues of $52 billion last fiscal year, equal to about 5.5 percent of gross domestic product, according to the National Association of Software and Service Companies.
“The promptness with which the government has responded underlines the fact that it wants this over with quickly and prevent any impact on the image of the country as an attractive investment destination,” the Management Development Institute’s Bansal said.
India will need about $500 billion in the five years to 2012 to build the infrastructure required to sustain economic growth at around 8 percent and help reduce poverty, according to Prime Minister Singh, who is seeking re-election before May.
Still, the biggest hurdle to foreign investment in India may be the global credit crunch rather than concerns that the Satyam scandal will scare off investors, some analysts said.
“Indian companies will indeed have problems raising funds overseas in the coming year -- as they are already -- but this has more to do with conditions in international credit markets than any corporate fraud in India,” said James McCormack, head of Asia-Pacific sovereign ratings at Fitch Ratings Ltd.
“The eventual recovery of the Indian economy will thus depend on the international economy and international capital markets, not investor concern with respect to Indian corporate governance,” he said.
Tuesday, January 13, 2009
Japan and Korea Vow Unity on Economic Slump
SEOUL, South Korea — The global financial crisis prompted the leaders of South Korea and Japan to set aside their countries’ century of disputes on Monday and agree to cooperate to meet immediate economic challenges.
But Korean victims of Japan’s World War II brutalities voiced distress at the summit meeting and joint news conference of President Lee Myung-bak of South Korea and Prime Minister Taro Aso of Japan. They accused Mr. Lee of sacrificing the South’s national pride for short-term economic gains.
“We did not deal directly with the issue of history,” Mr. Aso told the conference. “President Lee agreed to my view that Asia should be the growth center in the world and play a big role in the global economy recovery.”
Mr. Lee said medium-size Japanese companies agreed to invest in electronics and machinery components factories in South Korea. Such investments will help reduce the country’s chronic trade deficit with Japan, which amounts to $30 billion annually, he said.
An exponent of “pragmatic diplomacy,” Mr. Lee has said he will not demand any new apology from Japan for its colonial rule. The conservative leader has lamented that disputes rooted in Japan’s rule of Korea from 1910 to 1945 deprived two neighbors of opportunities to increase economic ties and work more closely together to cope with North Korea’s nuclear threats.
Although Mr. Lee was not the first Korean leader to take such a stance, his approach raised concerns among Koreans after Mr. Aso took power last September.
Mr. Aso had infuriated Koreans with comments they saw as defending Japan’s wartime atrocities and denigrating Korea and other former Japanese colonies. A company run by his family used Korean forced labor at its mines before and during the war.
The two countries are each other’s third largest trading partners. Their two-way trade totaled $82 billion in 2007. But Koreans still harbor deep resentment against the Japanese. Earlier agreements to raise economic ties foundered in recurring disputes bubbling up from the violent past. For instance, Mr. Lee’s overtures toward Japan hit a snag in July when Tokyo urged schools to teach Japan’s territorial claim to an island held by South Korea.
“If Lee and Aso think they can bury the historical problems under the carpet of the economy, they will soon find they are wrong,” said Kang Joo-hye, secretary general at the Korean Council for the Women Drafted for Military Sexual Slavery by Japan. Mr. Kang’s group supports Korean women forced to work in brothels operated for the Japanese Army during World War II.
But Korean victims of Japan’s World War II brutalities voiced distress at the summit meeting and joint news conference of President Lee Myung-bak of South Korea and Prime Minister Taro Aso of Japan. They accused Mr. Lee of sacrificing the South’s national pride for short-term economic gains.
“We did not deal directly with the issue of history,” Mr. Aso told the conference. “President Lee agreed to my view that Asia should be the growth center in the world and play a big role in the global economy recovery.”
Mr. Lee said medium-size Japanese companies agreed to invest in electronics and machinery components factories in South Korea. Such investments will help reduce the country’s chronic trade deficit with Japan, which amounts to $30 billion annually, he said.
An exponent of “pragmatic diplomacy,” Mr. Lee has said he will not demand any new apology from Japan for its colonial rule. The conservative leader has lamented that disputes rooted in Japan’s rule of Korea from 1910 to 1945 deprived two neighbors of opportunities to increase economic ties and work more closely together to cope with North Korea’s nuclear threats.
Although Mr. Lee was not the first Korean leader to take such a stance, his approach raised concerns among Koreans after Mr. Aso took power last September.
Mr. Aso had infuriated Koreans with comments they saw as defending Japan’s wartime atrocities and denigrating Korea and other former Japanese colonies. A company run by his family used Korean forced labor at its mines before and during the war.
The two countries are each other’s third largest trading partners. Their two-way trade totaled $82 billion in 2007. But Koreans still harbor deep resentment against the Japanese. Earlier agreements to raise economic ties foundered in recurring disputes bubbling up from the violent past. For instance, Mr. Lee’s overtures toward Japan hit a snag in July when Tokyo urged schools to teach Japan’s territorial claim to an island held by South Korea.
“If Lee and Aso think they can bury the historical problems under the carpet of the economy, they will soon find they are wrong,” said Kang Joo-hye, secretary general at the Korean Council for the Women Drafted for Military Sexual Slavery by Japan. Mr. Kang’s group supports Korean women forced to work in brothels operated for the Japanese Army during World War II.
ISB feels effect of “India’s Enron”
M Rammaohan Rao has stepped down as dean of the Indian School of Business in Hyderabad, following further evidence of fraud at computer outsourcing company Satyam, where Prof Rao was on the board of directors. A new board of directors for the company has been appointed by the Indian government.
In a statement to the ISB community Prof Rao said that his continuing preoccupation with the evolving situation at Satyam was having a negative impact on his ability to continue as dean. “This is a difficult decision for me, given my commitment to ISB, its faculty, students, staff, alumni, research and academic associates,” he wrote. “But, it is precisely this commitment that has convinced me that this decision is in the best interest of ISB.”
Professor Rao went on to say he had “absolutely no prior knowledge” of circumstances revealed last week by former chairman, B Ramalinga Raju. Mr Raju wrote to the Satyam board confessing to manipulating the company’s accounts over a period of several years in a fraud worth more than $1bn. The scandal has been dubbed ”India’s Enron.”
The resignation will have limited impact on the running of ISB as Prof Rao had intended to step down from the dean’s position in June 2009 and a search committee is already in place looking for his replacement. In the interim six months deputy dean Ajit Rangnekar, who has been with ISB since 2003, will step up to the job.
In a statement to the ISB community Prof Rao said that his continuing preoccupation with the evolving situation at Satyam was having a negative impact on his ability to continue as dean. “This is a difficult decision for me, given my commitment to ISB, its faculty, students, staff, alumni, research and academic associates,” he wrote. “But, it is precisely this commitment that has convinced me that this decision is in the best interest of ISB.”
Professor Rao went on to say he had “absolutely no prior knowledge” of circumstances revealed last week by former chairman, B Ramalinga Raju. Mr Raju wrote to the Satyam board confessing to manipulating the company’s accounts over a period of several years in a fraud worth more than $1bn. The scandal has been dubbed ”India’s Enron.”
The resignation will have limited impact on the running of ISB as Prof Rao had intended to step down from the dean’s position in June 2009 and a search committee is already in place looking for his replacement. In the interim six months deputy dean Ajit Rangnekar, who has been with ISB since 2003, will step up to the job.
Wall St lukewarm as Yahoo hails new chief
By Chris Nuttall and Richard Waters in San Francisco
Published: January 13 2009 22:33 | Last updated: January 14 2009 00:35
Yahoo appointed software veteran Carol Bartz as its new chief executive on Tuesday, an appointment viewed by Wall Street as safe but unspectacular.
Ms Bartz, 60, takes up the position immediately. She was previously executive chairwoman of Autodesk, a design software company that she led as chief executive for 14 years, and is a board member of Intel and Cisco Systems.
Reports of her appointment sent Yahoo shares 1 per cent lower by the close in New York at $12.10.
The software company also announced that Sue Decker, its president and the chief internal candidate for the job, would resign after a transitional period to pursue other challenges.
Roy Bostock, Yahoo chairman, said Ms Bartz would lead Yahoo into its next era of growth.
“She is the exact combination of seasoned technology executive and savvy leader that the board was looking for ,” he said. “She is admired in the Valley as well as on Wall Street for her deep management expertise, strong customer orientation, excellent people skills, and firm understanding of the challenges facing our industry.”
Wall Street analysts were more circumspect. “We think she would be a solid choice as Yahoo’s new chief executive, but we are concerned about her apparent lack of professional experience with internet companies and online advertising,” said Scott Kessler, analyst at S&P’s equity research.
Mark Mahaney, Citigroup internet analyst, said she had been a highly effective chief at Autodesk, helping it to grow into a $4bn (£2.7bn) company. He said she would bring organisational skills and “substantial technology industry experience”, but added that she lacked media industry experience.
That was something that the previous outsider to be appointed chief executive – Terry Semel – possessed in abundance, but Yahoo is seen to have fallen behind operationally during his tenure as it lost market share in the search arena to Google.
Jerry Yang, Yahoo’s co-founder, replaced Mr Sempel as chief executive in 2007. Ms Bartz will take over with the company facing low single-digit growth in internet advertising in 2009 and its rival Microsoft still interested in picking up its search business after it walked away from a full takeover bid last year.
Published: January 13 2009 22:33 | Last updated: January 14 2009 00:35
Yahoo appointed software veteran Carol Bartz as its new chief executive on Tuesday, an appointment viewed by Wall Street as safe but unspectacular.
Ms Bartz, 60, takes up the position immediately. She was previously executive chairwoman of Autodesk, a design software company that she led as chief executive for 14 years, and is a board member of Intel and Cisco Systems.
Reports of her appointment sent Yahoo shares 1 per cent lower by the close in New York at $12.10.
The software company also announced that Sue Decker, its president and the chief internal candidate for the job, would resign after a transitional period to pursue other challenges.
Roy Bostock, Yahoo chairman, said Ms Bartz would lead Yahoo into its next era of growth.
“She is the exact combination of seasoned technology executive and savvy leader that the board was looking for ,” he said. “She is admired in the Valley as well as on Wall Street for her deep management expertise, strong customer orientation, excellent people skills, and firm understanding of the challenges facing our industry.”
Wall Street analysts were more circumspect. “We think she would be a solid choice as Yahoo’s new chief executive, but we are concerned about her apparent lack of professional experience with internet companies and online advertising,” said Scott Kessler, analyst at S&P’s equity research.
Mark Mahaney, Citigroup internet analyst, said she had been a highly effective chief at Autodesk, helping it to grow into a $4bn (£2.7bn) company. He said she would bring organisational skills and “substantial technology industry experience”, but added that she lacked media industry experience.
That was something that the previous outsider to be appointed chief executive – Terry Semel – possessed in abundance, but Yahoo is seen to have fallen behind operationally during his tenure as it lost market share in the search arena to Google.
Jerry Yang, Yahoo’s co-founder, replaced Mr Sempel as chief executive in 2007. Ms Bartz will take over with the company facing low single-digit growth in internet advertising in 2009 and its rival Microsoft still interested in picking up its search business after it walked away from a full takeover bid last year.
Satyam Executives Sold $1.8 Million of Stock Before Record Fall
Jan. 14 (Bloomberg) -- Satyam Computer Services Ltd. executives reaped $1.8 million from share sales in the six months before a botched takeover and fraud inquiry at India’s fourth- largest software exporter triggered a record fall in its stock.
Nine officials led by Chief Financial Officer V. Srinivas sold a combined 267,358 shares since July 14, according to filings by the company to the Bombay Stock Exchange. That’s more stock than the combined insider sales at 30 companies on India’s benchmark index, according to data compiled by Bloomberg.
Chairman Ramalinga Raju said on Jan. 7 that he’d fabricated $1 billion of cash and assets, sparking an 83 percent plunge in Satyam’s stock that wiped out $2.2 billion of investor wealth. The insider sales coincided with a record fall in Indian equities as the global credit crunch forced Satyam’s clients including Citigroup Inc. to cut spending on computer services.
“The impunity with which promoters sold shares is really shocking,” said R.K. Gupta, who manages the equivalent of about $100 million of stocks at Taurus Mutual Fund in New Delhi. “It also raises questions about how effective our regulatory system is that it could not detect the wrongdoing from the share sales.” Taurus Starshare fund held 56,223 shares of Satyam at the end of December, according to Bloomberg data.
Srinivas was arrested on Jan. 11, a day after chairman Raju was taken into custody and the government sacked the Hyderabad- based company’s board. Five other executives who sold shares were named in the Jan. 7 letter by chairman Raju as being “unaware” of the alleged fraud. S. Bharat Kumar, Srinivas’s lawyer, said he couldn’t contact his client as he is in judicial custody.
Start Enquiry
The government yesterday directed the Serious Fraud Investigation Office to start an enquiry into Raju’s claims, joining the state police, capital markets regulator, and accounting body in investigating the false accounts.
The Institute of Chartered Accountants of India yesterday set up a six-member panel to examine Satyam and its auditor PricewaterhouseCoopers LLP’s local unit. PricewaterhouseCoopers has said it complied with India’s accounting rules.
Satyam’s government-appointed board will name an auditor today to examine the books as its working capital requires “immediate attention,” new director Deepak Parekh said Jan. 12. Satyam would have to restate earnings for several years, he said.
Satyam, founded in 1987, made its name by helping companies tackle the year 2000 computer bug. After the bursting of the dot- com bubble, Raju, who says he’s inspired by physicist Albert Einstein, expanded into software including design engineering programs for General Motors Corp. and medical administration in a venture with General Electric Co.
Accelerated Sales
The 267,358 shares were sold in 32 transactions on Indian exchanges, with a combined value of about 86.3 million rupees ($1.8 million), according to Bloomberg calculations. Srinivas sold 92,358 shares in two transactions in September, according to the company’s filings.
“There are people who have lost an equally significant amount of money” because they didn’t sell their entire stake, T. Hari, head of communications at Satyam, said in a telephone interview yesterday. “It’s possible that not everyone exercised all those vested stocks.”
The executives accelerated sales of stock in the two weeks before Satyam’s aborted Dec. 16 bid to buy two developers controlled by Raju’s family, offloading 82,500 shares, according to Bloomberg data.
The $1.6 billion takeover plan, withdrawn within 12 hours due to protests from investors, was a final bid to cover up fictitious assets in Satyam’s books, Raju said Jan. 7.
The Satyam transactions exceed sales by directors and executives at Reliance Industries Ltd., India’s biggest company, Tata Consultancy Services Ltd., the nation’s largest software exporter, and 27 other companies on the Sensitive Index. The Sensex had its biggest drop in three decades in 2008.
Insiders typically buy more shares in their companies to support the stock during market declines. Reliance Chairman Mukesh Ambani bought 120 million shares in October, investing $3.6 billion in India’s largest warrant conversion.
Nine officials led by Chief Financial Officer V. Srinivas sold a combined 267,358 shares since July 14, according to filings by the company to the Bombay Stock Exchange. That’s more stock than the combined insider sales at 30 companies on India’s benchmark index, according to data compiled by Bloomberg.
Chairman Ramalinga Raju said on Jan. 7 that he’d fabricated $1 billion of cash and assets, sparking an 83 percent plunge in Satyam’s stock that wiped out $2.2 billion of investor wealth. The insider sales coincided with a record fall in Indian equities as the global credit crunch forced Satyam’s clients including Citigroup Inc. to cut spending on computer services.
“The impunity with which promoters sold shares is really shocking,” said R.K. Gupta, who manages the equivalent of about $100 million of stocks at Taurus Mutual Fund in New Delhi. “It also raises questions about how effective our regulatory system is that it could not detect the wrongdoing from the share sales.” Taurus Starshare fund held 56,223 shares of Satyam at the end of December, according to Bloomberg data.
Srinivas was arrested on Jan. 11, a day after chairman Raju was taken into custody and the government sacked the Hyderabad- based company’s board. Five other executives who sold shares were named in the Jan. 7 letter by chairman Raju as being “unaware” of the alleged fraud. S. Bharat Kumar, Srinivas’s lawyer, said he couldn’t contact his client as he is in judicial custody.
Start Enquiry
The government yesterday directed the Serious Fraud Investigation Office to start an enquiry into Raju’s claims, joining the state police, capital markets regulator, and accounting body in investigating the false accounts.
The Institute of Chartered Accountants of India yesterday set up a six-member panel to examine Satyam and its auditor PricewaterhouseCoopers LLP’s local unit. PricewaterhouseCoopers has said it complied with India’s accounting rules.
Satyam’s government-appointed board will name an auditor today to examine the books as its working capital requires “immediate attention,” new director Deepak Parekh said Jan. 12. Satyam would have to restate earnings for several years, he said.
Satyam, founded in 1987, made its name by helping companies tackle the year 2000 computer bug. After the bursting of the dot- com bubble, Raju, who says he’s inspired by physicist Albert Einstein, expanded into software including design engineering programs for General Motors Corp. and medical administration in a venture with General Electric Co.
Accelerated Sales
The 267,358 shares were sold in 32 transactions on Indian exchanges, with a combined value of about 86.3 million rupees ($1.8 million), according to Bloomberg calculations. Srinivas sold 92,358 shares in two transactions in September, according to the company’s filings.
“There are people who have lost an equally significant amount of money” because they didn’t sell their entire stake, T. Hari, head of communications at Satyam, said in a telephone interview yesterday. “It’s possible that not everyone exercised all those vested stocks.”
The executives accelerated sales of stock in the two weeks before Satyam’s aborted Dec. 16 bid to buy two developers controlled by Raju’s family, offloading 82,500 shares, according to Bloomberg data.
The $1.6 billion takeover plan, withdrawn within 12 hours due to protests from investors, was a final bid to cover up fictitious assets in Satyam’s books, Raju said Jan. 7.
The Satyam transactions exceed sales by directors and executives at Reliance Industries Ltd., India’s biggest company, Tata Consultancy Services Ltd., the nation’s largest software exporter, and 27 other companies on the Sensitive Index. The Sensex had its biggest drop in three decades in 2008.
Insiders typically buy more shares in their companies to support the stock during market declines. Reliance Chairman Mukesh Ambani bought 120 million shares in October, investing $3.6 billion in India’s largest warrant conversion.
Toshiba, Fujitsu May Combine Hard-Disk Drive Units
Jan. 14 (Bloomberg) -- Toshiba Corp. and Fujitsu Ltd. are in final talks to combine their hard-disk drive businesses as the computer makers try to reduce costs, according to four people familiar with the discussions.
Toshiba, Japan’s biggest chipmaker, would have a majority stake in any joint venture, the people said. Fujitsu, a maker of chips, computers and software, is in discussions with several companies about its hard-disk drive business, spokesman Etsuro Yamada said.
Fujitsu shares surged as much as 8.6 percent and Toshiba gained on optimism a partnership may help the Tokyo-based companies improve margins and narrow the lead of the biggest makers of hard-disk drives for personal computers. The combined operations would have revenue of almost 700 billion yen ($7.8 billion), more than that of Samsung Electronics Co., the world’s fourth-largest manufacturer.
“The deal would be positive for both companies in that Fujitsu can jettison the money-losing unit and Toshiba can expand a potentially profitable business,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., which manages $6.1 billion of assets.
An agreement may be reached by the end of this month, the people said.
“It’s true that we are in talks with Fujitsu on the matter, but nothing has been decided at the moment,” Keisuke Ohmori, a spokesman at Toshiba in Tokyo, said by telephone.
Fujitsu climbed 5.6 percent to 416 yen as of 10:42 a.m. on the Tokyo Stock Exchange, its biggest increase since Jan. 7. Toshiba rose 3.9 percent to 400 yen, compared with a 0.6 percent gain by the benchmark Nikkei 225 Stock Average.
Reported Purchase
Toshiba is in the final stages of discussions to buy Fujitsu’s hard-disk drive business for as much as 40 billion yen, Nikkei English News reported today, without saying where it obtained the information.
Toshiba held a 7.2 percent share of the $32.8 billion global market for hard drives in 2007, making it the fifth-biggest producer, followed by Fujitsu with 6.9 percent, according to data from iSuppli Corp. Seagate Technology, Western Digital Corp. and Hitachi Ltd. are the world’s top three makers, based on the data.
Toshiba, Japan’s biggest chipmaker, would have a majority stake in any joint venture, the people said. Fujitsu, a maker of chips, computers and software, is in discussions with several companies about its hard-disk drive business, spokesman Etsuro Yamada said.
Fujitsu shares surged as much as 8.6 percent and Toshiba gained on optimism a partnership may help the Tokyo-based companies improve margins and narrow the lead of the biggest makers of hard-disk drives for personal computers. The combined operations would have revenue of almost 700 billion yen ($7.8 billion), more than that of Samsung Electronics Co., the world’s fourth-largest manufacturer.
“The deal would be positive for both companies in that Fujitsu can jettison the money-losing unit and Toshiba can expand a potentially profitable business,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., which manages $6.1 billion of assets.
An agreement may be reached by the end of this month, the people said.
“It’s true that we are in talks with Fujitsu on the matter, but nothing has been decided at the moment,” Keisuke Ohmori, a spokesman at Toshiba in Tokyo, said by telephone.
Fujitsu climbed 5.6 percent to 416 yen as of 10:42 a.m. on the Tokyo Stock Exchange, its biggest increase since Jan. 7. Toshiba rose 3.9 percent to 400 yen, compared with a 0.6 percent gain by the benchmark Nikkei 225 Stock Average.
Reported Purchase
Toshiba is in the final stages of discussions to buy Fujitsu’s hard-disk drive business for as much as 40 billion yen, Nikkei English News reported today, without saying where it obtained the information.
Toshiba held a 7.2 percent share of the $32.8 billion global market for hard drives in 2007, making it the fifth-biggest producer, followed by Fujitsu with 6.9 percent, according to data from iSuppli Corp. Seagate Technology, Western Digital Corp. and Hitachi Ltd. are the world’s top three makers, based on the data.
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