July 22 (Bloomberg) -- Overseas companies selling Indian Depositary Receipts must repatriate the money from the country immediately, the Indian central bank said, setting rules for foreign companies seeking to tap the nation’s stock markets.
The IDRs, denominated in rupees and issued by a depositary in India on behalf of an overseas company, won’t be redeemable to investors before the end of one year from the date of issue, the central bank said in a statement on its Web site today.
Foreign institutional investors and non-resident Indians will be allowed to trade in them, while foreign banks operating in India must seek approval to issue the securities, the central bank said. Automatic fungibility, or interchangeability, between the IDRs and the underlying shares won’t be permitted.
Wednesday, July 22, 2009
Monday, July 20, 2009
RBA Says Australian Rate Cuts Helping Stoke Demand
July 21 (Bloomberg) -- Australia’s benchmark interest rate at a half-century low of 3 percent is helping drive economic growth amid signs domestic demand is more resilient than expected, the central bank said.
“Members judged the current stance of monetary policy to be consistent with fostering sustainable growth and low inflation,” while still giving the bank scope to cut borrowing costs “at a later stage” if needed, policy makers said in minutes of their July 7 meeting released in Sydney today.
The full impact of Reserve Bank of Australia Governor Glenn Stevens’ decision to slash the overnight cash rate target by a record 4.25 percentage points between September and April will “still be coming through for some time,” the minutes said. Australia’s economy has survived the most dangerous phase of the global recession and will expand faster than the government forecasts, with fewer people losing their jobs, research company Access Economics said earlier today.
“The early and substantial easing of both monetary and fiscal policy had been effective in supporting demand, which, if anything, had been more resilient than expected,” today’s minutes said.
Policy makers left the benchmark rate unchanged two weeks ago for a third month after a report showed gross domestic product unexpectedly grew 0.4 percent in the three months through March 31 after shrinking 0.6 percent in the fourth quarter. Economists had forecast a 0.2 percent contraction.
Currency, Bonds
The Australian dollar traded at 81.27 U.S. cents at 11:33 a.m. in Sydney from 81.22 cents before the minutes were released. The two-year government bond yield rose 2 basis points, or 0.02 percentage points, to 4.04 percent.
Further signs that the economy isn’t as weak as expected include “surprisingly strong” exports, helped by demand from China, reports that some mining companies and ports are “again operating close to capacity,” rising household spending and higher demand for homes, the minutes said.
There are “further signs of stabilization in the world economy,” the central bank said today. “In Japan, recent data had been more encouraging than they had been for some time.”
The Bank of Japan last week raised its economic assessment for a third month, citing an increase in government spending and rebounds in factory output and exports. The economy has “stopped worsening,” the BOJ said, while adding that the economic outlook is “uncertain.”
China’s economy grew a stronger-than-expected 7.9 percent in the second quarter from a year earlier, a report showed last week. Singapore’s GDP also expanded faster than anticipated.
‘Gradual Recovery’
For Australia, “the outlook thus remained for a gradual recovery to begin later in the year, and downside risks to that had diminished,” the Reserve Bank said.
While the labor market is likely to remain “soft for some time,” there are signs employers are trying to limit job cuts.
“The current inflation outlook afforded scope for some further easing of monetary policy, if that were to be needed to give further support to demand at a later stage,” the bank said.
Consumer prices probably rose 1.5 percent in the second quarter from a year earlier, slowing from an annual 2.5 percent gain in the first quarter, according to the median estimate of 19 economists surveyed by Bloomberg. The consumer price index will be released at 11:30 a.m. in Sydney tomorrow.
The economy will expand 0.4 percent in the 12 months through June 2010, compared with the Treasury department’s prediction of a 0.5 percent contraction, Chris Richardson, head of Canberra-based Access Economics said in a report today. Three months ago, Access forecast a 0.2 percent decline.
‘Remarkable Resilience’
“Australia made it through the most dangerous phase of the global recession with only collateral damage, aided by China’s early bounce and the remarkable resilience of Australia’s mums,” Richardson said. Consumers are spending 6 percent more than when the crisis hit.
Still, central bank policy makers judged at their meeting this month that the most likely outcome for the global economy over the next year or two will “be subdued growth.”
“Downside risks had diminished,” the minutes said. “Nonetheless, significant vulnerabilities remained, as households and financial institutions in many major countries continued to repair their balance sheets.”
The long-term impact of the “large run-up” in global government debt that is in prospect “was also unclear.”
Investors have increased bets Australia’s benchmark interest rate will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading.
Traders forecast the key rate will be 77 basis points higher in a year, the index showed at 8:20 a.m. in Sydney. At the start of June, they forecast 3 basis points of reductions. A basis point is 0.01 percentage point.
“Members judged the current stance of monetary policy to be consistent with fostering sustainable growth and low inflation,” while still giving the bank scope to cut borrowing costs “at a later stage” if needed, policy makers said in minutes of their July 7 meeting released in Sydney today.
The full impact of Reserve Bank of Australia Governor Glenn Stevens’ decision to slash the overnight cash rate target by a record 4.25 percentage points between September and April will “still be coming through for some time,” the minutes said. Australia’s economy has survived the most dangerous phase of the global recession and will expand faster than the government forecasts, with fewer people losing their jobs, research company Access Economics said earlier today.
“The early and substantial easing of both monetary and fiscal policy had been effective in supporting demand, which, if anything, had been more resilient than expected,” today’s minutes said.
Policy makers left the benchmark rate unchanged two weeks ago for a third month after a report showed gross domestic product unexpectedly grew 0.4 percent in the three months through March 31 after shrinking 0.6 percent in the fourth quarter. Economists had forecast a 0.2 percent contraction.
Currency, Bonds
The Australian dollar traded at 81.27 U.S. cents at 11:33 a.m. in Sydney from 81.22 cents before the minutes were released. The two-year government bond yield rose 2 basis points, or 0.02 percentage points, to 4.04 percent.
Further signs that the economy isn’t as weak as expected include “surprisingly strong” exports, helped by demand from China, reports that some mining companies and ports are “again operating close to capacity,” rising household spending and higher demand for homes, the minutes said.
There are “further signs of stabilization in the world economy,” the central bank said today. “In Japan, recent data had been more encouraging than they had been for some time.”
The Bank of Japan last week raised its economic assessment for a third month, citing an increase in government spending and rebounds in factory output and exports. The economy has “stopped worsening,” the BOJ said, while adding that the economic outlook is “uncertain.”
China’s economy grew a stronger-than-expected 7.9 percent in the second quarter from a year earlier, a report showed last week. Singapore’s GDP also expanded faster than anticipated.
‘Gradual Recovery’
For Australia, “the outlook thus remained for a gradual recovery to begin later in the year, and downside risks to that had diminished,” the Reserve Bank said.
While the labor market is likely to remain “soft for some time,” there are signs employers are trying to limit job cuts.
“The current inflation outlook afforded scope for some further easing of monetary policy, if that were to be needed to give further support to demand at a later stage,” the bank said.
Consumer prices probably rose 1.5 percent in the second quarter from a year earlier, slowing from an annual 2.5 percent gain in the first quarter, according to the median estimate of 19 economists surveyed by Bloomberg. The consumer price index will be released at 11:30 a.m. in Sydney tomorrow.
The economy will expand 0.4 percent in the 12 months through June 2010, compared with the Treasury department’s prediction of a 0.5 percent contraction, Chris Richardson, head of Canberra-based Access Economics said in a report today. Three months ago, Access forecast a 0.2 percent decline.
‘Remarkable Resilience’
“Australia made it through the most dangerous phase of the global recession with only collateral damage, aided by China’s early bounce and the remarkable resilience of Australia’s mums,” Richardson said. Consumers are spending 6 percent more than when the crisis hit.
Still, central bank policy makers judged at their meeting this month that the most likely outcome for the global economy over the next year or two will “be subdued growth.”
“Downside risks had diminished,” the minutes said. “Nonetheless, significant vulnerabilities remained, as households and financial institutions in many major countries continued to repair their balance sheets.”
The long-term impact of the “large run-up” in global government debt that is in prospect “was also unclear.”
Investors have increased bets Australia’s benchmark interest rate will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading.
Traders forecast the key rate will be 77 basis points higher in a year, the index showed at 8:20 a.m. in Sydney. At the start of June, they forecast 3 basis points of reductions. A basis point is 0.01 percentage point.
Bain, Oaktree Said to Team With Local Firm for AIG Taiwan Unit
July 21 (Bloomberg) -- Bain Capital LLC, Morgan Stanley’s private equity unit and Oaktree Capital Management LLC plan to bid together with Chinatrust Financial Holding Co. for American International Group Inc.’s Taiwan unit, three people with knowledge of the matter said.
The companies would bid against Carlyle Group, which is partnering with Fubon Financial Holding Co. for the next round of offers scheduled for late August, the people said, asking not to be identified because the talks are confidential. Morgan Stanley and Blackstone Group LP were hired by AIG to manage the sale.
AIG’s advisers last week asked buyout firms to team up with Fubon, Taiwan’s second-largest publicly traded financial-services company, or Chinatrust, ranked third, to ease regulatory concerns about the sale of the island’s second-biggest insurer to private equity firms. Primus Financial Holdings Ltd. and Cathay Financial Holding Co. have also been invited to put in binding bids next month, the people said.
“The regulator wants the domestic companies to be in the driving seat,” said Chuang Piyen, a Taipei-based analyst at Mega Securities Co. “The buyout firms are likely to be passive investors contributing capital to help the local partner bid.”
Cathay Financial is Taiwan’s largest publicly traded financial-services company. Primus Financial, co-founded by former Citigroup Inc. Asia investment banking chief Robert Morse, has raised more than $1 billion this year.
Morgan Stanley, which owns 4.8 percent of Chinatrust, won approval last month to boost the stake to 9.9 percent through its Asia private equity unit.
Experience in Insurance
The setup of groups bidding for AIG’s Nan Shan Life Insurance Co. unit may change, the people said. Taiwan’s Financial Supervisory Commission has said it wants a buyer of Nan Shan to have experience in insurance.
Nan Shan, the island’s second-biggest life insurer by total premiums, may fetch about $2 billion in the sale, the people said earlier. AIG is aiming to sell assets outside the U.S. to repay loans in a $182.5 billion bailout.
Officials at Bain Capital, Morgan Stanley, Oaktree Capital, Cathay Financial and Primus Financial declined to comment. Sam Lin, a Taipei-based spokesman at Chinatrust, Dorothy Lee, a Hong Kong-based spokeswoman for Carlyle, and Victor Kung, president of Fubon Financial, also declined to comment.
Nan Shan has 4 million policyholders and an 11 percent market share in terms of total premiums. Burdened with unprofitable policies, it raised $1.45 billion in a rights offer last year to avoid slipping below a regulatory capital requirement. AIG owns 97.5 percent of the unit and Nan Shan’s management holds the rest.
The companies would bid against Carlyle Group, which is partnering with Fubon Financial Holding Co. for the next round of offers scheduled for late August, the people said, asking not to be identified because the talks are confidential. Morgan Stanley and Blackstone Group LP were hired by AIG to manage the sale.
AIG’s advisers last week asked buyout firms to team up with Fubon, Taiwan’s second-largest publicly traded financial-services company, or Chinatrust, ranked third, to ease regulatory concerns about the sale of the island’s second-biggest insurer to private equity firms. Primus Financial Holdings Ltd. and Cathay Financial Holding Co. have also been invited to put in binding bids next month, the people said.
“The regulator wants the domestic companies to be in the driving seat,” said Chuang Piyen, a Taipei-based analyst at Mega Securities Co. “The buyout firms are likely to be passive investors contributing capital to help the local partner bid.”
Cathay Financial is Taiwan’s largest publicly traded financial-services company. Primus Financial, co-founded by former Citigroup Inc. Asia investment banking chief Robert Morse, has raised more than $1 billion this year.
Morgan Stanley, which owns 4.8 percent of Chinatrust, won approval last month to boost the stake to 9.9 percent through its Asia private equity unit.
Experience in Insurance
The setup of groups bidding for AIG’s Nan Shan Life Insurance Co. unit may change, the people said. Taiwan’s Financial Supervisory Commission has said it wants a buyer of Nan Shan to have experience in insurance.
Nan Shan, the island’s second-biggest life insurer by total premiums, may fetch about $2 billion in the sale, the people said earlier. AIG is aiming to sell assets outside the U.S. to repay loans in a $182.5 billion bailout.
Officials at Bain Capital, Morgan Stanley, Oaktree Capital, Cathay Financial and Primus Financial declined to comment. Sam Lin, a Taipei-based spokesman at Chinatrust, Dorothy Lee, a Hong Kong-based spokeswoman for Carlyle, and Victor Kung, president of Fubon Financial, also declined to comment.
Nan Shan has 4 million policyholders and an 11 percent market share in terms of total premiums. Burdened with unprofitable policies, it raised $1.45 billion in a rights offer last year to avoid slipping below a regulatory capital requirement. AIG owns 97.5 percent of the unit and Nan Shan’s management holds the rest.
Australian Mums Help Economy Survive Global Crisis, Access Says
July 21 (Bloomberg) -- Australia’s economy has survived the most dangerous phase of the global recession and will expand faster than the government forecasts, with fewer people losing their jobs, Access Economics said.
The economy will expand 0.4 percent in the 12 months through June 2010, compared with the Treasury department’s prediction of a 0.5 percent contraction, Chris Richardson, head of the Canberra-based research company said in a report today. Three months ago, Access forecast a 0.2 percent decline.
Consumer and business confidence is rebounding after reports showed Australia was one of the few economies including China and India to grow in the first quarter, helped by the lowest interest rates in half a century and A$12 billion ($9.8 billion) in government cash handouts to households. The government now faces a “budget repair task” as its stimulus package creates budget deficits until fiscal 2013, Access said.
“Australia made it through the most dangerous phase of the global recession with only collateral damage, aided by China’s early bounce and the remarkable resilience of Australia’s mums,” Richardson said. Consumers are spending 6 percent more than when the crisis hit.
China’s economy, Australia’s second-largest trade partner, grew 7.9 percent in the second quarter, making it the first of the major economies to rebound from the global recession, a report showed on July 16.
Still, “China’s bounce is built on sandy soils, and may not guarantee ongoing gains for Australia’s economy by late 2010 and 2011,” Richardson said.
Jobless Rate
Access said Australia’s jobless rate will peak at 7.5 percent, a percentage point lower than the government’s prediction. Access previously forecast a jobless rate of 8.5 percent.
“That is good news, but it is still putting lipstick on a pig,” Richardson said. “We aren’t out of the woods yet. Consumers will flag from here” as the impact from government handouts fades.
“Similarly, businesses will be winding back spending through 2009-10, and the A$50 billion stripped from coal and iron ore export earnings is yet to hit profits and incomes,” he added.
To cushion Australia against the worst global recession since the Great Depression, central bank Governor Glenn Stevens slashed the benchmark interest rate by a record 4.25 percentage points between September and April to 3 percent.
Inflation Risk
Stevens left the rate unchanged on July 7 for a third month, and said slowing inflation gives policy makers scope to cut again if needed to spur domestic demand.
“The risk is that a world awash in money sees inflation in the recovery,” Richardson said. “Inflation risks are rising, though not as much as markets may fear. Both global and Australian interest rates will therefore lift during 2010 and into 2011.”
Signs are also emerging that the world’s biggest economy may be emerging from recession, with the index of U.S. leading indicators rising in June for a third consecutive month.
The Conference Board’s gauge of the economic outlook for the next three to six months increased 0.7 percent, more than forecast, after a revised 1.3 percent gain in May, the New York- based research group said. It is the first time the index has climbed for three months in a row since 2004.
The economy will expand 0.4 percent in the 12 months through June 2010, compared with the Treasury department’s prediction of a 0.5 percent contraction, Chris Richardson, head of the Canberra-based research company said in a report today. Three months ago, Access forecast a 0.2 percent decline.
Consumer and business confidence is rebounding after reports showed Australia was one of the few economies including China and India to grow in the first quarter, helped by the lowest interest rates in half a century and A$12 billion ($9.8 billion) in government cash handouts to households. The government now faces a “budget repair task” as its stimulus package creates budget deficits until fiscal 2013, Access said.
“Australia made it through the most dangerous phase of the global recession with only collateral damage, aided by China’s early bounce and the remarkable resilience of Australia’s mums,” Richardson said. Consumers are spending 6 percent more than when the crisis hit.
China’s economy, Australia’s second-largest trade partner, grew 7.9 percent in the second quarter, making it the first of the major economies to rebound from the global recession, a report showed on July 16.
Still, “China’s bounce is built on sandy soils, and may not guarantee ongoing gains for Australia’s economy by late 2010 and 2011,” Richardson said.
Jobless Rate
Access said Australia’s jobless rate will peak at 7.5 percent, a percentage point lower than the government’s prediction. Access previously forecast a jobless rate of 8.5 percent.
“That is good news, but it is still putting lipstick on a pig,” Richardson said. “We aren’t out of the woods yet. Consumers will flag from here” as the impact from government handouts fades.
“Similarly, businesses will be winding back spending through 2009-10, and the A$50 billion stripped from coal and iron ore export earnings is yet to hit profits and incomes,” he added.
To cushion Australia against the worst global recession since the Great Depression, central bank Governor Glenn Stevens slashed the benchmark interest rate by a record 4.25 percentage points between September and April to 3 percent.
Inflation Risk
Stevens left the rate unchanged on July 7 for a third month, and said slowing inflation gives policy makers scope to cut again if needed to spur domestic demand.
“The risk is that a world awash in money sees inflation in the recovery,” Richardson said. “Inflation risks are rising, though not as much as markets may fear. Both global and Australian interest rates will therefore lift during 2010 and into 2011.”
Signs are also emerging that the world’s biggest economy may be emerging from recession, with the index of U.S. leading indicators rising in June for a third consecutive month.
The Conference Board’s gauge of the economic outlook for the next three to six months increased 0.7 percent, more than forecast, after a revised 1.3 percent gain in May, the New York- based research group said. It is the first time the index has climbed for three months in a row since 2004.
Sunday, July 19, 2009
India to Unveil Inflation Index to Correct Price ‘
July 20 (Bloomberg) -- India will adopt a new consumer price index next year after policy makers said the current main inflation gauge of wholesale prices doesn’t reflect the true costs borne by people.
India’s statistics department releases four consumer price indices for different groups such as farm and industrial workers. The central bank and the finance ministry use the wholesale price index as the benchmark as the other inflation measures don’t capture the aggregate price picture.
“For macro purposes, you need a unified consumer price index,” Pronab Sen, the top bureaucrat in India’s statistics ministry said in an interview on July 17. “We are hopeful that by the end of next year we should be able to come up with one.”
Gains in the weekly wholesale prices hovered near 1 percent in May while increases in the four consumer indices, announced monthly, ranged between 7 percent and 10 percent. Governor Duvvuri Subbarao said the divergence in various price measures “complicates” monetary policy formulation while Finance Secretary Ashok Chawla said the “disconnect” must be rectified.
“The issue is causing some problems at this point in time,” said Chawla, the top bureaucrat in India’s finance ministry. “Policy makers have to tread with a certain amount of caution.”
Sen said the only “compelling” logic for a unified consumer price index is for monetary policy purposes, as there is nothing “intrinsically wrong” with the wholesale price gauge and the four consumer price measures.
‘Legitimate Information’
The wholesale price index provides a snapshot of producer prices while the consumer price gauges show the final cost paid by consumers.
“So you can have a situation where wholesale prices are going down and consumer prices are rising, and what it’s basically saying is that the cost of production is decreasing and that’s legitimate information,” Sen said.
“Similarly, regarding consumer prices, whose cost of consumption am I interested in?” Sen asked. “As far as the government is concerned, you would want to measure the cost of living of the most disadvantaged part of society.”
And the existing consumer price indices do exactly that, Sen said.
The consumer price index for agriculture labor measures the poorest segment of the rural population while the consumer price index for industrial workers measure the weakest part of India’s urban centers, Sen said.
He said the statistics department will continue to release the existing consumer indices and the wholesale index even after the new, unified consumer index is unveiled next year.
Measuring Services
The new consumer index, with a base year of 2007-2008, will be compiled from a sample of 2,000 villages, Sen said. He said the statistics department has subcontracted the field work to the postal department, which has put 2,400 people on the job.
Statistics in India haven’t kept pace with other changes in the economy as well, he said.
“The biggest problem is measuring services,” whose share in India’s $1.2 trillion economy has doubled to about 55 percent in the past two decades, Sen said.
“The bulk of our growth is coming from services, which is not the case with China, where growth is powered by manufacturing,” Sen said. “Traditional statistical systems are much better at measuring physical products and are in fact pretty bad at measuring services.”
There are some services such as transport that can be measured and “almost everything else can’t,” Sen said.
Extracting Teeth
“For example, how do you define the product of a dentist,” Sen asked. “Extraction of a front tooth is a different product from the extraction of a back tooth,” he said.
Similarly, in insurance, there are so many products and each one of them is unique, Sen said. “Even if two people have the same life insurance product with the same coverage, their premium will be different -- what premium do I use,” he asked.
The problems in measuring services don’t hinder computation of the gross domestic product, which can be arrived at by ascertaining the turnover of the services, Sen said.
“The reason we need it is because all economic systems require an early measurement of what’s happening in the economy,” Sen said. “The GDP we can announce at best quarterly and that too comes after a two-month lag. If you want to know what’s happened to services last month, we won’t know.”
“This is an area where a lot of research work is going on around the world,” Sen said.
For Related News and Information:
India’s statistics department releases four consumer price indices for different groups such as farm and industrial workers. The central bank and the finance ministry use the wholesale price index as the benchmark as the other inflation measures don’t capture the aggregate price picture.
“For macro purposes, you need a unified consumer price index,” Pronab Sen, the top bureaucrat in India’s statistics ministry said in an interview on July 17. “We are hopeful that by the end of next year we should be able to come up with one.”
Gains in the weekly wholesale prices hovered near 1 percent in May while increases in the four consumer indices, announced monthly, ranged between 7 percent and 10 percent. Governor Duvvuri Subbarao said the divergence in various price measures “complicates” monetary policy formulation while Finance Secretary Ashok Chawla said the “disconnect” must be rectified.
“The issue is causing some problems at this point in time,” said Chawla, the top bureaucrat in India’s finance ministry. “Policy makers have to tread with a certain amount of caution.”
Sen said the only “compelling” logic for a unified consumer price index is for monetary policy purposes, as there is nothing “intrinsically wrong” with the wholesale price gauge and the four consumer price measures.
‘Legitimate Information’
The wholesale price index provides a snapshot of producer prices while the consumer price gauges show the final cost paid by consumers.
“So you can have a situation where wholesale prices are going down and consumer prices are rising, and what it’s basically saying is that the cost of production is decreasing and that’s legitimate information,” Sen said.
“Similarly, regarding consumer prices, whose cost of consumption am I interested in?” Sen asked. “As far as the government is concerned, you would want to measure the cost of living of the most disadvantaged part of society.”
And the existing consumer price indices do exactly that, Sen said.
The consumer price index for agriculture labor measures the poorest segment of the rural population while the consumer price index for industrial workers measure the weakest part of India’s urban centers, Sen said.
He said the statistics department will continue to release the existing consumer indices and the wholesale index even after the new, unified consumer index is unveiled next year.
Measuring Services
The new consumer index, with a base year of 2007-2008, will be compiled from a sample of 2,000 villages, Sen said. He said the statistics department has subcontracted the field work to the postal department, which has put 2,400 people on the job.
Statistics in India haven’t kept pace with other changes in the economy as well, he said.
“The biggest problem is measuring services,” whose share in India’s $1.2 trillion economy has doubled to about 55 percent in the past two decades, Sen said.
“The bulk of our growth is coming from services, which is not the case with China, where growth is powered by manufacturing,” Sen said. “Traditional statistical systems are much better at measuring physical products and are in fact pretty bad at measuring services.”
There are some services such as transport that can be measured and “almost everything else can’t,” Sen said.
Extracting Teeth
“For example, how do you define the product of a dentist,” Sen asked. “Extraction of a front tooth is a different product from the extraction of a back tooth,” he said.
Similarly, in insurance, there are so many products and each one of them is unique, Sen said. “Even if two people have the same life insurance product with the same coverage, their premium will be different -- what premium do I use,” he asked.
The problems in measuring services don’t hinder computation of the gross domestic product, which can be arrived at by ascertaining the turnover of the services, Sen said.
“The reason we need it is because all economic systems require an early measurement of what’s happening in the economy,” Sen said. “The GDP we can announce at best quarterly and that too comes after a two-month lag. If you want to know what’s happened to services last month, we won’t know.”
“This is an area where a lot of research work is going on around the world,” Sen said.
For Related News and Information:
Tata Consultancy Sees More Demand at Citigroup, Banks
July 20 (Bloomberg) -- Tata Consultancy Services Ltd., India’s largest computer-services provider, is seeing increased demand from financial clients including Citigroup Inc., Chief Executive Officer Subramanian Ramadorai said.
“Demand is increasing as we speak,” Ramadorai said of business from Citigroup. JPMorgan Chase & Co. and Bank of America Corp. were also interested in services from Tata Consultancy, the chief executive said in a Bloomberg Television interview today.
Increased orders from financial services companies, Tata Consultancy’s biggest source of revenue, may help Indian outsourcers recover from the global recession that’s forced companies to tighten their technology-spending budgets. Cost cuts including a pay freeze and a cap on hiring helped Tata Consultancy beat earnings expectations July 17, joining nearest rival Infosys Technologies Ltd.
“Some segments where it was looking quite bad till recently, I think the situation is getting much better,” said Apurva Shah, head of research at Mumbai-based Prabhudas Lilladher Pvt., which raised its rating on the stock to “accumulate” from “reduce” after the results.
Tata Consultancy climbed 12 percent to 484.25 rupees at 10 a.m. in Mumbai trading, its biggest increase since May 18 after the company reported earnings that beat analyst estimates on July 17. The stock was the second-biggest contributor to the benchmark Sensitive Index’s 1.5 percent advance and the biggest gainer today on the 967-member MSCI AC Asia Pacific Index.
Profit Beats Estimates
The Mumbai-based software provider last week reported net income rose 23 percent to 15.2 billion rupees ($312 million) in the three months ended June 30. That compared with the 12.9 billion-rupee median of 21 estimates compiled by Bloomberg.
Sales rose to 72.1 billion rupees, beating the median analyst estimate of 69.2 billion rupees, after Tata Consultancy won eight large deals, including five from companies in the U.S. Banks and financial firms contributed 44 percent of revenue.
Ramadorai said demand from banks was across geographies.
“Other banks are looking at rationalization, some of the consolidation with the mergers that took place, some of the compliance related activities,” he said. “Banks in the European parts of the world in addition to the Indian banks,” were also interested in hiring Tata Consultancy, Ramadorai said.
Tata Consultancy, which provides computer services and back-office support to Citigroup, Volkswagen AG and other customers, said it won a multimillion dollar order from a specialty retailer in the U.S., where it gets half its sales. The Indian company also signed a multi-year contract with an Australian energy retailer for managing software applications.
The share of revenue from Tata Consultancy’s 10 biggest customers rose to 28 percent in the quarter, from 26.9 percent in the preceding three months, the company said in a presentation to analysts and posted on its Web site.
“Demand is increasing as we speak,” Ramadorai said of business from Citigroup. JPMorgan Chase & Co. and Bank of America Corp. were also interested in services from Tata Consultancy, the chief executive said in a Bloomberg Television interview today.
Increased orders from financial services companies, Tata Consultancy’s biggest source of revenue, may help Indian outsourcers recover from the global recession that’s forced companies to tighten their technology-spending budgets. Cost cuts including a pay freeze and a cap on hiring helped Tata Consultancy beat earnings expectations July 17, joining nearest rival Infosys Technologies Ltd.
“Some segments where it was looking quite bad till recently, I think the situation is getting much better,” said Apurva Shah, head of research at Mumbai-based Prabhudas Lilladher Pvt., which raised its rating on the stock to “accumulate” from “reduce” after the results.
Tata Consultancy climbed 12 percent to 484.25 rupees at 10 a.m. in Mumbai trading, its biggest increase since May 18 after the company reported earnings that beat analyst estimates on July 17. The stock was the second-biggest contributor to the benchmark Sensitive Index’s 1.5 percent advance and the biggest gainer today on the 967-member MSCI AC Asia Pacific Index.
Profit Beats Estimates
The Mumbai-based software provider last week reported net income rose 23 percent to 15.2 billion rupees ($312 million) in the three months ended June 30. That compared with the 12.9 billion-rupee median of 21 estimates compiled by Bloomberg.
Sales rose to 72.1 billion rupees, beating the median analyst estimate of 69.2 billion rupees, after Tata Consultancy won eight large deals, including five from companies in the U.S. Banks and financial firms contributed 44 percent of revenue.
Ramadorai said demand from banks was across geographies.
“Other banks are looking at rationalization, some of the consolidation with the mergers that took place, some of the compliance related activities,” he said. “Banks in the European parts of the world in addition to the Indian banks,” were also interested in hiring Tata Consultancy, Ramadorai said.
Tata Consultancy, which provides computer services and back-office support to Citigroup, Volkswagen AG and other customers, said it won a multimillion dollar order from a specialty retailer in the U.S., where it gets half its sales. The Indian company also signed a multi-year contract with an Australian energy retailer for managing software applications.
The share of revenue from Tata Consultancy’s 10 biggest customers rose to 28 percent in the quarter, from 26.9 percent in the preceding three months, the company said in a presentation to analysts and posted on its Web site.
CIT Is Said to Obtain Urgent Loan to Prevent Bankruptcy
Published: July 19, 2009
Directors of the CIT Group, one of the nation’s leading lenders to small and midsize businesses, approved a deal Sunday evening with some of the bank’s major bondholders to help it avert a bankruptcy filing through a $3 billion emergency loan, according to people briefed on the matter.
The deal will buy CIT some time to restructure its business model and reduce its voluminous debt load, after the company failed to win crucial concessions from Washington regulators. The company had planned to file for bankruptcy protection as soon as Monday afternoon if it could not attract enough capital from private investors, including big bondholders and its banks.
Under the terms of the deal, CIT would receive $3 billion from some of its main bondholders, though at an initial rate of about 10.5 percent. The money, arranged by Barclays Capital, is meant to give the company several weeks to set up an exchange of bondholders’ debt for equity, alleviating some of the pressure from billions of dollars in obligations.
CIT’s board approved the deal around 10:30 p.m. Sunday, these people said.
For more than a week, CIT, which is 101 years old, posed a difficult question for regulators: Should they step in to save yet another foundered financial institution?
Regulators felt some political pressure to intervene, because of CIT’s big presence in lending to small businesses across the country and because the government had already invested $2.33 billion in the company.
But officials eventually concluded that CIT, unlike the banks that were bailed out last year, posed no risk to the global financial system, leaving its fate in the hands of the private market.
The plan was formed after days of round-the-clock negotiations between CIT and its financial and legal advisers, and a group of large bondholders represented by the investment bank Houlihan Lokey Howard & Zukin and the law firm Paul, Weiss, Rifkind, Wharton & Garrison. The two firms previously represented the biggest group of large bondholders in General Motors.
Jeffrey M. Peek, CIT’s chief executive and the architect of the lender’s ill-timed aggressive push into subprime mortgages and student loans, was active in the financing talks, according to people briefed on the matter. Mr. Peek, a longtime banker who lost a race to become Merrill Lynch’s chief executive, called upon many of his acquaintances on Wall Street to provide some form of aid.
Even as CIT negotiated with its bondholders, it also had teams from the investment bank Evercore Partners and the law firm Skadden, Arps, Slate, Meagher & Flom prepare for a potential Chapter 11 filing. Several advisers, including JPMorgan Chase and Morgan Stanley, had begun preliminary discussions about raising $2 billion to $3 billion in debtor-in-possession financing, money needed to get a company through bankruptcy.
It remains unclear whether CIT’s long-sought lifeline will be enough to give it the room to make crucial changes to its business at a time when it is unable to obtain financing from the capital markets. While it maintains a bank subsidiary in Utah, the company has traditionally relied on money that it borrows in the capital markets to make loans to its customers.
Once the credit markets froze and investors became leery of CIT’s loan portfolio, the company was in peril.
Were CIT to fail, the company — with $75 billion in assets — would become the largest casualty in the finance sector since Lehman Brothers collapsed last fall. Since then, federal regulators have been pumping billions of dollars into numerous banks across the country to prop them up and create some stability in the financial system.
A failure of CIT could have sent ripple effects through the nation’s small and midsize businesses. While most of its portfolio consisted of term loans, the company dominated the market for factoring, a type of lending common within the manufacturing and retail sectors.
Many analysts and federal regulators have questioned why CIT did not try to change its risky business model sooner. Last December, amid the market turmoil, the Bush administration rushed through the company’s application to become a bank holding company and gave it $2.33 billion through the Troubled Asset Relief Program.
Yet the company made no move to build a sturdier business model. Instead, it applied for access to a program through the Federal Deposit Insurance Corporation that has allowed Goldman Sachs and other banks to issue their debt cheaply with the backing of the agency.
Sheila C. Bair, the chairwoman of the F.D.I.C., does not view the program as a bailout solution for banks and financial institutions, a government official briefed on the situation said.
When that door closed last week, CIT executives still held out hope that they would receive approval from regulators to transfer $10 billion in assets to the company’s Utah bank, a move that would have given it access to loans from the Federal Reserve. But regulators demanded that such a move be accompanied by CIT’s raising a significant amount of private capital, which at the time seemed nearly impossible.
A third front of the debate was whether, after throwing large sums of money to some of the nation’s largest banks, the Obama administration was doing enough to brace up institutions that lend money to smaller businesses. Many of those large banks, including JPMorgan Chase, Goldman Sachs, Citigroup and Bank of America, reported either record or substantially improved results last week.
Directors of the CIT Group, one of the nation’s leading lenders to small and midsize businesses, approved a deal Sunday evening with some of the bank’s major bondholders to help it avert a bankruptcy filing through a $3 billion emergency loan, according to people briefed on the matter.
The deal will buy CIT some time to restructure its business model and reduce its voluminous debt load, after the company failed to win crucial concessions from Washington regulators. The company had planned to file for bankruptcy protection as soon as Monday afternoon if it could not attract enough capital from private investors, including big bondholders and its banks.
Under the terms of the deal, CIT would receive $3 billion from some of its main bondholders, though at an initial rate of about 10.5 percent. The money, arranged by Barclays Capital, is meant to give the company several weeks to set up an exchange of bondholders’ debt for equity, alleviating some of the pressure from billions of dollars in obligations.
CIT’s board approved the deal around 10:30 p.m. Sunday, these people said.
For more than a week, CIT, which is 101 years old, posed a difficult question for regulators: Should they step in to save yet another foundered financial institution?
Regulators felt some political pressure to intervene, because of CIT’s big presence in lending to small businesses across the country and because the government had already invested $2.33 billion in the company.
But officials eventually concluded that CIT, unlike the banks that were bailed out last year, posed no risk to the global financial system, leaving its fate in the hands of the private market.
The plan was formed after days of round-the-clock negotiations between CIT and its financial and legal advisers, and a group of large bondholders represented by the investment bank Houlihan Lokey Howard & Zukin and the law firm Paul, Weiss, Rifkind, Wharton & Garrison. The two firms previously represented the biggest group of large bondholders in General Motors.
Jeffrey M. Peek, CIT’s chief executive and the architect of the lender’s ill-timed aggressive push into subprime mortgages and student loans, was active in the financing talks, according to people briefed on the matter. Mr. Peek, a longtime banker who lost a race to become Merrill Lynch’s chief executive, called upon many of his acquaintances on Wall Street to provide some form of aid.
Even as CIT negotiated with its bondholders, it also had teams from the investment bank Evercore Partners and the law firm Skadden, Arps, Slate, Meagher & Flom prepare for a potential Chapter 11 filing. Several advisers, including JPMorgan Chase and Morgan Stanley, had begun preliminary discussions about raising $2 billion to $3 billion in debtor-in-possession financing, money needed to get a company through bankruptcy.
It remains unclear whether CIT’s long-sought lifeline will be enough to give it the room to make crucial changes to its business at a time when it is unable to obtain financing from the capital markets. While it maintains a bank subsidiary in Utah, the company has traditionally relied on money that it borrows in the capital markets to make loans to its customers.
Once the credit markets froze and investors became leery of CIT’s loan portfolio, the company was in peril.
Were CIT to fail, the company — with $75 billion in assets — would become the largest casualty in the finance sector since Lehman Brothers collapsed last fall. Since then, federal regulators have been pumping billions of dollars into numerous banks across the country to prop them up and create some stability in the financial system.
A failure of CIT could have sent ripple effects through the nation’s small and midsize businesses. While most of its portfolio consisted of term loans, the company dominated the market for factoring, a type of lending common within the manufacturing and retail sectors.
Many analysts and federal regulators have questioned why CIT did not try to change its risky business model sooner. Last December, amid the market turmoil, the Bush administration rushed through the company’s application to become a bank holding company and gave it $2.33 billion through the Troubled Asset Relief Program.
Yet the company made no move to build a sturdier business model. Instead, it applied for access to a program through the Federal Deposit Insurance Corporation that has allowed Goldman Sachs and other banks to issue their debt cheaply with the backing of the agency.
Sheila C. Bair, the chairwoman of the F.D.I.C., does not view the program as a bailout solution for banks and financial institutions, a government official briefed on the situation said.
When that door closed last week, CIT executives still held out hope that they would receive approval from regulators to transfer $10 billion in assets to the company’s Utah bank, a move that would have given it access to loans from the Federal Reserve. But regulators demanded that such a move be accompanied by CIT’s raising a significant amount of private capital, which at the time seemed nearly impossible.
A third front of the debate was whether, after throwing large sums of money to some of the nation’s largest banks, the Obama administration was doing enough to brace up institutions that lend money to smaller businesses. Many of those large banks, including JPMorgan Chase, Goldman Sachs, Citigroup and Bank of America, reported either record or substantially improved results last week.
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