23.09.2008

• Wall Street will never be the same again
• The iconic I-Banks, Goldman Sachs and Morgan Stanley have decided to become conventional banks. The Q&A briefing given in today's ET sums up the whole issue succinctly.
  
• What's the problem in being an I-Bank?
• Investment Banks did not stick to collecting fees from advising corporates, or managing other people’s books and money. With little capital, they invested their own and clients' money in high-risk, high-return and complex securities.They borrowed from banks to invest more. Later, when they needed cash, they found there were no takers for these securities
  
• How will becoming a commercial bank help?
• Compared to i-banking, old-fashioned commercial banking is less glamorous and generates less money. Commercial banks — which accept deposits from households and institutions and lend—also need more capital. But a commercial bank has access to cheaper funds through current and savings accounts; it can also borrow from the central bank regularly
  
• Did Goldman and Morgan have no other option?
• Since they could neither raise capital nor sell their investments, this was the only way out. It will mean supervision by Fed. They may consider acquiring a bank. To begin with, they will tap rich clients to get cheap funds, but will continue with i-banking and dealmaking—stuff they know best
  
• How will this change the world of finance?
  
• The market for derivatives (or off balancesheet exposures, which need less capital than a simple loan) will shrink.This is where i-banks used their proprietary books to take big bets. Smaller i-banks may have to merge with or sell their assets to bigger banks. Regulators may insist on high capital norms for derivatives.
• Read this very good editorial comment that appeared in today's ET. But my advice is this: don't be lulled into believing that the end of an era means the beginning of a new one. I feel the end is not yet over for new beginnings to make their appearance. I am awaiting more troubled times ahead -- in the coming months. Then will new beginnings be surely be made in the next one to two year time frame.
• One more snippet worth noting in this context is our banks' losses on account of this financial crisis. Nine of the country’s largest commercial banks including State Bank of India (SBI), ICICI Bank and HDFC Bank have exposure of $420 million (Rs 2,000 crore) in the US financial giants which collapsed recently. The government feels banks other than SBI would suffer losses of Rs 600 crore due to the crisis.
• Investments in India by the failed i-Banks: Goldman Sachs has invested $2 billion while Morgan Stanley has invested $750 million.
• Both Morgan Stanley — a product of the 1933 Glass-Steagall Act that separated investment and commercial banks — and Goldman will henceforth have permanent access to the Fed window and the right to raise deposits. In other words, this will allow them to rely more heavily on deposits from retail customers instead of using borrowed money.
• Crude posts biggest gains!!
• Crude oil climbed more than $24 a barrel to $128.50, the biggest single day gain ever, as the dollar weakened the most against the euro since January 2001.
  
• Credit crunch threatens nanny trade
• London, with its world financial hub, is the centre of the nanny trade in Britain, employing thousands of the surrogate mothers to care for their infants while they earn megabucks in the City.
  
• The British nanny, epitomised by the fictional but magisterial Mary Poppins, has always been in demand around the world, and that is unlikely to change despite stiff competition from Eastern Europe.
• As bankers and money dealers fall like flies to a credit crunch that has seen three major US investment banks disappear in a puff of smoke, so the nannies they have employed on salaries of up to £40,000 ($73,000) have suddenly become expensive luxuries. They are reportedly losing their jobs.
• India Pakistan to announce cross LoC trade
• When Prime Minister Manmohan Singh meets Pakistan president Asif Ali Zardari on the sidelines of the United Nation General Assembly, they will have at least one substantive announcement to make on cross LoC trade. The two leaders are likely to announce the date for the beginning of trade across the border at two crossing points—the Srinagar-Muzaffarabad route and the Poonch-Rawalkot route—when they meet in New York .
• The joint working group on cross LoC CBMs, which met in New Delhi, finalised the modalities for cross-border trade bringing to an end a negotiations that started in 2005. The initiative is aimed specifically at resurrecting trade between Kashmir and Pakistan-occupied Kashmir.
• Looks like India has been silently aggressive in so far as deriving benefits out of the just signed Indo US nuclear deal is concerned
• Reports are saying that it is likely to sign a nuclear fuel supply agreement with France soon. Even before the US Congress passes the 123 agreement. Thus giving France an early mover advantage.
• Similarly, the Russian President Dmitry Medvedev is expected to ink a similar agreement with India during his visit to India sometime in December.
• Manmohan's resume getting spruced up or not, the benefits are more appealing than the feared compromises.
• Japan to have new prime minister
• Japan’s conservative Taro Aso, who scripted a landslide victory in the Liberal Democratic Party's presidential election on Monday, is all set to succeed prime minister Yasuo Fukuda amid economic uncertainty faced by the world's second largest economy. Ruling LDP, which has the majority in the lower house, will choose Aso as Japan's new prime minister in Parliament on Wednesday.
• Government's moves to curb spurious drugs
• The Centre is planning to set up a task force to deal with counterfeit drugs. All stakeholders of the industry, including pharma companies, NGOs and the government would have representation on the committee.
  
• Legal provisions are being tightened to provide stiffer punishment to offenders and quality parameters are being made mandatory. Now no manufacturing activity can take place without the adoption of these norms which help in keeping a check on the quality of the final product.
  
• The spurious drugs market is estimated to be between Rs 2,000-6,000 crore while the domestic pharmaceutical market is pegged at $20 billion (Rs 90,000 crore) and is estimated to reach $50 billion by 2015.
• What are the types of window-dressing that you are aware of? I am talking of companies' accounting practices here.
• According to a study of BSE 500 companies, five types of creative accounting practices are most prevalent when companies want to window dress their financial performance. They are: booking revenues before they materialise, booking fictitious sales, expense manipulation, cash manipulation and invisible restatements of previous periods.