GLG News by Harnath Sithamraju

Implications: 1. Global crisis making the central banks the world over bolder in taking initiatives. 2. Interest rate cuts though welcome are not enough.

Analysis: Tinkering with interest rates, the central banks of various economies, especially developed economies hope to ward off an imminent recession.Forearmed is forewarned.But mere tinkering with interest rates is just not enough to stimulate an economy.Other measures and stimulants like increasing demand and supply, creating new markets and looking for opportunities for business elsewere to sustain growth  are some of the measures that may be required.Interest rate cuts might put more money in the hands of consumer but if demand and supply don't stack up the situation could end up creating more problems than solving.
It might look like the Governments might be proactive in taking preventative actions.But is that really so ? It is like trying to collect leaves after having burnt your hands.
However, SBI seems to have judged the situation correctly.But seems to act in a manner where you give with one hand and take it through another (by raising funds in the market).Liquidity in the hands of the bank does not necessarily mean liquidity in the hands of the consumer.It will be to the advantage of the corporates if liquidity is in the hands of the consumer as it creates cash flow and cheaper money and maybe cheaper goods! and liquidity...... to the banks as well! wishful thinking.
Maybe it is high time the Indian Government thought of reducing taxes as a stimulant to create liquidity in the markets.
You need two hands to clap.
Interest rate cuts and tax cuts could work in tandem to create a win-win situation.
Might as well send an email to Santa Claus !

Implications: 1. Market is unpredictable and any analysis is obsolete even before it is completed. 2. Market is event based.

Analysis: Market at best is fickle.It reacts more than responds.Technical analysis or financial analysis, as borne out by the current crisis, is only for credit applications and not for investments.Markets are unpredictable and I am sure this is one thing Nostradamus has avoided in his Centuries. Nowhere has anyone analysed regarding markets from his predictions. It may not have been beyond him but he did not hazard a venture! Therefore lesser mortals should take things as they happen and invest accordingly.But markets have never been designed for the faint hearted or the analysts.

Share prices have never respected balance sheet results. Extraordinary profits of a company have always been welcomed by the markets with a thumbs down.Why ? Again why should an event like increase in oil prices (however important) define the  market movement, there are other important commodities.Why does gold have less (negligible) impact on the market than oil ? Most events and 'impacts' to those events are man made.How ? A war can have a great impact on the markets than a cyclone .Why ?

All market news is man made and there is no method, it is only fancies of certain individuals. There is no time table to either recession or inflation it is all event based. Any analysis now is only in hindsight and interpretation to confirm a pattern. The one and only original Eureka belongs to Archimedes the rest are in hindsight.

In fact majority of the actions of a Government or the regulators is played for the markets and voters come next. Is there a pattern here? 
How many analysts have predicted the current market turmoil based on the information culled from balance sheets or other library information. If  such events can be predicted than either recession or progression can be easily manipulated. Then, in the hands of a meglomaniac , analysts would become weapons of mass destruction.

Thank God for all the natural things.

Implications: 1. Greatest ever rescue bid under worst ever circumstances. 2. Challenging time or interesting times the reponse must be swift and on war footing to restore confidence to the people on the street.

Analysis: World is facing a crisis which it should not have had to go through.Why? that the Government in US allowed such CDOs to go through in the first place knowing fully well they were duds is a cause for worry and alarm.The Freddies were allowed to fund such duds is another cause for alarm.Make hay while the sun shines is all good not when the sun burns your face! The home of capitalism having fought Marx is now adopting,nay adapting, the Marx model.How times change! But in times of crisis any model is okay as long as it works. Now is not the time for politics.But thanks to investment bankers and their insatiable greed for this amazing turnaround.

Governments all over the world are alarmed at the turn of the events and are on a firefighting mode.Every economic trick in the bag like interest rates, deposit guarantees etc are being worked.And for the first time after a long time Europe and America are coordinating efforts to tackle the crisis in an earnest way.That augurs well for the world.But will the meltdown stall.

This crisis should have been seen in coming.Bear Stearns should have acted as a trigger.But the opportunity was allowed to pass. But Governments don't act in peace time you need a war to be seen as a hero. And the time has arrived.

Every area of the economy is going to get affected.Australia guarantees bank deposits for next 3 years to instil confidence in the banking system. In India the aviation industry is seeking a USD1 billion bailout package and world bailout packages reach USD 3 trillion, yet none of the executives of the investment banks have felt ashamed to surrender their bonus packages made out of the misery of the common man.Business done, bonus earned, but in the right way? But ethics are not part of business anyway.Human nature ? Executives are paid for taking responsible decisions and an employee for putting through the decisions.In a crisis, first thing, an employee loses the job whereas an executive may(?) lose the job but gets to keep the hefty bonus for their (ir)responsible decisions which lead to a crisis of mega proportions in the first place ! Hand on your heart. 

At the time of Great Depression the world was not that evolved and technology was non existent. Hence the crisis was allowed to boil over. However, now the Governments have all resources at their command and have to act fast. There is no room for dither. Otherwise the world will enter a black hole even before the Haldron is really tested.Common man doesn't have pay for the follies of the reckless.

Healing is a long term process.Trust has been the first casualty.No banker will trust his fellow banker with the same respect.New rules and new firewalls. Common man will never trust the investment banker. A used car salesman is better.

After 1929, 2008 is a year to remember.









 

Implications: 1. Current crisis is the child of greedy bankers. 2. Fast loans are not criteria for high bonus.

Analysis: There is a wrong perception in the "current" banking industry and also with the rating agencies.Anyone talking about collateral security is a conservative.The assumption is that when a loan is backed by a marketable security then any further requirements is the brainchild of a consevative.LVR is only on paper and for the record.All parties involved need to change their attitude as a outcome of this crisis.That is one thought. There is another line of thinking.Which is provision of housing to the needy.A social objective.Good one at that.But isn't there another way ? Why do Governments not take responsibility for provisioning of subsidised housing loans.Has it not intervened now to rescue bankers.Had the governments not blinked, this crisis could have been averted.Why do we have to wait for a crisis for a hero to rise.

An asset like land can rise in value as well as fall in value dependent on market forces and economic conditions. All assets attract depreciation in one form or the other (antiques notwithstanding).Therefore taking a considered decision should not be frowned upon.The rescue package may create a temporary rise in share prices but not land prices.Therefore the rescue package coming from Washington will be a band-aid solution albeit much needed. But the problem lies elsewhere.And that problem requires a solution though long term.It is the Economy as such.Why did the economy take a downturn? put rules in place to avert a furture crisis.

The subprime crisis has been running for 2 years.Bank failures should have been seen in coming. WaMu could be the begining of the end.More banks not only with subprime but normal mortgages will face a crisis because of the effect of the economic downturn consequent to fall in house prices and jobs.The rescue package may create a ripple effect on the world economy.China and India could have limited the impact but for how long ? Maybe there is something in there.But China's milk crisis could create a reverse limiting any positive effect.

There are more questions than answers.But one answer to all questions - It is the Economy stupid!

Implications: 1.Shrinking business pushing bigger banks to swallow smaller banks to increase customer base.

Analysis: HBOS's banking arm - BankWest is a regional player located in Western Australia (WA).Both National Australia Bank (NAB) and Commonwealth Bank of Australia (CBA) have a strong presence in Western Australia.But Bankwest has its headquarters in WA and a wide customer base there. Off late BankWest has made forays into the Eastern side of the continent and has been quite aggressive in its push. With the success of its branches in Sydney and other places by providing 7 days service and friendly approach it has started giving the bigger banks run for their money. The big4 banks too tried offering higher interest rates on deposits and also used the debt market but the going has been tough what with the likes of ING Bank offering even higher interest rates on deposits and at the same time attracting more customers.

Big4 banks at  first, appeared to be reluctant to pass on the recent interest rate cuts by Reserve Bank of Australia,  to their customers because of increase in costs of servicing borrowings due to subprime crisis worldwide.Money has become dear. Borrowings have fallen due to high interest rates.Business is stagnating and customer base is static.

Therefore the only other way to beat competition is to swallow competition. Use muscle power before the steroids run their course. Westpac Banking Corporation (WBC) is in the process of acquiring another regional player viz., St. George Bank, which really set the M&A ball rolling. NAB tried its hand at ABN Amro but gave up because of several writedowns within NAB. CBA has also put its plans on hold for the moment.The sharemarket is not doing well.

But BankWest is an attractive investment. HBOS's other arms such as Capital Finance concentrate mainly in Equipment Finance operations and work through other banks as a broker.

BankWest because of its aggression and success has become an attractive option for the customer base starved and competition wary big banks of Australia. And it won't be long before it loses its identity.

 

Implications: 1. For banks to stay ahead, more mergers in the Australian banking industry can be expected. 2. Australian banking industry is heading into a period of churning and consolidation.A fallout of the increasing interest rates and fears of recession.

Analysis: Australian banking industry is on a sound footing and has managed to weather the current subprime crisis so far.The merger between Westpac Banking Corporation ( fourth largest bank in Australia) and St George Bank (fifth largest bank in Australia) is an acknowledgement - that marry when the going is good before times get tough.Due to fears of recession and slowing of the economy the Reserve Bank of Australia (RBA) may reduce interest rate at its meeting next month. Then Banks will come under enormous pressure from the Government to pass on the benefit to the consumers. Meanwhile the Government feels the larger banks have become too arrogant and unabashed and is toying with idea of providing relief to the consumers by creating competition ( the form yet to be decided) in the market place. Even if the banks decide to lower interest rates on one product especially mortgages they might be tempted to increase interest rates on other products such as credit cards.The banks don't seem to be interested in the health of the overall economy but only their bottomline. But they also have a worry, Banks profits seemed to have withered as a fallout of the subprime crisis. They are in the market to boost their deposits from the savers by offering higher interest on deposits.A cheaper way to funds than borrowings.
 
The Australian watchdog, the Australian Competition and Consumer Commission (ACCC) has given its blessing to the marriage. Next in line to bless the couple are Australian Prudential Regulatory Authority (APRA) and the Treasurer of the Government, who may not raise any serious objection and hope to give their nod by August end.No other suitor has come forward to claim the hand of the bride (St George Bank). Possible suitors viz the National Australia Bank (NAB),ANZ Bank and Commonwealth Bank of Australia(CBA) are not interested for various reasons.
Before pushing the merger one step closer though, the ACCC had to clarify one concern. It was about the impact on competition of the combination of the banks' wealth management platforms, BT Wrap and Asgard- which are two of the three biggest wrap services in the wealth management market. It was a question of how specialised the platforms are.

After the merger, steamlining the businesses of both the banks into a seamless operation is a daunting task.

Other financial institutions will be watching the merger with keen interest. The success of which could spell more marriages of convenience among the banks.Smaller and successful banks or arms of overseas banks could be up for grabs.Westpac anyway has set the ball rolling by a clever synergy.

Current CEO of Westpac Bank, Gail Kelly, is also the Ex-CEO of St. George Bank. Inside knowledge helps.






 

Implications: 1. Corporate India creating more opportunities for business for the Indian financial sector. 2. Investment banking in India is at a nascent stage.

Analysis: Indian corporate sector has been quick to get off the mark with the liberalisation of the Indian economy.Taking a cue from the aggressive growth of the IT sector, other sectors have been trying hard to play catch up. Indian financial sector tried a hodge podge of tie-ups with various overseas companies with various degrees of success. Ultimately the Government is in the process of changing the regulations to let in foreign players. With the likelihood of competition breathing down their necks the Indian banks have to find innovative ways of doing business to keep up with the changing times.

Help has come in the form of aggressive mergers and acquisitions program of the corporate sector. With the Tatas and the Reliances on a buying and acquisition spree, Indian banking is waking up to the opportunities.State Bank of India, Bank of Baroda were quick to explore the opportunities and expand their businesses into insurance and investment banking.Now Union Bank of India a major competitor for Bank of Baroda in western India has followed the lead.

With a huge network of branches spread all over India and rated as an efficient bank with huge resources, Union Bank is well positioned to develop into the investment banking sector and corporate advisory services. But investment banking is not all rosy. It is a risky business. The current global crisis is a case in point.Inexperience and aggression are a deadly mix. A slow and careful build up to the business may create a back bone for future growth.

Union Bank of India is known for its gradual growth and absence of indiscriminate aggression. True to its symbol - spider. 

Implications: 1. China and India are two of the fastest growing markets and turbulence is expected. 2. Ups and downs form stock theatrics in any stockmarket.

Analysis: China and India are not only fastest growing economies but also most volatile.Among the BRIC countries (BRICc) Indian stockmarket is the oldest with longstanding infrastructure and has seen many a rainy day. China's stockmarket is relatively new.

However, China has had a headstart among the BRICc in emerging as a economic powerhouse.However the other three have played catch up since and have been creating ripples in the worldmarkets. China and India with a billion population each have got the potential to be voracious economies and will take a long time to digest and thus provide an opportunity for other developed economies to participate in their growth. Countries rich in resources such as Australia have got a readymade opportunity.An ideal setting for a marriage between the resources bull and the resources bear.

Thus, what Mobius is seeing is an opportunity in the resources sector and resources consuming sectors of both China and India.Both present long term possibilities. 

But there is a caveat. Mineral resources have age limitations. Will iron have the capacity to meet the requirements of the BRIC?If not what then.Just as oil there is an urgent need to find a substitute for iron and steel ( I am not joking) any restrictions on consumption will not help. Even if power and energy are supplied through nuclear reactors they are still dependant on uranium and thorium which have limited life span.Maybe water and solar energy is the only way out.

Therefore any investments in the resources sector will not only have to factor that in but also the price of the commodities which will form the main driving force. Price increases as resources deplete.

Bargains can only be had at a price.

Implications: 1. Citi's investment constitutes a drop in the ocean. 2. India's infrastructure requires huge investments and a potential boom for construction companies. 

Analysis: India's infrastructure is in a poor shape.Anyone who gets into the market now is in for the long haul and can capitalise on the 'beginner's advantage'. Development of infrastructure be it ports, roads etc has been the priority of every Government in India but lack of action and funds and fiercely socialist political philosophy has been a drawback.Since 1991 all that has changed.But lack of political will power has seen the country sitting on the fence.

Enter globalisation. With BPOs and KPOs on one side and the dragon breathing fire on the other the elephant had to stir.The BPOs had put the Indian middle class into cars and the dragon is chasing the elephant all over the world for resources. India has to build the roads to accomodate all the vehicles which in the current scenario is on a bumper to bumper kissing spree.

Legendary Indian bureaucracy apart, investments in infrastructure present a long term opportunity. A clever mixture of tie-ups and options (such as BOO, BOT etc) can pay rich dividends.With major car manufacturers entering the fray which in a way has cracked the bureaucracy, making inroads into other areas should not be that difficult.
Citi's efforts could lead to bigger and better things and create opportunities for itself and others. A tale of Citi Pandit and Indian roads.

Implications: 1. Peace is elusive on this earth. 2. Interval between two crisis is a crisis.

Analysis: Money may be the root of all evil but it certainly is the root of all business. And major wars or crisis can be traced to that five letter word - Money. The half- brother of money is Power.And they give the impression of twins. It is always - money first, power next.No power without money. Bill Gates can confirm it for me. But there were/are exceptions. But money or power doesn't talk about Buddha, Jesus or Gandhi. Or for that matter Newton, Einstein or Edison.

As long as the human head is driven by money and power ( in the shape of oil, funds or presidentship) humankind will be searching for sanity among chaos.

Never look back - Look ahead. Is a statement fraught with danger.If you don't look back you will never know what is wrong. Does anyone remember Hitler or junk bonds (earlier version of subprime)?  Humankind is never willing to learn from past mistakes because every generation is unique ! But the reasons for stockmarket crisis or the wars have not changed.

As long as humankind does not change its attitude or mindset the economic outlook every year will be the same - Dim.

 

Implications: 1. Entry through backdoor to the boardrooms of resource companies of Australia. 2. Decision to ensure assured supplies to resource hungry China.

Analysis: China is poaching around the world to channel assured supplies of resources to its ever increasing demand. Australia is rich in resources and is in the midst of a boom. But money is one thing that can bend rules.

Australia as a policy, till now, does not allow state owned banks of a country to directly invest in its companies, citing security concerns. China's state owned banks tried that route. But all that may change when the Rio Tinto investment is accepted. BHP notwithstanding.

Enter the dragon. Chinese investments into Australia have been steadily increasing, though statistics may show they form a miniscule part of foreign investments. And when money talks people listen with interest. Words are cheap. Make moolah while the mine booms.

Oil and coal the least likely candidates to possess magnetic power have suddenly been thrust with those very same powers and are attracting money and attention like never before. All that glitters is now black.

With the flow of investments crossing the great wall, the money may create a boom in the stock markets and the fund managers laughing all the way to bank. Reincarnation of Bear Stearns and Lehman Brothers.

Implications: 1. High interest savings deposits currently play a key role in financial institutions startegies. 2.Competition for deposit funds in India is fierce, and is expected to intensify as banks struggle with the effects of global credit crunch.

Analysis: The global credit crunch has increased cost of wholesale funding leading many banks to focus on growing deposit base and acquiring new deposit customers.And State Bank of India by raising interest rates on deposits was acknowledging the obvious,by bowing to the winds in the market. Had it not done so, the vaccum/indecision could have allowed competitors to blitzkreigh. 

The interest rate is the dominant driver behind customers' choice.Fees and interest rates are the determining factors for choice of a bank or financial institution.

The main factor that changed the playing field for savings account has been the rapid improvement in technology.The introduction of online banking in the last decade marked a major shift in the savings deposit market.Online banking made managing banking business even easier for consumers, as well as enabling new competitiors and new products to enter the market. Foreign banks previously hampered by their lack of branch coverage, can now compete with the major Indian Banks. As a result, they could start marketing other financial products in the Indian market as well.

Though there are many competing products in the high interest deposit area,a large majoirty of Indian savers especially the senior citizens prefer the security of banks to hold their life savings.

The last decade has witnessed a demographical change in the savers. High interest savings accountholders who arranged their main account online are more likely to be in a younger age bracket, high earners, financially savvy and read the financial news.

Going forward, amount of cash held in accounts payng zero or very low interest is expected to decrease significantly (excepting for business purposes) and average deposit rates will rise. And overall importance of deposit products for banks' strategy will increase. Back to old days. The more things change, more they remain the same.

Implications: 1. Good sales people do not necessarily make good bankers. 2. Part of the credit crisis can be attributed to deliver under pressure (competition and otherwise) 'excellent' customer service and settle deals fast by pushing 'discretionary' waivers.

Analysis: The malignancy that struck the financial industry worldwide since the begining of 2007 is still at its striking best.Bear Stearns is an old story. The world is its theatre now. Every country has got its own credit crisis story to tell.

Major banks the world over, except for an odd ABN AMRO and a few european banks, had largely withstood the tsunami with liberal help from their respective central banks. However, the after effects of the credit crisis are being felt now.From now to mid 2009 it will be the spectacle of the after effects. Witness the largest banking merger that is proposed between the 4th largest bank (Westpac Banking Corporation) and the 5th largest bank ( St. George Bank) in Australia. An AUD 66 billion merger which may turn out to be the largest in the history of Australian Banking . A fall in profits of St. George Bank was the trigger and a credit crisis that hit Westpac late last year created this embracing situation.  

As the situation develops and financial results of the banks see the daylight more mergers and acquisitions can be expected.

Liquidity in the world markets and the ease of borrowing at affordable interest rates will determine whether a bank can withstand on its own. And the risk of raising local interest rates which would put it out of the market is a fear that will haunt the weaker banks. It is a tricky situation. Better to merge while the going is still strong or face a Bear Stearns.

Regulators have a limited role.They can police the law and enact  stricter laws post a crisis but can't prevent a crisis. It is like, police can't prevent an accident from happening but can keep warning. But the regulators have  to be alert to pick up signals at early stages then a larger crisis can be averted. In the case of subprime crisis had the regulators not blinked when bankers were waiving norms to pick business and rapped the knuckles of the erring banks then and there this crisis would have been manageable. But hindsight is no substitute to foresight. That is what determines a great regulator.

But this crisis had to happen for the good of the financial industry. It will create an opportunity for better legislation just as the 1929 stock market crisis. This will pave the way for consolidation among the banks and good banks that turned bad but still have potential will be absorbed by stronger banks.

2010 will be the year of consolidation and a clearer picture should emerge by then and possibly see the end of the crisis, subject of course to force majeur clause.

Implications: 1. Stock market takes over microfinance. 2. Microfinance moves from donor to investor.

Analysis: The concept first enlightened by Adam Smith has now taken hold of the microlending.The small and the poor borrowers have now not only to work for themselves to earn a living but also to work for the investors or the multitude owners of the Microfinance Institution (MFI). This will turn them into money making machines.

Instead of living on the charity of the donors micro borrowers will now depend on the investors and soon for reasons of profit the MFI will be dictated by the Stock market and if not making a profit or 'producing' a dividend it will be turned into a basket case. And the very concept and the purpose of a MFI is defeated.

Again, the group of borrowers putting peer pressure on loan repayment will be driven by a set of KPIs, targets, action plans and the like. A noble concept takes an ugly turn.

Is microfinance solely for profit ? then Stock market is a good answer !

But then should the poor be tagged with MNC motives ? Do not the rich have an obligation towards their disadvantaged brethren ? Has charity lost its value ? Why can't Bill Gates, Warren Buffet and the like look at microfinance. Once the poor become rich more computers can be sold and more sales to Microsoft. Is it such a hard thing ? Perhaps, therein lies Adam Smith's invisible hand/motive.

Going to the stock market may not be a bad idea. But then it may not suit every business. One size doesn't fit all.

What now ? Perhaps MNC banks such as Citi and Deutsche Banks could allocate some funds to run a MFI as a group or individually without charging exhorbitant interest (which they already are into), Or a group of wealthy donors could group together to run a MFI. Satisfaction comes when such borrowers are succesful and the donors can feel contented.

From Microsoft to Microfinance not an unthinkable transition.






 

Implications: Current upswing in the economy is driven by a boom in the resources sector.But chances are events occuring in other areas of the economy could nullify any gains from the resources uptake. 

Analysis: Australia's economy is quite strong and growing, mostly driven by a mining boom due to heavy demand mostly from the resources hungry China and to a little extent from India, Russia and Japan.Most of the budgetary surplus is contributed by the resources sector, which also is the reason for low unemployment figures. But underneath the gloss there are emerging problems :

1. 12 consecutive interest rate rises  has put pressure on household incomes and instrumental in putting many houses on the block.
2. US sub-prime mortgage has started taking its toll on the banks' borrowings and thereby making funds costlier and triggering interest rate hikes .
3. Paucity of trained manpower, putting added pressure on inflation,  wage rates and skills shortage.
4. Australian dollar (AUD) reached a high of 94.98 US cents on Feb 29 '08 and then declining to a low of 90.97 US cents on 19 Mar '08, triggering a fear that the local economy will slow at a greater rate than is currently forecast.
5. A stronger currency is putting pressure on exports, imports and tourism. Tourists are finding it tough to tour Australia as it is no longer viable and therefore are flocking to other countries. 
6. Current price spurt in petrol is putting pressure on consumer household budget in addition to interest rate hikes.
7. Australian equity market which reached record highs in October has declined in line with the global markets, putting pressure on the AUD.
8. AUD is tipped to fall to 0.85 US cents in the next 2 months on the back of a decline in commodities and equities.
9. There are fears Japanese economy may follow US economy into recession with the slide in the business mood due to pessimism about Japanese business conditions, and when that happens it is going to add to the woes of the Australian economy as well as other economies of the world.

But all is not doom and gloom. The new (current) government appears to be keen on improving the economy and there may not be another interest rate hike in the immediate future.But more specific measures need to be taken and the economy must not rely solely on the mining industries for surpluses. More opportunities should be created within the economy for industires from other sectors to offset excessive reliance on the resources sector.

However, it is not all bearish for the Australian economy, it is a long term story with a strong plot.




  






 

Implications: 1. Stepping in by two of the market's biggest players viz., the Fed and JPM is a signal to the investors that they would not be left in the lurch and shall not be left alone to fend for themselves. 2. Right price is always a relative term.

Analysis: The move by the Fed and JPM should instill much needed confidence in the investors. Though, Lewis and Cayne may disagree with the price that is on offer and the billion dollar question is, will the Fed pump in USD 30 billion with any other partner ? If not, then this could be a better deal. But hindsight is not an existing (current) decision making tool. There is no immediate need for a Nostradamus to predict the future of the stock market. It usually gets worse before it starts getting better.It might be one year before a clear picture starts emerging, by then many more skeletons will tumble out of the stock market cupboard.

The price being paid is based on the prevailng conditions and maybe if the market improves in the medium term, the situation could change for the better.For now, JPM has applied the theory of probability and which side the coin falls is anybody's guess. Bear Stearns earned a revenue of about USD 6 billion for the year ended November 30. That means the company retains some value.  

Having said that, only a full assessment and a careful due diligence of the books of Bear Stearns will reveal a true picture and until then foresight of Dimon should not be spoken in past tense.

Implications: The takeover by JPM will set in motion many more mergers and acquisitions.It will be a trend setter in the sense stronger firms will take courage and come forward to acquire weaker firms. The deal will act as a benchmark.

Analysis: A time was when the mighty Bear had a bull run. The Bear hug was a sure sign to prosperity. A Bear that withstood the Great Depression has been struck down by a credit crisis of the sub-prime variety. A generation later this sub-prime crisis will be be talked about as the 'Great Sub-Prime Pit', the bottom of which is still elusive.

With the price Bear Stearns has commanded (?), it appears those sub-prime mortgages were against houses of cards. The investors have been taken for a ride. Investors confidence has been shaken like never before.   

One silver lining though is the Fed's rescue act and JPM's guts. Investors can breathe easy - just. But there is hope for other such firms. Some of the firms may turn out to be great bargains. Stronger firms should move in now, as there are good firms which need a trunaround. But careful due diligence is a must as hidden dragons can catch out a crouching tiger.

But for Bear Stearns the cigar gets butted.

And JP Morgan acquires a new role - Knight in a shining Armour.

There is a lesson in all this - Look before you Invest.

Implications: 1.Tax cuts for people in financially good shape. 2. A knee-jerk reaction to limit a possible economic recession.

Analysis:  The goal of a stimulus plan should be to support overall spending so as to avert or limit the depth of a recession. If the money that Government disburses doesn’t get spent i.e. sits in people’s bank accounts or used to pay off debt then the plan has failed in its objective. Bulk of the money appears to go out in the form of tax cuts/rebates to the financially well off to whom the money may not be much and idle in their bank accounts. But on the other hand if the money was disbursed to people in real need, that could have stimulated the economy in the form of consumer spending, alleviate their hardship and would have been a laudable social objective. But in an election year it is the affluent ( read decision makers) who contribute to the coffers of the party.  

A weakening economy, currently being lashed by a sub-prime cyclone and facing a possible recession, is in dire need of a stimulant to rejuvenate and reinvigorate. The usual response – interest rate cuts by the Federal Reserve won’t be sufficient to turn the economy around. What is needed is a fresh bout of free spending to drive an economy currently a prime example of Sir Issac Newton’s first law of motion.  

Unemployment insurance and food stamps, may not seem as glamorous as tax cuts and rebates but then an economy weathering a sub-prime storm and a population losing homes by the day, some money to temporarily alleviate their hardship in their moment of crisis ( a sort of rescue package) should be the social objective of any Government, till a time when the economy is able to generate employment. A Government is of the people, by the people and for the people and not a commercial venture or for a select section of the society. 

The current stimulus package is cosmetic and may at best cause a tiny ripple in the vast economy and in the end the benefits may not be felt and the measure at best short term. More real efforts are needed in the right direction to create an impact and stimulate the economy.   

Implications: 1. Australian banks have little exposure to US sub-prime mortgages. 2. Turmoil in financial markets has had no immediate impact on the credit ratings of Australian Banks.

Analysis: Last couple of years saw the Americans busy planting time bombs in the balance sheets of financial institutions all over the world, in the shape of sub-prime mortgages.That is why there is a periodic felling of a financial institution somewhere in the world creating panic seizures and tremors. 

Australian banks acted early to boost their liquid assets and raise market funds where available and demonstrated a willingness and ability to continue to acquire wholesale funding. Added to that the Reserve Bank of Australia (RBA) ensured that liquidity in the banking system remained sufficient and financial institutions were willing to finance each other.However,

1. Australian banks have not really engaged in lending to the credit-impaired.
2. Higher loan-to-value mortgages are insured as a result of regulatory capital incentives.

It is not to say there haven't been any problems. Problems gripped the Australian hedge fund Basis Capital mid last year. Recently,shopping mall owner Centro Properties was levelled by the sub-prime tsunami and is facing a countdown. But the exposure has been negligible.

Due to the complexity of securitisation structures and sometimes limited disclosure, it has been difficult to know which financial institutions have had exposures to risky sub-prime mortgages and how much, until of course, it is too late.

In current scenario, Australia's larger banks stand to gain because,

1. their large balance sheet
2. better access to unsecured funding and 
3. the potential for lower capital requirements under Basel II as Advanced Internal Ratings Based banks, relative to smaller institutions which will adopt the standardised approach.  

The flow on effect would be a healthy correction in the credit markets  as the sub-prime show is still going on and it could get a little worse before it gets better.

Implications: 1.There is a wide interest among consumers for mobile banking services not only in India but also world wide. 2. ATMs have been used by banks not only to expand their reach to customers but also to offer value-added services.

Analysis: Indian banking sector has made a quantum leap forward in terms of switching over from paper-based transactions to electronic means. More people in India are now moving towards using ATM for their banking needs. ATMs are now seen to be more than cash dispensing machines. Customers use ATMs to recharge their mobile phone pre-paid connections, pay their utility bills, even mutual fund transactions-making them on par with internet banking-only more secure.  

Technology and the liberalisation of financial markets are driving structural changes in Indian banking sector. Significant advances in technology are enabling people to move beyond cash and even cheques as a mode of payment. According to latest Reserve Bank of India data, almost 75% of total transactions (in value terms) in 2006-07 were in electronic format as compared to about 30% three years ago.  

With the branch automation pushing transactions out of banks to more cost-effective channels and increasing focus on retail product sales, there is a necessity to design products to suit the needs and requirements of relevant target customers. Mobile banking has transcended from a purely technology-driven product to a business-focussed customer service. It provides a sizable opportunity for banks to offer value added, innovative services and attract new customers from technology savvy financially affluent sections of the society.  

Time seems to be ripe to convert this customer interest into business – driving customer demand.