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A Republican rebellion stalled government efforts on Thursday to avoid economic meltdown, a chaotic turnaround that disrupted the choreography of an extraordinary White House meeting meant to show joint resolve from the president, the political parties and the presidential candidates. Instead, the summit broke up so bitterly that Treasury Secretary Henry Paulson got on one knee before Democratic leaders in a theatrical attempt to salvage talks.
After six days of bare-knuckled negotiations on the $700 billion financial industry bailout proposed by the Bush administration, with Wall Street tottering and presidential politics intruding six weeks before the election, there was far more confusion than clarity.
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NEW YORK: US corporate bankruptcies have soared this year and more are on the way, highlighting a historic and pivotal year for those in the restructuring industry.
Virtually no segment of the US economy has been safe from a rolling tide of job losses, stock market declines and home foreclosures that have knocked a range of industries to their knees.
“We are certainly seeing more companies, particularly among insurance and financial institutions, going through unprecedented times fighting for survival,” said Randall Eisenberg, senior managing director for restructuring advisor FTI Consulting.
Companies in more industries than ever are finding themselves in distress, ranging from retailers, home builders and restaurants, to financial firms, transportation providers and energy companies. But at the same time, the turmoil has created unprecedented opportunities for distressed or vulture investors , and those attorneys, consultants and other experts who help companies sort out their problems.
“There are all of these (private equity investors) getting into the business, by buying and rolling up these industries that are in trouble,” said Sheila Smith, head of reorganization at Deloitte Financial Advisory Services.
Government bailouts and increasingly large bankruptcies are starting to rewrite the rules for overseeing corporate collapses. Nothing serves to highlight the shift more than the rapid and unexpected downfall of some of the country\\`s most powerful firms, including Lehman Brothers Holdings 7 billion bankruptcy filing this week.
“The Lehman Brothers bankruptcy is taking the restructuring industry into uncharted waters,” said David Pauker, a managing director with restructuring advisor Goldin Associates.
“Much of the learning and experience that derives from earlier failures of large financial firms—Drexel (Burnham Lambert), Refco, Enron—will be revisited and revised.”
The number of US businesses filing for bankruptcy has soared 42% from a year ago, according to the Administrative Office for US Courts.
Already this year, more public companies have filed for Chapter 11 and Chapter 7 bankruptcy than during all of 2007, according to BankruptcyData.com.
The credit crisis has also complicated things for struggling companies, by hurting their ability to refinance their debts or even gain financing to exit bankruptcy protection. Auto parts maker Delphi Corp, for example, has been struggling to get financing to exit bankruptcy protection for most of the year.
And as market fright intensifies , it becomes more likely other firms will fail or be forced to sell themselves.
“Equity markets and other segments of the credit markets continue to crater, raising fears of systemic risk,” Diane Vazza , head of ratings agency Standard & Poor’s global fixed income group, wrote in a note to clients. Vazza will be among the specialists to address Reuters reporters and editors at its Restructuring Summit.
While a global credit crunch has slammed financial firms, higher energy prices have sent regional airlines such as Denver-based Frontier Airlines Holdings into bankruptcy court.
v.krishnamoorthy...
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IN 1998 Goldman Sachs was looking for help in bailing out Long-Term Capital Management, a sickly hedge fund to which it was exposed. It sought a contribution from Warren Buffett. But the Oracle of Omaha was on holiday (with Bill Gates, of course) and as the deadline approached his boat drifted out of mobile-phone range. This time there were no communication problems. Mr Buffett has answered Goldman’s latest call with a $5 billion infusion from his cash pile.
Goldman could not have wished for a more credible vote of confidence, albeit at a steep price: Mr Buffett’s holding company will receive $500m a year in dividend payments on its preferred stock. Mr Buffett knows from experience that it pays to negotiate hard with investment bankers. His only previous foray on Wall Street, a $700m bet on Salomon Brothers, went badly awry, though it eventually turned a profit.
He is, he says, betting “on brains”—and, implicitly, that Goldman’s profits will not be hit too hard by becoming a regulated bank. Some also see the move as a vote of confidence in financial firms, which Mr Buffett has thus far avoided in this crisis, preferring the relative calm of energy, railroads and chewing gum.
That may be hoping for too much. Mr Buffett made clear that he considers Goldman’s management a cut above. And he drew a contrast between its cautious valuation of illiquid assets and more “fanciful” marks at some other firms. Moreover, for all his hardheadedness he has a soft spot for Goldman, having befriended its one-time boss, Sidney Weinberg, as a young man and stayed close to the firm ever since
In any case, Mr Buffett’s skill lies more in picking undervalued stocks with strong brands than in timing market bottoms—indeed, he bought into Salomon only weeks before the 1987 crash. Even when it comes to individual holdings, he is not flawless. He held Moody’s, a rating agency, for too long.
Still, it is heartening that such a shrewd investor is beginning to spy opportunities in the rubble of a crisis he has dubbed “an economic Pearl Harbour.” He confirmed this week what must already have been obvious: that he has been approached by almost every big financial institution in recent months. After Goldman, he can expect the phone to ring off the hook.
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Following are some of the key events in the biggest financial industry crisis since the Great Depression.
* Jan 11, 2008: Bank of America pays $4 billion for Countrywide Financial after the mortgage lender goes bust when risky loans to shaky borrowers fail.
* Jan 30: UBS announces $4 billion new write-downs, taking total subprime-related writedowns to $18.4 billion.
* Feb 17: UK\'s Northern Rock nationalised after funding crisis.
* March 16/17: Bear Stearns sold to US investment bank JP Morgan Chase for about $2 a share.
* July 13: US Treasury and Federal Reserve effectively nationalise mortgage finance companies Fannie Mae and Freddie Mac in a bid to support US housing market.
* Sept 15: Wall Street\'s worst day since markets reopened after the September 2001 attacks; Lehman Brothers in largest US bankruptcy; Merrill Lynch taken over by Bank of America; American International Group, once the world\'s top insurer, scrambles for capital because of losses on its mortgage-related debt.
* Sept 16: Central banks pump billions of dollars into money markets in a bid to ease tensions and prevent global financial system from freezing: AIG shares almost halve. Fed announces plan for $85 billion AIG rescue loan in return for 80 percent stake; Britain\'s Barclays buys parts of Lehman\'s North American assets for $1.75 billion.
* Sept 17: Shares in Goldman Sachs and Morgan Stanley fall sharply; Britain\'s Lloyds TSB buys rival HBOS US Securities and Exchange Commission (SEC) curbs short-selling.
* Sept 19: World stock markets soar on US plans to buy up so-called toxic assets, helping cleanse the financial system.
* Sept 20-21: Details emerge of US plan for $700 billion bailout for firms burdened by bad mortgage debt; Goldman Sachs, Morgan Stanley transformed into bank holding companies, ending Wall Street\'s investment banking model.
* Sept 22: Japan\'s Nomura Holdings buys Lehman\'s Asia operations for up to $525 million. Later, Nomura pays a nominal sum for Lehman\'s Europe and Middle East operations; Mitsubishi UFJ Financial agrees to buy up to 20 percent of Morgan Stanley for $8.5 billion.
* Sept 23: Warren Buffett pays $5 billion for up to 9 percent of Goldman Sachs; FBI probes Fannie, Freddie, AIG and Lehman for potential mortgage fraud.
* Sept 24: In nationwide broadcast, US President George W. Bush warns that financial system at risk of shutting down. Urges agreement on $700 billion bailout.
* Sept 25: Biggest US bank failure as authorities close Washington Mutual and sell parts to JPMorgan
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Deadlocked talks on a bailout of the US financial system and the collapse of Washington Mutual bank sparked new falls on global markets on Friday despite the injection of tens of billions of dollars by central banks.
Democrats accused Republican White House contender John McCain of sabotaging a $700 billion rescue package, which President George W. Bush has said is crucially needed to save the US economy from a prolonged recession.
Pressure on markets increased with the collapse of Washington Mutal, the biggest US bank failure, which was taken over by JPMorgan Chase for 1.9 billion dollars.
Washington Mutual\'s shares have fallen 85 percent this year and Standard and Poor\'s credit ratings agency recently estimated it had some 14.4 billion dollars in debt.
Key stock markets fell because of doubts about the US rescue package and the collapse. Tokyo\'s benchmark Nikkei-225 index closed down almost one percent.
Shortly after the open, London\'s FTSE 100 index and the Paris CAC 40 were both down 1.71 percent. Frankfurt\'s DAX 30 lost 1.46 percent.
US shares had rallied on Thursday amid hopes for a rescue deal, but before talks broke down. The Dow Jones Industrial Average rallied 1.82 percent and the Nasdaq composite jumped 1.43 percent.
With hopes dented, the US Federal Reserve and central banks in Europe and Asia pumped tens of billions more dollars into money markets which analysts say are under extreme tension, and to shore up general market sentiment.
The European Central Bank and the British and Swiss central banks used reciprocal currency arrangements to inject 13 billion dollars.
The Bank of Japan pumped a total of 1.5 trillion yen (14 billion dollars) into the Tokyo money market. South Korea announced plans to pump at least 10 billion dollars into the foreign exchange swap market to ease dollar shortages.
Hundreds of billions of dollars have been used to stabilise markets since the collapse of Lehman Brothers and the forced takeovers of American Insurance Group and Merrill Lynch in the deepening sub-prime crisis.
President Bush met McCain and Democratic presidential contender Barack Obama as well as top Democratic and Republican lawmakers at the White House, but failed to clinch a deal.
\"We are in a serious economic crisis in the country, if we don\'t pass a piece of legislation,\" said the president.
Senior lawmakers had announced the outlines of a deal to rescue Wall Street, but some Republicans dragged their feet.
Democrats called for limits on pay for executives whose companies get rescued under the government deal. And they said that any deal must include strict oversight by federal regulators.
After the White House meeting, Senator Harry Reid, leader of the Democratic majority, held new late-night discussions with Treasury Secretary Henry Paulson and Federal Reserve chief Ben Bernanke.
These also broke off without an accord and were to reconvene Friday.
Democrats said that McCain\\\'s intervention only made the negotiations more difficult.
McCain \"only hurt the process,\" Reid told a joint news conference with Senate banking committee chairman Christopher Dodd.
Barney Frank, the Democratic chair of the House of Representatives financial services committee, said: \"I think this was a campaign ploy for Senator McCain.\"
The crisis has sparked mounting international political concern.
Germany\'s Finance Minister Peer Steinbrueck warned that \"the United States will lose its superpower status in the global financial system\" as a result of the crisis that has humbled some of the greatest names in US finance.
French President Nicolas Sarkozy called for an overhaul of the world\'s financial system and warned that the global financial crisis would hit French growth and jobs.
\"The crisis is not over, it will have lasting consequences. France is too involved in the world economy for us to think for one second it could be sheltered from the events currently rocking the world,\" he said.
UN Secretary General Ban Ki-moon said the crisis now threatened the world\'s most vulnerable populations as well.
\"The current financial crisis threatens the well-being of billions of people, none more so than the poorest of the poor,\" he said.
On top of the Washington Mutual collapse, the finance world was also hit by news that banking giant HSBC is to cut 1,100 jobs worldwide.
Around half of those losing their jobs would be in HSBC\'s British operations, Hong Kong-based spokesman Gareth Hewett said.
\"The steps we have taken today are in the light of the current global business and economic environment and our cautious outlook for 2009,\" he said in a statement.
agencies & et courtesy
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Insurance regulator IRDA today said it will give “reasonable time” to Life Insurance Corp to bring down its stake in various companies to 10%.
“We do not want forced sale by LIC so that it gets lower returns. We want to give reasonable time so that transition is smooth,” IRDA member R Kannan told reporters here.
The regulator is in correspondence with the LIC and IRDA will definitely give due consideration, he said.
The statement assumes significance in the wake of the investment guidelines issued by the Insurance Regulatory and Development Authority (IRDA) last month that prohibits an insurer from investing more than 10% in a company.
Prominent companies in which LIC holds over 10% include Corporation Bank, Cipla, M&M, Maruti Suzuki, MTNL, Tata Motors, HPCL, Ranbaxy Labs, Oriental Bank, Dr Reddy’s Labs, Tata Steel and Reliance Infra.
The insurer has invested more than Rs1.3 lakh crore in equities of different private and public sector companies.
On risk-based capital, he said the roadmap would evolve by March 2009.
When the world is moving towards Solvency II there is need for the Indian insurance sector to adopt to new capital risk norms, he said.
The solvancy margin prescribed today are very adequate, he said, adding Indian insurers have no external investments so there is no cause of worry.
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With economy growing in a rapid pace and stock markets rising sharply in 2007, India saw the fastest growth in the number of high networth individuals (HNI) worldwide and their combined wealth touched a $440 billion, said a Merrill Lynch (ML) and Capgemini report.
\"The growth in India\'s HNI population was the fastest worldwide at 22.7% over the number in 2006, said the third annual Asia-Pacific Wealth Report. The number of millionaires in India grew to 1.23 lakh at the end of 2007, it said and added that a majority of them were from the rich entrepreneur segment
The combined wealth of India\'s HNIs jumped 25.7 % to $440 billion in 2007. HNIs are individuals with more than $1 million in net assets, excluding their primary residence and consumables, the report said. It noted that Indian HNIs allocated 36% of their assets to equities and the rest in other assets like real estate.
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The BSE Sensex extended losses to 3 percent on Friday afternoon, tracking a sell-off in overseas markets after the U.S. government\'s $700 billion bank bailout plan stalled. Reliance Industries led the slide. ...
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There are many myths in investment management… let us break some of them:
Buy low and sell high: Such a simple statement to make, and impossible to do in real life. Buy cheap and sell dear. People would like to think this is easy to do, but remember whether a share is high or low is something you know only in retrospect. For e.g. if you buy HDFC today at say Rs 2400, Six months later if the price is, say Rs 3000 and you sell it, you would be right. However if you buy it today at Rs 2400 and 6 months later it is at 2100, you would be wrong. So it is a nice maxim which is easy to espouse, but difficult to do.
Have greed when others have fear, and have fear when others have greed: A very good, brilliant saying again difficult to implement. When the index was 6000, there was a program on one of the Television channels. The 3 speakers were Comrade Raja, Shankar Sharma, and Rakesh Jhunjhunwala. Rakesh said people should not keep their money in savings bank account but put it in the share market. Raja was of course on a spiel about how Americans are here to corrupt (Oh completely as an aside did we hear any Comrade complain about Russia in Georgia?) us etc. Shankar Sharma told Rakesh ``Aha, now that the market has reached 6000, you want the common man to lose money? `` and put RJ on the defensive. However what happened to the market after that is well known! So to be fearful when others are greedy and greedy when others are fearful is nice to say, difficult to implement.
As life goes on…we will break some more myths....
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India\'s fertiliser subsidy in the current year is likely to rise to 1.25 trln rupees from the budgeted estimate of 310 bln rupees.
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SEBI is finalising a detailed approach paper to review participatory note regime in India. (ET)
SEBI has decided to extend the 'Applications Supported by Blocked Amount' facility to rights issues. (BL)
Narayan Ramachandran, managing director and country head, Morgan Stanley, says Indian stock market has nearly bottomed out and is likely to bounce back from the current level
Dipen Shah, vice-president, research, Kotak Securities expects capital goods and engineering companies to spring a "positive surprise" in their Jul-Sep earnings
-news wire...
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Washington Mutual Closed By The U.S. Government; Banking Assets Sold To JPMorgan Chase & Co For $1.9 Billion...
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Outsiders’ could get rights to Tata, Hindalco----------------------MUMBAI: Want to buy shares under a rights entitlement without holding a single share? Well, it’s quite possible in the current market, provided the issue is heavily underwritten.
Institutional investors and high net worth investors (HNIs) may be looking to have a pie in the huge underwritten portion in the right offerings of Tata Motors and Hindalco Industries, if merchant bankers are to be believed.
Given the strong fundamentals of the two companies, it is expected that the offers may sail through but bankers do not rule out a situation where the promoters or the underwriters would be contributing their own funds towards the unsubscribed portion. If such a situation arises, outside investors are likely to join the underwriters to participate in the underwriting commitments, which would give the former an opportunity to buy shares at a discount to the market price, say bankers.
According to sources, JM Financial is understood to have tied up with outside investors to bail out the Tata Motors rights issue if it is not fully subscribed.
The auto major is planning to raise Rs 1,960 crore through a differential voting right issue, 67% of which (Rs 1,300 crore) would be underwritten by the lead manager JM Financial. The Tatas would subscribe to the remaining 33%. There will be a simultaneous issue of ordinary shares worth Rs 2,185 crore which, however, is not underwritten.
Sources attribute JM Financial’s heavy underwriting commitment to its confidence that investors would respond positively to the Tata Motors offer.
Sources also said Tata Motors investors had earned good returns when the company floated a rights issue in September 2001 amid depressed market conditions and declining profitability. According to sources, the investors who subscribed to the issue then had earned returns of 53% compared to Sensex’s gain of 12.4% in three months after the completion of the rights issue.
In the past, many companies successfully raised funds through IPO or rights issues without taking help of underwriters, thanks to extremely bullish market conditions. However, with the market turning choppy since January this year, companies do not want to take any chance and are entering into an underwriting arrangement, say bankers.
“If a rights issue is subscribed below 90% of the size, the underwriter makes its own contribution or ropes in other investors to fill the shortfall,” said K Srinivas, MD, Saffron Capital Advisors, a Mumbai-based merchant banker. The underwriting arrangement gives an opportunity to large investors like mutual funds and HNIs to buy shares in bulk which may not be possible in the open market, he says.
Hindalco has also entered into an underwriting arrangement for the 40% of the Rs 5,000-crore offer, while the promoters would subscribe to 50% of it. The issue opened for subscription on September 22 and will close on October 10. The company officials could not be reached for comments as the issue is on.
While Tata Motors and Hindalco had announced rights at a sharp discount to the prevailing market prices, the discount has narrowed amid a sharp fall in shares over the past few weeks. Tata Motors is currently quoting at Rs 384 against the offer price of Rs 305 for DVR shares and Rs 340 for ordinary shares. The stock has fallen 11.5% in the past one month. Down 23% in one month, Hindalco is now quoting at Rs 104 against the offer price of Rs 96 per share.
ET.......................
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The European Union, India, France and South Korea yesterday joined the countries and regions imposing restrictions on Chinese milk or dairy-related products, amid signs the toxic milk scandal has provoked a global crisis of confidence in the quality of Chinese exports.
China exported small quantities of dairy and dairy-related products, mostly to other Asian countries, food industry analysts said.
However, the quality crisis in China\'s dairy industry - where milk powder contaminated with the industrial chemical melamine is blamed for putting 13,000 infants in hospital - could affect industries with a much larger export value, analysts said.
The European Commission yesterday proposed testing 100 per cent of products from China containing more than 15 per cent milk powder, and banning all products for children and young people containing any milk.
India said it would ban Chinese milk and milk products, South Korea said it would halt imports of Chinese-made foods containing powdered milk and France barred all food items containing Chinese milk. Some 25 countries have imposed recalls, bans or issued warnings about the threat from Chinese dairy-related products.
Yesterday Taiwan\'s health minister also fell victim to the crisis, announcing he would resign after a public outcry followed news that his government would allow the sale of Chinese milk products with low levels of melamine.
courtesy FT
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sept.expiry ended on weaker note-yet-if foreign cues gives any indication=it appears Sensex and Nifty will have wide gap up opening and will continue to show strength despite i-d hicups-not big jolts-any wayNifty 4170+86+92-93++4223 and then retreat before 1.30pm to probably 4105/4074/4056 but will surely close above 4170 in the end=-this is for SPOT=FUTURES- 4180+ to 4202/26 up gives way for smart up-move 4333 and 4360 + will be week-s hi before next Friday the 3rd october=SENSEX too will follow -up a bit faster and rather bigger jump-down too-=13741/=794 to 814-17 pause= and probable jump on 13918 touch-go situation-seller-s domain=probility of a bit down in second session-later stage 13527/426/369=buying spree==morning session may close 13693+ where 13571/32/19 seems strong Resistance level= i-d hi of 13841 would mean for next Monday hi-level of 13978 in the first session only= altho danger lurks of huge sell off by FII-s at these levels= -Friday i-d lo of 13544 will induce buying =1st reaching 13593=675 in second session= for extending further gains-preperation of 3/10 closing ain range btwn 13918-934 and reachable target by 10/10 likely to be 14003/043/049=where tremendous selling pressure will mount for a dip around 13817=NIFTY 4003+ low around 4003+ pave way for=next week 4201//229/246/263/292=STRONG RESISTACE SELL OFF...
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Asian markets trading lower
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Asian markets were trading lower. China's Shanghai Composite was down 0.12% or 2.85 points at 2,294.64. Hong Kong's Hang Seng fell 0.99% or 187.27 points at 18,747.16. South Korea's Seoul Composite plunged 1.55% or 23.34 points at 1,478.29. Taiwan's Taiwan Weighted tumbled 2.19% or 132.56 points at 5,928.27. 
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