Citi could face up to $3 billion in Lehman claims

Citigroup Inc could face up to $3 billion in claims from the bankruptcy proceedings of Lehman Brothers Holdings Inc , the third largest U.S. bank by assets said in a regulatory filing on Friday.

The trustee for Lehman under the Securities Investor Protection Act may seek to recover $1 billion that Citigroup took for clearing obligations for Lehman's broker-dealer subsidiary, the bank said in its annual report.

Lehman could also try to recover a $2 billion deposit it made with Citigroup in June 2008, before its collapse, the filing said.

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Australia : ACCC To Review Woolworths Acquisition Of Cellarmasters

THE competition regulator will review the acquisition of Cellarmasters by supermarket chain Woolworths, said the ACCC .

Woolies chief Michael Luscombe is confident the Australian Competition and Consumer Commission will wave the deal through given Cellarmasters’ different operations.

When asked by media today if he expected any issues with the competition regulator, he said: “We are confident that we have bought a business that operates a totally separate channel to those we currently own.”

Woolies and its rival Coles already own a fair slice of the grog market.

The ACCC this morning confirmed it will investigate the deal and begin its review once it receives additional information from the parties.

Complete news.

India : Need Regulations that Facilitate Overseas Acquisitions

The Confederation of Indian Industry (CII) has submitted a memorandum to the Department of Industrial Policy and Promotion, Government of India listing various factors that restrict the framework for overseas acquisitions by Indian companies. 

CII believes that the future growth of Indian companies will be influenced by the share that they can garner in the world market. Not only do the country’s productive capacities need to be boosted, Indian companies also need to enhance their competitive strength and upgrade their global outreach.

In a memorandum to the Department of Industrial Policy and Promotion, CII has submitted that the growth of the Indian multinational is severely restricted by the regulatory framework for cross border transactions,

CII has highlighted that the process of mergers and acquisitions under the existing Companies Act is a long court-driven process. It does not allow for contractual mergers (i.e., without court intervention) or merger of an Indian company into a foreign company.

A provision is proposed in the Companies Bill 2009 that would restrict the number of step down subsidiaries. This would be a major impediment towards overseas acquisitions by Indian companies. Very often the foreign company to be acquired already has more than one level of subsidiaries and for effecting the acquisition, the Indian company may need to create a SPV which could be a subsidiary of a subsidiary. However, if the Companies Bill is enacted with this restriction, it would prove to be a major hurdle for aspiring Indian companies, which are planning overseas acquisitions.

Read more about CII News Update.

BHP Billiton buys US Shale Gas Assets

BHP Billiton has made its first move into the US shale gas business with the acquisition of producing assets from Chesapeake Energy Corp for $US4.75 billion cash, in its first deal since a series of failed major deals.

In a relatively small acquisition for the world’s biggest diversified miner, BHP today said its Petroleum division would buy 487,000 net acres of leasehold and producing natural gas properties in the Fayetteville Shale play in central Arkansas.

BHP also said it would immediately commence the off-market portion of its increased $US10bn share buyback program, unveiled last week when the miner reported a record first-half net profit of $US10.7bn.

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India : Business Correspondents

In 2006, the Reserve Bank of India allowed banks to use non-bank intermediaries as business correspondents, or business facilitators, to extend banking and other financial services to areas where the banks did not have a brick and mortar branch present. The objective behind it was to aid the process of financial inclusion and consequently take banking to the remotest areas of the country and make them bankable.

The business correspondent is nothing but a bank-in-person, who is authorised to collect deposits and extend credit on behalf of the bank of small-ticket sizes. He also recovers principal interest of small value deposits, sale of micro insurance, mutual fund products, pension products, receipt and delivery of small value remittances/other payment instruments.

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Coercive Social Responsibility

The Parliamentary Standing Committee on Finance has proposed mandatory corporate social responsibility (CSR) by companies as part of changes to the Companies Bill, 2009.

It says every company having a net worth of 500 crore or more, or a turnover of 1,000 crore or more, or a net profit of 5 crore or more, during a year shall be required to spend every year at least 2% of the company's average net profit during the three immediately-preceding financial years, on CSR activities of the company's choosing.

If a company does not have adequate profit or is not in a position to spend the prescribed amount on CSR, the directors of such company are required to make a disclosure and give suitable reasons in their annual report, with a view to checking non-compliance.

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U.S. : Proposal For Entry Fee On Canadians

President Barack Obama's proposal to charge an entry fee from Canadians entering the US has infuriated political and business leaders in this country.

In his proposal in the 2012 draft budget submitted to the US Congress Monday, Obama has proposed a 'passenger inspection fee' of $5.50 for Canadian entering the US to raise millions of dollars annually. An estimated 16 million Canadians flew to the US in 2009. If each was levied the $5.50 entry tax, the US exchequer would make well over $90 million, according to the Canadian Press.

Currently, visitors from Canada, Mexico and some Caribbean countries are exempted from paying entry fee to the US authorities.

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UK: First Company Convicted Of Corporate Manslaughter

Cotswold Geotechnical Holdings has  become the first company to be convicted of the new offence of corporate manslaughter under the Corporate Manslaughter and Corporate Homicide Act (2007).

For further information about the case see here.

India: New Reporting System For Mutual Funds

SEBI has proposed a new reporting system for mutual funds based on XBRL technology -- a globally accepted standardised business reporting tool that enables easy dissection of bulk documents without delay.

The Securities and Exchange Board of India (SEBI), which regulates fund houses, has issued a draft structure of the proposed XBRL (eXtensible Business Reporting Language) system for all the regulatory filings to be made by mutual funds.

XBRL technology enables the computers read and divide the information provided in the filings under various heads and thus makes it easy to find any relevant details and to identify any irregularities.

 

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U,S. : Chevron to pay $8 billion

A court in Ecuador's Amazon jungle has ordered Chevron to pay $8 billion in a closely-watched environmental lawsuit, but the U.S. oil company rejected the ruling as "illegitimate".

The highly controversial case has triggered related legal action in U.S. courts and international arbitration and is being monitored by the oil industry for precedents that could lead to other large claims.

Complete news.

India: MCA Grants Exemption From Attaching Subsidiary Accounts

Section 212 of the Companies Act, 1956 requires holding companies to attach with its balance sheet, a copy of the balance sheet, profit and loss account etc., of each of its subsidiaries. In recent years, with the globalization of the Indian economy, there has been a large increase in the number of holding companies and subsidiaries.

The Ministry of Corporate Affairs has been receiving a large number of applications seeking exemption from attaching the accounts of subsidiaries under Section 212(8) of the Companies Act, 1956. The matter was examined in the context of the globalizing Indian economy, the increased number of subsidiaries, and the introduction of accounting standards on consolidated financial statements. It has been decided to grant a general exemption provided certain conditions are fulfilled.The Central Government through General Circular No: 2 /2011 hereby directs that provisions of Section 212 shall not apply in relation to subsidiaries of those companies which fulfil the following conditions:-

(i) The Board of Directors of the Company has by resolution given consent for not attaching the balance sheet of the subsidiary concerned;

(ii) The company shall present in the annual report, the consolidated financial statements of holding company and all subsidiaries duly audited by its statutory auditors;

(iii) The consolidated financial statement shall be prepared in strict compliance with applicable Accounting Standards and, where applicable, Listing Agreement as prescribed by the Security and Exchange Board of India;

(iv) The company shall disclose in the consolidated balance sheet the following information in aggregate for each subsidiary including subsidiaries of subsidiaries:- (a) capital (b) reserves (c) total assets (d) total liabilities (e) details of investment (except in case of investment in the subsidiaries) (f) turnover (g) profit before taxation (h) provision for taxation (i) profit after taxation (j) proposed dividend;

(v) The holding company shall undertake in its annual report that annual accounts of the subsidiary companies and the related detailed information shall be made available to shareholders of the holding and subsidiary companies seeking such information at any point of time. The annual accounts of the subsidiary companies shall also be kept for inspection by any shareholders in the head office of the holding company and of the subsidiary companies concerned and a note to the above effect will be included in the annual report of the holding company. The holding company shall furnish a hard copy of details of accounts of subsidiaries to any shareholder on demand;

(vi) The holding as well as subsidiary companies in question shall regularly file such data to the various regulatory and Government authorities as may be required by them;

(vii) The company shall give Indian rupee equivalent of the figures given in foreign currency appearing in the accounts of the subsidiary companies along with exchange rate as on closing day of the financial year.

India : Insider Trading Looms Over Reliance Industries

The Securities and Exchange Board of India or Sebi could levy a record penalty on Reliance Industries (RIL), the country’s largest private sector company, if it is able to establish that the company was involved in insider trading.The regulator can impose a penalty of Rs 25 crore or three times the amount of profit a company made from insider trading, whichever is higher.

RIL made a profit of about Rs 500 crore from the sale of Reliance Petroleum shares. The potential penalty could thus be Rs 1,500 crore. A high penalty is possible because of the magnitude of the profit.

Complete news.

US Job Growth, Inflation Still Too Low

Federal Reserve Chairman Ben Bernanke have suggested US economic conditions are still too weak for the central bank to pull back on its vast monetary stimulus, despite a welcome drop in the jobless rate.

The Fed chief, also warned about the dangers of record US budget deficits. But he indicated sharp spending cuts in the short term could cripple the recovery.

Acknowledging a recent pick-up in the economy, Bernanke said a drop in the jobless rate to 9 per cent in January from 9.8 per cent in November,  was "grounds for optimism."

However, he said hiring is still anemic and noted that the economy has made up just over one million of the more than eight million jobs lost during the recession.

Complete news.

Facebook and Google size up takeover of Twitter

Google Inc and Facebook Inc, plus others, have held low level takeover talks with Twitter that give the Internet sensation a value as high as $10 billion, the Wall Street Journal reported.

In December, Twitter raised $200 million in financing in a deal that valued it at $3.7 billion. The company, which allows users to broadcast 140-character messages to groups of followers, had 175 million users as of September.

The Wall Street Journal reported on its website that executives at Twitter have held "low level" talks with executives at Facebook and Google in recent months about a possible takeover of Twitter.

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Toronto, London Stock Markets Merger

The Canadian TMX group, which owns the Toronto bourse, is in advanced talks with the London Stock Exchange over a possible merger.

TMX said in a statement that it was discussing "a possible merger of equals to create an international exchange leader.

"The merged Group would be co-headquartered in London and Toronto and continue to be overseen by its existing regulatory authorities," the statement added.

The company added the proposal included that "the executive management and senior leadership of the Merged Group will be drawn from a balance of leaders from both organizations."

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India: Tougher Voting Norms On Company Resolutions

Market regulator SEBI is proposing to the government to include a clause in the Companies Bill, which will bar shareholders of a company who have interest in a particular decision of the same company from voting in such special resolutions. The regulator also made ASBA (applications supported by blocked amount) compulsory for all non-retail investors (high-networth), corporate and institutional investors, in any public offer.

Read the press release of SEBI’s board meeting.

AOL to buy Huffington Post

US Internet provider AOL will buy The Huffington Post, a rapidly growing news website with nearly 25 million monthly visitors, for $315 million.

Approximately $300 million will be paid in cash, it said.

The Huffington Post is privately owned, but the proposed transaction is subject to government approvals.

Complete news.

Hackers Penetrate Nasdaq Computers .

Hackers have repeatedly penetrated the computer network of the company that runs the Nasdaq Stock Market during the past year, and federal investigators are trying to identify the perpetrators and their purpose, according to people familiar with the matter.

The exchange's trading platform—the part of the system that executes trades—wasn't compromised, these people said. However, it couldn't be determined which other parts of Nasdaq's computer network were accessed.

Investigators are considering a range of possible motives, including unlawful financial gain, theft of trade secrets and a national-security threat designed to damage the exchange.
The Nasdaq situation has set off alarms within the government because of the exchange's critical role, which officials put right up with power companies and air-traffic-control operations, all part of the nation's basic infrastructure. Other infrastructure components have been compromised in the past, including a case in which hackers planted potentially disruptive software programs in the U.S. electrical grid, according to current and former national-security officials.

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China did not manipulate currency in 2010: US

CHINA did not manipulate its currency to gain an unfair trade advantage in 2010, but progress toward allowing it to appreciate was 'insufficient', the US Treasury said on Friday.

The Treasury said that China, eight other countries and the euro zone were all cleared of accusations that they manipulated exchange rates to their own benefit.

'Based on the resumption of exchange rate flexibility last June and the acceleration of the pace of real bilateral appreciation over the past few months,' China's behaviour did not qualify under the official definition of manipulation, it said in a long-delayed report to Congress.

'Treasury's view, however, is that progress thus far is insufficient and that more rapid progress is needed,' it added, pledging to 'continue to closely monitor the pace of appreciation' of the yuan by China. In addition to China, the Treasury looked at the policies of the euro zone and eight other economies: Brazil, Britain, Canada, Japan, Mexico, South Korea, Switzerland and Taiwan.

'Treasury has concluded that no major trading partner of the United States met the standards' identified by the law 'during the period covered in this report,' it said.

Complete news.

North Africa: Political Unrest Unlikely to Affect Corporate Refinancing

Fitch Ratings says that the political uncertainty in Tunis and Cairo is likely to temper investor appetite for the North African region until concerns about potential further regional contagion and a sense of political stabilisation returns. However, subject to a near-term resolution of the crisis, the agency does not believe that current events in Egypt will widen to the GCC countries. As such, Fitch does not expect this crisis to have a long-term impact on GCC corporates' access to funding.

The North African markets are not heavy users of internationally-sourced debt. Corporate bond and loan maturities in the region are estimated by Fitch to total only USD1.8bn 2011 and USD1.6bn in 2012, based on Dealogic data. These maturities are overwhelmingly concentrated in Egypt. Companies facing international debt maturities in 2011 include the state-owned Egyptian General Petroleum Corp, including both syndicated debt and a future flow transaction by Petroleum Export Limited, and also Al Ezz Rebars. Corporates with sizeable maturities in 2012 include Suez Steel.

Complete report is available at FitchRatings.

Discussion Paper : Presence of Foreign Banks in India

At a time when banks around the world are coping with a wide spectrum of effects of the financial meltdown, from slack economic activity to fresh debt crises, India presents a refreshing contrast, pushing ahead with the expansion of its own financial system. The Reserve Bank of India has released a discussion paper on the enhancement of foreign banks in the country.

In 2005, the Reserve Bank released the “Road map for presence of foreign banks in India” laying out a two track and gradualist approach aimed at increasing the efficiency and stability of the banking sector in India. One track was the consolidation of the domestic banking system, both in private and public sectors, and the second track was the gradual enhancement of foreign banks in a synchronised manner. The Road map was divided into two phases, the first phase spanning the period March 2005 – March 2009, and the second phase beginning after a review of the experience gained in the first phase. However, when the time came to review the experience gained in the first phase, global financial markets were in turmoil and there were uncertainties surrounding the financial strength of banks around the world. At that time it was considered advisable to continue with the current policy and procedures governing the presence of foreign banks in India.
Governor on April 20, 2010, in his Annual Policy Statement for 2010-2011 indicated that while global financial markets have been improving, various international fora have been engaged in setting out policy frameworks incorporating the lessons learnt from the crisis. Furthermore, there was a realisation that as international agreement on cross-border resolution mechanism for internationally active banks was not likely to be reached in the near future; there was considerable merit in subsidiarisation of significant cross-border presence. Apart from easing the resolution process, this would also provide greater regulatory control and comfort to the host jurisdictions.

Accordingly, this discussion paper on the form of presence of foreign banks in India has been prepared taking into account, inter-alia, the lessons learnt from the recent global financial crisis and the practices followed in other countries. Based on the feedback received on the approach outlined in the discussion paper, the Reserve Bank will frame detailed guidelines on the presence of foreign banks in India.

Detailed  Discussion Paper.

USA: Financial Crisis Inquiry Commission Report

The Financial Crisis Inquiry Commission has published its report into the causes of the financial crisis in the USA.

The Financial Crisis Inquiry Commission was created to “examine the causes of the current financial and economic crisis in the United States.” In this report, the Commission presents to the President, the Congress, and the American people the results of its examination and its conclusions as to the causes of the crisis.

The Commission's identified, amongst other things, "widespread failures in financial regulation" and "dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis".

Complete report.

Net Present Value

The net present value (NPV) may be defined as the summation of the present values of the cash proceeds in each year minus the summation of present values of the net cash outflows in each year.

The decision rule for a project under NPV is to accept the project if the NPV is positive and reject if it is negative.

NPV > Zero, Accept the project

NPV < Zero, Reject the project

Zero NPV implies that the firm is indifferent between accepting or rejecting the project.

As a decision criterion, this method can be used to make a choice between mutually exclusive projects. On the basis of NPV method, the various proposals would be ranked in order of the net present values. The project with the highest NPV would be assigned the first rank, followed by others in the descending order.

The most significant advantage of this method is that it recognises the time value of money. It also takes into account the total benefits arising out of the proposal over its life-time. This method is useful for the selection of mutually exclusive projects. This method of asset selection helps in achieving the objective of the maximisation of the shareholders wealth. When the present value exceeds the outlay, that is the NPV >Zero, the return would be higher than expected by the investors. It would, therefore, lead to an increase in share prices and maximising the shareholders wealth.

Sensitivity Analysis

One measure which expresses risk in precise terms is sensitivity analysis. It provides information as to how sensitive the estimated project parameters, such as; the expected cash flow, the discount rate and the project life are to estimation errors.

Sensitivity Analysis takes care of estimation errors by using a number of possible outcomes in evaluating a project. The method adopted under the sensitivity analysis is to evaluate a project using a number of estimated cash flows to provide to the decision maker an insight into the variability of the outcomes. The sensitivity analysis provides different cash flows estimates under three assumptions: the worst (the most pessimistic); the expected (the most likely); and the best (the most optimistic) outcomes associated with the project.