September 21, 2008

life in financial markets: lehman brothers in india....

This post has two parts -- first one is about Lehman Brothers' subsidiaries in India and the second one is a follow-up to my my 17 September post 'Life in financial markets: hypocrties' anthem "privatise gains, socialise risks"

Lehman Brothers Holdings Inc, that declared bankruptcy in the US, is the ultimate parent for almost all its eight Indian subsidiaries – Lehman Brothers Securities Pvt. Ltd (LBS), Lehman Brothers Services Pvt. Ltd, Lehman Brothers Financial Services (India) Pvt. Ltd, Lehman Brothers Structured Finance Services Pvt. Ltd, Lehman Brothers Capital Pvt. Ltd, Lehman Brothers Fixed Income Securities Pvt. Ltd, Lehman Brothers Advisers Pvt. Ltd and Lehman Brothers Corporate Services India Pvt. Ltd. Not all these subsidiaries would be operationally active but those that are would now face difficulties in carrying on operations. Their around 3000 employees are in a panic mode with many of them updating their resumes and sending out to othe prospective employers or recruitment consultants/websites.

LBS, that is a member on the NSE and the BSE as well as a Sebi-registered merchant banker, had to face some reaction from the two exchanges on 16 September. The NSE and the BSE stopped it from trading in derivatives and asked it to make pre-trade deliveries or payments for its sales or purchases in the cash market.

Since the brokerage firm did not have outstanding exposure in its position as a broker it went relatively unscathed. But a look at the company's old financial statements for the period from 2005 to March 2007 reveals interesting stuff. LBS had accumulated net losses of about Rs 54 crore against revenues of only about Rs 6 crore. Its fully-paid up equity capital as at the end of March 2007 was about Rs 222 crore (of 222 million shares of Rs 10 each) which was jacked up to about Rs 786 crore (786 million shares of Rs 10 each) by the end of February 2008 through a capital infusion by Singapore-based Lehman Brothers Investments PTE Ltd. This was done across five instalments – 58 million shares on 25 July 2007, 113 million shares on 17 September 2007, 235 million shares on 15 October 2007, 78 million shares on 31 January 2008, and 77 million shares on 20 February 2008. LBS got membership of BSE and NSE in April 2007 and as a merchant banker was one of the eight lead managers to DLF's IPO around that time itself.

The one good thing about the US markets that is misearbly lacking in Indian and all other markets is the level of transparency. It is high even though it is not great in the US but in the rest of the markets it ranges from low to very low. Another thing is that man American analysts are refreshingly bold in criticising their governments and regulators for doing regressive things. I have got most of my understanding of why the government bailouts in the US or anywhere is regressive from American analysts and commentators themselves. Here, in India, barring an occasional voice or two, most of the analysts and commentators are cowards and support almost every regressive step that finance minister, Chidambaram, or the commerce minister, Kamal Nath (notorious for his devious obsession in pusing for more and more sops for SEZs) RBI or the Sebi takes with regard to the economy or the financial markets.
Here are some examples of some American analysts/commentatos' telling it like it is:
1) After the nationalisation of Fannie Mae and Freddie Mac, CNBC, on 8 September, quotes an investor and fund manager, Jim Rogers, as saying "... America is more communist thatn China is right now. You can see that this welfare of the rich, it is socialism for the rich... its just bailing out financial institutions... This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I'm not quite sure why I or anybody else should be paying for this..."
2) Mike Shedlock, an investment advisor, says openly in his 21 September post that the Bush administration is seeking unreviewable dictatorial power by pressurising Congress to hand over power to him to buy $700 billion worth of in-deep-loss mortgage investments that financial companies are stuck with.
3) The ludicrous ban on short selling by SEC has be ripped apart by many in the US -- Peak Sanity, Peak Sanity--Comments, Short Sellers Targetted, Short Sellers Targetted--Comments, Paulson's Shorting Ban Needs Revisions Already,
Paulson's Shorting Ban Needs Revisions Already--Comments. From the comments sections, here are some interesting ones: (a) "... These are supposedly the bureaucrats that champion the wisdom of the free market and the market's ability to correct itself over time. Now they seem drunk with the taxpayers dime rushing from one billions of dollars fix to the next. All this plus two (and possibly more) land wars in Asia financed with borrowed money. It is nuts." (b) "UNBELIEVABLE! I didn't buy a house when I could have because I believed it to be prudent to wait til the market dropped. I didn't get into debt because I knew we were on our way to the greatest credit crisis the world has ever seen. Because I have been prudent and saved my money and waited to short the Sh*t out of this market, I lose and those that were spending like there was no tomorrow, that took out loans bigger than what they could pay, that levered themselves to the skies....they win! This is not a free market and I am fed up with those running the system and this country!" (c) "... Now Paulson and Bush and Bernancke stand before the country and declare they are taking steps to save the country... including unlimited powers for Paulson, and Congress can't wait to say yes...exactly the way the Iraq war was sold. Just freaking say there anyone with an integrity in Congress...we are of course being sold down the river. No pain, no gain. Let the freaking markets work."

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