Satyam Fallout: India's Young Tech Workers

B. Ramalinga Raju's confession to cooking the books at Satyam Computer Services comes as a shocking disappointment to young Indian tech workers who saw him as a role-model.

How The Fraud of Satyam Began

Satyam (Sanskrit for 'truth') Computer Services Ltd. was founded by B.Ramalinga Raju in 1987. The company offers information technology (IT) services spanning various sectors, and is listed on the New York Stock Exchange and Euronext.

Satyam's network covers 67 countries across six continents. The company employs 52,000 IT professionals across development centers in India, the United States, the United Kingdom, the United Arab Emirates, Canada, Hungary, Singapore, Malaysia, China, Japan, Egypt and Australia. It serves over 654 global companies, 185 of which are Fortune 500 corporations. Satyam has strategic technology and marketing alliances with over 50 companies. Apart from Hyderabad, it has development centers in India at Bangalore, Chennai, Pune, Mumbai, Nagpur, Delhi, Kolkata, Bhubaneswar, and Visakhapatnam.

According to Wikipedia , Mr.Raju stated that:

"What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly (annualised revenue run rate of Rs 11,276 crore in the September quarter of 2008 and official reserves of Rs 8,392 crore). As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. It was like riding a tiger, not knowing how to get off without being eaten.”

In the fiscal year to March 2008, Satyam reported a 46.3 per cent rise in revenue to $2.1 billion under the US accounting standards, while net income rose 39.7 per cent to $417 million.

In October, it said revenue in this fiscal year ending in March 2009 will rise 19-21 percent to $2.55-$2.59 billion. Earlier the company said that it plans to expand its presence in Europe, Asia-Pacific and the Middle East to cut its dependence on the United States.

The news of Satyam acquiring Maytas Infrastructure for $1.6 billion (Rs 7658-crore) sent shockwaves across the country,Many questioned the things behind the deal. There was heavy pressure by share holders and lots of criticisn over governance issues,by this satyam has withdrawn the Offer with in hours of the making of the proposal.But by the time damage was done. The scrip lost over 30 per cent in India.

There was a quick change in plan after investors shown their opposition to the deals by pushing shares in India's No. 4 software services company down 55 per cent in New York Stock Exchange trade. Satyam founder and Chairman B Ramalinga Raju and other insiders hold 36 per cent in Maytas Infra and 35 per cent in Maytas Properties.

Analysts questioned the motives of Satyam's top executives, saying there was a potential conflict of interest because they hold stakes in both companies.

Also questions raised in the minds of analysists like when the market is down and companies are saving their cash to help weather the global economic slowdown , satyam goin for huge aquisision.Ramalinga Raju originally said the deal by saying it would "de-risk" Satyam's core business in IT services.Then immediately came a severe blow to the Hyderabad-based IT provider facing flak from investors on its decision to acquire Maytas' was World Bank banning it for 8 years.

The World Bank has banned Satyam from providing it services for eight years for alleged malpractices, including bribery.The ban will severely impact the business prospects of the Hyderabad-based company, already battling to retain and attract fresh business in a recession-hit global market.

The World Bank debarment has been meted out for "improper benefits to bank staff" and "lack of documentation on invoices.” World Bank information security chief Robert Van Pulley admitted to the ban during a recent meeting with the officials of Government Accountability Project (GAP), a whistleblower protection organisation in the US. The bank has handed over the case to the US Justice Department and the Treasury Department.

Satyam started providing IT services to the World Bank in 2003. Two years later, allegations of bribery surfaced. In 2007, an internal World Bank investigation found that former VP Mohamed Muhsin had secured contracts and purchase orders worth $100 million for the Indian firm in return for Satyam's stock options (ADRs) at preferential prices. After which Muhsin was banned permanently from the bank. However, Satyam was allowed to work for the bank till 2008.

There have also been allegations against Satyam of causing security breaches at the bank. World Bank's records, which contain sensitive financial information, have reportedly been illegally accessed over the last year.

Now the question is , is it really a fraud or a mistake which brought them here or Wrong step taken by satyam like aquiring maytas as if it has been succeeded nobody might have known this.

Raju said

"It was like riding a tiger, not knowing when to get off without being eaten," Mr Raju said, describing how the fraud, which he claimed had begun as an effort to smooth over a minor accounting discrepancy, had "attained unmanageable proportions as the size of the company operations grew".

According to Raju this was done few years back in order to smoothen small accounting difference which means like it was done intentionally to a small extent but as the company was growing it was also growing at a rapid pace.

Now from past few years satyam haven't faced huge loss , share holders were in profit and investers were also in profit as the company was globalizing at a rapid pace.It made Indian software giant on the global market. Other companies have gained up their business looking at the pace of satyam which resulted in the development of IT.

Satyam was trying to cut down the dependencies on the US market which is good for India.There was lot of employeement given by satyam. I agree this is a FRUAD which effects investers.But please comment on this, like they have done unethical business , but what do we say for their achievements of satyam for we people.what should have been done by satyam, do they have said this issue 7 years back when they are gaining the name in the market or what else could have been done in order to save our Indian IT Giant
SATYAM.

WHAT WOULD BE THE FUTURE OF SATYAM?????

Well someone is speaking true language - Sin Citi

Came across an article in portfolio. They say that the basic principle of equity, which is that the guilty will be punished and that he who causes pain will feel pain, is simply not a part of the equation in any of the bailouts of the big banks that have taken place this year.

Bailing out Citi is a bit like putting out a fire in the house of a very irresponsible fellow down the street who lets his kids play with matches while he's sleeping in a hammock out back. You'd be very happy to see his house burn down, preferably with him in it, but you're afraid that the flames will spread through his unraked leaves to engulf the entire neighborhood.

Is there anyone accountable for these bank failures.

This guy on portfolio has guts. 

Why Citigroup was bailed out???

Federal government agreed to rescue Citigroup by helping to absorb potentially hundreds of billions of dollars in losses on toxic assets on its balance sheet and injecting fresh capital into the troubled financial giant.

• Citigroup by the numbers: (WSJ Nov 24) 
Total Assets: $2.05 trillion
Off-balance sheet assets: $1.23 trillion (of which $667 billion in mortgage-related securities);
Market Cap: $20.5 billion
Q3 2008 Revenue: $16.68 billion
Dividend Yield: 10%
Share Price: $3.76  

• Dangers of a Citigroup Failure: The failure of a single major financial institution could result in losses to the OTC derivatives market of $300-$400 billion, a new working paper finds. What’s more, since such a failure would likely cause cascading failures of other institutions, the total global financial system losses could exceed $1,500 billion (Singh/Segoviano -IMF)
Background
• WSJ: As share price fell, Citigroup’s credit-default swaps, a measure of insurance against debt default, rose to reflect a cost of $470,000 to insure $10 million in bonds against default for five years
• Nov 19:  Citi agreed to acquire a further $17.4 billion of assets held by structured investment vehicles advised by the company. Citi was forced to bail out seven troubled SIVs in December, assuming $58 billion of debt out of a total $87bn, as a slump in credit markets eroded the value of their assets 
  
•  Fitch, Nov 6: Citigroup has indicated that Citi-branded net credit card chargeoffs could exceed their 1992 peak of 6.44% in coming quarters, particularly if the unemployment rate remains under pressure

Further reading.....

Citi’s $326bn bailout: overview

Joint Statement by Treasury, Federal Reserve, and the FDIC on Citigroup

Whats next on Bailout??

FT found a bit of interesting detail: "Citi and the US government made it clear that the Citi arrangement would be extended to other banks that pose risk to financial system stability, if need be."

Which bank could be next? Bank of America (BAC), which took on billions of dollars of mortgages with its buyout of Countrywide, may not be a bad candidate. Neither is Morgan Stanly (MS), which analysts believe will lose $.80 a share in the current quarter.

Read more on http://www.247wallst.com/2008/11/does-bank-of-am.html

US Debt Crisis - Will it shrink US into depression???

Depression is defined as a as a cumulative decline in GDP of more than 10.0% over four consecutive quarters. This data will refer to the official quarterly GDP figures as reported by the U.S. Department of Commerce.

The Debt Crisis, the Primary Catalyst of the Economy’s Decline, Is Far Too Big
for the U.S. Government to Control

1. Based on the Federal Reserve’s Flow of Funds report, there are now $52 trillion in interest-bearing debts in the U.S.

2. Based on estimates provided by the U.S. Government Accountability Office and other sources, it’s safe to assume that there are also at least $60 trillion in contingency debts and obligations now starting to kick in — for Social Security, Medicare and other pensions.

3. Separately, the Bank of International Settlements reports that the total value of debts and bets placed worldwide (derivatives) is $596 trillion, or more than a half quadrillion!

“If only Washington can avoid the mistakes it made in the 1930s … if only Washington can preemptively nip this crisis in the bud … if only Washington can be our lender and spender of last resort … Great Depression II will never come to pass.”

What they don’t see is the fact that the debt build-up in the U.S. today is far greater than it was on the eve of Great Depression I. Indeed, in the chart below,


Prior to the 1930s, the total debt in the U.S. was between 150% and 160% of GDP. Now it’s close to 350% of GDP.


Price for US Economy in Depression at intrade.com

Roubini's Interview on Circuit City Bankruptcy

Roubini speaks on Circuit City Bankruptcy File and The US Financial Crisis.

From CNBC:

The economy will worsen in the coming months and cause the market to fall another 20 to 25 percent in the United States and abroad, said Nouriel Roubini, a New York University business professor, on CNBC’s “Squawk Box” on Monday.

“There's going to be negative growth all the way to the end of 2009," he said. “The surprises from now are going to be on the downside, for the economy, for earnings, for the financial system."

Job losses will accelerate in the next months, Roubini said, and he expects a weak economic recovery in the short and mid-term.

“There's going to be a very slow recovery, because you have the financial system that's impaired; earnings are not going to grow very fast, and therefore the stock market will go sideways for quite a while,” he said.

Iceland for sale on eBay

http://economictimes.indiatimes.com/Iceland_for_sale_on_eBay_for_99_pence/articleshow/3582777.cms

Pakistan Facing Bankruptacy

Pakistan's foreign exchange reserves are so low that the country can only afford one month of imports and faces possible bankruptcy.

The Pakistan rupee has lost more than 21 per cent of its value so far this year and inflation now runs at 25 per cent. The rise in world prices has driven up Pakistan's food and oil bill by a third since 2007.

Efforts to defer payment for 100,000 barrels of oil supplied every day by Saudi Arabia have not yet yielded results, while the government has also failed to raise loans on favourable terms from "friendly countries".

More in http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3147266/Pakistan-facing-bankruptcy.html

Rumour about ICICI Bankruptcy

There was indeed a rumour yesterday, a rumour so strong that it took the FM and RBI chief to give public statement negating that rumour. That followed with statement from ICICI Management too.

While I accept this as a rumour, the proverb says portion of a rumour may be true. That is to say, the financial health of ICICI Bank is not as strong as it was before, especially after the falling of Lehman etc.

Although ICICI is next to SBI in India, they indeed took some levereged position in the financial institutions that fell off in the financial turmoil in US. Though ICICI is not down and out, they were indeed hurt. That is why the stock has been beaten down so heavily. The last quarter result of ICICI was pretty poor in comparison to SBI and HDFC.

Lets hope that, because of the strict regulations, the Indian Banking industry isn't hurt as much as the US banks.