In continuation to the haunted times presently gripping the US financial sector, Citigroup, the world’s biggest bank in a daring bid announced its plans to come to the rescue of Wachovia Corporation which in recent times had reached the brink of collapse. Orchestrated by the Federal regulators, this deal is similar to the takeover of Bear Stearns by JP Morgan Chase and will cost Citigroup a bargain basement price of about $2.2 billion in stocks. in accordance to the deal Citigroup will absorb the $42 billion losses associated with the Wachovia’s mortgages and FDIC will assume responsibility of the losses exceeding this amount. In return, Citigroup will offer FDIC $12 billion in preferred stocks and warrants. As a result of this deal there is further concentration noticed in the deposit market of the United States where Bank of America, Citigroup and JP Morgan Chase will now sit over almost 30% of the industry’s deposits. This will automatically increase the scrutiny of the federal bodies on these organizations and will leave the small and lesser significant entities operating in the financial market with no other option but to look out for suitable suitors to enable them to continue operations. This deal clearly cements the impressive progress made by Citigroup after registering huge losses in the recent path. This deal will allow Citigroup to have access to all the assets and liabilities of Wachovia which in turn is expected to provide safety to all the present bondholders of Wachovia. The deal will also enable Citigroup to exercise control over Wachovia’s corporate and private banking operations. At present Wachovia had about 3,300 branches in about 21 states of the United States and held about $447 billion in form of customer deposits.
It is expected that Citigroup will raise money to pay for this deal by announcing the issuance of new shares of its common stock. This act is pegged to generate around $10 billion for Citigroup. It was the portfolio of Wachovia which had a huge share of mortgages known as ‘option ARM’s’ which proved to be the nail in the coffin of the bank. These mortgages gave the customers enhanced capabilities to restructure their repayment cycles causing increased distress to the bank’s operation. This year has clearly spelt doom for the banking sector in the US with 14 commercial banks already pulling down their shutters. This figure looks all the more baffling when compared to the aggregated count of 3 bank failures which the US witnessed in the last 3 years.
Tags: citigroup, Wachovia
The present financial situation in the US aggravated by the weakening dollar has left investors there feeling cornered and disillusioned thereby increasing the attraction quotient towards foreign stock markets and currencies. The inflation situation too is no better and the grim situation seems to be moving towards further deterioration owing to low interest rates, a rapid increase in the money supply, easy credit availability, presence of undisciplined underwriting in times when the government is bailing out financial situation which has seriously damaged the country’s banking system. Portfolio’s which have their asset allocations focusing on US companies have been now found to be ill prepared to handle the turbulent conditions prevailing there in the wake of increasing interest rates. One effective way to control this economic angst has is to increase one’s foreign equity exposure and adopting the strategy of shifting to short term government bond holdings dealing in high return yielding foreign currencies.
The weakening US Dollar in comparison to other foreign currencies and commodities has made the investors in the US to search for better result yielding international investment opportunities. I too would like to add here that short term debt instruments denominated in foreign currencies have been found to give good returns and results. Also, the equity markets in certain countries like China, India, Brazil and other fast growing economies have been found to be yielding substantial returns.
The equity opportunities offered by countries like Australia and Norway too have been found to be capable of yielding good returns in comparison to that given by the US market at this point of time. This kind of diversification has also been found to be successful in curtailing major negative impact on your portfolio as a result of rapid changes in the global financial environment. I would also like to point out that the record spanning the last couple of decades have shown that well managed currencies have consistently outperformed the UD dollar and have proved to be better result oriented options.
Tags: currency trading, foreign currency
In regard to the ongoing financial crisis hitting the US market the Indian insurance authority IRDA or the Insurance Regulation and Development Authority have ruled out the need of further tightening the regulations for insurance firms here in India by citing that the Indian insurance counterparts are well capitalized and are therefore not likely to be affected by the global financial turmoil. I suspect that the call for tightening of regulations would have translated into a revision of solvency margins for these insurance firms.
IRDA however looks staunch on bringing out a plan to put in place risk based solvency norms by the end of this ongoing fiscal. In further announcement IRDA has reported to have shown its intention of allowing LIC with a reasonable amount of time for it to pare down with its equity stake that it enjoys in several companies to the limit of 10% which is the level of allowed investment cap specified by IRDA. This decision very well indicates to me the cautious approach taken by the regulator so that LIC does not go in for a forced sale which subsequently would make it to offload its investments in the market in return for major losses in the form of low returns.
LIC is a major investor in some of India’s biggest equities and is in possession of a stake exceeding more than 10% in some of India’s major blue chip companies which include the likes of ITC, Cipla, Maruti, MTNL, Ranbaxy, HPCL, Tata Motors etc. I consider the denial against changing the solvency margins to be based upon the fact that with no major company drawing external investment they are presently very well capitalized and working efficiently and smoothly within the present prescribed solvency margins. Taking concern on the fate of AIG in the US the regulators here in India have asked the company to present them with a business report in order to understand what the company is actually facing and how is their local Indian partner planning to proceed with changes in the structure of AIG taking place in the US.
Tags: lic
After the seizure of Washington Mutual by the US Federal regulators due to its performance which is being dubbed as to being the largest ever failure by a US Bank, it was bought by JP Morgan Chase for US$ 1.9 billion. By means of this deal JP Morgan goes on to stake claim on all deposits, assets and some liabilities of leading savings and loan associations. This acquisition would result in giving JP Morgan the rare distinction of being the leading US depository institution in lieu of its over $900 billion of customer deposits.
This deal though would not let JP Morgan stake control on Washington Mutual’s senior unsecured debt, subordinated debts and the preferred stocks of Washington Mutual’s banks. Also, the deal prohibits Morgan Chase from staking claim on any asset or liability of the bank’s parent holding company or the non-bank subsidiaries of the holding company. JP Morgan plans to write down the loan portfolio of Washington Mutual by about $31 billion. A seizure of Washington Mutual was long anticipated considering the heavy mortgage related losses that the company had recently incurred. Its stock prices had experienced a huge plummet in its price which was in the tune of being a 95% drop and in turn bought the share prices crashing to a low of $1.69 as against its high of $36.47.
I go along with the word of analysts and consider that the depositors and customers of the banks are expected to see this development as a simple combination of two banks and expect normal working and functioning of the processes in the banks. The Federal deposit Insurance Corp doctored this sale to JP Morgan after realizing that if Washington Mutual remained open then it was not interested in it and then stepped up to organize an auction including this bank and three other institutions whose identities were not revealed. The government takes into consideration the assets of the bank to measure its failure. Washington Mutual had approximately $310 billion in assets. I would consider this deal to be a big win for JP Morgan Chase who by getting to pay $1.9 to FDIC get the opportunity to fan out and penetrate deep into the world market by providing it roughly with 5,400 branches.
Tags: jp morgan
The recent collapse of Lehman Brothers has put a question mark on the transparency of structured financial products operating in the financial markets. With Lehman Brothers signing for bankruptcy in the recent past, the security of these structured products have come under the scanner. Also this recent development is also expected to have a major impact on the new product development because the structured products need the backing of an issuer and Lehman Brothers was one of these major issuers. These recent happenings are going to make the market all the more conservative and not at all conducive for new products to come in. The structured products are designed to create an investment product which combines the features of both equity and fixed income options and involves the use of derivatives to meet specific investment objectives. This aim can be best achieved by creating a mixture of different types of investments which could include various kinds of commodities, bonds, currencies, real estate options, equities etc.
These structured products might seem similar to mutual funds or exchange traded funds but are not so. The main point of difference lies in the fact that unlike mutual funds or exchange traded funds, these structured products come with a defined maturity date along with the option of principal protection and the ability towards customization so as to suit the individual need of the investor depending upon the market conditions. Though enabling greater transparency in regard to the structural products is essential to regain back the customers faith and confidence but this wont be the only measure necessary to be adopted.
The producers of these specialized products need to be more forthright and active to explain these products better to the investors and to help them in clearing their doubts and queries pertaining to them. I recommend paying more attention to the protection issued to the investors in case the issuer goes belly up. Therefore to sum up the fears I would state that the biggest challenge posing in front of the structured product issuers would be to improve and work upon the education and communication aspects revolving around these products which would automatically instill confidence amongst the investor community.
Tags: scrutiny
The gloomy atmosphere enveloping the Wall Street finally saw some glimmer of hope with the world’s prominent stock picker Warren Buffett deciding to back Goldman Sach. The faith of investors had been considerably shaken when the investment company model took a beating on Wall Street. Since then the companies were finding it very difficult to get investors to back them in raising cash. This investment of $5 billion by Warren Buffett which will be channelized through his company Berkshire Hathaway has provided a major impetus to Goldman Sach and was also evident from the leap that the shares of the company registered in the market.
But this deal for Goldman Sach has come with a heavy price. Berkshire Hathaway Inc which is led by the veteran investor will end up buying almost $5 billion of Goldman’s preferred shares which would come with a 10% dividend. In addition to this the company would get ownership of warrants which would allow it to buy $5 billion of the firm’s common stocks during any time in the next five years. These stocks would be priced at $115 a share. These stocks of Goldman would sit in Buffett’s impressive portfolio along with other major US commercial banks. This move is expected to inject confidence in the troubled US financial market. In addition to this boost got from Buffett, Goldman also plans to sell about $2 billion worth of its common stocks to the public in quest of additional funds.
Warren Buffett went on to describe Goldman Sach as an exceptional institution. With its fanned global presence along with a proven management team the firm has an impressive track record to its name. Goldman Sach see’s this aid from Buffett as a strong validation of their client franchise and its future prospects. Until now Warren Buffett had refrained from investing in investment firms as he considered the working of these firms to be complex and too large to manage and run efficiently and took this decision also only when Goldman Sach along with Morgan Stanley decided to give up the tag of being investment banks and became bank holding companies.
Tags: Goldman Sach
Financial emergencies can strike anyone at any point of time. Though one generally caters for these emergencies in the form of cash reserves stored in banks but if the amount is too high then they also have the capability of leaving one stranded in need of desperate help. Asking aid from friends and relatives might be acceptable to everyone and some people which includes me too, do not wish to go against their values and pride. In such situations help from banks and other reputed organizations is the best bet which I can consider. But there might be situations when the cash requirement is urgent.
One might be in the middle of an emergency financial crisis or might want to go on that sudden vacation and hence would be in the need of immediate funding. Since the process of availing a loan through banks and other such organizations takes times and is a long process of filling forms and getting the application through therefore one needs an alternative. An alternative which provides immediate respite to us from our financial requirement and at the same time suits our need too. Fast unsecured loans are the answer to this malady. The following features make this option of fast unsecured loans all the more fetching and suitable.
- As the name suggests, this fast unsecured loan option provides me with the access to fast and convenient cash.
- These fast unsecured loans comes with the facility of providing immediate respite to the borrower from his financial mess as the process is quick with minimal needs and a fast approval system. The loaned amount gets immediately transferred to the borrowers account and is readily available for me to use it.
- Also, since these fast unsecured loans are unsecured I need not deposit any collateral with the lender. In other cases the collateral generally deposited to the lender is used by him as a mean of security which keeps him on the safe side by eliminating the risks associated in conditions where I fail to repay the loaned amount.
- With the fast unsecured loan being unsecured the charges are generally on the steeper side but since the loaned amount provides us with immediate relief then the loan is worth it.
- The process for these fast unsecured loans is hassle free and involves filling up a small application which can be done manually or even online.
Since these fast unsecured loans involve no collateral and security therefore they are generally based on the trust quotient between the lender and the borrower. Once I am through with the application process and the verification is done I am assured of instant money in my account making my life simple and tension free.
Tags: unsecured loans
Retirement should not be considered as a difficult part in one’s life. It too can be made productive and yielding by careful financial planning. MLP’s or Master Limited Partnerships gave been found to be fruitful in providing good income opportunities after requirement. This partnership consists of a general partner who is entrusted with the task of operating the business and some limited partners who provide capital. This unique kind of partnership module which is often referred to as publically traded partnerships can be purchased from major stock exchanges by potential investors. Stipulated rules require MLP’s to generate at least 90% of their income from natural resources related activities. This rule thereby makes MLP to operate in the sector of natural resources activities which envelopes the transportation, mining, storage and marketing of these natural resources.
This unique partnership scheme has been found to generate yields ranging between 6% to 8%. MLP’s is a very good avenue for cash flow which is meant to compliment low yield giving equities and bonds targeted towards retired personnel’s who look forward to taking home distributions of about 4% to 6% of their investment portfolio each year. Investing in MLPs provides the investor with higher current distributions which then grows further as and when the company progresses further. Also, the other benefit from these MLP’s is the fact that some percentage of the annual distribution is considered as a return of the capital and thereby exempts it from current income tax subjection. This there by ensures a higher after tax income which boosts the disposable income of the individual after retirement.
Though, what must be kept in mind is that once the investor decides to part ways with these units the deferred units will be subjected to income tax but that may happen many years down the line. Summing it up, it can be said that by means of investing in Master Limited Partnerships, the investor which are mostly retirees get the opportunity to receive 6% to 8% of inflation adjusted distributions where a part of these distributions is tax free.
Tags: Master Limited Partnerships, Retirement planning
If you considered tough times affecting the wall street were abating well it is time to think again. In a move which has come as a surprise, Morgan Stanley and Goldman Sach will now lose their coveted Investment bank status and will henceforth function as traditional banking companies. Their functions will now be regulated by the US Federal Reserve. I see this move coming with its own set of benefits and drawbacks. While on one hand it will enable these institutions to start accepting deposits and will provide them with an easy access to the financing sector. It will also provide them the opportunity to buy other retail banks if the desire. The Fed has authorized credit to both the mentioned firms against all types of collateral that any other commercial bank is permitted to consider as acceptable to take loan from the central bank.
But this status of being a traditional bank will now subject them to tighter banking regulations by the Feds which also include tougher capital requirements. By being under the umbrella of Investment banks these institutions were free from these regulations earlier. Like every other spectator witnessing this news I too fear that these restrictions and rules would result in curbing the ability of these companies to leverage up their propriety trading activities and other such related activities.
This would in turn hamper their huge profit making chances. I would suggest that these steps taken by the US Government should be taken in positive spirit as they go on to show the gravity of seriousness that the US government is granting to the financial crisis and by means of these short term risks they aim to provide some systemic relief to the distraught financial market in the US. As a part of this new set up, the Federal Reserve will take over as being the primary regulator of the parent companies.
Tags: commercial banking, finance regulators, goldman sachs, investment banks, morgan stanely
With plenty of options and avenues it is very easy to find one caught in the stranglehold of multiple debts. An unheeded spree of taking numerous loans to take care of personal requirements makes one land in this mess. But no need to despair. I would suggest that all such individuals who have to go through this mental trauma now have help in the form of debt consolidation loans. As the name tries to imply, these debt consolidation loans are intended to allow you to consolidate or club together all your debts into one single lump sum amount which is all the more easier, convenient and less mentally stressing for you.
A debt consolidation allows you to deal with a single creditor each month to which you are supposed to pay your monthly installments at a comparatively reduced rate of return. Since this loan is taken for the purpose of easing burden from multiple loans this debt consolidation loan allows you access to a sufficient amount of money. The creditor draws comfort from the fact that the loan that he provides you can be a secured loan too where your property is taken by him as the collateral. Though the option of an unsecured loan is also open. I regard these debt consolidation loans as a beneficial bet because:
- The amount which can be borrowed by this loan is a significant amount.
- The rate of interest charged is quite low.
- Consolidating your debt also provides you the opportunity to improve your credit score.
It is quite evident that if one opts for a secured debt consolidation loan the rate of interest charged will be lower than the rate charged from an unsecured loan. These debt consolidation loans provide relief from multiple pending debts, the most common one’s being those from credit cards and bills from stores. This loan provides you with the opportunity to pay just a single loan at a fixed rate which works out to be very economical for you and at the same time ease off a lot of your mental tensions too.
Tags: Debt consolidation, debt consolidation loan, why debt consolidation