Who is a non-performer?

May 14th, 2009

Nowadays, whenever companies sack their employees, the standard line is … “their performance was not in line with our parameters.” Or, something similar. While it may be true in some cases, that argument looks more than a bit stretched in most.

Let’s do a reality check. Not so long so, industry bodies were claiming that there’s still dearth of good talent. With companies in an expansion mode, hiring was frenzied. Head hunters would call executives aggressively. And in the event that a particular executive was uninterested, pat would be the reply, “Would any of your friends be interested?”

But things have turned for the worse. With recession plaguing the entire world, the demand for talent is no longer so great. In fact, companies need to cut flab.

And all that excess capacities built up in anticipation of future growth need to be pruned. So, quite a few employees have had to take the bitter ‘layoff’ pill.

But by branding the ‘laid-off’ employees as the worst performers is grossly unfair. If the company’s plans have gone haywire, it is not the employee’s fault. Instead of admitting this, many are harping about non-performance, stricter parameters and so on…

The fact being that no management wants to admit that their ambitious plans have gone wrong and in many cases, over-aggression has caused them grief.

Take the example of real estate companies – huge land banks were built by buying at astronomical prices. And that too in the latter half of 2007-08, when it was well known that the subprime crisis is looming large over the world.

Now that many of these projects are under hold indefinitely, can the employee who is being thrown out be called a non-performer?

In fact, the word ‘non-performance’ has almost become a joke. Sample this: Recently, when the two senior employees (CEO, COO types) left an organisation, a mail was sent to the corporate communications enquiring about the reason. The response was something like this… ‘individuals whose performance were not in line with the company’s parameters quit’.

It isn’t funny…

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The twin trials of Madoff and Raju

March 24th, 2009

December 10, 2008 – Former Nasdaq chairman Bernard Madoff’s Ponzi scheme discovered by his sons and reported to federal authorities

December 11, 2008 – Bernard Madoff arrested, later put under house arrest

March 12, 2009 – Bernard Madoff confesses to $65 billion Ponzi scheme. Court verdict: Jail and faces maximum penalty of 150 years. Assets frozen and prosecutors eye wife’s assets as well.

January 7, 2009 – Satyam Chairman (now former) Ramalinga Raju self-confesses to Rs 7,800 crore scam

January 9, 2009 – Ramalinga Raju surrenders, arrested by Andhra Police (by the way, he had a date with Sebi next day)

March 14, 2009 – Newspaper reports suggest that Raju’s Madhapur den is being raided by CBI, implying there are a lot of loose ends still being tied up. And the fact that there are a number of agencies, including the Andhra police, CBI, Sebi and others investigating, things will not get any simpler.

Prima facie, two similar cases. Madoff ran a Ponzi scheme and conned investors. Raju conned investors who had bought his company’s shares by ‘cooking up a balance sheet’.

While the US government has already arrived at a number ($65 billion) for Madoff, we still have no idea about the money lost by investors in Raju’s case.  Perhaps, we will never know.

In Madoff’s instance, the case has been heard, the verdict given and is up for appeal. As for Raju, the buck is still passing around.

Newspaper reports suggest that Raju is living a raja’s life in his special cell. His brother Rama Raju is cooking food with help from (former CFO) Srinivas Vadlamani. Cooking accounts must have prepared them for this role anyway. They are even allowed limited quantities of cakes and biscuits (isn’t Raju diabetic?).

Meanwhile, his lawyers are busy telling the courts how the Rajus are suffering in jail, pestered by rats and bandicoots.
With several agencies waiting to charge him on different counts, all that Raju is likely to face is a lot of court hearings, as Sunny Deol famously said in Damini, ‘Tareeq pe tareeq’.

But the corrupt have never gone unpunished. After all, Sukh Ram was fined a princely Rs 2 lakh and sentenced to three years in jail… 13 years after the case was first reported.

Of course, it is a different matter altogether that many would not have even remembered why Sukh Ram was accused or fined. It is a tragedy that over the years, public amnesia has allowed many an issue to die a quiet death.

Raju too, will get his just desserts we hope… never mind if the dessert melts by then.

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The irony of Harshad Mehta

February 26th, 2009

I met him once in mid-1998. Actually, I tagged along with my bureau chief B Krishnakumar (The Week).

In 1998, the stock market had again started misbehaving. In the first few months, it had shot up, only to crash within days. And some stocks, especially the ones whose promoters were advised by the big bull were doing exceptionally well.

We wanted to explore this line of investigation. On reaching his Maker Chamber office at 5 pm, we were made to wait for almost an hour – he was still being quizzed by CBI sleuths everyday.

My only memory about the office is that it had a rather glassy look about it, and there wasn’t a single sheet of paper, anywhere.

When Mehta came, he looked and sounded quite calm – a remarkable feat for someone, who was being grilled for six-eight hours a day. He told us about his new role as a corporate advisor (without naming the companies, of course) and offered us chai.

He also told us about the 24 criminal cases and over 300 civil cases against him. Later, I was told that he owed over Rs 11,000 crore to the tax authorities at one time.

After chatting with us till almost 7.30-8 pm, he offered to drop us back to our office. We travelled in his car. Was it the famous Lexus? I don’t remember, but it was quite an impressive one.

After he left, Krishna and me wondered about his source of income. (Remember, this was the time when his bank accounts had been frozen) But nothing suggested he was short of cash.

Three years later, Sebi banned Mehta from trading (yes, he had actually been given the trading licence back, even after the 1992 scam). Also, the three companies, whose shares were shored up by Mehta’s cartel, were banned from tapping the market for a few years.

Mehta died on 31 December, 2001.

A few weeks back (and 17 long years), when Mehta’s famous Worli house (Madhuli) attracted a mere Rs 20 crore, I was a bit surprised. His brother Ashwin urged the court to grant an extension as the price was too little for 8 flats.

After a week, there was another offer of slightly over Rs 32 crore – a whopping 60 per cent rise in just seven days. Despite this rise, the value was way below the going rate in the market.

For a man, who had spent most of his life shoring up share prices to unrealistic levels, the irony couldn’t be more obvious.

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Blame it on the media…

January 20th, 2009

I am angry.

Every time something goes wrong, it’s the media’s fault. Just today, I received a mail that read something like this:

“Attached are the new Sebi guidelines for FMPs. No portfolio, no indicative yield, no exit.
This product just got killed. I hope the media is happy. Every one is going into bank deposits where the loan book is very, very transparent!!!”
(A confession first…I did a spell check on this letter.)
Whether it is coverage of the Mumbai attacks, undoing of some fund houses, or even the Satyam fracas, it’s always the media that’s to blame.

More ridiculous is that some websites or columnists have even said the media should have delved deeper into Raju’s machinations before promoting or giving him awards.
Can someone answer this simple question: With Price Waterhouse as auditors, very capable (now, very maligned) independent directors and Fortune 500 companies as clients, why should the media get the flak?
Or is it a crime to report anything negative?
When the going is good, no one complains. That is, if there are a few frauds (and there are quite a few ones) during boom time, they are overlooked. Even if there are strong reports, positive sentiments override them. The attitude then is, “arre, aise choti choti baatein hoti rehti hain“.

But when everyone is strained, jobs are under threat and making money becomes a difficult task, people are quick to pounce on the ‘messenger’.
As if the messenger caused it.
Let’s get this clear. Skeletons have to come out of the cupboard for them to be reported. And these things happen more during a downturn because there are fewer places to hide.
The Satyam saga and the World Bank’s strictures on Wipro were reported following a confession in the first instance and the second being put up on the bank’s website. And the media has not tried to hide it under the carpet.
Of course, there could be more similar violations. But we, more often than not, do not have the manpower or the expertise to explore such areas. No wonder, we have to rely on secondary and sometimes, even tertiary sources. And sometimes when investigation is done and gets reported, it is conveniently termed witch-hunting.
The media’s role is to report…often unsavoury things. But they did occur in the first place, right? That’s why we reported them.


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Courage under Satyam fire?

January 14th, 2009

So, Ramalinga Raju has high blood pressure, acute ulcers and even diabetes. Just a fortnight back, I was not aware of such intricate details about the (now ex) chairman’s health of India’s fourth largest IT company.

Isn’t it funny that no one seems to get such serious diseases while swindling over Rs 5,000 crore? Didn’t his blood pressure go up sharply every time he was fudging those numbers… how many zeros did he have to add every quarter and, if I have to believe his confession, for seven years, to ride a ‘non-existent’ tiger?

Over the years, we as journalists or citizens, have watched helplessly as politicians and white-collared criminals have `fallen ill’ or used other ways to evade the law.

Let’s take Raju’s case. On Thursday, market regulator Sebi summoned him at 5 pm. His lawyer appeared and said that he will appear on Friday at 4 pm because he was ill. On Thursday night, the man and his brother went and surrendered themselves to the Andhra police and were promptly arrested. Now Sebi cannot get access to him till January 16.

But there are other important questions.
Why haven’t his bank accounts been frozen? No one has any idea. Newspaper reports suggest that he has confessed to the authorities that he fudged the numbers. Then why can’t his accounts be frozen as a precautionary measure, so that Satyam’s shareholders and employees will not be left in the lurch? (Was he even paying the company’s contribution to the Employee Provident Fund for the 53,000 employees?)
Or will shareholders be simply have to be told that only invest in companies after doing proper research, look at the management’s past and stupid numbers like cash flows?

But even professional fund managers were fooled. Aren’t they supposed to have a whole lot of research data from so-called analysts, who are paid exorbitant salaries?

In fact during the month of December and I suspect, when the Maytas merger deal did not fructify, many fund managers bought Satyam shares because their ‘analysis’ said it was cheap and did not reflect the company’s fundamentals. Many brokerage houses also put a ‘buy’ call on the company.
So as investors, who do we trust? Fund managers cannot make the right call and brokerage houses are as clueless.
Does anyone suspect, why the small investor, is always scared about the stock market. Whether it is Harshad Mehta or Ketan Parekh or C R Bhansali or Raju… small investors suffer.
In some ways, it is good that the retail investors’ participation in the stock market is quite low. Our institutions are incapable of protecting them…There is ‘no courage under fire’.

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Ratatouille Raju…

January 9th, 2009

Surely, he is a great chef. To have cooked a Rs 7,000 crore or $1.4 billion dish, he needed some special talents. Sadly, the 50,000 plus employees and lakhs of shareholders are not in a position to appreciate it.

What is scary is the lack of action on the part of our institutions.

In the US, two firms have already gone for a class suit action. In India, the central government is claiming that the Centre cannot ask the state to arrest Raju (as it is a state subject). And even now, the state has not filed any criminal charges.

Instead the state chief minister has urged that the good offices of N R Narayan Murthy (Infosys) and Azim Premji (Wipro) should be used to provide credibility to the company.

At present, market regulator Sebi is checking the books of both Satyam and audit company PriceWaterhouse.

Both the exchanges have said Satyam will be replaced by other companies from Monday, January 12. Compare that with NYSE, which banned trading on Wednesday itself.

What is worse is that according to the letter written by Raju, there was no one other than him and the managing director had any idea about this scam.

Someone please make me believe this one. The board members, CFO and others in the finance department, marketing heads… wasn’t anyone aware that the company revenues weren’t actually so or for that matter, their spread was a mere 3 per cent vis a vis the 30-plus per cent that the company claimed. Sounds preposterous…

And the last and the best one, where is Raju? – His lawyer claims he is in Hyderabad. Some others say he is in Dubai, yet others in London. Have any of the authorities met or spoken to him? – At least, no one is saying so. By now, in most countries, he would have been at least questioned by the authorities and put under some kind of house arrest.

While, we wait for investigations and committees to come to with their findings, for now, an important point to note is that that whether it is actual terrorism or financial terrorism, we are equally inept at handling both.

No wonder, whatever’s on the menu – guns and grenades or vanishing cash – in our country, the chef always gets away.

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Response to stimuli

January 5th, 2009

Four rate cuts in four months, two stimulus packages … the important question to ask is whether things would improve after all this.

No. And it has nothing to do with the government’s action or inaction. Some have complained that the package is too little. China and even, Thailand have spent more. But I believe that given the leakages that happen in our developmental schemes, it’s best to give targeted packages.

As I understand it, growth is a function of demand and supply. When there is demand (for anything), either rising supply has to match it or there will be a rise in prices (inflation).

But in today’s market, the question is how does one generate demand?  In an uncertain environment, when there have been job and salary cuts across sectors, a very few would be willing to purchase a new residence or car. It’s simply too risky.

On the contrary, there have been stories about young couples, who have sold their house and paid off the bank as they are unsure if they would be able to pay hefty EMIs in months to come. With such drastic measures being taken, it is unlikely that there will be too many big expenses lined up.

Even banks have been wary about extending loans as well. Already, there have been quite a few defaults. Scared, many banks have started cutting credit limits to their customers, especially cash limits.

Further, investors in the stock market have already seen their investments eroding by over 50 per cent.

In other words, when salaries are not steady, credit is unavailable and a negative return on investments… where’s the money to spend?

To stimulate demand, salaries and incomes will have to rise or at least, be steady. More importantly, safety of jobs will have to be ensured. And I don’t know how much of a role can the government play in ensuring these, especially in the private sector.

The bottom line: Till people start making money, they will not spend. And that means no or little demand.

The response to the stimulus packages will be slow… perhaps, even painfully slow

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Goodbye, cruel 2008

December 29th, 2008

This year will most probably be remembered for all the bad things – terror attacks, job losses and fall of legendary institutions like Bear Stearns and Lehman Brothers.

In the last thirteen years in my professional career, I have not seen a worse year. While we all knew that the US sub-prime crisis would hit the financial markets sooner than later, none of us expected this mayhem.

The initial crash in January was almost welcome. The Indian stock markets had almost risen to surreal levels and all that decoupling talk was really hard to digest.

But post-June, when financial institutions started closing down or getting sold, the real fear began. Till then, it was a blip or in stock market parlance, a correction that was overdue. Things have really gone bad since then. Stories of job losses and salary cuts have become common now.

The rate cuts and capital infusion by all the central bankers have really not helped. Of course, the effects will not be immediately seen. But banks are quite wary about lending. From indiscriminate lending to no lending, many banks have come a long way.

And to round it off, after Delhi, Orissa and so many other cities… the Mumbai attacks. While critics have panned the media coverage by calling it elitist, I have a slightly different view.

Though floods or earthquakes cause many more deaths, this was something completely different. The number or kind of people were not important. It was simply about the audacity of it all.

While, we constantly hear about terrorists engaging in gun battles with the army in Jammu and Kashmir, we have never heard of a gun battle where terrorists fought the some 600-plus army and policemen for three full days in any of the major cities in India or perhaps, even world. As a Mumbaikar for my entire working life, I am sad to see the state of the hotels where I used to spend hours.

And, of course, the aftermath. Now that Pakistan has conveniently shrugged off any responsibility, India faces the tough challenge of making things happen.

As 2008 comes to an end, I pray that the next year is much better. Lesser terror attacks, fewer job losses and some turnaround in the stock market will definitely make me feel better. Guess, I am asking for too much…

But what is making me really happy is that this year is almost over. Goodbye, cruel 2008

- Joydeep

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FMPs:Too much of a good thing…

December 10th, 2008

In the last few months, when Fixed Maturity Plans (FMPs) of mutual funds were in some serious trouble, I was speaking to a lot of industry experts. The general view was that the product was suffering from a perception problem.

In the last two years, when interest rates were on the rise, FMPs became a big hit with investors. This is because they were giving better returns than fixed deposits (FDs). Plus, there were tax benefits as well.

When the marketing people realised this, they went the whole hog. But as usual, they went for the easier option – corporate money. And to attract those crores in a single deal, fund houses were forced to compete. The result: Each fund house was trying to outdo the other, in terms of the interest rate being offered. No wonder, fund managers found themselves under constant pressure.

In defence of marketing people, once another fund house offered a higher rate, it became a benchmark and both distributors and investors started asking for that rate or even more.

This led to a situation where even a short-term debt fund manager was forced to invest in longer-term or riskier papers to hike returns. And that is a perfect recipe for disaster. “The marketers do not realise that to give 0.5 per cent more, I have to put the entire portfolio at risk,” said a former debt fund manager.

When the going was good, no one complained. But as fund houses have found during the recent run on FMPs, liquid and liquid-plus funds, things can really go crazy when there all corporates hit the exit button at the same time.

There isn’t much of a secondary market for many of the underlying papers of these schemes, especially commercial papers and pass through certificates. And the few buyers would want their pound of flesh and purchase at a hefty discount.

Now, the market regulator, the Securities and Exchange Board of India (Sebi) has tried to solve the problem by introducing a “no exit clause” from FMPs. Instead, they will have to be listed. I do not know whether it will help or not.

But I am sure that FMPs will not stay the same. The rates of return they are offering are already down from 12 per cent in October to 7.5 per cent now. Also, in a lower interest rate regime, gilt funds will always be more attractive. But what has hurt fund houses the most is the overall negative sentiment. Especially, the corporate sector’s sentiment, which accounts for over 60 per cent of the money, in FMPs.

The lessons to be learnt are many. For one, excessive marketing and the rush to increase the asset base can hurt a decent product. Also, over dependence on corporate money can be counter productive. And most importantly, running after retail investors may be costlier but when fund houses lecture investors that money can only be made in the long term… they should be viewing their own business in a similar manner.

Already some CEOs and marketing heads are talking about moving from excessive exposure in debt to equities. Haven’t we heard it all before?

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Signals should be broken, especially by cabs with bombs

December 1st, 2008
Last Wednesday, I went to the Press Club located behind the Times of India building, which is quite usual. What was unusual was that I left it at exactly 10 p m; most days, I hang around till 11 or 12, sometimes later.

But on Wednesday, I was with Raghu Mohan (a scribe with Business World). And he has this unusual habit of leaving at exactly 10 often, even if the drink is half-finished.

As our regular cab driver sped towards Borivali, I received a message from a friend that brought the initial awareness. The message read…” Firing at 4 places in Mumbai. Pl don’t go out. Watch tv”. I was about to respond to him with a “safe and sound at SantaCruz” when there was a loud dull thud.

We could see was a lot of smoke in front of us, a burning tyre was rolling across the street and the fire was spreading with it. But there was no cab in front of us – it had just disappeared – maybe, into pieces. Phones had already started ringing. In-between taking calls, we made a few to friends and offices.

What has stayed etched in my mind is this incident: There was a Toyota Innova besides us and for reasons unknown to me, I told the driver (rather stupidly, perhaps) to put off the engine – some weird thought about electromagnetic waves. The driver just looked at me and rolled up the window.

Meanwhile, a large number of people had started running towards the taxi or whatever was left of it. We decided to walk to catch a train or auto or whatever. On our way, we saw a crumpled piece of metal on the roadside – it resembled a mudguard. Crowds had gathered in other places where either parts of the cab or its passengers had fallen.

We got an auto soon. When informed about the blast, the driver drove like a maniac – we almost had a few accidents and landed up a couple of kilometres away from our homes.

Finally, when I reached home, there were more calls and animated conversations about what happened or could have.

I went to town today (as Bombayites or Mumbaikars tend to call places beyond Dadar). I saw the dark patches and broken windows at the Taj and Oberoi. A few months back, I was at the Taj for the Business Standard Awards. Today, the building stood pleading helplessness.

I remembered Raghu’s call the morning after to inform that he is writing an article about our experience. He just happened to mention, “You know, that cabbie broke the signal while we stopped,”…


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