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A can of worms - Views on News from Equitymaster
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  • Jan 13, 2009

    A can of worms

    Satyam CFO's confessions raise doubts on banks
    In his confessional statement to the police, the CFO of Satyam Computers squarely placed the blame for the fraud on the company's auditors (PwC) alleging that the latter never pointed out any discrepancies in accounts during their discussions. The most startling revelation, however, has been that even the company's fixed deposits were fictitious. While his confessions raise doubts about whether the promoters could have forged the bank documents to show fictitious deposits, what is not comprehensible is whether the auditors had asked the company's banks to certify the same. This puts a question on the knowledge of the banks involved about the conception of the scam.

    SEBI in search of more 'Satyams'
    The securities regulator Securities and Exchange Board of India (SEBI) has proposed to review the earnings statement of all the companies that figure in the benchmark indices - BSE-Sensex and NSE-Nifty - to avoid another Satyam-like instance. SEBI will propose a panel of auditors to conduct the exercise that will review the last quarter's and last audited annual financial results. What is interesting to note here is that Anil Ambani led Reliance-ADAG, which has been voted as one of least trusted group of companies in a poll conducted by a leading business daily, has supported SEBI's latest initiative. The group in a bid to cleanse its own image cited the rationale that the review would ensure selection of auditors based on merit, as also issues relating to confidentiality of commercial information!

    Citi sells its future for its present, stock crashes
    Citigroup, after posting US$ 10.4 bn worth of net losses in the first nine months of 2008, is set to book a gain of as much as US$ 10 bn by selling the controlling stake of its brokerage arm to Morgan Stanley. It may be noted that the gains would be a huge cushion to the bank's provisions that it had to make to get US$ 45 bn of bailout funds from the US government last year. Morgan Stanley is expected pay US$ 3 bn to Citigroup to obtain 51% of Smith Barney and would combine both firms' retail brokerage arms. The new firm, tentatively named Morgan Stanley Smith Barney, would have about 22,000 brokers, exceeding the network created by Bank of America's takeover of Merrill Lynch, which has about 20,000 brokers.

    The sale of the brokerage arm, one of the most lucrative businesses of Citi, that not just helped it derive fees but also savings accounts, however, signals caution on future revenues. This was clear from the 17% decline in the stock's price yesterday. CNN's financial website calls it - "The incredibly sinking Citigroup."

    Over 30,000 jobs lost in SEZs
    According to the Ministry of Commerce and Industry, over 30,000 people working in the SEZs (special economic zones) have lost their jobs in the past year. While this may not surprise you, what will is the fact that despite this the government is expecting SEZs to yield a staggering Rs 1,500 bn worth of revenue over the next three years.

    While so far SEZs have witnessed investments of Rs 900 bn, the Ministry is expecting another Rs 500 bn to be invested in SEZs by the end of March 2009. Looks like the Satyam-Maytas episode has not deterred our policy makers from betting on real estate. Nevertheless, as against an estimated exports of Rs 1,200 bn for FY09, the government is now expecting about Rs 1,000 bn of exports from the sector, which would still make it nearly 50% higher than last year's.



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