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Credit crisis, salary hikes & more - Views on News from Equitymaster
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  • Sep 16, 2008

    Credit crisis, salary hikes & more

    Stockmarkets tumble
    It was a day of the fall of the mighty. The extinction of two financial biggies namely Merrill Lynch and Lehman Brothers led to frantic selling by investors in stockmarkets across the world. With the exception of Japan (up 1%), most other key Asian indices lost around 2% to 5% (the BSE-Sensex closing 3% lower). Not surprisingly, the European indices were also at the receiving end declining by around 4% to 5%. The fact that one of the biggest insurers AIG requested the Fed for a funding of a gargantuan US$ 40 bn further added fuel to the fire.

    Oil, in the meanwhile, retreated to the US$ 96 a barrel mark, the lowest in six months, as Hurricane Ike spared the refineries along the Gulf of Mexico coast. While 20% of the US oil refining capacity was shut, there was no major damage reported. The fact that the US economy is slowing down, further exacerbated by the collapse of the investment banks, also played a part in the cooling of oil prices as demand for the fuel reduced. As reported on Bloomberg, crude oil prices have now declined almost 35% from the high of US$ 147 a barrel reached on July 11. However, this did nothing to soothe investor fears as the crippling effects of the subprime crisis took centre-stage.

    Financial crisis deepens
    The scenario for financial institutions keeps getting murkier. A year has now passed since the unraveling of the credit crisis and there seems to be no end to the multitude of write-downs and bailouts. The ones having to weather the storm and literally drowning are investment banks. The last weekend saw a flurry of activity with investment banking heavyweights Merrill Lynch and Lehman Brothers frantically scouring for partners to help them survive and tide the crisis. While Merrill Lynch will be bought out by Bank of America for US$ 50 bn, Lehman Brothers on the contrary has not been so lucky and is headed towards bankruptcy.

    A deadly cocktail of risk taking investment bankers floored by 'fast bucks' and unabashed investments in highly risky and bad mortgage assets have now bought these institutions down on their knees causing them to literally run around with a begging bowl. These developments come at a time when the developed nations in particular are already sinking into a recession. When this crisis will end is anybody's guess.

  • Also read - Once in a century crisis

    Will your salary increase next year?
    There could be light at the end of the dark tunnel. The slowdown in economic growth both globally and in India, it seems, is not expected to hurt salary figures. On the contrary, according to a report prepared by HR Business Solutions, a Hong Kong based firm and published in the Economic Times, salaries in India are expected to increase by 16% in 2009, one of the highest in the Asia-Pacific region, driven by strong economic growth and pressure on employers due to soaring inflation.

    Basing its findings on four economic factors namely GDP growth, inflation, unemployment, demand for manpower and pay hike trends in the past, the report further expects the country's economy to clock a growth of 7% to 8%. More importantly, given that inflation has been raging above 12%, employers are expected to come under pressure to raise salaries. A healthy demand for labour and shortage of manpower having the requisite skill sets is also expected to advance the case for higher salaries.



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    Aug 24, 2017 02:43 PM