Wednesday, October 31, 2012

Trade the union

The good and bad of trade unions

Anything that evolved in history happened out of need. And when it diverted from the main cause for which it came into existence, it slowly extinguishes. The same is true with trade unions. The history of trade unions reveals how workers unionised out of the need to stand against oppression, tyranny and suppression of greedy capitalists. But, with time, the popularity of trade unions has faded gradually because of many reasons.

Firstly, hatred against trade unions increased especially with the emergence of free-market economy. Over the years, capitalist entrepreneurs and trade unions usually worked towards opposing goals – one for shareholder’s wealth, the other for collective bargaining – with a strike being a potent negotiating weapon of unions to achieve their employee benefit goals. Secondly, innumerable researches came out against trade unions revealing how existence of trade unions increased wage rate, even inefficiency and lowered productivity to a large extent. Economists like Milton Friedman criticized trade unions severely, terming the concept the biggest blow to capitalism. Cases like General Motors in US (where the trade union almost bled the company dry with strikes) and Dunlop in India (which closed down once and for all due to a long standing strike) have only added to this proposition.


Source : IIPM Editorial, 2012.

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Birth rights of sperms & eggs

The debate on abortion has moved away from the empowerment of women to cutting religious propaganda

Of course, all this is not happening for the first time. Since time immemorial, a woman’s body has been the theoretical and unembellished territory for societal and political war. From the theoretical, scientific and religious end, there are numerous logical stages that define the starting point where ‘human life’ begins. Many schools of thoughts believe that sperms and eggs have life; and put them at par with humans, thus considering them as preconceived life. Many don’t! But almost all blocks ranging from political to religious are in some or the other form discussing the issue of abortion – or as the critics call it, immoral killing of a life.

So what is the debate all about? That’s simple, as that rests on the analysis of the options a woman with unwanted pregnancy has, and those are: one, she can put up the child for adoption; two, she can accept the child; and three, she can abort the unborn child. And that is where the whole debate on abortion starts, with opposing philosophies promoted by two schools of thought: Pro-choice campaigners (who demand a mother be allowed to choose whichever of the three options she might wish to undertake), as opposed by pro-life campaigners (who generally argue in terms of foetal rights rather than reproductive rights). The pro-choice group believes that “a woman should have complete control over her fertility and the choice to continue or terminate a pregnancy,” and demand that a woman is given ‘the guarantee’ of reproductive rights – access to sexual education, fertility treatments, contraception, to safe and legal abortion, and even legal protection from forced abortion. The pro-life group’s philosophy revolves around the argument that “…human foetuses and embryos are persons, and therefore they have a right to live.” Thus, the movement is characterised by extreme wingers opposing sale and use of contraception, practise of death penalty, euthanasia, cloning, embryonic stem cell research et cetera. Philosophers and writers have been key in this debate, saddling further complicated arguments. Mary Anne Warren, noted American writer and philosophy professor (cited in major publications like Peter Singer’s ‘The Moral of the Story:


Source : IIPM Editorial, 2012.

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Tuesday, October 30, 2012

Y, the fuss...?!

The Y chromosome is all set to become extinct, but not until a million years from now...

Man’s experiments with science and nature have always left us spellbound. Ranging from test-tube babies to proving the fact that women could probably reproduce without a man, little did we know that these finds would not just be handy, but crucial in the times to come... According to a new research, the Y chromosome, which a man carries, may get extinct in about a million years. But there’s no need to press the panic button just yet. “It’s just a hypothesis as of now and there is no certainty and confirmation,” says Dr. Vinant Bhargava.

Human beings reproduce with the help of both the sexes unlike the likes of hermaphrodite earthworms, which have no such requirement (they can reproduce without the males). But for us, the male needs to fertilise the female egg in order to reproduce. The females carry only the X chromosome, but the males carry both X and Y chromosomes; the Y chromosome being responsible for the birth of boys. It’s an irony that even though these facts state that only males are responsible for the birth of a baby boy, still in a country like ours, the women are squarely blamed for not giving birth to male children; even though she is biologically incapable of doing so without the help of a male. It’s a fact that “the Y chromosome travels faster than the X chromosome, but it also has a shorter lifespan,” asserts Dr. Vinant Bhargava. But in the light of the hypothesis and the research, it’s a matter of great concern for the medical fraternity and us as to how this scenario would be handled. Will the male population vanish in a million years? Will there be another form of chromosome adopting the role of the Y chromosome? Or will nothing happen at all?


Source : IIPM Editorial, 2012.

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Monday, October 29, 2012

CHINA: WTO

WTO finally pulls up errant China

China has also restrained the number of foreign films that can be released on her own soil to 20 each year. This policy has given birth to rampant piracy across the country, where movie or music DVDs are available at sums as paltry as $1. Even though American movie companies have tried tooth and nail to keep prices low, they are suffering. Although the WTO has nudged China to clamp down on piracy, it is difficult to curb bootlegging altogether in this vast country (which is an outcome of China’s own pigeonhole). China’s unprecedented growth over the last 3 decades was primarily triggered by export of manufactured goods that have been outsourced through China by the West. But this Asian giant has been very slyly restricting imports, except for raw materials and intermediate goods (for example computer chips are imported from Japan to be assembled in China and then to be shipped to the US).

The US sees this saga as an opportunity to ensure that China complies with the rules of the WTO and ergo protects intellectual property rights, something they haven’t done since they joined the organisation in 2001. But knowing the dragon’s incorrigible tendencies to act in self interest, this dispute may not be dying down very soon. For them, back to the wall literally means back to the Wall...


Source : IIPM Editorial, 2012.

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Saturday, October 27, 2012

Infosys has been definitely hit by the global slowdown

infosys has been definitely hit by the global slowdown, but it is also learning valuable lessons for its future, say virat bahri & arun roy of B&E

Part of that was thanks to the fact that the Lehmann debacle happened in the second half of the year. Moreover, the company managed a lot by means of cost cutting. Variable components of salaries were increased. Their reliance on repeat customers also came to their rescue. Also, rupee depreciation over the year was a welcome breather.

The challenge for Infosys would come now, in FY 2009-10. Recovery for the sector is expected to begin only by FY 2010-11. Understandably, the company has a relatively flat outlook for the current fiscal; with revenue projected to be in the range of Rs.214.16-217.47 billion and EPS to decline by 8.6-9.2% yoy. For Q1, 2008 -09, the company has reported a decline in revenues (in dollar terms) by 2.9% yoy to $1.12 billion. They did, however, manage a modest increase in net income after tax by 1.6% yoy to $313 million.

Meanwhile, the company seems to be getting aggressive with respect to diversifying its client base. Harit Shah, IT Analyst, Angel Broking, feels that the reliance on repeat business is not an issue per se; rather it is the fact that the company has clients like British Telecom (BT), which contribute a great deal to its revenues. Now when BT starts cutting IT spends the way it has over the past several quarters, Infosys obviously gets impacted. The company has added 27 clients in Q1 itself. Recent wins include Bancolombia and T-Mobile, UK.

Diversification in geographical spread and vertical presence is another challenge that the company wishes to take up. The problem here, again, as per Harit, is that emerging economies like India would take at least 4-5 years to contribute significantly to Infosys revenues. The same is true for verticals like retail, health care, transportation, et al. Investing in them will help, but one must not expect miracles.


Source : IIPM Editorial, 2012.

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UDAY BALDOTA, VP - INVESTOR RELATIONS, SUN PHARMA

B&E: Still, there is turmoil in the sector at present, especially if we look at the ever-deteriorating condition of many major players...

UB: Not really! I don’t agree because the sales growth of the top 12 Indian pharma companies averaged above 20% in the year ended recently. Moreover, as far as Sun is concerned, there is no manpower cut on account of issues in the economy. In fact, our recruitment continues apace. Yes, there was one rare instance though at Caraco, our US subsidiary, where we had to reduce headcount, but that was only because it had problems.

B&E: $200 billion to be earned by generic players by 2014 from patent expiries. What’s your game plan in this regard?

UB: In our view, generic drugs is a significant, growing and profitable opportunity, worldwide. We are working towards getting a meaningful presence in the worldwide generic industry over the longer term...

B&E: And what about the ‘failed’ Taro deal?

UB: The deal is still on, with some court decisions awaited...


Source : IIPM Editorial, 2012.

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Thursday, October 25, 2012

ABN AMRO Bank a familiar name

A clear focus on select and premium clients has made ABN AMRO Bank a familiar name among the über-rich in India

Moreover, the bank has used technology as the key differentiator to gain competitive advantage and create a unique customer value proposition. In fact, the implementation of a robust core banking solution back in 2001 enabled it to offer 24/7 integrated multi-channel banking and to be the first bank in India to realise the potential of the mobile channel. Further, the introduction of Van Gogh Preferred Banking (VGPB), a dedicated relationship approach to anticipate and provide for a HNI customer’s needs in 2002 gave it an edge with respect to its foreign competition and provided its banking business in India with a big boost. In this format, company representatives maintain one on one relationships with the demanding HNIs and help them with their portfolio needs.

But that does not mean that the bank has completely closed its eyes on the other segments of the society, which make over 90% of India’s total population. As a part of its microfinance program, the largest amongst foreign banks in India, ABN AMRO, with micro-finance institutions (MFIs) as intermediaries, is aiming at delivering credit to rural poor women. In fact, today, the bank services 26 MFIs across 16 states in India with over 3,90,000 customers, receiving small loans of $200 or less. “It’s our belief that business can succeed only in a society that is inclusive. Thus, in a developing economy like India, where agriculture is the source of occupation for over 70% of the population, priority sector lending plays a key role in the growth of the nation and the development of its people,” avers Meera Sanyal, Country Executive – India, ABN AMRO Bank.

Though, as a part of its efforts to get over the slowdown blues, RBS has placed its Asian Retail & Commercial Banking business in the “Non-Core” assets category, which it plans to dispose off in the next 3-5 years, the Edinburgh-based bank still remains strong in its major Asia Pacific hubs which include Hong Kong, Singapore, Tokyo, Sydney, China and India. But then, one cannot defy the numbers! As per a statement by RBS in February 2009, “impairments in the Asia retail and commercial banking increased by 44% to Rs.13.63 billion, reflecting an increase in provisioning levels across a number of consumer finance markets in the region.” This really put in a question mark on the future of ABN AMRO’s retail and commercial banking operations in India, which employs about 25% of the bank’s total workforce in India (ABN AMRO is present through 31 branches & has 10,000 employees in India).


Source : IIPM Editorial, 2012.

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Tuesday, October 23, 2012

IRAN/KOREA: DISSIMILARITIES

Iran can’t be treated like N.Korea

Iran has a gigantic economy with its GDP at a staggering $0.82 trillion (in PPP) which is 20 times that of North Korea’s lopsided GDP of $40 billion; lopsided, because there are almost no small businesses allowed in North Korea, an essence of growth. Most importantly, Iran is witnessing a political transformation with the recent open protests, which clearly not only showed that such open protests are ended by negotiations and legal arrests and not by massacres (as happens in North Korea), but more importantly also show that there is a burgeoning community within Iran that is not anti-Obama and is looking forward to him to make a difference. This is unlike North Korea, where generations are still being fed anti-US rhetoric by the Kim Jong clan, and free media is a sham.

Obama has to treat Iran better than Korea. Most because the seemingly religious Islamic Republic of Iran is supremely democratic; and the seemingly people loving Democratic People’s Republic of Korea is supremely non-democratic!


Source : IIPM Editorial, 2012.

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Monday, October 22, 2012

Are you Game for the Big Game?

If you feel like unfolding the magic of a perfect vacation at your own pace then Port Elizabeth welcomes you to taste the best of wines, live in a vineyard hotel, encounter sharks, whales and penguins, get up close and personal with some rare wild animals, relax on a serene picturesque beach or sweat it out by hiking on a mountain. Port Elizabeth is soothing and energising at the same time due to its unhurried lifestyle. It may sound like a whirlwind trip, but in South Africa an entire catalogue full of adventure is at your sweet disposal.

Explore the wonders of this place and unpack your dreams one by one. Port Elizabeth is a heady concoction of a variety of fun activities to choose from. Explore the King’s beach, which is also famous for its flea market. For those who like to try their luck, must visit The Boardwalk, which has the best of casinos, eateries and shopping outlets. A holiday is incomplete in Africa without a visit to the wild. After stretching out at the beach it’s better to doubt your wisdom each time you come a bit too close to wild cats...! A drive to Shamwari Game Reserve for a thrilling midnight safari or game drive would be ideal, and if you are lucky then you might just have goose-bumps once you spot the Big Five.

After a thrilling adventure it’s time to appreciate the scenic beauty of the Garden Route drive, which could start at Port Elizabeth and could stretch to Knysna, where a wonderful sumptuous meal awaits you before you set off again for a sunset dinner cruise on the lagoon. An enthralling experience would be to go for an ocean safari and if you get lucky the second time over, you might encounter the whales taking a breather alongside your cruise-liner. A very scenic drive to Outdshoorn would be carved in your memory for several reasons such as the sheer pleasure of the drive or else for the adventure and fun that awaits you at the ostrich farm. At the ostrich farm you can eat, ride or buy ostrich-related stuff. Once done with a healthy and filling lunch at the ostrich farm, you could sweat it out at the Cango Wildlife Ranch, which surely is a must for those travelling with kids.


Source : IIPM Editorial, 2012.

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Saturday, October 20, 2012

“It is a milestone for us to be able to turn cash flow positive...”

Sunil Bharti Mittal is exuberant as the company announces its first dividend since it started the business

Sunil Bharti Mittal, Chairman, Bharti Group discusses the company’s future plans in an exclusive interaction with Surbhi Chawla of B&E:

B&E: On the occasion of Bharti achieving a 100 million subscriber base, we would like to ask you – what are the offerings in store for the shareholders of the company?
SM: We are currently in the 15th year of operations and celebrating 100 million subscribers. Airtel has managed to be profitable but we are still to be cash flow positive. Only a few weeks back, we announced the maiden dividend of this company after 15 years. People were actually looking at waiting for one more year that is when we would have turned cash flow positive, before we could give the dividend to our stakeholders. However, on the basis of the demerger of our private company, we had the headroom this year and hence were able to give some dividend. The fact is that Airtel has invested Rs.70,000 crore in setting up hard infrastructure. There are a very few industries wherein companies have to invest such huge sum of money. Even the maintenance cost of the infrastructure sums up to about Rs.20,000 crore per year. So, it is a milestone for us to be able to become cash flow positive. One should remember that this is a tough industry and one need to keep on investing; so the profitability should be measured along with the investments that are required.


 
B&E: When you started operations in 1995, at that time there were spectrum wars and this still continues to be an important issue. In the times to come, how do you see the spectrum being allocated? Will it be subscriber lead as was the norm or are you in favour of auctioning of the spectrum? SM: I must say that spectrum is an issue that concerns all mobile operators in the country. It is the lifeline and the oxygen on which we breathe and live. All of us in the telecom industry want a single regime under which the spectrum is allocated to those who need it and we are absolutely aligned to the government process, in the form of auctioning of the license. We have no difficulty in whatever the process be. But at the end of the day, we want a stable regime and it should be only one process that is being followed. Earlier, the department felt that we needed to have spectrum on the basis of number of subscribers and this practice is not followed anywhere else in the world, but it was fine then and now there are talks about auctioning, we are ok with that too as long as it is a stable regime that is universally applicable to all the players. We already have the lowest spectrum as compared to anyone else in the world and packing more and more customers is becoming increasingly difficult; we have two of the largest companies in the world with us here and they would endorse this point that as we go further, it would be essential to have more spectrum.


Source : IIPM Editorial, 2012.

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Friday, October 19, 2012

Those spaceships are long lost!

The IT bubble burst long back, and with it, did many fortunes...

The last decade of 1990s was a dream run for internet start-ups, and anything even faintly related to “.com” syndrome would be lapped by investors like hot cakes, without paying much heed to what the company does or the kind of potential it holds. This was where the bubble began, and this was in itself responsible for its bursting! It began in 1995, peaked on March 10, 2000 when the NASDAQ reached 5,048.62 points before bursting... During this entire period, the stock markets of US and other western countries saw the bulls in total control, especially with regards to the Internet and technology companies. Moreover, most of the Internet companies that were aggressive during these times were financed either by VCs or IPOs. And when this bubble burst, there was mayhem at the stock markets. What triggered the burst of this bubble was a massive multi-billion dollar simultaneous sell order from leading technology companies such as Dell, Cisco and IBM. Though it is said that this initial sell-off was just a coincidence, but it was too strong for investors at the NASDAQ to handle. Between March 2000 and October 2002, the Internet and technology companies shed a whopping $5 trillion in market value!

Different analysts have their own reasons as to what led to the crash-landing. Some say that it was a result of the ‘irrational crowd behavior’ that led people to believe that there was substantial value to be made in this field of business. Others however feel that this was a result of lack of information about this new domain, and their inability to ascertain the asset value, which drove rational people to commit this mistake. According to Rob Enderle, Technology Analyst, “The Dot com bubble burst, because it was feeding frenzy on Internet stocks and investments without any adequate financial controls or acceptable business practices. Folks acted like they were going to be measured on how much money they could spend in the shortest period of time.” Another opinion points out that the business model that these Internet companies followed at that time was flawed.


Source : IIPM Editorial, 2012.

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Thursday, October 18, 2012

Numbers that did not lie

Godrej made a major mistake by not capitalising on ‘No.1’

T he Godrej Group had strong roots in India’s freedom struggle. Founder Ardeshir Godrej was fanatically inspired by Gandhi’s Swadeshi movement and felt a genuine commitment towards making India economically self-reliant. Ardeshir laid the foundation of diversification for Godrej from locks to soaps in 1920. Christened as ‘No.2’ and made from vegetable oils, this soap stole the show from foreign soaps, as it respected religious sentiments by replacing animal fats from which foreign soaps were made. Moreover, it was promoted by the then freedom-fighters and renowned social reformers like Rabindranath Tagore, Dr. Annie Besant, Mahatma Gandhi et al! He later launched ‘No.1’ soap with a lingering rose perfume. The reason behind launching ‘No.2’ first and then ‘No.1’, is explained in the book ‘Godrej – A Hundred Years’ in Ardhesir’s own words, “If people find No.2 so good, they’ll believe No.1 to be even better!”

So where was the blooper? Ardeshir was a deft marketer; but he didn’t care much about minting money from the venture. So our restless protagonist moved on to newer avenues. In 1929, HLL entered and rolled out Lux in India, with the punch line ‘the beauty soap of the film stars’; followed by the entry of Pears Glycerine soap. Godrej Soap was overshadowed by these new players. Post independence, the entry of more global biggies (like Procter & Gamble), put a stymie in the success of ‘No.1’ and ‘No.2.’ Later Godrej came back to the soap arena with brands like Cinthol, but by that time, HLL was miles ahead.


Source : IIPM Editorial, 2012.

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Wednesday, October 17, 2012

GLOBAL TRADE: PROTECTIONIST POLICIES

Protectionist policies will save your companies, but only for so long as they don't beg for euthanasia!

Let''s begin with the Chinese state-owned Aluminium Corporation of China''s (Chinalco) attempt to acquire Rio Tinto. Recently, Chinalco announced that it would invest $19.5 billion to acquire an 18% stake in the debt-ridden Tinto. This is clearly with a ''protectionist'' motive to insulate its domestic industry from falling prey to global forces. The deal will also allow Chinalco to enter the UK market, which is largely controlled by Rio Tinto. “The transaction will forge a pioneering strategic partnership through the creation of JV in aluminium, copper, and iron ore,” states a Rio Tinto release. Then there is the Coca-Cola case. The government has flatly disapproved the American''s $2.4 billion bid to acquire Chinese juice company, Huiyuan, as that would grant it a 46% grapple-hold of the Chinese juice market. Hope Lee, Senior Analyst, Euromonitor avers, “Full acquisition means Coca-Cola will penetrate the Chinese juice supply chain deep...”

While ego-satisfaction can justify China''s protectionist policy, it also leads to many disadvantages like stagnation of funds, as Matthew Phillips, Transaction Leader, China states in a PwC Bulletin, “Chinese companies still have money and government support to invest abroad...” Today, we have two; tomorrow there will be more, giving shivers to cross-border advocates... But isn''t the ''American turn'', the only ''right'' turn? We''re confused, but God isn''t! God save America!


Source : IIPM Editorial, 2012.

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Tuesday, October 16, 2012

The UPA gave a great lesson

The UPA gave a great lesson in coalition politics – form GoMs whenever allies question you. But these groups achieved little, says Pramod KUMAR

Therefore, to be able to postpone answers to their questions, GoMs were formed. “Whenever we criticised the government’s bad policies, they would compromise and would either send the issue for revision to the concerned ministry or quickly form a GoM,” CPI (M) Politburo member Sitaram Yechury tells B&E. Even the veteran BJP politician Ravi Shankar Prasad holds the same view. According to him, PM Manmohan Singh is himself not happy with the government’s tenure and has marked his own performance a 7 out of 10.

“We feel that whenever government’s policy decisions were put under scanner by the communist parties, the government just formed GoMs to somewhat delay those decisions. And once the Left was out of the government, these pending decisions were imposed on them forcefully,” avers Prasad. Maybe this is the reason why PM himself blames GoMs for being the biggest hurdle in the functioning of UPA. In fact, looking at the number of GoMs formed, it would not be an exaggeration to call the UPA a GoM government.

However, Congress leader and former Commerce Minister Jairam Ramesh feels that GoMs were formed to re-think and to bring about the necessary amendments on some very important policy issues. “To fulfill the responsibility of a coalition government, we were always open to and respected the Left’s suggestions. We tried to do it with the help of GoMs. The opposition is trying to make an issue out of it because they are left with nothing else,” counters Ramesh. Nevertheless, one does feel that a few successful GoMs wouldn’t have harmed!


Source : IIPM Editorial, 2012.

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Monday, October 15, 2012

This peace is a tough bet

After the conflicts, the next one year will be deciding force for Ireland

In what has compelled a section of British politicians and analysts to claim that Northern Ireland is once again staring in to “abyss”, the Continuity IRA, a splinter cluster of banned Irish Republican Army (IRA) has shot a police officer and two British soldiers dead. The assassination is a first for a police officeholder in Northern Ireland since 1998. Also, it was for the first time that officers of the elite PSNI (a special force to counter terror activities) were targeted since this paramilitary force was incepted in 2001. Things had changed considerably following the peace deal. The deal saw the disarmament of IRA in 2005 followed by a unity Catholic-Protestant government in 2007.

Response to the incidents has brought quick denunciation from Sinn Fein, the Irish nationalist party that was once close to IRA. However, their statements have been cautiously attuned – calling the “actions” as “counter-productive” and evading until pushed, the word “murder”.


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Saturday, October 13, 2012

UPA: PRE-POLL SOPS

The government's slew of sops on the eve of polls would not bring them the desired results

Opines Shantayanan Devarajan, World Bank’s chief economist for South Asia Region, “Politicians are more interested in cutting ribbons than ensuring better maintenance of the existing project. They prefer to inaugurate a school building rather than supervise teachers'' attendance in already running schools”.

But do such last minute sops influence voters? Disagrees Organisation for Reasearch, Survey and Analysis director S.K.Varma, “These five minutes of hard-work won’t serve any purpose. It’s a usual folly of the leaders to take the electorate as blind fools. Now people consider the ruling party or present incumbent MPs’ performance for all the five years and not just a five-day gimmickry towards the fag end of their tenure."

But politicians don’t think in those terms. They feel it is their duty to fulfill their promises – howsoever notional it may be – before going back to the electorate. “We are answerable to our electorate. We can’t fool them all the time. This is why, each person wants to at least lay a foundation stone of a promised project or inaugurate it, in case the project is ready”, says Rajesh Varma, leader of BSP Parliamentary party in the outgoing Lok Sabha. Perceptions are bound to change, depending upon the the side of fence you are. Opposition BJP leaders are obviously critical. “What were they doing for past five years? Had they worked efficiently, they could have easily avoided the last minute rush”, says BJP MP Manoj Sinha. The grass may be greener on the other side, but politicians shouldn’t leave bulk of their work for election-eve. This isn''t the festival season, where consumers will buy products on the basis of last minute promotions. It''s the whole five year package that counts when it comes to elections.


Source : IIPM Editorial, 2012.

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Friday, October 12, 2012

Shareholder wealth? (Which language?!)

You can curse him a million times for emptying your pockets; you can praise him a billon for saving other companies... Call him a ‘hero’; call him the ‘Don Quixote’ who led The Bank of America!

Many still ponder over how he could ‘give-in’ to his hidden penchant for the half-dead loss maker, Merrill Lynch (ML) on New Year Day (a cumulated net loss of $37.85 billion during FYs 2007 & 2008). Many still ponder over why he was booted out by Time from its list of the ‘World’s 100 Most Influential Leaders’ in 2008. Many still ponder over whether Bank of America (BofA) will beg for more than ‘just’ the $45 billion Fed-aid (and a further $118 billion worth of guarantees against bad assets). But none ponder over whether Kenneth Lewis, Chairman & CEO, BofA has been credible enough to steer the great American financial ship... He’s done his job well, and despite the fact that February 4, 2009, marked the ‘worst valuation day’ in decades for BofA (with the bank eroding close to $125 billion in Mcap since September 14, 2009; its shares touching a 25 year-old low of a paltry $3.77!), there is no denying that Lewis is the man of the hour for BofA (what?!?).

So what makes us put forward such a claim? Let’s do some reality check here – weren’t the very same critics showering hymns of praises upon Lewis, as recently as 5 months back, when he stepped in boldly to save Countrywide Financial and ML from the vagaries of the meltdown? Yes, the move backfired, but can we so very easily cast that heavy tattered hat of shame on his head, while all he did was to make an effort, even putting his hard-earned reputation on the firing line of all earnest shareholders?

“There were others that wanted to make an investment in ML. Even now, on a longer-term basis, that brand has a lot of value,” is how Lewis publicly defends his act. Shame, we even question him on a decision that only cost BofA ‘way-too-dearly’ in stocks. And in reaction, investors of BofA filed a proposed class action against the entity, on January 20, 2009, charging its top officers on grounds of incomplete information sharing about the health of ML. Even Cassandra Toroian, Analyst, Bell Rock Capital feels, “They were probably one of the best banks out there, balance sheet-wise, until they did the Merrill deal.” In short, the whole feverish situation was self-inflicted! So what lesson can we learn from 61 year-old Lewis’ ‘Don Quixotic’ heroic tale?
 

Source : IIPM Editorial, 2012.

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