Business

India’s main stock exchange -- the BSE SENSEX -- delisted Satyam Computer Services from its indices Thursday, a day after the company’s chairman resigned saying he had inflated the company’s profits for years.
The stock exchange took the steps soon after Satyam’s interim chief executive officer held a press conference Thursday to say that the company’s immediate goal was to continue its operations uninterrupted.

Satyam, India’s fourth-largest software-services provider, serves almost 700 companies, including 185 Fortune 500 companies, and generates more than half its revenues from the United States.

After Chairman B. Ramalinga Raju confessed that he had inflated profits with “fictitious” assets and non-existent cash, stocks of the Hyderabad-based company plummeted more than 70 percent and the BSE SENSEX fell 7.3 percent Wednesday.
Raju said the balance-sheet padding began several years ago to close “a marginal gap” between actual operating profit and one reflected in the company’s accounting books. It continued through the years, he said in a letter to the company’s board of directors.

The deception came to light after Raju tried to plug the hole by getting Satyam to buy his son’s construction companies. The acquisition was “the last attempt to fill the fictitious assets with real ones,” he wrote in his letter. (CNN)

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British interest rate hits lowest since late 17th century

 The Bank of England on Thursday cut its key lending rate by half a percentage point to 1.5 percent, the lowest level in its 315-year history, to ward off any threat of deflation amid a sharp economic downturn.
The monetary policy committee’s decision to cut the rate from 2.0 percent left British borrowing costs at their lowest level since formation of the Bank of England in 1694.

“The committee judged that, looking through the volatility in inflation... there remained a significant risk of undershooting the 2.0 CPI (consumer prices index) inflation target in the medium term at the existing level of Bank Rate,” the Bank of England (BoE) said in a statement.
The bank action reflected concern that inflation could fall toward zero, which on top of a looming recession, could strangle the economy.

“Accordingly, the committee concluded that a further reduction in Bank Rate of 0.5 percentage points to 1.5 percent was necessary to meet the target in the medium term.”
The Bank of England said that the world economy appeared “to be undergoing an unusually sharp and synchronised downturn.”
It added: “Measures of business and consumer confidence have fallen markedly. World trade growth this year is likely to be the weakest for some considerable time.”

The Bank of England believes that Britain is already in recession although this will be confirmed officially only following publication of economic growth data later this month.
Britain’s economy contracted by 0.6 percent in the three months to September compared with output in the previous quarter, the country’s official statistics body said recently.
That was the steepest quarterly drop since 1990 but Britain is not officially in recession until it reports two quarters running of negative economic growth, or contraction.

The Bank of England has embarked on a policy of sharp rate-cutting since late last year, in line with the US Federal Reserve and European Central Bank (ECB), as the global economy grapples with its worst period since the 1930s Great Depression.
“Faced with increasingly dismal economic news the Bank has decided that record low interest rates are necessary to wrestle the economy from the throes of recession,” Martin Slaney, head of derivatives at GFT, said Thursday following the BoE’s latest policy decision.

“The size of the cut was widely expected and reflects the sheer glut of bad news across the board, from the housing market to manufacturing, services and on the high street.
“Despite the historical nature of the Bank’s move, it is increasingly apparent that rate cuts alone may not be enough if they do not stimulate lending. We are now in uncharted economic territory,” added Slaney.
According to a newspaper report on Thursday, the British government was considering whether the BoE should expand money supply to boost lending and kick-start the economy.

The Times newspaper, which cited a senior government source, said British Finance Minister Alistair Darling and BoE Governor Mervyn King were looking at introducing a policy of “quantitative easing.”
Such an approach -- already adopted by the US Federal Reserve -- would allow the BoE to effectively print money to pump it into the system and stimulate lending amid the ongoing worldwide financial crisis.

“We expect the Bank of England to cut interest rates again in February and to bring them down to a low of 0.25-0.50 percent in the second quarter,” IHS Global Insight analyst Howard Archer said on Thursday.

“Indeed, it is very possible that they could come all the way down to zero. In addition, it seems ever more likely that the Bank of England will engage in some form of quantitative easing over the coming months, in tandem with the Treasury.”
Meanwhile with Thursday’s rate reduction less sharp that some analysts had expected, sterling rose back above 1.12 euros after falling to almost parity over the Christmas period. (AFP)

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Dubai dream turns sour as job losses mount

DUBAI (AFP) — Dubai’s rapid expansion in recent years provided jobs for millions. But the global financial meltdown has abruptly ended the dream for many people as more and more firms sack staff to cut costs.
Spectacular economic growth, spurred by a robust construction sector, lured people from far and wide to the booming city on the shores of the Gulf, tempted by high pay, low tax and - for many Europeans - the year-round sunshine.

Foreigners form most of the population in Dubai and with residency permits linked to employment many of the people who are losing their jobs face the added upheaval of leaving the country.

“I don’t feel that I was wronged. This is business... But I would have preferred a cut in my salary rather than being sacked,” said an Arab man who was let go by government-controlled property group Nakheel.
Another former Nakheel employee: “Only four days before we were given the termination letter, our director told us in a meeting that the situation was very difficult and that the budget for our project had been cut by nearly three quarters.

“It was too quick,” said the 30-year-old employee who was sacked at the end of November as one of 500 employees -- 15 percent of the workforce -- who lost their jobs.
Nakheel has its fingerprints on most of Dubai’s iconic projects, including three palm-shaped artificial islands and a cluster of islands in the shape of a world map.

It unveiled in early October another gigantic project to erect a one kilometre high tower, which, if ever built, would dwarf the unfinished Burj Dubai, currently standing around 700 metres (765 yards) high.
“We have the responsibility to adjust our short term business plans to accommodate the current global environment,” said a Nakheel statement announcing the redundancies, which it described as “regrettable, but a necessity dictated by operational requirements.”
Property sold like hot cakes for the past few years but demand has slumped amid the global credit crunch as panicking investors and creditors fled the market.

All of sudden, the viability of the grandiose property projects has become questionable.
Nakheel’s job cuts programme is one of the largest so far in the United Arab Emirates, but is far from the only one.
Damac Properties, Dubai’s largest private property developer, cut 200 jobs, or 2.5 percent of its workforce, in October.
“We’d been growing in sales by 100 percent a year, but it is not the same now. If the market gets worse, we will have to let more people go,” Damac chairman Hussein Sajwani said this month.

Al-Shafar General Contracting said a few days ago it was laying off up to 1,000 workers as its order book has dropped by three billion dirhams (817 million dollars) since September.
Emaar, the other local property giant, said recently that it was revising its recruitment strategy and reportedly laid off 100 workers last month.

Omniyat has shed 69 jobs out a 350-strong workforce and Tameer has reportedly notified 180 employees that December 31 will be their last working day.
The job losses have spread beyond property jobs to the financial sector. Shuaa Capital investment bank, for instance, has cut 21 jobs, or nine percent of its manpower.
Companies in Dubai and the rest of the United Arab Emirates were until recently on a hiring spree.
Some 640,000 work permits for foreigners were issued in the first quarter of this year, 306,000 in Dubai alone, according to a study published last week.

The study put the population of the UAE at 6.4 million by December 2007, among them 5.5 million foreigners. Over three million were registered with the ministry of labour, i.e. were workers.
Ex-patriate people who lose their jobs in Dubai or other Gulf countries have to pack up and leave within one month, a potential life wrecker for many families.

Employers are supposed to notify the banks of their sacked employees about their contract termination, potentially prompting the banks to demand repayment of any loans before the employee leaves the country.
Nakheel has taken this into consideration by keeping fired employees on its payroll for three months, enabling them to stay until the end of February.

“Our banks will be informed by February 1,” said one of the Nakheel former employees, who added that he was lucky not to have loans to pay, unlike many others in the UAE who took advantage of easy credit over the past few years.
Many Nakheel employees have invested their savings in property being developed by the company and people who are sacked face losing that money.

“We’ve invested in Badrah, in the Waterfront project. What will happen to our investment and how are we going to pay the coming instalments?” wondered another of the Nakheel employees facing redundancy.
The whole of the ambitious Waterfront development appears in doubt as Nakheel has scaled back work on the project, as well as on other schemes.

However, at least one entrepreneur is seeking to turn the job losses to advantage.
A three-star hotel in a city has offered free meals for diners with redundancy letters. Very few have reportedly taken up the offer, but the hotel has elicited significant publicity.

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Are people giving up wearing clothes?

A woman walks past the Victoria’s Secret store in midtown Manhattan January 8th, 2009 in New York. Victoria’s Secret stores sales were down 9 percent in December (AFP Photo)

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Dell set to cut 1,900 Irish jobs

Computer giant Dell is to cut 1,900 of the 3,000 jobs at its manufacturing site in Limerick in the Irish Republic. Dell said the move - which will see production moved to a new factory in Poland - was part of a $3bn global cost-cutting effort.
The firm has seen global profits slip because consumers are buying fewer computers as they rein in spending. Local business leaders predicted the decision would put a further 6,000 jobs in related industries at risk.

Difficult decision
Vice-president of Dell’s operations in Europe, the Middle East and Africa, Sean Corkery, described the cuts as a “difficult decision but the right one for Dell to become even more competitive, and deliver greater value to customers in the region”.
The remaining 1,100 Dell staff will primarily work in product development, engineering and logistics, focused on supporting overseas manufacturing.

The cuts are not set to affect the 1,300 marketing and sales staff at Dell’s Cherrywood plant in south Dublin.
Dell opened its first operations in the Irish Republic in 1990, and employed more than 4,500 staff at its peak.
It is the country’s biggest exporter and second-largest company, accounting for about 5% of Irish GDP.

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Lenovo to cut 2,500 jobs, restructure

Personal computer maker Lenovo, expecting to report a loss for the third fiscal quarter ending December 31, announced it would cut 2,500 jobs as part of a restructuring expected to save $300 million.

The cuts comprise about 11 percent of the Chinese computer manufacturer’s global workforce.
“Although the integration of the IBM PC business for the past three years was a success, our last quarter’s performance did not meet our expectations,” Yang Yuanqing, Lenovo’s chairman of the board, said in a statement. “We are taking these actions now to ensure that in an uncertain economy, our business operates as efficiently and effectively as possible, and continues to grow in the future.”

Hong Kong’s Hang Seng index suspended trading of Lenovo shares Wednesday, anticipating the announcement. The trading is to resume Thursday.
The job cuts, to occur during the first quarter, will include management and executive positions and also affect finance, human resources and marketing divisions, the company said.

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SFO opens UK Madoff investigation

The Serious Fraud Office has said it is to open an inquiry into Bernard Madoff’s business operations in the UK.
The investigation will focus on UK victims and any offences that may have been committed in the UK, the SFO said.
Madoff is accused of running a fraudulent $50bn (£33.2bn) scheme that wiped out many investors.
The SFO has called for anyone who has had dealings with any of Madoff’s UK businesses - including ex-employees - to assist in the investigation.

“There were many UK and European investors in Madoff’s funds and in funds under his management,” said Lisa Osofsky, former Deputy General Counsel for the FBI, now working for consultants Control Risks.
“This will be an easy jurisdictional hook for the UK authorities. Not only are there UK victims, but likely UK contracts, promises made here, and losses here.”

House arrest
The swift action follows revelations before Christmas in the US about Madoff’s operations, as well as concerns from UK investors - some of whom fear they have lost several million pounds.
“The public say they want us to take early action and this is what we are doing,” said the SFO’s director, Richard Alderman.
“We will work closely with other law enforcement agencies to discover the truth behind the collapse of these huge financial structures.”

US prosecutors allege that a bogus business, run by the former Nasdaq stock market chairman, involved existing investors’ returns being funded by cash from new investors - a fraud known as a Ponzi scheme.
Among the first to admit potential losses was the Royal Bank of Scotland - 58% owned by the taxpayer - which said £400m was at risk in hedge funds.

Meanwhile, Spanish bank Santander, which owns Abbey and the savings business of Bradford & Bingley, has said its potential exposure is more than £2bn.
Mr Madoff is currently under house arrest in his New York penthouse.
His $10m bail is covered by that home as well as his houses in Long Island and Florida.
A parallel civil case has also seen his assets frozen.

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India’s Madoff? Satyam Scandal rocks outsourcing Industry

By Manjeet Kripalani
On the morning of Jan. 7, Ramalingam Raju, the chairman of troubled Indian IT outsourcing company Satyam Computer Services (SAY), sent a startling letter to his board and the Securities & Exchange Board of India. Raju acknowledged his culpability in hiding news that he had inflated the amount of cash on the balance sheet of India’s fourth-largest IT company by nearly $1 billion, incurred a liability of $253 million on funds arranged by him personally, and overstated Satyam’s September 2008 quarterly revenues by 76% and profits by 97%.

After submitting his resignation, Raju ended his letter by apologizing for his inability to close what began as a “marginal gap between operating profits and the one reflected in the books of accounts” but grew unmanageable. “I am now prepared to subject myself to the laws of the land and face the consequences thereof,” he wrote.
The letter shocked and angered corporate India, which has looked to IT executives as role models for a new breed of Indian entrepreneurs.

The benchmark Sensex stock index dropped 7.3% and Satyam shares fell nearly 78% on the day as investors fled in droves.
Goldman Sachs (GS) suspended its recommendations on Satyam “because there is not currently a sufficient basis for determining an investment rating or price target for this company,” Goldman analysts Julio Quinteros Jr. and Vincent Lin told investors.
Earnings per share, warned JPMorgan (JPM) analysts in a report, “may be 70%-80% lower than reported numbers and consensus estimates for ‘09-’10.”

Satyam had become “India’s Enron,” said CLSA India analyst Bhavtosh Vajpayee, calling the case “an accounting fraud beyond imagination [and] an embarrassing and shocking episode in Indian corporate governance.”
As executives at other Indian outsourcing companies nervously assess what impact the scandal will have on them, many industry observers now argue that the Satyam case will damage India’s reputation as a reliable provider of IT services.

Because of the Satyam scandal, they say, Indian rivals will come under greater scrutiny by regulators, investors, and customers. “The bubble is going to burst in terms of trust,” says a fund manager in Hong Kong who has followed Satyam closely.

Doubts about the reliability of Indian outsourcers are especially important, since customers often allow the Indian companies access to sensitive systems. “This industry doesn’t just make widgets,” the manager explains. “It’s an intimate relationship.”
Certainly, says Gartner (IT) analyst Diptarup Chakraborti, “there will be caution in the short term, skepticism, and questioning.” After all, “no one wants to do business with a known fraudster.”

Investors want answers
Industry executives are desperately trying to contain the fallout. “The decline in governance and institutions represents a serious challenge to India,” says Rajeev Chandrashekhar, president of the Federation of Indian Chambers of Commerce and Industry.
Wipro Technologies (WIT) Chief Financial Officer Suresh Senapaty, went on TV to say that Satyam’s actions should not infect the entire Indian IT industry. And Mohandas Pai, head of human resources at Infosys (INFY) and the company’s former chief financial officer, argued Satyam’s behaviour is atypical.

“We wish the regulators will investigate and punish the guilty,” he says. “But this is not representative of our industry.” John McCarthy, vice-president of Forrester Research, allays some fears. “I look at Satyam as an isolated case, and don’t think the developments would have any impact upon India’s No. 1 position as an offshore location.”

Rocky ride
For instance, they’re demanding to know how Satyam’s auditor, PricewaterhouseCoopers, endorsed the company’s accounts. “Auditors’ complicity in what seems to be a multiyear misstatement of financials will also be explored,” said CLSA’s Vajpayee in his January 7 report.

Already, India’s Registrar of Companies had begun a probe into a failed acquisition last month by Satyam of companies run by Raju’s two sons. Now the country’s securities regulator will add its weight by investigating the PwC audit. PwC issued a statement saying it was examining the issue.

Raju’s confession is the latest in a rocky ride for Satyam, its shareholders, and its stakeholders over the past year. The company’s clients include multinationals such as Nestlé, General Motors (GM), and General Electric (GE).

But in September, the World Bank banned Satyam from doing any of its work after it found Satyam employees had hacked into its system and gained access to sensitive information. It also did not renew their five-year contract. Satyam denied any wrongdoing.

Then came a fresh blow on December 16, when Raju announced the company would spend $1.6 billion to buy two infrastructure companies run by this sons, only to reverse the decision a few hours later under shareholder pressure. Satyam ADRs lost 50% of their value overnight.

December also brought news of pending litigation by a former client, online mobile-payments service Upaid Systems, which filed a case of intellectual fraud and forgery against Satyam in 2007; a Texas court is scheduled to conduct a hearing on the case January 7. (BusinessWeek – India)

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