Sep 15, 2008: Lehman Brothers was the 4th largest investment bank in the world. Why was Hank Paulson smiling the day Lehman Brothers was declared bankrupt? Did he play a role in the denial of US Govt support for Lehman Brothers at a critical juncture? Nobody knows that. But what one surely knows is that Hank Paulson is ex-Goldman Sachs and Goldman Sachs is a long term beneficiary of Lehman Brothers fall. Agreed that Lehman had much higher leverage (about 40x) than its peers (20x), so their balance sheet was much higher in risk. But if US Govt could support other large financial organizations like AIG, Fannie Mae and Freddie Max, maybe they should have offered some “short term support” to Lehman Brothers too. In credit crunch situation, time is all that one needs, and with a bit of time, Lehman could have got a chance to get sell some of its assets to raise capital or raise fresh capital from its long term investors globally. The US Govt’s/ Fed’s attitude of “not a single dollar to support you” towards Lehman Brothers was not logical and it harmed the global financial markets, including US economy.

Some people in Wall Street with influence over the US Govt and US Fed were thinking long term, and they saw a clear opportunity to eliminate one key player. Nobody puts such business strategy on power point slides. The timing was perfect, and when the economy picks up again, there will be one less competitor for the big deals. Think about it.

Barclays and Nomura bought valuable pieces of Lehman Brothers in the distress bankruptcy sale, and have made themselves stronger for the next upturn. Good show by them. They will be Goldman Sachs competition in future.

For information regarding the Chapter 11 Filing of Lehman Brothers Holdings, please visit www.lehman-docket.com

Answer: Here is a list of basic questions they will are very likely to ask you:

• Have you ever been in sales before? If so, what was your closing ratio?
• What do you know about our company/products/industry?
• What is the most difficult problem you have ever solved?
• Explain a time when you have worked effectively under pressure.
• Explain something that you have attempted and failed. What did you do next?
• How do you feel that your personal or academic background fits with the position that you are seeking?
• What do you believe will be the biggest challenges of this position?

The demand-supply situation for job is highly favorable towards the employers, i.e., htere are more candidates than jobs. Try to share examples from your past work, and if possible, ask the intervieweers to call your previous managers, or references on the phone. Positive references help a lot in all kinds of job interviews, from entry level jobs to the senior  executives, and company board positions.

All the best!

UK HMRC at melting point

There are a million pieces of unanswered post. It will be taking 3 months to answer them, which itself might increase the problem further if a person has to pay back taxes with interest.

The UK HMRC contact centers are severely under-staffed, and that fact comes out from numerous press reports of people having to wait for a long time just to be able to speak to a tax officer to understand any discrepency in the tax numbers they have with them vs what HMRC is asking from them.

The average tax payment due is about £1400 and about 1.4 million people will receive letters from HMRC by Christmas.

So if you are in the UK and frustrated with not having any response from the HMRC, now you understand that many others are facing the same, and that the staff at HMRC are stretched to the limits already.

As long as you keep the communication from your side intact, it should be okay.

In the short term, the conflict between inflation and growth always exists. As of now, there is no case for raising interest rates, at least till inflation is below 5%. The food price pressure will remain for the next 2-3 months.

Rangarajan sees price pressures due to inflation from growth, and oil prices will play a key role. 9% GDP growth for India is possible after the world economy has come out of recession in FY 2011-2012 by when the global trade will pick up.

Goldman Sachs has posted a quarterly loss of $2.1 billion, or $4.97 per share, on net negative revenue $1.58 billion, down from a profit of $7.01 per share in the same quarter last year. Results for the entire year weren’t actually all that bad; the i-bank posted a profit of $2.3 billion, or $4.47 per share, on revenue of $22.2 billion.

Though some may say its down from an $11.6 billion profit last year, but if you see it with a “grounded perspective”, most of Goldman Sach’s competition is in tatters, or buried already.

To us, a surviving and standing Goldman Sachs represents strength. And they have managed to be significantly less exposed to much of the sub-prime crisis and its toxic derivatives.

More than that, Goldman Sachs has the belief to battle it out. If anyone on Wall Street can do it, it has to be Goldman Sachs. And at their current valuation, they are still a ‘buy’!

GSIBM: Graham School of Investing & Business Management

http://GSIBM.com

It could be considered as an online b-school that’s very practical in its approach, and aims to build business leaders. The program is based on successful business teachings by Ben Graham (and followed by Warren Buffet to produce financial results we all know).

The program has been carefully designed after extensive market research on the business knowledge needs of working professionals at various levels, and it will address a large unmet need.

The program will help working professionals in their career growth with the wide coverage planned: from Finance & Investing, to Sales & Marketing, and Legal Contracts, etc.

You are the among first to get this news, and it will be great if you can share it with others who may be interested, and also bookmark the website: http://GSIBM.com
Best Wishes,
Shankar AVSB for MyOrbit Team

Background:

Financial institutions have been struggling to meet the mandates of bad loans, and the global markets have been showing the effects.

Banks are allowed to lend about 10 times the capital they have on deposit (called CAR: capital adequacy ratio), but multiple banks seem to have not-confirmed to this requirement, and in effect lending much more than their safe limits. Losses on mortgage-related securities have depleted bank capital. Those securities had collapsed with falling home prices, along with increasing defaults and foreclosures.

Now the common annual-deadline-abiding taxpayer of the US will be paying for the lack of accountability by Wall Street Banks, and to an extent the Financial Heads in the US government.

While the US legislation passed a bailout package of $700 bn with good intentions (following great effort by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke)…but the what, when, where, how- are still not clear.

If so much of US tax payer’s money has to be used to rescue poor performing banks…and there’s a reason why they are poor performing …because they gave $500k to $1 million mortagages to almost everyone who asked in 2005-2007 without much due diligence (we heard about NYC road-side pirated DVD sellers getting $500k mortgages!)

And the tax contribution from the people who received those bumper mortagages probably don’t add up more than a few billion dollars, which leaves the majority of common tax payers holding the $700 bn bill….for a lunch they never had!

Initially, the plan was to buy distressed securities of the banks to help clean-up the Balance sheets of the Banks– but that did not sound good. Why should the Govt buy toxic securities which will only cause loss and give nothing much in return?

Updates:

Henry Paulson’s earlier life as an investment banker is now playing a key role in how the bailout solution is shaping up.

Most Republicans and Democrats in the US legislation agree on taking equity stakes in financial institutions, because if government money is going to be used, taxpayers should at least get the chance eventually to profit from the investment.

So the US legislation is now following the approach used by European govts — and will fund the recapitalization. Thankfully, the focus of Paulson’s initial plan — of buying distressed mortgage-related securities to improve banks’ balance sheets and make it easier for them to lend again — is not being shifted to buying equity/holding position in the distressed banks and FIs.

The latest approach of buying equity stake in distressed banks and FIs is a much better option for the taxpayer funds. At least there is an upside if/when some of the distressed banks and FIs do well, the Govt would gain from appreciation of its equity stake. In that sense, the Govt is taking the role of a mega-investment-banker by underwrtiting the securities of these banks and FIs.

However, a small number of print newspapers like the Wall Street Journal have not only survived the online storm; they have done extraordinarily well despite the competition. The newspaper still boasts two million readers a day. Even more impressive, however, is the fact that the paper has transitioned quite well into the online medium. Its online subscriber numbers are staggering as the paper has close to one million members. These are truly amazing numbers and it leads many people to wonder the secret of the Wall Street Journal’s success.

Part of the reason is that although the newspaper is named after a particular street in New York City, the subject matter of the paper is international in scope. There are financial markets all over the world. People involved in these markets require an influx of news on the subject of banking, finance, and the economy.

Whether it is the financial district of modern London or the black Wall Street of 1920′s Oklahoma, people all over the world have required financial news. The Wall Street Journal provided for that need. As a result, it has been reaping the rewards since its inception in an earlier century.

Of course, the ability for the Journal to stay relevant ties in with the foresight to create an online presence. This is no minor feat. Had it not effectively developed a credible online subscription service it would have lost ground to more visionary start ups. Yes, the Journal could have gotten into the game at a later date but this would have been seen as a “follow the leader” tactic and not one of innovation. The New York Times learned this lesson when its late start into online news subscription services never caught on.

How ahead of the game was the newspaper in this regard? Well, the website debuted in 1996. (URL: WallStreetJoural.com) The internet was making its first expansion into people’s homes during this time period. They were well ahead of the curve since it immediately jumped into the fray. Yes, several newspapers had websites but they were sparse and did not truly embody the look and feel of a new media dynamo. The Wall Street Journal Online did and it set the foundation for the future growth that it would soon experience.

Part of the reason for this is that they understood the trends media communications were being directed. Since the Wall Street Journal lived in a realm of dollars and cents, it understood that the future of news would be found in online subscriptions. Traditional newspapers were simply too mired in tradition to grasp this concept. As such, they fell behind while the Wall Street Journal embraced change and rode it to significant new media success.

This is an article written by one of our Wall Street experts of the Wall Street Gemzies page. This Gemzies page is an Online Wall Street Community where fellow experts can share, rate and find websites, videos photos, books and the latest news. We have got some great content on the Wall Street Bull, Black Wall Street and the Wall Street Journal. We invite you to join our Wall Street Gemzies. Article by Marcel_Van_Brienen.

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A few thoughts by MyOrbit: 

The  Wall Street Journal has maintained a prime position in the free market economy, and whether you agree with their views or differ, it is a fact that their view reaches a few million business/financial professionals, and hence has the ability to make tremendous positive or negative influence on any topic they touch.

That said, the online medium, including blogs and websites like ours, are playing an increasingly important role in providing the raw material/ stories that ultimately appear on the pages of Wall Street Journal. The advances in online media have made it possible to get noticed rapidly. For example, Many reporters regularly pick stories from the top social bookmarking sites like Digg and Stumble-Upon.

These are interesting times, and Wall Street Journal surely has made itself comfortable in the online space, which in way, ensures its survival and leadership position in the coming years.

It’s a long video… if you are in a rush, here’s our summary of the various Q&A:

Q1. What do you look for in the people you like to work with?
WB: I like to work with people I like. I don’t look at their CVs or Grades to decide who can do what. In fact, I don’t even look if they have a degree. If you are working with people you don’t enjoy, please do yourself a favour, and leave the job and work with people you like. You’ll do better.

Q2. What kind of businesses do you like to invest in?
WB: I want to invest in businesses that are stable and where I can visualize it 10 years from now. Companies like Coke (soft drinks), Gillette (mens shaving blades) are examples of my investment choices. There are many others like GEICO (automotive insurance), Nebraska Furniture Mart (maximum sales from a single store location in the US), Iscar Metalworking Company (an industry leader in metal-cutting tools from Israel). I don’t have the understanding of technology-intensive business like software etc, and I stay away from them.

Q3. How do you do business valuation? How detailed is it?
WB: I like to invest in businesses where I have great comfort with the business owner. A paragraph is often sufficient to know the business value. The example being Nebraska Furniture Mart owned by Mrs. Rose Blumpkin, who recently turned 101 years, who has no formal education but has great common sense.

Q4. Tell us some of your bad decisions and what you learned from them?
WB: I invested in US Air though it was a difficult sector. Call it Temporary Insanity. I have learned that my bad decisions have happened when I had more cash than necessary. The airline industry is one step forward for mankind, a giant step backward for capitalism! And then there are other mistakes that conventional accounting does not capture, like the selling of 5% stake in Walt Disney (at $6m) within a year of buying it (at $4mn) in the 1960s. Today that stake is worth over a billion dollars.

Q5. Why not split the Berkshire Hathaway share to make it more affordable to investors?
WB: I think of my investors as a club or an audience in my presentation and we want long-term investors not traders. I don’t want high trading volumes for our shares. In fact, I will be happy with no trading at all. Our share price ($25k per share in recent times) has helped us maintain that seriousness and attract long-term investors.

Thanks for coming by!
MyOrbit Team

Over the weekend Bear Stearns showed its empty wallet to the Fed and managed to convince US Treasury Secy Henry Paulson for a bailout plan.

And over the weekend, the Federal Reserve cut its discount rate by 25 basis points and offered to lend money to several financial firms, in an effort to prop up the US financial sector. Well, a lot of props have been put already (refer our previous posts on US Banking sector crisis).

With the help of further cut in discount rate, JP Morgan Chase offered to buy rival investment bank Bear Sterns for $2 a share, with a total value of $236 million.  It could have been 99 cents per share as well, but no, that would look too bad! The deal occurred Sunday night, with the US federal government acting as a catalyst to avoid a bankruptcy.

For anyone who’s been looking at Bear Stearns, Cash flow problems have been brewing for the last few months – they had clearly over leveraged themselves – and this weekend did it.

To quote AP news:

JPMorgan Chief Financial Officer Michael Cavanagh did not say what would happen to Bear Stearns’ 14,000 employees worldwide, or whether the 85-year-old Bear Stearns name would live on after surviving the Great Depression and a slew of recessions. He told analysts and investors on a conference call that JPMorgan was most interested in buying Bear Stearns’ prime brokerage business, which completes trades for big investors such as hedge funds.

This CNN report has more info:

http://edition.cnn.com/2008/BUSINESS/03/17/world.markets/index.html

JPMorgan inherits some liabilities as well. For example, about $16.5 million property liability in the form of lease rental agreement that Bear Stearns had signed in London with the Canary Wharf Group (CWG).

This news over the weekend has resulted in hard falls of various stock indices across Asia as well. The Indian Sensex fell 951 points today (6% drop in one day).