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Escaping The TARP

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It is a silver lining with a dark cloud. Goldman Sachs’s miraculous recovery to register $1.8 billion in profits in the March quarter from a $2-billion loss in the previous quarter and its announcement to return the government’s capital aid under the Troubled Asset Relief Program (TARP) may be a great sign for the US banking industry, but it has also put the larger US financial system on the edge.

The New York-headquartered bank’s raising $5 billion through sale of stock to repay the $10 billion capital aid would put pressure on other US bankers to look good by getting out of the TARP.

Many banks including Citigroup and JP Morgan Chase have already given themselves clean bills of health citing internal stress tests, iterating that they do not need capital aid anymore.

However, there is a danger of the bankers risking the banks’ health in their quest for freedom from government scrutiny and restrictions on executive pay and dividends. In fact, Wall Street is divided on whether Goldman Sach’s rush to repay TARP money is a good thing or bad.

On its part, the Obama administration is being extra cautious. It is keeping the findings of the ongoing stress tests on 19 key banks — including that of Goldman Sachs — under wraps to avoid a sudden flight of capital from banks. It is still debating what details to make public, when and to what extent.

Nevertheless, Goldman Sachs’ apparent change of fortunes will now put pressure on the government to explain to the taxpayers why it is helping banks that do not want help or perhaps do not need help.

Speed Breaker

IT bellwether Infosys Technologies forecasts a grim year ahead

SLOWDOWN SIGNALS: Kris Gopalakrishnan,
CEO of Infosys (AP)

Infosys Technologies has shown the first signs of recession. It forecast a revenue decline between 3.1 per cent and 6.7 per cent for the next fiscal. The guidance reflected a customer survey the firm conducted amongst its top 135 clients, who indicated technology budgets would come down by as much as 10 per cent.

“Infosys results show an impact of recession and this is likely to be seen in other IT players as well,” says Karthik Ananth, engagement manager at Bangalore-based Zinnov Management Consulting. “Any changes in the strategies of large IT firms will show positive impact only from third quarter onwards.”

According to research firm Gartner, global IT spending in 2009 will be $3.2 trillion, showing a notable dip from last year’s $3.4 trillion. Gartner also says developed economies will be the worst affected, but emerging nations will not be immune.

The outsourcing market is going through tough times as customers postpone new contracts and the implementation of IT projects. Says Ananth: “Going forth in the contract renewal cycle, there will be continued pricing pressures on margins and tough negotiations during contract structuring.”
Dhanya Krishnakumar


North Korea is boiling with righteous indignation, after the United Nations criticised Pyongyang’s recent long-range rocket launch. The country has threatened to restart its nuclear facilities and boycott international nuclear negotiations. Pyongyang claims the launch was part of a peaceful space programme, designed to put a satellite into orbit.

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Old Wine In New Bottle?

A couple of weeks ago, the government announced the eighth round of New Exploration Licensing Policy (Nelp) and offered 70 blocks for oil and gas exploration. This is a sharp increase over 57 blocks offered under Nelp VII that concluded last year.

However, industry watchers are not very upbeat. About 40 per cent of the blocks in Nelp VIII are old blocks offered under the earlier rounds of Nelp, a figure confirmed by Petroleum Secretary R.S. Pandey. For example, the Bombay Shallow Offshore was offered in Nelp I and in Nelp II (with revised data). Similarly, the West Bengal Shallow Offshore was offered under Nelp II and again under nelp VII with revised data.

Second, there was poor response for Nelp VII. While the government is upbeat on the wide range of blocks offered and plans to close bids by 10 August, there are other pending issues such as that on the tax holiday on natural gas that only the new government can now clarify.
Kandula Subramaniam

(Businessworld Issue Dated 21-27 April 2009)

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