Caston Corporate Advisory Services
May 12, 2012
London Whale Took Big Bets Below The Surface
Reuters / London/Paris May 12, 2012, 09:17 IST
Bruno Iksil was dubbed the ‘London Whale’ in credit markets due to the size of the trading positions he took, but for years he stayed well below the surface avoiding detection.
Now, the French-born JPMorgan trader has been dragged from the anonymity of the trading floor into the eye of a very public storm over a $2 billion trading loss at the US investment bank where Iksil worked in a little-known group called the Chief Investment Office (CIO).
Friends, colleagues and fellow traders describe an unassuming man, a far cry from the brash image normally associated with traders staking huge bets in fast-moving financial markets, including derivatives.
“He’s a really nice bloke. A quiet bloke. He’s not an arrogant trader, he’s quite the opposite. He’s very charming,” one former colleague at JPMorgan said of Iksil, whom he said was married with “a couple of kids”.
Iksil, who graduated in engineering in 1991 from the Ecole Centrale in Paris, looks older than he is, seldom wears a suit, and according to ex-colleagues lives outside central London.
“He’s a balding chap with grey and dark hair. I’d say he’s in his 40s,” the ex-colleague said, adding that there were not many young traders in CIO, a relatively isolated group where everybody was in their thirties and forties.
“Nobody wears suits in CIO. You don’t meet clients face to face,” he added.
There have been no suggestions that Iksil’s activities were in any way irregular, but over a period of years he and his team amassed a book of bets estimated by some to be $100 billion.
When these became public, opportunistic hedge funds could not resist trading against the ‘Whale’.
As markets moved against him, whispers of Iksil’s enormous latent losses circulated, ultimately undermining JPMorgan’s reputation as the canniest risk-manager in global finance.
For all the talk of the ‘Whale’, the handful of London-based bankers and traders who have done business with him say they know little about the man behind the trades.
“Everyone knows The Whale, whenever there was a big move in CDS markets, you knew it was the Whale,” one hedge fund manager said, adding that Iksil managed to maintain “a very low-profile” out of kilter with his big influence on the multi-trillion dollar credit default swaps market.
TECHNICAL SKILL
The trader’s friends were upset with Iksil being thrust into the limelight.
“I am not happy with the way Bruno has been singled out. His name has been mentioned because in the last few years – 2008, 2009, 2010 – he delivered excellent results for the bank,” a friend who was also a former colleague said.
“His understanding of the markets, his technical skill, mean he has become someone with real credibility. Although he is in some ways in the centre of the world, at JPMorgan in London, he is pretty detached and does not have a culture of money,” they added.
Iksil, who did not return calls or emails, is a member of London’s thriving French expatriate community, estimated at 350,000 people, which includes a large contingent of professionals involved in banking.
French banks like BNP Paribas and Societe Generale have big London bases and French finance workers, famed for their top-notch mathematical skills acquired at France’s prestigious “grande ecole” universities, are in high demand among international rivals and hedge funds, especially in areas such as equity derivatives.
Senior traders and dealers described Iksil as a “bright guy”, who was faithfully executing strategies demanded by the bank’s risk management model but who may have simply misjudged the amount of liquidity in the markets.
Iksil’s bosses include Achilles Macris and Ina Drew, both well-known as strong personalities with ambitions to grow the CIO, allowing their charges to trade freely in all products with the exception of commodities, the first ex-employee said.
Iksil’s former colleague in the CIO unit said that his managers “were happy to sign off on the trades”.
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April 16, 2012
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Business Updates With Caston
April 5, 2012
Exports outlook for FY 2013: A bird’s eye view
The Commerce Ministry has churned out another round of foreign trade data yesterday, revealing that our exports have continued to drift down. In February, overseas shipments grew 4.3 percent to $24.6 – at the slowest pace in the last three months. These statistics are, however, not shocking as it was widely anticipated that the third and fourth quarters of the last fiscal were to be challenging due to economic slowdown in European economies.
From the recent happenings in most of the European economies, it is quite clear that 2012 will be a rough ride for the European Union. A recent World Bank report has also cautioned this the euro-zone crisis along with weakening growth in several big emerging economies may have some downside effects on developing countries. Keeping these dimming global growth prospects, I think that it is the right time for our government to extend a helping hand to the sector.
Firstly, our exporters and MSMEs are facing two major hurdles at this moment: they are high cost of credit, which, needless to say, is the side effect of the RBI’s past monetary measures, and infrastructure bottlenecks, which have been taking competitiveness out of our exports. In the recent Budget announcements, the second issue has been addressed to some extent but the first one is still left unaddressed. Policy makers need to do something urgently in this area.
Secondly, I think market diversification should further be encouraged to minimize dependence on traditional export markets and the possible impacts of demand slowdown there. Already, we have reaped considerable benefits from this strategy and in the upcoming Foreign Trade Policy (FTP) announcements, I hope the government will broaden the scope of some schemes, such as the Focus Market Scheme (FMS) and Focus Product Scheme (FPS) to help our exports diversify further.
The recent BRICS summit reminds us again about the potential opportunities in our neighboring countries, and the five-member nations’ decision to allow trade in local currency will reduce exporters’ dependence on the US dollar and the euro, and insulate them from sharp fluctuation in currencies. Another recent positive development in the export front is the decision by Pakistan to ease trade with India by shifting from a Positive List regime.
Keeping the above developments in mind, I think the government can catapult our export performance by means of some crucial supportive measures, particularly by ensuring adequate credit to the sector and additional export assistance to promote the market diversification strategy. In addition, it is equally important for individual exporters to do away with over dependence on some select few markets. There are still many untapped markets far and near that get little limelight but offer great opportunities. Those who will discover this secret will certainly beat any odds and bask in success.
Business Updates With Caston
April 5, 2012
History of Hostile Takeover Bids in Inda
Subhash Chandra-led Essel Group’s decision to buy 12.27% in Reddys-controlled IVRCL has sparked speculation of a possible hostile takeover bid for the Hyderabad-based construction firm. In the past, corporate raiders in India have rarely succeeded in taking over their targets, mainly due to cultural and political issues. In some cases, the bidders chose to cash out for a handsome profit, which seems to have been the primary motive rather than management control.
We look at some of the hostile takeover bids that made headlines over the last couple of decades.
Swraj Paul vs Escorts, DCM Shriram
In the early-80s, UK-based NRI business magnate, Swraj Paul made a hostile bid for Indian companies Escorts and DCM Shriram, but had to eventually backtrack in the face of political opposition.
Reliance Industries vs Larsen Toubro
Initially roped in as a white knight in the late 80s, Reliance Industries tried to take control of L T, but had to retreat after financial institutions withdrew support. The development coincided with Congress losing power at the Centre.
BAT vs ITC
In the mid-90s, global tobacco major BAT tried to take control of ITC, in which it already owned a stake. Here too, political opposition and regulatory hurdles forced BAT to give up its ambitious plan to strengthen its presence in India.
Financial institutions vs Modi Rubber
In 1998, financial institutions threatened to sell their holdings in Modi Rubber to any interested buyer, for non-repayment of loans. Brothers BK Modi and VK Modi averted a hostile takeover by repaying the loans, and later buying out the FIs stake.
ICI vs Asian Paints
In 1997, the Indian arm of UK-based paint major ICI bought 9.1% in Asian Paints from investment bank Kotak Mahindra. However, the FIPB refused to approve the deal, forcing ICI to sell the stake.
India Cements vs Raasi Cements
In possibly the only case of a successful hostile takeover in corporate India, Tamil Nadu-based India Cements bought out Hyderabad-based Raasi Cements in 1998 after winning over key shareholders—public as well as some members of the promoter group.
Arun Bajoria vs Bombay Dyeing
In 2000, Kolkatta-based Arun Bajoria bought 15% in Bombay Dyeing, and threatened to make an open offer to public shareholders. He finally sold out his stake to the Wadias– the promoters of Bombay Dyeing–at a profit.
Abhishek Dalmia vs GESCO
In 2000, Abhishek Dalmia cornered 10.5% in the Sheths-controlled GESCO Corp and made an open offer for another 20%. But rather than dislodging the existing promoters, Dalmia sold his stake to them for a profit of Rs 9 crore.
RK Damani vs VST Industries
In 2001, stockbroker Radhakishen Damani made an open offer for BAT-controlled VST Industries, but was foiled by ITC which entered the fray as a white knight, with support from BAT. Damani still holds 26% in VST.
Harish Bhasin vs DCM Shriram Industries
In 2007, stock broker Harish Bhasin bought 25% in DCM Shriram Industries through a combination of open market purchases and an open offer. But the promoters countered the move by issuing warrants to themselves and increasing their stake.
ITC vs EIH
In 2010, Reliance Industries played white knight to the promoters of EIH by buying 14.1% in the flagship hotel chain. The move was seen as an attempt to thwart the ITC group which had gradually raised its stake in EIH to 14.8% over the years.
Business Updates With Caston
April 5, 2012
In biggest sell-off quarter, Private equity firms cash in
MUMBAI: Private equity firms sold shares worth over $1.8 billion in the first three months of 2012, making it the busiest quarter of exits for long-term risk investors in India. Most of the selloffs came in the listed companies when the PE biggies like Carlyle, Temasek and Warburg Pincus liquidated holdings on the back of share price rebounds in volatile markets.
Initial data suggested that PEs exited in the January-March quarter almost 88% of what they sold in the entire 2011, and over 50% of what they recouped in 2010 which was the biggest year in terms of share sale till date.
The latest quarter topped the October-December period of 2010 when PEs redeemed $1.3 billion investments, said a JM Financial note of private equity sector in India. The record profit-booking by private equity investors came even as another data from Grant Thornton said fresh investments by value declined 22% to $2.01 billion in the first quarter of the calendar year.
PEs liquidated some marquee Indian stocks to show returns to their investors-called limited partners (LPs) in industry parlance who are mostly global pension funds, university endowments and family offices. Some of these profit bookings, which were struck a shade below ideal returns, were done even as the big global funds embarked on fresh fund-raise . LPs, of late, have raised concerns about the quality of returns on investments made into India, which is sitting on dry powder estimated at over $20 billion.
Mumbai realtor Lodha Group’s buyback of $508 million equity from a private equity arm of Deutsche Bank provided the single biggest exit. But the momentum came from Carlyle, Warburg and sovereign wealth fund Khazanah when they offloaded shares in the publicly quoted Indian banks. Warburg completed its exit from Kotak Mahindra Bank when it sold shares worth $486 million in January-March quarter this year.
Temasek divested $299 million shares in ICICI Bank, which it held for nearly eight years, even as Carlyle booked nearly two-fold return on its investment in HDFC when it sold shares worth $276 million. Khazanah sold Yes Bank shares worth $104 million in another deal in the banking space.
April 4, 2012
CRISIL: 188 Companies defaulted in FY12
Crisil: 188 companies defaulted in FY12
TUESDAY, 03 APRIL 2012 16:35
Crisil Ratings has downgraded a total of 188 entities and one third of them have been placed under the default category.
According to CRISIL, this is the highest in a single year in absolute terms, and on a relative basis, translates into a 10-year high annual default rate of 3.4%.
“These pressures are also reflected in the increase in banks’ gross non-performing assets (NPAs; to 2.9 per cent of advances from 2.3 per cent), and in the quantum of debt restructured (to 3.3 per cent of advances from 2.5 per cent) between March 31 and December 31 of 2011,” the CRISIL release said.
“Weak liquidity caused by elongation of working capital cycles is the primary reason for the defaults. This trend is likely to persist with slowing demand,” Roopa Kudva, Managing Director and Chief Executive Officer, CRISIL, said in the release.
Sectors that will continue to be under stress are- textile, steel and construction engineering, power, commercial real estate and the new telecom players. But the ratings agency says, the operating profitability for the services sector and established telecom players will improve in the current financial year.
“The credit quality of India’s corporates will remain under pressure, given the slowdown in demand. However, high operating rates, softening in commodity prices and flexibility to defer capital expenditure will help players offset profitability pressures, and tackle slackening in demand,” said Ramraj Pai, President, CRISIL Ratings.
August 24, 2011
Caston Corporate Advisory Services 