India's Enron - Lessons Learned from the West

Snatch the bonus from my hand, grasshopper, and you may be worthy of a seat on the Board.

Reuters
Accounting scandal at Satyam could be India's Enron
By Sumeet Chatterjee
Wed Jan 7, 2009 10:32am EST

BANGALORE (Reuters) - The head of Indian outsourcing firm Satyam Computer Services resigned on Wednesday, disclosing that profits had been falsely inflated for years and sending its shares tumbling nearly 80 percent.

India's biggest corporate scandal in memory threatens future foreign investment flows into Asia's third-largest economy and casts a cloud over growth in its once-booming outsourcing sector.

The news sent Indian equity markets into a tailspin, with Bombay's main benchmark index tumbling 7.3 percent in a firmer session for world markets and the Indian rupee fell.

Ramalinga Raju, founder and chairman of India's fourth-largest software services exporter, said in a statement that Satyam's profits had been massively inflated over recent years but no other board member was aware of the financial irregularities. (Executive incompetency defense. The brown sahibs have learned their lessons well - Jesse)

"If a company's chairman himself says they built fictitious assets, who do you believe here? This has put a question mark on the entire corporate governance system in India," said R.K. Gupta, managing director at Taurus Asset Management in New Delhi. (It questions the integrity India's equity market and government, for certain. They need to hire Chris Cox of the SEC and Hank Paulson of Treasury as consultants to help them reform their regulatory process. - Jesse)

Raju, who founded Satyam more than two decades ago and who took it public in 1991, said about $1 billion or 94 percent of the cash on the company's books was fictitious. (They are holding that many dollars? LOL - Jesse)

The 54-year-old Satyam chairman came under close scrutiny last month after the company's botched attempt to buy two construction firms partly owned by its founders, which Raju said on Wednesday was a final attempt to resolve the problem of the fictitious assets. (A continuing exercise in acquisitions to mask accounting transgressions. Silicon Valley should have patented their accounting techniques. - Jesse)

"It was like riding a tiger, not knowing how to get off without being eaten," Raju, a management graduate from Ohio University, said in his letter, adding he was prepared to face up to the legal consequences. (OU! Top beer drinking school per capita in North America. Keggers par excellence. - Jesse)

Satyam said its managing director and co-founder B. Rama Raju, Raju's brother, had also resigned. It did not give any reason for the resignation. (But he didn't know about it, he was as innocent as the Madoff boys - Jesse)

The company's difficulties multiplied when the World Bank, a major customer, barred Satyam from new business, citing "improper benefits" given to Bank officials. (A little Enron, and a little Tyco - Jesse)

"In a bull market people forgot about it (corporate governance)," said Singapore-based Ashish Goyal, chief investment officer at Prudential Asset Management. "In a bear market chickens are coming home to roost, so it gets highlighted at a time like this." (The Ponzi schemes start collapsing when the easy money dries up and the lack of real growth and profitability is exposed - Jesse)

Just three months ago, Satyam received a Golden Peacock award from a group of Indian directors for excellence in corporate governance. (ROFLMAO! What did he do, twenty consecutive quarters of beating his EPS estimates by a penny? - Jesse)

By close of trade, Satyam's share value slumped to about $550 million from around $7 billion as recently as last June.

New York-listed Satyam specializes in business software and back-office services for clients such as General Electric and Nestle.

INDIA'S "ENRON"

"I think there is no future for this stock. This case for India is similar to what happened to Enron in the U.S.," said Jigar Shah, senior vice-president at Kim Eng Securities.

"It will not stop at Satyam. Many more companies will come into scrutiny like that. There is a strong possibility investments in India will be affected."

The scandal set off a wave of condemnation from Indian market regulators and government officials, and prompted banker Merrill Lynch to terminate its engagement with Satyam. (Yes but did they give back the ring? - Jesse)

"It's going to impact the Indian outsourcing industry. Customers are going to be concerned about offshoring firms in India," said Sudin Apte, country head of Forrester in the western city of Pune.

Satyam said it would go ahead with a planned board meeting on Saturday to consider a share buyback following a rash of broker downgrades even after its acquisitions were called off last month. (OMG, stock buybacks! You can't make this stuff up. Buy back with WHAT? I hope they at least have time for facials at the meeting. apres meeting. - Jesse)

ADP Jobs Report Shows Deep Jobs Losses Across the Economy

This report does not include government employment.

It is considered an indicator of the national Non-Farm Payrolls Report which will be released on Friday morning.

ADP
ADP National Employment Report
Wednesday, January 7, 2009, 8:15 A.M. ET

Nonfarm private employment decreased 693,000 from November to December 2008 on a seasonally adjusted basis, according to the ADP National Employment Report®. This month’s ADP Report incorporates methodological improvements intended to improve the correspondence between the nonfarm private employment estimates shown in the ADP Report and estimates published in the Bureau of Labor Statistics’ Employment Situation Report.

December’s ADP Report estimates nonfarm private employment in the service-providing sector fell by 473,000. Employment in the goods-producing sector declined 220,000, the twenty-third consecutive monthly decline. Employment in the manufacturing sector declined 120,000, marking its twenty seventh decline over the last twenty eight months.

Large businesses, defined as those with 500 or more workers, saw employment decline 91,000, while medium-size businesses with between 50 and 499 workers declined 321,000. Employment among small-size businesses, defined as those with fewer than 50 workers, declined 281,000. (Notice the big hit taken by the smaller businesses, where most jobs had been created in the prior recovery. This is not good, and bodes ill for safe haven aspect of the broader stock equity indices. - Jesse)

Sharply falling employment at medium- and small-size businesses clearly indicates that the recession has now spread well beyond manufacturing and housing-related activities.

In December, construction employment dropped 102,000. This was its twenty-first consecutive monthly decline, and brings the total decline in construction jobs since the peak in January 2007 to 809,000.

A Budget Forecast from President-elect Obama

"Trillion dollar deficits for years to come, even with an economic recovery."

Should we get Bernanke a truss?

Yikes!

Obama Says Deficit Likely to Approach $1 Trillion
By Julianna Goldman and Roger Runningen

Jan. 6 (Bloomberg) -- President-elect Barack Obama said he expects to inherit a $1 trillion budget deficit and that similar shortfalls are in store “for years to come” as the government grapples with a recession and other spending demands.

A “trillion dollar deficit will be here before we even start the next budget,” Obama said after meeting in Washington with his economic advisers, including Peter Orszag, who has been designated as director of the Office of Management and Budget.

“Potentially we’ve got trillion-dollar deficits for years to come, even with the economic recovery we are working on...”