Sky is falling

How much I like this sentence...I am planning to start a new series of posts on this "title"...generally giving commentary about the ongoing credit crisis...and about how the sky is falling :)

I was just talking to an analyst friend of mine about the crisis "situation"....He covers the entire gamut of investment banks (including bears stearns )and came up with very good insights on the current scenario.

Overall ...seems like the situation seems to be far from over (despite the bears stearns incident)..Big banks such as DB and Citigroup are getting ready for making their next round of write-downs this quarter...amounting to bilions of course this would cause severe repercussions and volatility in the market...

NYTIMES has a good article about the current scenario...

All said...I am getting ready for significant bottom fishing by the next two months

How true

You cannot ask the sun for more sun and the rain for less rain....
Very meaningful words..
From the memoirs of a Geisha

Forecasting is tough work...every guy has his rainy day :)

Here is Jim Cramer's take on Bears (funny the company has a bear in its name...from $180 - 0 (ok $2) in one year ...that is real bear stuff) one week ago...After all Analysts are humans...they are bound to mistakes (however bad it might be)

Found this link from pmarca's blog ...thanks Mark

valuing financial companies

Bears and Stearns sbeen gobbled up for a paltry$2/per share by JP Morgan (Valuation of around $250 Million) today compared to its last trading price worth billions of dollars of market cap...on account of significant liquidity risks ----that posed a threat of shutting down the company if not bailed by an outsider...the trouble with Bears and Stearns was it dealt with too much mortgage securities....
That brings us to the fundamental question of taking into account the quality of assets( and balance sheet) while valuing an investment bank(or bank's or NBFC's ) .
After being in the financial indstry for two years..(in india)...I know that most of the finance companies act as punters (I touched on this industry characteristics way back in 2007)....

1) Very open minded credit screens( with loopholes that helps anybody to get loans)
2) lack of quality people at ground level to assess credit risks
3) stiff marketing targets(that drives every mktg guy crazy enough to sanction loans)
4) a Fundamental lack of accountability (which i guess is global)

Given all these factors...Banks might look good on paper but their true quality could be found out by the way the number of NPA's they have in their balance sheet...so keep a close eye for these numbers when you come across a financial institution....
1) Portfolio Mix
2) NPA accounted (a growing percentage generally smells trouble)
3) The kind of Equity mix involved with these securities (the higher the better)
Taking these factors into account ....

I find that banks exposed to the followig assets might face significant risks going forward.
1) Personal loans (on account of their lack of security to back-up on)
2) Housing loans (due to highly leveraged positions by employees in certain industry (IT in particular) that outstrips salary levels)

I believe commecial vehicles and construction equipment portfolios are relatively stable due to the reletively shortly payback cycle and the underlying quality of the assets to generate volume)

In short a business is like a human being (career , drive,education etc matters )just as generating profit matters for business...but at the end of the day balance sheet quality is vital (Health for human can be taken as a suitable anology) ...without health people die as organizations die without proper balance sheet quality...

However, the trouble with balance sheet problems faced by financial institutions are ...failures occur when things are not good (meaning failures are driven by events ..such as the recent mortgage chaos in the US)...mor of how to find if times are good or bad in another post

Health is wealth

After several weeks of struggle with headache and spending 2,000 bucks on a CT scan (I was thrilled to see photos of my brain though)...everything is normal at my end.The headache taught me several life lessons
1)Getting burned doesn't improve your productivity (it makes you less productive)
2) Everyday in life is gods gift--I was anxious if the doctor would pronounce some mysterious disease name that doesn't have a cure, (as the cause of my headache) ...I even started making plans for my remaining days ...such as withdrawing to a hill resort...spending my rest of life with my kith and kin etc...Alas luckily the headache was diagnosed to be migraine..(which is really ok).After all these events I resolved that I would visit the temple daily and thank god for giving another shot at this place called earth.
3) I really understood what work-life balance meant...I read a post by my long time blogging friend Feld abot how he found worklife balance by restructuring his life....Although I might not be disciplined as Feld I plan to make it a priority

So there you go ...lessons learnt the hard way....
I will be back with more posts...(as it is also forms a part of the work life balance thingy)