Money Bol: “Federal Reserve and Regulators Work Together For Financial Reform” plus 1 more |
| Federal Reserve and Regulators Work Together For Financial Reform Posted: 21 Apr 2011 06:11 AM PDT The economic debacle of 2008 brought the modern economic system to the brink of total collapse. In fact, there was a brief period of weeks in September and October of 2008 when the most powerful people in the world were unsure what was going to happen. The incredible shock and general mayhen that swept through the market when Lehman Brothers and Fannie and Freddie faced collapse resulted in frenzied selling and fear on a catastrophic level. In response to these dire circumstances, Central Bank leaders around the world joined in a historically unprecedented move of unity as they all slashed short-term interest rates to historically low levels in order to ease credit markets and stimulate interbank lending. Magically, it somehow worked. Ailing financial firms were artificially propped up in the United States through an emergency act of Congress, and record low interest rates proved to keep the economy from utter collapse. In fact, just a few months later in March 2009, the global economy bottomed out and global equity markets began quite a substantial bull run, which has lasted for about two years. Of course, the market is still below pre-2008 levels, but the rebound has been remarkable. The question now is what can the Federal Reserve and regulators do to prevent another economic collapse? Too Big To Fail Most experts agree that the repeal of the Glass Steagall Act in the 90's was a major contributor to the debacle of 2008. This basically made it possible for banks to operate in both commercial and investment banking industries, which means that commercial banks could suddenly take huge risks with cash on deposit. Regulations have now been passed, however, that give regulators the power to break up firms that are too big to fail. If regulators see that a particular firm is structured in such a way that a collapse of the firm could bring down the entire U.S. economy, then the regulators have power to see that the firm is broken up into separate companies. Dodd-Frank Bill Congress worked with regulators and the Federal Reserve to pass the largest financial regulatory overhaul in July 2010. In response to the 2008 Crisis, Congress sought to bring greater accountability to the entire financial industry. The 2300 page bill signed into law by President Obama outlines numerous significant changes including how large firms can be liquidated. These regulatory moves to bring stricter financial accountability to banks and other financial firms has not had a dramatic impact on the U.S. dollar yet. By far, the largest influencer of U.S. dollar price movement over the last year has been the Federal Reserve's decision to move forward with a second round of Quantitative Easing. When the Fed began hinting toward a second round of Treasury security purchases, the U.S. dollar came under strong selling pressure in the EUR USD currency pair, as investors shifted capital out of the low yielding dollar and into the higher yielding euro. From July to November 2010, the U.S. dollar underperformed significantly as the forex market worked to price in QE2. The Federal Reserve and regulators continue to work together to help foster an economic environment that possesses certain safeguards in order to prevent another economic debacle akin to that of 2008. Related posts:
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| Muthoot Finance IPO- Right Price, Right Opportunity, Right Time Posted: 21 Apr 2011 01:43 AM PDT Company and business Muthoot finance Limited is Non-Banking Finance Company, headquarters in Southern India state of Kerala. MFL is a subsidiary of Muthoot Capital Service Ltd.
MFL provide personal and business loan secured by gold jewellery or gold loans to individuals particularly to whom loans are not available at all. Muthoot Group is into diversified business which includes hospitality, health care, media, education, information technology, foreign exchange, insurance distribution and money transfer service. The company also operates three windmills in the state of Tamil Nadu but the same forms a very small segment, about 0.23% of the total revenue.
About Gold financing Gold Finance is a personal and business loan secured by gold jewellery, or gold loans to the the individuals who have the jewellery but unable to access loans in short period. There are several schemes varying from company to company. Gold Loan market is the fastest growing loan finance market. The market grew 46% CAGR over FY07-10 driven by expansion. Gold loan market is expected to rise at 40% over the next three years, based on competitive landscape and changes in the trends. It is also expected that the gold loan market will welcome enough opportunities for portfolio diversification and expansion and can yield huge margins to NBFC. Among loan product basket lending against gold is the most favourable retail loan product. Du-point analysis reveals that gold finance business generated – 4% ROA in the past five years in India. It is believed that gold finance sector continues to rise and yield good margins.
Key highlights Muthoot finance limited is the largest gold financing company in India in terms of loan portfolio. As on march 2010 Gold Loan portfolio comprised approx 2.8 million loan accounts in India. The company is also expecting to grow the gold loan book by another Rs.10000 cr in the next one year. Muthoot finance enjoys a 20% market share in the Rs.65000 cr organised gold market. MFL has huge branch presence with 2611 branches across, except northeast. MPL is planning to set up at northeast after the IPO. In financials, MFL has had an average return on net worth (RONW) of 39% which is far better than its competitor Manappuram having only 19.61%. MFL have higher scale in terms of gold loan portfolio of Rs.128.9 billion as compared to its peer Manappuram General Finance with 1800 branches and gold loan portfolio of 65 billion. Its assets under management (AUM) increased to Rs.74.38 billion as on March 31, 2010 from Rs.33.69 billion as on march 31, 2009. Net profit of the company is continuously rising and it has clear plans of branch expansion and improvement in the branch productivity. Net profit in FY08 was 63.1 crore which has increased to 291.5 crore in FY11.
Key Financials
Risk factors Recently RBI circular have removed gold-loan from agricultural loan priority sector category. The removal of this priority sector benefit will marginally diminish the attractiveness of bank lending to this sector. The main impact of this regulatory change is that the borrowing cost of the gold loan player's will adversely impact the Net interest margin and portfolio growth of the company. Apart from this, some of the bank had already entered into gold finance in recent past years. This competition can hamper the profit margin and return ratio. One factor which is not consistent internally is that MFL pays higher compensation to the director. In 2010 it was Rs 192 million, which amounts to 8.4% of the net profit. It is far higher than peer company Manappuram General Finance pays 900,000 rupees , or 0.08% of its net profit as director's compensation
IPO grading The IPO has been graded by CRISIL Limited and ICRA limited. Muthoot Finance Limited has been assigned IPO GRADE 4/5 in their letters dated March 09, 2011 and March 07, 2011 respectively. According to the scale determined it indicates that the Issue are above average.
Overall view It is advisable for the investor to subscribe the IPO of Muthoot Finance Limited keeping in mind its medium term benefits and reasonable price price ban fixed by the company. The credit rating assigned by CRISIL and ICRA is also above average which indicates the strong fundamentals of the company. Despite some regulatory issue it is advisable because reasonable price and industry growth balances the chart.
Author: Satish Tayal, MBA (1st year, ISBM), is an intern at Kredent Group which also undertakes various Share Market Related Courses. Related posts:
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