WealthMills Wisdom of Investment

Indian Investors Don't Ignore Deutsche Bank

It’s hardly a shock…

Deutsche Bank boasted a notional derivatives exposure of €41.9 trillion (US$46.53 trillion) in its 2015 annual report. This is about 10% of the total global derivatives market, standing at roughly US$493 trillion. In comparison, the current market cap of Deutsche Bank is worth €17.46 billion. In other words, Deutsche Bank is leveraged 2,399 times. Imagine promising to buy a house for $2,399 with assets of $1!.

While a fair chunk of these derivatives are hedged (i.e. there’s a buyer and seller for each contract), what happens if one side can’t pay up during the coming times of chaos? This is exactly what happened during the US sub-prime crisis of 2008. For this reason, the IMF notes that Deutsche Bank ‘appears to be the most important net contributor to systemic risks.’

We had underestimated the importance of Deutsche Bank.  Lehman Brothers on May 31, 2008, (the last 10-Q it had filed before it went bust) showed assets on its balance sheet of $639.4 billion and stockholders' equity of $26.3 billion. By comparison, Deutsche Bank, as of June 30, 2016, has assets of €1.8 trillion and stockholders' equity of €66.5 billion. Given the size of Deutsche's balance sheet, it is three times as large as Lehman Brothers was.

Indeed, the bank is connected to everything. Will it be the first domino to fall?

Source: IMF, WealthMills.

Looking at the globally connected game of counterparty derivative contracts, if Deutsche Bank fails, everyone else should follow.  But IMF, European central Bank and politicians are proactively trying to rescue 'Deutsche Bank' as it is the symbol of European Economy to avoid any chance for financial crises.

Corporate debt in India

Here's a financial tip no one gives you. If you owe money to the banks, make sure the amount is huge. Then you won't need to worry about paying it back on time. Or, indeed, in some cases, paying it back at all.

This is not a joke. Several top business houses in India owe banks astronomical amounts and have defaulted in repayment. But instead of facing pressure to pay back these loans, companies are routinely given sweet deals: either their loans are 'restructured' in a way that allows a moratorium on interest payments, or their repayment schedule is extended generously. Here are the Top corporates with high debt levels

1 .The Reliance Group : The Anil Ambani-led Reliance Group is in the business of power, insurance, wealth management, telecommunication infrastructure and entertainment. In March 2015, the company had a debt of Rs 1.25 lakh crore on its balance sheet.The amount is equivalent to the special package announced for Bihar by Prime Minister Narendra Modi ahead of state elections in August this year.

02 .The Vedanta Group :Anil Agarwal's company is the second-most indebted company. According to Credit Suisse, the company, which is into metals and mining, had a debt of Rs 1.03 lakh crore. This is equivalent to the amount raised by the Government of India in March 2015 through its biggest-ever auction of telecom spectrum.

03. Essar Group : Managed by the Ruia Brothers (Shashi Ruia and Ravi Ruia) the company, with operations in 25 countries, owes Rs 1.01 lakh crore. That's what the Centre plans to spend on building smart cities until 2020.

04.Adani Group :Gautam Adani, the chairman of the Adani Group of companies is known for his proximity with Prime Minister Narendra Modi. His business house owes Rs 96,031 crore to the banking system. The amount is a little less than the Budget for building the bullet train network between Mumbai and Ahmadabad proposed by the government. Earlier this year, the State Bank of India reportedly approved a loan of around $1 billion (Rs 6,600 crore ) for the company's coal mine in Australia. However, after much hue and cry in the media due to the highly stressed balance sheet of the public sector bank, the approval was withdrawn.

05. Jaypee Group :Manoj Gaur-run Jaypee Group has a debt of Rs 75,163 crore on its balance sheet. Jaypee Group had a golden time during the Mayawati rule in Uttar Pradesh between 2007 and 2012. The debt is eight times the allocation for mid-day meals in 2015 that feeds 12 crore school going children in the country.

06.JSW Group :Sajjan Jindal is the chairman of JSW group and he was recently in headlines for reportedly organising the meeting between Pakistan Prime minister Nawaaz Sharif and Narendra Modi. Big connections allow you big credit lines. As per the Credit Suisse report, the group has a debt of Rs 58,171 crore. The amount is equivalent to the cost of 26 Rafale fighter aircrafts that India plans to buy from France.

07.GMR Group : Named after its promoter GM Rao, the group is known for building Delhi's T3 International Airport terminal.The group has a debt of Rs 47,976 crore on its balance sheet. The amount can be used to build to coal-based power plants with a generation capacity of 4,000 MW each - enough to provide electricity to the state of Haryana during peak summers.

08.Lanco Group :Headed By L Madhusudan Rao, the company runs solar and thermal power plants. It has a debt of Rs 47,102 crore.

09.Videocon Group :Venugopal Dhoot's company, the group once famous for making televisions, owes Rs 45,405 crore to banks. This amount can be used to 93 missions to Mars by India.

10.GVK Group :Founded by GVK Reddy, the group has interests in energy, infrastructure and hospitality sectors. The company has a debt of Rs 33,933 crore. The amount is just a little less than government's allocation under the MNREGA scheme (National Rural Employment Guarantee Act) of Rs 34,000 crore in 2015.

Media in India

If you're not reading News papers and Financial Reports you're uninformed If you do so you're misinformed. Please check  Who owns majority of Media  in India in the below Table
                       

Confidence Factor

It's a bitterly cold day. you have lost all feeling in your nose. Your ears are hurting . You hunch your shoulders together to bury your head under the raised lapels of your greatcoat.
You turn a corner and you see a frozen pond. Can you risk taking a short cut across ? Or would it be safer to walk to the bridge half a mile down the road ?
You notice a man on the other side of the pond . He gingerly steps on to it. It holds the weight of one foot. He carefully places the other foot on the ice.
A young women behind follows his lead. As you watch, some children arrive with skates, and more adults follow them. Soon, the whole village is having a party on the ice. Each person had given the next person the confidence to join the party. The more people clamber on to the ice, the safer it feels. It's logical, isn't it? Or is it? Something makes you stop. You turn around . You walk away. Behind you , you hear the crack and the first scream .
Stock market follow the same psychology . As an increasing number of heavy bodies add themselves to the ice, human nature makes them feel that the safety factor is increasing. But the clear thinking observer realises that their added weight means the opposite is true. Each fresh body on the ice makes it more - not less- likely that the ice will crack .The global investment business today is a business exactly the same way that the street market in Mumbai or Dubai is. It is manned by salespeople, and they all have products they want you to buy .They make sure that what they sell is attractive . They tell you uplifting stories of how buyers of their services have generated wealth for themselves. They attract you to the ice. There are lots of people on it, so it must be safe .

At WealthMills we are committed for the safety and wealth creation of our clients with high ethical professional standards .