The Global Financial Meltdown

GLOBAL FINANCIAL MELTDOWN: CAUSE AND EFFECT ANALYSIS

Author: Tejas Bhatt

Introduction: Strategic Importance of International Marketing • Last year’s international trade in merchandise exceeded US$10.5 trillion and services is estimated at around US$2.4 trillion. • ‘Global Youth Culture’ – teenagers now account for 30 per cent of the population globally. • Global Majors like Nike, Coke, Gap and Sony Walkman, Sega, Nintendo and the Sony Play station are aggressively targeting Youth. • The top 500 companies in the world now account for 70 per cent of world trade and 80 per cent of international investment. • The global marketplace is no longer the summation of a large number of independent country markets but much more multilateral and interdependent, economically, culturally and technically.

“Bigger than the Great Depression of1929”

The sub prime crisis: Cause & Effect Subprime lending is the practice of making loans to borrowers who do not qualify for market interest rates owing to low credit history, employment income etc. The value of U.S. subprime mortgages was estimated at US$2.5 trillion.

Boom and Bust in the housing market Between 1997 and 2006, American home prices increased by 124%.

U.S. household debt as a percentage of income rose to 130% during 2007, versus 100%. An estimated 8.8 million homeowners — nearly 10.8% of total homeowners — have zero or negative equity as of March 2008.

Bankruptcy/Takeover flavor of the season Bear Stearns was acquired in March 2008 by J.P. Morgan Chase for $1.2 billion. Fannie Mae and Freddie Mac. would be placed into conservatorship government control. Merrill Lynch was acquired by Bank of America in September 2008 for $50 billion. Lehman Brothers declared bankruptcy on 15 September 2008. The Fed provided an emergency loan of $85 billion to AIG, giving the US government a 79.9% equity stake at AIG. Washington Mutual taken over by JPMorgan Chase. Citi Bank, GM and Chrysler on the brink of Bankruptcy.

GLOBAL ECONOMIC OUTLOOK 2009-10 Emerging economies

Sinking Economies

ASIA AND THE UNLUCKY NUMBERS INDIA 5.1 %

SINGAPORE -5%

HONG KONG -2.4%

ASIA’S GDP IN 2009-10 SOUTH KOREA -4%

CHINA 6.7%

JAPAN -2.6%

INDIAN COMPANIES ON MERGERS AND ACQUISITION SPREE “WHAT’S THE BIG DEAL IN IT?” TOTAL NUMBER OF M&A DEALS IN 2007 STOOD AT 676 WITH A TOTAL VALUE OF RS 2.14 LAKH CRORE ($51.11 BILLION). THE BIG, THE FAMOUS AND THE FAILED ACQUISITIONS TATA MOTORS-FORD’S LAND ROVER, JAGUAR HINDALCO-NOVELIS SUZLON-REPOWER RANBAXY-DAIICHI SANKYO TATA STEEL-CORUS

TATA MOTORS-LAND ROVER & JAGUAR:

Why did Ford sell them? Deal Size: US$ 2.3 Billion Main Business is Light Trucks and Mini Vans Ford reported loss of $12.6 billion in 2007

SO WHAT’S WRONG WITH THIS DEAL? (A)GLOBAL FINANCIAL MELTDOWN (B)HOW DID TATA MOTORS FINANCE THIS DEAL? 1) BRIDGE LOAN 2) RIGHTS ISSUE WHICH FAILED MISERABLY. 3) BANK LOANS WHICH HAD LUKEWARM RESPONSE. 4) FIXED DEPOSIT SCHEME WHICH TURNED FUTILE. 5) STOCK PRICE:DOWN FROM Rs.700 to Rs.140

TATA STEEL-CORUS: A Visionary deal or a costly blunder? DEAL SIZE:US$12 BILLION TATA STEEL PAID 9 X EBITDA OF CORUS WHILE MITTAL PAID 4.5X EBITDA OF ARCELOR HIGH DEBT IN BALANCE SHEET COMMODITY PRICES DOWN 50% MAJOR DEMAND DISRUPTIONS HOW TO INTEGRATE TWO DIVERSE CULTURES? TATA ASKED FOR A BAILOUT FROM UK GOVERNMENT

ARE INDIA’S POMPOUS CELEBRATIONS OVER?

Agriculture is set to grow by 2.6 % against 4.9 %.

Manufacturing is likely to expand by 4.1 % against 8.2 %.

FY 09-10

Financial, Insurance and Real estate are set to grow by 8.6 % against 11.7 %.

Trade, Hotels, Transport and Communication is projected to grow by 10.3 % against 12.4 %.

So is India really immune? Indian Banks reluctant to lend

Indian Inc. forced to show ‘Pink Slips’

The Great Indian Retail Story fizzles out

The Coveted MBA tag loses shine.

Rupee Depreciation FMCG, Pharma to rescue economy.

Recommendations for Discussions, Elaboration and action: Regulatory Framework Establish and rectify the loopholes present Regulatory systems and periodically review them periodically. Finance Lower down the interest rates to spur housing demand and consumer spending. Taxation Raise the Tax bracket for people and provide tax reliefs to boost the purchasing power.

Public Spending and Investment Massive infrastructure spending should be the prime objective of the Government.

THE GAME PLAYERS WILL CHANGE:

THE SUPER POWERS IN MAKING:

SPECIAL THANKS: RBI REPORT IMF REPORT 2009 McKINSEY QUARTERLY REPORT FINANCIAL TIMES HARVARD BUSINESS REVIEW B SHIVARAMAN GOLDMAN SACHS WIKIPEDIA CNBC TV 18

THANK YOU TEJAS BHATT