Saturday, January 31, 2009

Banks Participating in TARP.

I have noticed many visitors to my blog looking for details on banks that are participating in the U.S. Government's TARP program. In the past i have made lists and posted these lists. But obviously, this information keeps changing, so I thought the best thing would be for me to point visitors to the WSJ's Interactive Graphic (subscription not required)where the most current list of banks participating in TARP has been compiled. I have also created a link to 'List of Banks Participating in TARP' in my Bloglist (right sidebar) for easy access. Check back often for updates.

Monday, January 26, 2009

Severance Payments- An Issue of Size or Accounting?

The past several weeks have seen an unusual increase in the number of severance agreements that are being put together as soon as an executive announces his resignation. I blogged on the severance package at Maidenform last week that included executive outplacement services in addition to a lumpsum cash payout and other benefits.

Some of these severance agreements have also been entered into the same day as the resignation date.

H&R Block had a similar situation that was revealed by the company's 8-K filed on January 23rd. In the filing, H&R Block announced the resignation of Steven Tait, President of its subsidiary "RSM McGladrey Business Services, Inc." on January 21st. On the same day, H&R Block entered into a generous Seperation Agreement with him. Under this agreement, Mr. Tait will not only receive a lumpsum cash amount of $827,668 but will also be entitled to a short term incentive bonus for 2009 ( this inspite of Mr.Tait retiring in April of 2009) as well as full vesting of his 163,788 options as well as other outstanding share options.

Is this an obscene amount? Probably not in a market and economy that is anything unlike the one we are facing today... but in a situation where every industry and sector is clinging on to its dear life, the last thing we need is another well padded severance package for an already wallet fattened executive.

Other than the fact that such large payments stand out like sore thumbs, (gold digits nevertheless!), what I would like to understand is how do these companies just charge such expenses? Aren't these expenses to be planned out, provided for in the books and then charged off against the provision? How do you meet your forecasts with charges like these cropping up at the drop of the hat. H&R Block had a similar situation when Mr.Mark Ernst resigned as Chairman, President and CEO of one of its subsidiaries' HRB Management, as well as with the resignation of William L. Trubeck the ex-CFO at the end of 2007. Mr Ernst was paid a lump sum cash severance payment of a whopping $2,550,000 in addition to other benefits and Mr.Trubeck an amount of $900,000. As in the case of Mr. Tait, the severance agreement was entered into on the same date as Mr. Ernst's resignation date and in the case of Mr.Trubeck the severance agreement was dated after the resignation date but before his termination date.

Friday, January 23, 2009

My Friday reading

1. John Thain's excesses Here is a partial list of Thain's 'indulgences' for his office:
a. $35,000 for something called a "commode on legs.”
b. $68,000 for a "19th Century Credenza" in his office.
c.$230,000 to his driver for one year’s work.

2. Potential change in India's foreign investment policy for the airlines industry

3. Windows 7 versus Vista

4. Japanese Ponzi Scheme unearthed

5. Vatican on YouTube

Tuesday, January 20, 2009

More Uncertainty for Citi Employees

As can be expected, with all the changes happening over at Citi, there has been an increase in the number of SEC forms filed by the company. Such filings are expected to provide a greater degree of transparency and disclosure.

But a recent 8-k filing by Citi group provided hardly any 'transparency'. The filing referred to the Citi- Morgan Stanley joint venture. It stated "Citi and Morgan Stanley have agreed to certain general principles regarding the parties’ intended treatment of Citi and Morgan Stanley employees who transfer to the Joint Venture..."

There were no additional details on such what these "general principles" might be. Isn't the intention of filing an 8-K to provide full and complete information to the public? It is hard to imagine that they are still working out the specifics.

As per the Joint Venture agreement, the board of directors of the Joint Venture entity will "have veto rights" with respect to "certain employees" for a period of three years.
Oh and by the way, there will be a majority of Morgan Stanley directors on this board.
If you ask me, this does not bode too well for Citi employees.

Monday, January 19, 2009

Maidenform's Unflattering Governance Style!

A few posts back, I blogged about the mass exodus of Board level directors and other senior management at some companies..... almost akin to mice fleeing a sinking ship!

Look at Maidenform Brands...the Chairman of the Board resigned on January 5th 2009. Additionally, in an 8-K filed by Maidenform on Juanuary 12th, the company announced that Steven Masket resigned as EVP, General Counsel and Secretary w.e.f 3-6-09. In a subsequent 8-K filed by the company on January 16th, this seperation is termed as a 'resignation and retirement'...never heard of such a can either retire or resign...

Other than accrued salary and benefits upto his effective resignation date,Mr.Masket will also be entitled to receive payment for any unused vacation as well as executive outplacement services up to a maximum of $10,000, which will be provided for a period of not less than 3 months commencing on the Resignation Date, until Mr. Masket obtains subsequent employment or September 6, 2009 as well as payment of an amount equal to $372,395, paid in installments over a period of 12 months from the Resignation date.

In these times of mass mayoffs, zero retirement benefits is this justifiable in any way? Oh by the way, the company, like countless others, has revised is future earnings estimate.It's reported diluted EPS reduced from the earlier range of $1.17- $1.21 per share to $1.02- $1.04 per share. An additional fourth quarter restructuring costs of $0.03 per share has also been latched on to the revised estimate.This restructuring is "for a strategic workforce restructuring of 9% of corporate staff." With severance packages like the one handed out to Mr.Masket, is it any surprise that the company had to account for an extra "restructuring cost"?

Wednesday, January 14, 2009

Satyam's New Auditors.

A quick update on the Satyam auditor front: Exactly as I had predicted in yesterday's blog post, Deloitte Touche Tohmatsu (which in India is represented by S.B.Billimoria & Co.) has been appointed as the new external auditors.

S.B.Billimoria & Co. have an untarnished reputation in India. They represent big multinationals and large Indian conglomerates such as the TATA group, HDFC, HDFC bank etc.

Full Disclosure: I worked with S.B.Billimoria in India for close to 4 years.

Tuesday, January 13, 2009

Basic Governance Controls Missing at Satyam.

The ongoing Satyam saga has made me very curious about the level of disclosures as well as corporate governance practices that were being followed there. Unlike U.S. public companies, which are required to make certain disclosures of their governance practices, Indian companies have a relatively lower disclosure threshold. Ofcourse, the fact that Satyam has its ADR's listed on the NYSE makes it subject to a few of NYSE listing requirements. These requirements are considerably fewer in number as compared to a U.S. company whose shares are listed on the NYSE.

On a detailed reading of Satyam's latest 20F Annual Financial report (for the year ended March 31, 2008) filed with the SEC in August 2008, I found the following striking oddities:

  1. None of Satyam's Board Members appear to have any financial experience -accounting or auditing or any other kind of financial expertise. It is no therefore no surprise to see how the CEO could have scammed the entire Board and gotten away with it for so long.
  2. None of the members of the Board's Audit Committee are financial experts within the meaning of 'financial expert' as laid down by the NYSE. Their review and oversight procedures while acting as members of such a Audit Committee remains a mystery.
  3. The company does NOT have a corporate governance or a nominating committee. This naturally leads us to question the basis on which Board members were appointed. There might have been a potential conflict of interest or board interlocks which went unsupervised.
  4. Close to 14% of the external auditor's 2007 remuneration was from "Other Services". There has been no disclosure on the details behind these "Other Services". In order to prevent auditors from performing services that may constitute a conflict of interest, many country's corporate laws or listing standards discourage auditors from performing other services other than financial or tax audits. How does one trust financial statements that have been audited by auditors who could have potential conflicts of interest?
  5. Only 5 of their 9 Board members were independent outside directors. The other 4 were employee directors. Satyam did not follow the practice of having its non management directors meet independently without the employee directors being present. Total lack of independence in their Board and its functioning indicates weak governance practices and a lack of oversight by independent directors of the Board.
  6. Audit Fees paid to PricewaterhouseCoopers (PwC) increased from $800 K to over $1 million in 2008. No explanation for such an increase has been provided.
  7. One of the outside independent directors has been paid a special remuneration of $0.2 million which is far higher than is the norm. This has been supposedly provided for his "professional services". If he is being paid for professional services, doesn't that make him a non independent director?
  8. The entire non executive board (non-management Board) was paid through commissions. The amount of such commissions is not disclosed nor is the basis of such computation of commissions given. How does a shareholder ensure that these 'independent' directors don't inflate profits to allow them to receive fat commissions?
It will be interesting to see whether and how the new Board at Satyam addresses these issues. With Mr. Deepak Parekh (chairman of HDFC corp.) on its Board, Satyam shareholders and employees can be ensured of an honest and indepth review. The Board's first step of replacing PwC as the auditors has been in the right direction. Given the fact that HDFC has had the same auditors S.B.Billimoria & Co. (member firm Deloitte Touche Tohmatsu) for over 15 years, that maybe one of the shortlisted audit firms for Satyam. Lets wait and watch.

Friday, January 2, 2009

I have been enjoying the scorching Mumbai heat for the past couple of weeks... after enduring multiple brutal snow and ice storms in the U.S., I have learned not to complain about the Indian heat.

Anyway, after a short sabbatical from the webosphere, (I must admit I had some distinct withdrawal symptoms at the beginning) I found something interesting on the Wall Street Journal.

This is a commentary of a Russian professor on the potential demise of the U.S. by 2010.
The professor goes so far as to predict a a bloody civil war in the fall of 2010 followed by a break up of the United States!At 500 reader comments, it has become one of the most read articles on the Journal.

Read it hereand decide for yourself whether this is pure Murdoch style sensationalism or has any true substance to it.