International Banks Should Follow ICICI's Transparent Example

When capital markets get as jittery as they are today, the rumor mill starts churning. This is the time when the large capital pool movers and shakers get into action to move massive positions in stocks they wish to either accumulate or distribute.

Tuesday, in the midst of all the concerns of commodity-price inflation, consumer-spending related recession and banking credit market issues, the homebuilder and hotel groups were strong.

Monday, I noted that the (Cara 100) Indian banks HDFC (HDB) and ICICI (IBN) had dropped in price in NY by -5 pct and -3 pct.

Now Dow Jones News has reported that ICICI is citing a loss of $264.3 million at the end of January because of the bank's exposure to credit derivatives and investments.

Replying to questions in Parliament, India's junior finance minister said that the overseas operations of ICICI Bank, India's largest private-sector bank by assets, incurred a big loss. The shares in the bank then dropped -5.2 pct on the Bombay Stock Exchange. The bank stated that the loss was due to having its investments being marked to market, ie, assigned a value at current market prices, rather than having a provision for bad debts related to sub-prime related investments as most of the major international banks do.

I think it would be advisable for all banks to do the same. The way HB&B does their accounting lacks transparency and can lead to illegal insider trading by persons who are knowledgeable of the write-downs.

For example, there are rumors that Citigroup (C) will be doing more huge write-downs. Goldman Sachs said it expects Citi to report $12 billion in additional write-downs across leveraged loans and residential- and mortgage-backed securities. Goldman has now cut Citi’s 1Q08 EPS estimates to -$1.00/share loss from EPS of +$0.15, and full-year EPS to +$1.35/sh from +$2.50/sh.

Merrill Lynch earlier cut their 1Q estimate for Citi from +$0.55/sh to a loss of -$1.66/share and said it expects an additional write-down of $18 billion. The stock is being hammered to a nine-year low.

Recently, Citi has raised about $30 billion in new capital from investors in Abu Dhabi, Kuwait, and Singapore as well as Saudi Prince Alwaleed bin Talal. The new Citi CEO Pandit is now in China probably raising more money. A spokesman for prominent Middle East investor, Dubai International Capital, said on Tuesday the bank needed to raise "a lot more money" from investors.

There is so much speculation around. Tuesday, faced with questioning at a Morgan Stanley conference, Applied Materials' (AMAT) CFO George Davis refused to give news on AMAT's rumored $1.9B solar-panel tool order. He reportedly said, "There's a premium on confidentiality right now." While he wouldn't disclose the time-span of the agreement made with an unnamed foreign buyer, he did say that work begins "right away" and covers AMAT's SunFab thin-film equipment.

It’s times like this that the froth builds in markets. Eventually, traders, needing to deal in reality, decide to pull the plug.

Comments

[ratsharp:]

yeah sure.. i'll be transparent today ..and you will push me out of my postions by dropping your bid to unreasonable levels ... and I will be forced to call it mark to market ..and you will call it market efficiency

2008 Mar 05 11:43 AM