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Today's Hot Stories - April 21, 2010

10 Headlines for Today

(1) I don't want to be an embarrassment: Tharoor
(2) Fight Naxals politically, don't ignore Salwa Judum threat: CPI leader D.Raja
(3) Flights resume in Europe but travel chaos not over
(4) Harsh Manglik new Nasscom chief
(5) Reliance has 98.3% equity in Mumbai Indians
(6) IPL row: I-T dept raids World Sports Group, Multi Screen Media offices
(7) BCCI to Pawar: Modi out, like it or not
(8) Wimbledon winners to net a million pounds in prize money
(9) Inter Milan stun Barcelona to take semi-final lead
(10) BASIC to discuss Kyoto Protocol survival as part of “realistic” approach

5 Stories for Today

(1) ULIPs to be regulated by IRDA: Finmin
(2) Threat of new, larger Icelandic eruption looms
(3) RBI ups key rates, loans won't get costlier for now
(4) Goldman Sachs rakes in $3 billion in quarterly profits
(5) IMF trims estimate of losses from financial crisis

(1) ULIPs to be regulated by IRDA: Finmin

Life insurance companies can do business in equity and bond-linked products, such as unit-linked insurance policies (ULIPs), as per rules laid out by the insurance regulator IRDA, government clarified in Parliament on Tuesday.

In a written reply to Rajya Sabha, minister of state for finance, Namo Narain Meena said, "The Insurance Regulatory and Development Authority has reported that every life insurance company registered under the IRDA Regulations, 2000, can transact life insurance business, which includes unit-linked business."

The statement will put the controversy between Sebi and IRDA on the issue of which agency would regulate the unit-linked products of insurance companies, at rest. Recently, Sebi in a statement said that insurance companies can not launch a ULIP without its approval.

The controversy had started when Sebi had issued an order, which prohibited insurance companies from raising funds through ULIPs, without registering themselves with the market regulator. Sebi argued that ULIP is based on equity of companies, and therefore it should come under its jurisdiction. Responding to Sebi's order, IRDA asked the insurance companies to ignore it and continue with their business as usual. This created a unique situation and the finance ministry intervened to resolve the matter between the two regulators.

After intervention of FM Pranab Mukherjee, both the regulators decided to approach a high court to resolve the issue and till them status quo would be maintained. That means, Sebi's order was put on hold. However, Sebi again passed an order that no new ULIP could be launched by insurance companies without Sebi's approval. This created confusion among the insurance companies.

(2) Threat of new, larger Icelandic eruption looms

For all the worldwide chaos that Iceland’s volcano has already created, it may just be the opening act.

A Katla eruption would be 10 times stronger and shoot higher and larger plumes of ash into the air than its smaller neighbour, which has already brought European air travel to a standstill for five days and promises severe travel delays for days more.

The two volcanoes are side by side in southern Iceland, about 20 km apart and thought to be connected by a network of magma channels.

Katla, however, is buried under ice 500 m thick — the massive Myrdalsjokull glacier, one of Iceland’s largest. That means it has more than twice the amount of ice than the current eruption has burned through — threatening a new and possibly longer aviation standstill across Europe.

Katla showed no signs of activity on Tuesday, according to scientists who monitor it with seismic sensors, but they were still wary.

Pall Einarsson, professor of geophysics at the Institute of Earth Sciences at the University of Iceland, said one volcanic eruption sometimes causes a nearby volcano to explode, and Katla and Eyjafjallajokull have been active in tandem in the past. Katla also typically awakens every 80 years or so, and having last exploded in 1918 is now slightly overdue.

That notion is frightening for nearby villagers, who would have to quickly evacuate to avoid the flash floods that would rip down Katla’s slopes. Even last week’s eruption generated spectacular cascades of melted water and ice chunks the size of houses when burning gases and molten earth carved through the glacier.

Katla’s substantial ice cap is a major worry because it’s that mixture of melting cold water and lava that causes explosions and for ash to shoot into high altitudes. Strong winds can then carry it on over Europe.

(3) RBI ups key rates, loans won't get costlier for now

In a bid to tighten money supply and curb rising prices, the Reserve Bank of India on Tuesday hiked benchmark rates by 25 basis points each in the monetary policy for 2010-11. However, the good news for borrowers is that this may not lead to an immediate increase in loan rates, though there will certainly be an "upward bias".

"Whatever has been done in the policy has reduced the supply. So definitely there is an upward bias in rates. As credit demand increases, there will be a demand-supply gap, and then there is a possibility of interest rates going up," SBI chairman OP Bhatt said.

ICICI Bank MD Chanda Kochhar expressed a similar view, saying ‘‘During the year I do see the lending rates going up, but I don’t see any immediate impact on rates as of now.’’ HDFC Bank MD Aditya Puri said lending rates would depend on the demand for funds. ‘‘We do not see any significant change in rates in the near term,’’ he said.

(4) Goldman Sachs rakes in $3 billion in quarterly profits

Investment bank Goldman Sachs on Tuesday announced profit of $3.46 billion for the first quarter (January-March) of 2010, even as it faced a double embarrassment of the U.K. market regulator joining the United States' Securities and Exchange Commission in announcing fraud investigations into the firm's activities.

Goldman Sach's first quarter performance came on the back of net revenues of $12.78 billion with an annualised return on equity of 20.1 per cent for the quarter. The bottom line was boosted by especially strong performance in the bank's fixed income, commodities and currency division, which generated quarterly net revenues of $7.39 billion.

While Goldman noted that compensation and benefits — including bonuses — to its staff had dropped to 43 per cent of net revenues for the quarter, down from 50 per cent a year ago, it still left its staff with a combined pay package of $5.49 billion, or about $169,000 on an average per employee.

The firm's stellar performance, in the face of continuing economic woes in the U.S., came shortly after the U.K.'s Financial Services Authority announced that “Following preliminary investigations the FSA has decided to commence a formal enforcement investigation into Goldman Sachs International in relation to recent SEC allegations.”

The regulator added that it would be liaising closely with the SEC in this review.

Last week the SEC announced that it had charged Goldman Sachs and one of its vice presidents, Fabrice Tourre, for “defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages,” even as the U.S. housing market began to collapse.

The regulator had alleged that when Goldman Sachs structured and marketed a synthetic collateralised debt obligation (CDO) whose value was based on the performance of subprime security it did not disclose to investors the fact that Paulson and Company — a major hedge fund that had bet against CDO — played a key role in the decision to include that CDO in investors' portfolios.

(5) IMF trims estimate of losses from financial crisis

The world’s banks could be spared billions in losses thanks to a global economy that is recovering from the financial meltdown more quickly than initially expected.

The International Monetary Fund is forecasting that global bank losses from the financial crisis will total $2.28 trillion, a drop of $533 billion from an estimate made last October.

The IMF said Tuesday that its forecast for losses just for U.S. banks had dropped to $885 billion, down from an estimate of $1.03 trillion made in October.

But the IMF cautioned that while risks to the global economy from financial sector instability had lessened from a year ago, the risks from government debt burdens such as the problems in Greece had increased.

A debt crisis in Greece is still roiling markets and raising concerns about debt burdens in other countries, including the United States, which has seen the federal deficit surge to a record of $1.4 trillion last year.

“While attention has been on Greece, fiscal concerns are not confined to one country,” Jose Vinals, director of the IMF’s monetary and capital markets department told. He said that debt levels in many countries were approaching highs not seen since the end of World War II.

The IMF report attributed the lower estimated bank losses in part to a faster—than—expected rebound in the global economy. The report will serve as one of the discussion documents at the spring meetings of the IMF, World Bank and finance officials from the Group of 20 major industrial and developing nations.

The meetings, which will begin on Thursday, are taking place against a backdrop that has significantly improved from a year ago, when the world was still in the grips of the worst financial crisis since the 1930s.

U.S. Treasury officials who briefed reporters on Tuesday said Treasury Secretary Timothy Geithner would stress the need during the weekend discussions to continue government stimulus to ensure the global recovery is on a sustained basis with unemployment falling.

These officials said Mr. Geithner also planned to discuss the efforts being made in the United States to put in place financial reforms to prevent future financial crises and contributions the United States will make toward achieving the G—20 goal of eliminating global imbalances that contributed to the economic slump such as high trade and budget deficits in the United States.

The IMF’s latest “Global Financial Stability Report” stresses that a number of risks remained, ranging from sizable government debt burdens to continued threats facing the banking systems of many countries.

The IMF called the need for countries to get control of budget deficits the “most daunting challenge facing governments in the near term.”

The IMF has dispatched a team to Athens, Greece, for negotiations with that country’s government and officials from the European Union. The talks are focused on a possible financial rescue package to help Greece weather a debt crisis that has rattled investors around the world.

The decline in the IMF’s estimate for bank losses from the financial crisis reflects a drop of 13 percent in the IMF’s estimate of loan losses, which fell to $1.65 trillion, and a 31.3 percent decline in losses on bank securities, which fell to $629 billion.

For the United States estimates for losses on bad loans fell 10.1 percent to $588 billion and losses on securities investments fell 20.2 percent to $296 billion.

But the IMF report cautions that these improvements may not materialize.

“In the United States, real estate exposures still represent a significant downside risk,” the IMF said. “The regional banks with heavy exposure in real estate need to raise capital.”

The IMF said that concerns about real estate lending also represent a challenge for many countries in Europe, contending that the most vulnerable loans in Spain now are loans made to property developers.

The IMF said governments must “decisively move forward to complete the regulatory agenda” to ensure that the global economy will have a safer and more resilient banking system in place.

President Barack Obama’s effort to overhaul the U.S. financial system is heading for a showdown in the Senate with the administration hoping that a fraud lawsuit brought by the Securities and Exchange Commission against financial giant Goldman Sachs will help tip the odds in favour of a sweeping overhaul bill.

Coordinating regulatory reform efforts among major countries will be a key topic of conversation on Friday when Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke are hosts to their counterparts for a meeting of the G—20, composed of the world’s wealthiest countries and major developing economies including China, India, Brazil and Russia.

Those discussions will be a prelude to meetings on Saturday and Sunday of the policy—setting committees of the IMF and its sister lending organization, the World Bank.




           
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