Scandal shakes faith in accounting Big Four

One insider says PricewaterhouseCoopers was as shocked as anyone at the admission of years of financial deception at Satyam Computer Services

HONG KONG: A US$1 billion (RM3.53 billion) fraud at outsourcing firm Satyam Computer Services, dubbed "India's Enron", has shaken investor confidence in the world's Big Four accounting firms, which have expanded rapidly in Asia despite a general shortage of qualified accountants.

Ramalinga Raju, founder and chairman of India's fourth-biggest software services exporter, resigned on Wednesday saying profits were falsely inflated for years.

"This is shocking. I can't even let my thoughts go in the direction that there is another Satyam somewhere," said Shailesh Haribhakti, executive chairman of BDO Haribhakti, a consulting and management services firm based in Mumbai.

"I have very high respect for PricewaterhouseCoopers (PwC) who are their auditors, but it's incredible that such gross things existed and were not discovered," he said.

PwC said it was examining Raju's five-page resignation letter and declined further comment, though one insider said the accountant was as shocked as anyone at the admission of years of financial deception at Satyam.

PwC staff in Asia said they had received internal emails yesterday telling them not to discuss Satyam publicly.

"We are also shocked by the Satyam news and many of our colleagues and managers describe it as India's Enron, so you can imagine how big the impact will be to us," one PwC employee said on condition of anonymity.

PwC accelerated its Asia expansion in 2002 when it took over offices and staff from Arthur Andersen, which was auditor for Enron and once one of the "Big Five" global accounting firms, along with PwC, Ernst & Young Deloitte & Touche and KPMG.

Like its three big rivals, PwC has grown rapidly across Asia, particularly in China and India, recruiting thousands amid fierce competition for talent.

Frank Lyn, PwC's Beijing-based China Markets Leader, said in November that a shortage of talent was the firm's top challenge in China.

It can take three to five years to groom a fresh graduate at a major firm like PwC to the level of senior associate, who can meet clients directly for accounting services.

But firms in busy markets have sometimes fast-tracked new hires in services that can be beyond their professional level.

Sharmila Gopinath, research director at the Asian Corporate Governance Association in Hong Kong, said accounting firms face a lack of qualified people at all levels in Asia.

"Sometimes people, especially at the top, find themselves stretched at certain levels, especially when it comes to supervision of work," she said.

"While the Big Four work in places like India, China and Malaysia within the local context, they have a global standard which they must adhere to. Yet, the local rules can be vastly different and time-consuming to comply with," she added.

David Legg, managing director at Gerson Lehrman, a consulting firm specialising in private equity investments, said the Satyam case was a warning that investors should not rely exclusively on financial due diligence by accountants for deal-making decisions.

Gerson Lehrman says it provides "double-check" and in-depth research services for many private equity investors who also hire the Big Four for regular due diligence.

When markets turn bad and corporate frauds are more easily exposed, private equity firms like Blackstone and Carlyle seek additional channels to verify their investment portfolio or deal targets, Legg noted. - Reuters

Maybank and CIMB reduce lending rate

Eddy said: I got a few loan originated by Public Bank Berhad (KLSE:PBBANK) and disappointed by the bank lack of responses to BNM reduction in OPR. Drop or not drop? Cakaplah. Kononly one of the efficient bank in the region, aiks.


It is in line with Bank Negara’s move to lower the OPR

KUALA LUMPUR: Malayan Banking Bhd and CIMB Group have reduced their base lending rates (BLR), effective from Dec 1, following the move by Bank Negara to lower the overnight policy rate (OPR).

Maybank said yesterday it had reduced its BLR by 25 basis points from 6.75% to 6.5% effective Dec 1.

Maybank Islamic Bhd’s base financing rate (BFR) would also be revised downward by 25 basis points from 6.75% to 6.5% effective Dec 1.

CIMB Group said CIMB Bank Bhd and CIMB Islamic Bank Bhd would reduce both their BLR and BFR by 25 basis points to 6.5% with effect also from Dec 1.

The two banking groups said their decision was made following Bank Negara’s move to lower the OPR by 25 basis points to 3.25%.

“It is a decisive step to the advantage of our borrowers as well as a means to spur economic and business growth for the various sectors,” Maybank’s president and CEO Datuk Seri Abdul Wahid Omar said.

He added that Maybank and Maybank Islamic would continue to review the market environment and provide customers more financial support in these difficult times.

CIMB Group’s group chief executive Datuk Seri Nazir Razak said the banking group decided to pass on the full benefit of the OPR reduction to its customers.

“This full pass-through of Bank Negara’s OPR reduction will help existing borrowers and also potential borrowers to contend with an environment of sharply moderating economic growth,” Nazir said in a statement.

“We continue to also welcome borrowers to engage us if they need to restructure their payment schedules.”

Nazir said CIMB Islamic also plans to provide more attractive Islamic financing rates to pass on the benefits of ample liquidity in the Islamic banking market.

Customers can expect to pay lower rates for Islamic financing compared to conventional loans at CIMB Group, he added.

Despite the lower lending rates, CIMB Bank and CIMB Islamic deposit rates remain attractive at up to 3.5% per annum, Nazir said in the statement.

The Association of Banks in Malaysia said Bank Negara’s decision to cut the OPR would lead to a lower cost of funds for banks.

The lower cost of funds would in turn reduce the cost of borrowings for consumers, the association said in a statement.

The association’s chairman, Datuk Seri Abdul Hamidy Abdul Hafiz, said: “Bank Negara Malaysia’s move to cut the statutory reserve requirement for banking institutions from 4% to 3.5% effective Dec 1 will also inject greater liquidity into the banking system, lower cost of funds and promote lending activities as the move will effectively increase the lending capacity of the banks.”

Earlier, Wahid said the banking group intended to open nine more branches in the next three years in Cambodia to strengthen its presence in regional markets.

Maybank has two branches in Cambodia and plans are in the pipeline to open one more early next year, he said at the launch of an electronic deposit system.

Bank Negara reduces OPR to 3.25%

Eddy said: Although their reaction is kinda slow, this is a good start to a series of rate cuts and save-the-market-save-the-world efforts.


KUALA LUMPUR: Bank Negara has decided to reduce overnight policy rate (OPR) by 25 basis points to 3.25% as a pre-emptive measure to provide a more accommodative monetary environment.

In a statement issued on Monday, it said the ceiling and floor rates of the corridor for the OPR were correspondingly reduced to 3.50% and 3% respectively.

Bank Negara said the decision was made at the monetary policy committee (MPC) meeting.

The central bank said given the heightened downside risks to growth and the diminishing inflationary pressures, the reduction in the OPR was a pre-emptive measure to provide a more accommodative monetary environment.

To further reduce the cost of intermediation, the MPC also decided to reduce the Statutory Reserve Requirement (SRR) from 4% to 3.5%, with effect from Dec 1, 2008.

“Going forward, the global economic and the international financial conditions are expected to continue to remain volatile and uncertain.

“Bank Negara Malaysia will monitor closely the evolving developments and will undertake the appropriate policy response to avoid a severe economic downturn,” it said.

For more details, go to www.bnm.gov.my

Oxford University faces £30m Icelandic bank losses

PA

Oxford University could face losses of up to £30 million which is tied up in Icelandic bank accounts, a spokesman confirmed today.


The university has admitted 5% of its cash deposits are invested in three banks and has now called on the regulator of universities to help solve the crisis.

Oxford is faced with the biggest loss as one of 12 universities across the country that had a total of £77 million in Icelandic accounts.

The money was deposited in crippled institutions Landsbanki, Glitnir and Kaupthing Singer and Friedlander. Some of the cash belonged to its 17 individual colleges, which put their money in a central fund controlled by the university finance committee.

Oxford's director of finance Giles Kerr said that colleges should be assured that the university's cash pool has more than sufficient liquidity to meet their requirements. He also said the university will make every effort to recover deposits in Iceland in full.

Oxford has £600 million in cash deposits and an overall endowment wealth of around £3.4 billion.

Mr Kerr has written to the Higher Education Funding Council for England (HEFCE) urging it to do all in its power to help protect the higher education sector from the impact of the crisis.

He said: "It is important that we get co-ordinated action and I know that HEFCE, DIUS (the Department for Innovation, Universities and Skills) and the Treasury are well aware of the challenges faced by the sector.

"We expect them to do all they can to protect the position of higher education institutions, which are vital to the country's future prosperity."

The university said it has made no Icelandic deposits in the last 18 months and the existing ones were made with institutions with fully assessed and approved creditworthiness.

It added that its policy has been, and remains, to have a wide portfolio of deposits to spread risk, and to review them regularly.

Mr Kerr said: "This is clearly a difficult time across the economy, and no one is immune. However, the finance committee is monitoring the situation closely and we are taking all necessary and available steps."

Oxford University is the latest public body hit by the Icelandic banking crisis.

Around 100 local councils, police forces and hospitals could also lose millions of pounds after investing in Iceland's troubled financial institutions.

New York official seeks to recover AIG bonuses

By Jonathan D. Glater and Vikas Bajaj

NEW YORK: The New York State attorney general is demanding that American International Group recover bonuses and other payments from its former executives, lest he take formal action against the insurer.

Recently bailed out by the federal government, AIG is afloat only because of billions of dollars in government loans. With more and more taxpayer money committed, lawmakers and others have expressed outrage about high pay in general at financial firms and in particular at some of the perks that have come to light at AIG. The attorney general, Andrew Cuomo, made his demand in a letter to AIG's board, citing "unwarranted and outrageous expenditures" by the company as contrary to New York law. The letter, which described a lavish golf outing and an overseas hunting trip that cost nearly $100,000, follows other recent disclosures of excess by corporate America.

The threat against AIG, which Cuomo announced Wednesday, seeks to recover multimillion-dollar payments to Martin Sullivan, AIG's former chief executive, and Joseph Cassano, who ran the unit blamed for the losses that pushed the company to the brink of collapse.

"AIG's belief is that they had the party, and the taxpayers will have the hangover," Cuomo said, addressing a sidewalk throng of reporters, camera crews and tourists. He added that his office could bring civil charges if AIG did not work to recover big bonuses paid to executives.

His actions are reminiscent of the sweeping attacks on Wall Street by Eliot Spitzer, who was the attorney general before his brief term as governor, which ended in scandal.

U.S. stocks finish lower as Bush urges patience amid more signs of slowdown
Public anger has grown the past few weeks over executive compensation. Lawmakers in Washington last week criticized the $442,000 that an AIG subsidiary spent on a weeklong resort retreat for top sales staff members within days of receiving government aid. The U.S. Treasury Department, in the midst of engineering a multibillion-dollar bailout of the financial industry, has announced that it would limit compensation to top executives whose companies took advantage of federal aid.

"People are outraged that these large businesses have shafted the shareholders - that's why were seeing this," said Kenneth Klee, a law professor at the University of California, Los Angeles. "And rightly so."

An AIG spokesman, Nick Ashooh, said the company had received Cuomo's letter and "will of course fully cooperate with the attorney general's office, and it will get the immediate attention of the board."

Two weeks ago, long before Cuomo's letter was sent, the company began reviewing all expenses and activities, Ashooh added.

Lawyers for Sullivan, who was ousted in June, and Cassano, who resigned in February, did not return calls Wednesday.