Good morning

The headlines:

  1. The Indian power solution.

    Link: “Let’s restructure $35 billion worth of debt” – can anyone say “power play”?

    After the crazy blackout from the last few weeks, there is a draft proposal to restructure the debt of India’s utilities. The basic suggestion:

    – half the short-term borrowings transferred to regional governments;

    – the rest to be rescheduled by the banks; and

    – a moratorium on principal repayments.

    Of course – the current state of the Indian power suppliers has nothing to do with the fact that THE COST OF PRODUCING POWER IS HIGHER THAN THE PRICE CHARGED FOR IT. Or the fact that 27% of the distributed power is lost through theft*.

    Indian Power - picture ironically "borrowed" from

    But that aside – when you run into short-term losses because your business model is not sustainable, you engage in short-term borrowings to cover the difference, and then you land up in a debt trap that you’ll never get out of.

    Of course – there are now some attempts to increase tariffs. But my admittedly-biased opinion is that this will just lead to more than the aforementioned 27% occurring.

    *Yes – you just illegally tap a power line.

  2. Public pension fund leads London Whale lawsuit.

    Link: consolidated into class action.

    “We lost $52 million because of JP Morgan’s fraudulent activity” or whatever.

    I remember writing something about this a while ago (this post here in the bit about the Ohio pension fund). And I stand by my original point: if there were an unbiased jury, I think that the loss would be hard to prove.

    But given American juries, this will probably come down to emotion and JPM will try to settle before that happens.

  3. Dell misses forecasts.

    Link: stock slump.

    Dell is apparently losing out to tablets and so on. Frankly, having spent two years of my working life suffering through the use of a Dell laptop (imposed upon me – believe it), I’m not sure that competition can really be blamed here.

    Somewhere in all of this, there is a designer with no sense of aesthetic. Because my Dell laptop looked like it had haemorrhoids.

    It looked something like this

    So share movements, like the following, are no longer surprising:

    But maybe that’s just me. And the issue really is the trade-off in favour of tablets. And Dell’s acquisition of software companies not paying off fast enough.

  4. Barclays and Absa in talks to consolidate African banking assets.

    Link: completing the Diamond dream?

    This was the original plan 7 years ago under Mr Diamond’s supervision. But Absa stopped being so keen to take over the African stuff at that point*.

    Well they’re apparently in talks about it again: the combination of Kenya, Botswana, Zambia, Tanzania and Ghana operations.

    We shall see. The real problem (in my mind) is that Absa has seen the departure of most of its key executives over the last year. To suddenly expand into multiple African countries in the absence of experienced leadership seems a bit un-cautious…

    *I’m being facetious. In 2008, the surge in many of the African economies made the African banking operations quite expensive – so Absa elected not to buy.

  5. More Libor criticism.

    Link: no – I don’t think that the “obvious answer” is “more regulators”.

    The story is that “every two months, representatives from the world’s largest banks meet at an undisclosed location to review the London interbank offered rate”. These meetings are super-secret – no one knows who goes, and no minutes are kept.

    This is “to keep members from being lobbied”.

    Obviously, this secrecy upsets the regulators, who are calling for more regulators to oversee said meetings.

    My question: what exactly do these meetings do? Well – they are the bankers that design the London interBANK offered rate. They also select the banks that are placed on the panels (these names are published).

    So the meetings are secret – but the outcomes are public… Where exactly is the lack of transparency? Because you don’t know who decides?

    Suggestion: all you need to do is decide whether you like the decision. If you don’t, then don’t use Libor.

  6. Foxconn improves worker conditions faster than expected.

    Link: I think that the critical phrase here is “critical mass”.

    When your employees start committing suicide – you have to ask yourselves when did it stop being economically productive to literally work the life out of them. Because now there’s the hassle of finding new employees, and training them, and all the lost productivity hours in between, and all that public attention from human rights groupings and labour watchdogs and such.

    Rather improve the working conditions than deal with all of that.

    I want to be optimistic, and say that Foxconn has realised that it wants to be humanitarian* – but the inner realist says that the reason Foxconn is ahead of schedule on improvements is because it makes economic sense to be ahead of the schedule…

    Interesting aside: they’re saying that the real stumbling block at Foxconn is overtime, as current Chinese law limits that to 9 hours a week. It’s a stumbling block because, as Foxconn spokesman Louis Woo puts it, “overtime is not an obligation but a privilege workers would actually like to have“.

    It all sounds very encouraging.

    *I don’t want to be sarcastic – but can we really expect the firm that was happily driving employees to suicide just a few short months ago to suddenly develop a moral conscience and be all heart?

  7. Glencore tells the Qataris that it’ll walk away if it has to.

    Link: Xstrata is no done deal.

    Qatar’s sovereign wealth fund is demanding more Glencore shares for their Xstrata ones.

    Glencore has said that they can get knotted and stymie the deal if they really want to.

    The Xstrata shareholder vote takes place on September 7.

That’s all for now.

Have a good day.