Friday

Wall Street : Day 2 of the IPO Party Has Been Canceled


It had been a little more than a month since a company had dared to go public on a stateside exchange, but that dry spell ended with a bang when Trulia (TRLA) began trading on Thursday.Underwriters priced the IPO at $17 a share, and the market ate it up. Shares of the real estate website operator opened 30% higher on Thursday morning, closing out the day 41% higher at $24.Trulia has yet to turn a profit, making Thursday's big move more than a bit surprising. Sure, the dot-com is growing quickly. Revenue nearly doubled last year. However, the market is hungry enough for new offerings that it's willing to let Trulia's lack of positive earnings slide.

The IPO party was set to continue on Friday when Smith Electric Vehicles (SMTH) -- a maker of plug-in electric commercial trucks -- would test the market.
Except it's not going to happen. Late Thursday, Smith Electric canceled the IPO.It's not because Smith Electric isn't profitable at the moment. Actually, it's not profitable yet, but the investors who were clamoring for a piece of the potentially promising electric vehicle market didn't seem to mind.

"We received significant interest from potential investors," said Bryan Hansel, Smith's chief executive officer. "However, we were unable to complete a transaction at a valuation or size that would be in the best interests of our company and its existing shareholders."Smith Electric's client list is a who's who of consumer-facing companies that welcome the opportunity to replace their fleets of diesel-slurping vehicles with trucks powered by electricity. As long as the fleet operators have predictable daily routes of no more than 120 miles before returning to the depot, Smith Electric's trucks are surprisingly easy to sell.

SEC to scrutinise private equity


The US Securities and Exchange Commission is seeking to determine whether some private-equity firms are taking more profits from investments than they should under agreements with fund clients, according to two people with knowledge of the matter.
The SEC, pursuing a review of the industry begun after passage of the Dodd-Frank Act in 2010, is examining how buyout funds ensure that payouts follow the sequence set out in partnership documents, said the people, who asked not to be identified because the matter isn’t public. Regulators are looking for deviations from the distribution process, or waterfall, which usually calls for clients to receive some gains on investments before the fund manager.
The SEC stepped up its scrutiny of the private-equity business following the 2008 collapse of Lehman Brothers Holdings Inc, which accelerated a financial crisis that froze deal- making and forced firms to write down the value of their holdings. After Dodd-Frank authorized greater oversight of money managers, the agency initiated its broad review of practices at private-equity and hedge funds.
“More SEC scrutiny will force firms to add controls, increasing their costs in an already difficult operating environment of decreased profit margins,” said Tom Bell, a partner at Simpson Thacher & Bartlett in New York who oversees the firm’s private-funds practice. “We may see a few enforcement actions as a result, which would probably put the subject firms effectively out of business.”

Expense Allocations

The SEC has implemented examinations to police the industry. In connection with regular inspections, the SEC is also looking into how buyout firms allocate expenses among investors, including those incurred for deals that are pursued but not completed.
John Nester, a spokesman for the SEC in Washington, declined to comment. Ken Spain, a spokesman for the Private Equity Growth Capital Counsel, said the SEC hadn’t contacted the Washington-based trade group about it inquiries.
“As a fiduciary, it is important that private-equity advisers allocate their fees and expenses fairly,” Carlo V. di Florio, director of the SEC’s office of compliance inspections and examinations, said at a conference in New York in May. “A firm should clearly disclose to clients the fees that it is earning in connection with managing investments as well as expense allocations between a firm and its client fund.”
Private-equity firms buy companies using a combination of investor capital and debt, with the goal of selling them or taking them public later for a profit. They charge annual management fees of 1.5 per cent to 2 per cent of committed funds and keep 15 per cent to 20 per cent of profit from investments, known as carried interest.

Fee Conversion

When a buyout fund exits a holding, investors often get their investment back first, plus a certain percentage of the profits, known as the hurdle. Once the hurdle has been paid, the fund manager can begin collecting carried interest.
Investment agreements aren’t uniform among funds. In some cases a firm may waive upfront management fees and instead take an equivalent payout from investment profits. Under such arrangements, the manager may pay itself before returning the investors’ original contribution.
The SEC is concerned that firms lack internal controls to track payments and ensure that the agreed waterfall plan is followed, the people said. One issue is whether the firms are taking more of the deal profits than they are entitled to, said another person with knowledge of the matter.
While buyout companies have traditionally managed funds that pool capital from multiple investors such as pensions, endowments and wealthy individuals, large investors have increasingly sought their own separately managed accounts with better terms than the others.
‘Broken Deals’

The SEC has asked some firms for information about how so- called broken-deal expenses are allocated, one of the people said. If a manager evaluates the same investment opportunity for a pooled fund and a separately managed account, regulators are concerned that the manager may protect the favoured large investor from due diligence costs if the deal falls through, shifting the burden to the smaller investors in the co-mingled fund.Regulators are also examining whether some managers are giving lawyers and bankers business related to their funds in exchange for fee discounts for the management company, according to the people.

‘Inherent Conflicts’

“Some people at the agency believe that there are more inherent conflicts with private-equity funds than there are with hedge funds,” said Barry Barbash, a partner and head of the asset-management group at Willkie Farr & Gallagher LLP in Washington and a former director of the SEC’s investment- management division. “The agency’s focus on the private-equity industry is leading to a greater degree of wariness, pushing firms to think twice about their practices.”
The private-equity industry has been under the spotlight as a result of Mitt Romney’s campaign for US President. Romney co-founded Bain Capital LLC in 1984, and even after retiring from the Boston-based buyout firm in 1999, he still receives payouts from Bain funds as part of an exit package. Carried interest is taxed at the 15 per cent rate for capital gains, rather than the 35 per cent top rate that applies to regular income.While the debate over Romney’s ties to private equity has centred mainly on taxes, it has also highlighted the general lack of transparency in an industry based on private deals involving wealthy investors.
The SEC adopted a rule last year that required private- equity companies and hedge funds with more than $150 million in assets under management to register with the agency. Of the 50 largest private-equity funds in the world, 37 are now registered with the SEC, 18 of which had not been registered before.

Indian stocks gain on tax rule


Indian stocks gained the most in Asia after the government changed tax rules on overseas loans, extending policy reforms announced last week, and after the third-biggest party pledged support to the government.

The BSE India Sensitive Index, or Sensex, rose 2.1 per cent to 18,738.03 at 3.26pm in Mumbai, headed for the highest close since July 25, 2011. Bharat Heavy Electricals Ltd., the biggest power-equipment maker, surged the most since May 2009. ICICI Bank Ltd., Larsen & Toubro Ltd., the largest engineering company, and Tata Steel Ltd. soared more than 4 per cent each.

India cut the withholding tax on overseas borrowings by companies, stepping up a policy revamp to revive investments, and announced plans to add mutual funds to a scheme aimed at luring individual investors to stocks. The measures come a week after Prime Minister Manmohan Singh ended a 14-month freeze on diesel prices and opened retailing and aviation to foreigners.

“It’s good news that the government has survived but the more important thing is that there has been no rollback in the reforms announced,” Sam Mahtani, who oversees about $5 billion (Dh18.37 billion) as director of emerging markets at F&C Asset Management, said by phone from London. “The market can easily rise by more than 20 per cent if the government pushes forward with reforms.”


Samajwadi Party, which rules India’s biggest state, said on Friday it will support Singh’s alliance after the government fell short of a majority, Times Now channel reported, citing party chief Mulayam Singh Yadav. Trinamool Congress, the biggest ally in the coalition, withdrew support on Tuesday.Witholding tax.A tax on interest earned by foreigners in bonds issued abroad by local companies, and on interest payments for such debts, was lowered to 5 per cent from 20 per cent, the finance ministry said in a statement on Friday. The reduction is valid for three years, effective July 1, the ministry said.India’s rupee surged to 53.345 per dollar, the strongest level since May 10, after the announcement. The currency traded at 53.42 at 3.14pm. It has gained 1.7 per cent this week.

The Sensex climbed to a 14-month high on Monday after Singh unveiled the reforms last week, the biggest policy push of his previously gridlocked second term. The measures drove foreign funds to buy a net $951 million of local shares in the two trading days to Monday, the most in almost nine months, according to the regulator. Offshore funds have plowed a net $14 billion into Indian equities this year, the most among 10 Asian markets tracked by Bloomberg, which excludes China.

The Sensex, up 22 per cent this year, trades at 14.9 times estimated earnings, compared with the MSCI Emerging Markets Index’s 11.3 times. The Indian gauge’s valuation is still below its high for the year of 16.2 times reached in February, data compiled by Bloomberg show.“The valuation is not expensive,” F&C’s Mahtani said. “It’s about 12 forward-year PE, which is toward the lower end of the five-year band. It really depends on how much they can push reforms forward.”

The S&P CNX Nifty Index surged 1.6 per cent to 5,642.45. Its September futures traded at 5,657.40. The BSE-200 Index increased 1.5 per cent to 2,270.63. The National Stock Exchange of India Ltd. and the BSE Ltd. traded 980 million shares on Thursday, 11 per cent more than the 12-month daily average.

Bharat Heavy jumped 7.2 per cent to Rs231.6, the most since May 19, 2009. Mahindra & Mahindra Ltd. rose 3.3 per cent to Rs810.6.ICICI Bank soared 4.4 per cent to Rs1,067.85. Larsen & Toubro added 4.3 per cent to Rs1,586.5. Tata Steel rallied 5 per cent to Rs415.75.

Wednesday

Federal Reserve says Small biz loan demand up

A growing portion of the nation's banks saw a spike in demand for loans to smaller firms late last year, according to the latest Federal Reserve figures.Despite the uptick, nearly all banks surveyed kept their credit standards or loan terms the same.The survey, which used responses from senior loan officers at 56 U.S. banks, contained information about firms with annual revenues of $50 million or less. Although that range covers many mid-sized businesses, it also included small businesses.



The survey showed that 26% of banks experienced "moderately stronger" demand for commercial and industrial loans from small firms during the fourth quarter. That percentage was the highest all year, rising from 8% the previous quarter. But the updated data does not reveal a total rise in demand, as 62% of banks reported no change.The "data are consistent with a modest recovery and an uptick in business confidence," said Robert Litan, vice president of research and policy at the Kauffman Foundation.

Saturday

Lloyds chief Antonio Horta Osorio gives up £2.4m bonus

Mr Horta-Osorio, who only returned to work this week after two months off due to a stress-related sleeping disorder, could have potentially received an annual bonus worth £2.39m on top of his £1.06m salary.Despite turning down his annual bonus, Mr Horta-Osorio is still eligible for a share grant for the last 12 months under a long-term incentive plan worth as much as £4.46m.



Declining his annual bonus, the Portuguese banker admitted his recent leave of absence had had "an impact both inside and outside the bank including for shareholders" and said he had told the Lloyds board he did not wish to be considered for the payment."As chief executive, I believe my bonus entitlement should reflect the performance of the group but also the tough financial circumstances that many people are facing," said Mr Horta-Osorio.

Income tax payments hit record high of £153bn

Four years after the credit crisis began, the total paid by taxpayers during 2010/2011 increased by 10pc on 2009/10 to more than £447bn, close on the pre-credit crisis peak for total revenues of £451bn in 2007/2008.In addition to record receipts from income tax, last January's increase in the standard rate of VAT to 20pc boosted returns from £70bn to £85bn.Changes to National Insurance Contributions (NICs), including doubling the top rate paid by employees with income above £42,484 a year, lifted returns from NICS to nearly £97bn.

Richard Mannion, a director of accountants Smith & Williamson, said: "Taxes have risen while the economy has remained flat and that scenario is likely to be repeated in the current tax year, 2011/12."The main factors are the increase in VAT and increases in income tax payable by the better-off, rather than an economic recovery. Total income tax set a new record in 2010/11 which presumably reflects the new 50pc top rate and the loss of personal allowances for better off taxpayers under Pay As You Earn.

Loan to Supreme Court high risk World Bank said

The Supreme Court under the watch of Chief Justice Renato Corona has been weighed and found wanting.
The World Bank has uncovered questionable procurements and disbursements in the high court in connection with the Judicial Reform Support Project (JRSP). The project, partly funded by a World Bank loan of $21.9 million (P930.75 million at an exchange rate of P42.50 to $1), was designed to restore efficiency in the dispensation of justice in the country.

In an aide memoire, the World Bank said that since Corona assumed his post in mid-2010, progress in reforming the judiciary “has been rated unsatisfactory,” with “implementation delays and additional work required for smooth project closing.”The document detailed the results of a fiduciary review conducted by a World Bank task team on Oct. 24-Nov. 11, 2011, through discussions with justices of the high court and field visits to courts all over the country.
“The review discloses that the fiduciary environment pertaining to JRSP implementation has so deteriorated that the task team now rates the JRSP as a ‘high risk’ and ‘unsatisfactory’ on project management, project procurement and financial management dimensions, and observes that project financial statements can no longer be relied upon,” the World Bank said.

The review uncovered, among others, “inaccurate/incomplete information” on the project’s financial management report, “diminished existing internal check-and-balance mechanism,” purchase of information technology equipment outside of the agreed procurement plan, and the practice of borrowing funds from the loan for the justices’ foreign travels, paid to a travel agency owned by lawyer Estelito Mendoza.The World Bank is now demanding a refund of $199,900, covering “70 payments” deemed “ineligible” or unauthorized under the terms of the JRSP, by Jan. 31.

The World Bank initiated the fiduciary review when Corona was already appointed Chief Justice by then President Gloria Macapagal-Arroyo despite an election ban.It said the review was “triggered by several withdrawal applications” presented to the World Bank by the tribunal’s Program Management Office (PMO), “which seemed to signal a sudden and significant increase in the disbursement in the latter half of 2011.”“The project result indicators depict achievements in several areas, but significant missed opportunities due to capacity and coordination constraints and delays in decision-making, procurement and contracting,” it said.Included in the “ineligible” purchases were the printing supply of the Court Reporter’s Case Index, purchase of laptop computers, speaker’s fee for seminars, registration fee of justices attending international conferences, and foreign travels of justices and their staff (including airfare, hotel accommodations and meal allowances).

Asked to comment, Ramon Esguerra, a spokesperson of Corona’s legal team, on Saturday said the accusation was “not in any way connected to any of the articles of impeachment” against the Chief Justice.
He said it was the high court as a whole, and not Corona alone, that should respond to the accusation.
“Two days before the opening of the trial and there’s this story?” Esguerra told the Inquirer by phone. “The barrage of black propaganda has not ceased. In fact, it’s now coming out with greater intensity.”
Esguerra said media reports on Corona’s alleged ill-gotten wealth, as well as the latest on the supposed fund mismanagement at the high court, were all part of “a pattern of harassment intended to demonize the Chief Justice in the eyes of the public.”

“It’s very unfair,” he protested.Corona himself said “it’s hard to answer that [accusation]” because he had yet to read the World Bank aide memoire.The Inquirer sought his comment after a Tridentine Mass held late Saturday afternoon at the Supreme Court grounds, the last of novena Masses for the embattled Chief Justice.
Corona attended the Mass with his wife and more than 100 sympathizers, including former Philippine Commission on Good Government Chair Camilo Sabio.The Chief Justice also said he had yet to decide whether he would attend the opening of his impeachment trial on Monday, contradicting Esguerra’s statement that he would show up.


According to the World Bank, the diminished internal auditing mechanism in the high court was exemplified by Corona’s appointment of one man as court administrator, head of the Public Information Office, and chair of the Bids and Awards Committee.The court administrator was authorized to approve, on Corona’s behalf, payments of up to P200,000 which was later increased to P500,000, the World Bank said.“Lack of appropriate segregation of duties of key officials involved in the JRSP has created a breakdown of the control environment, increased fiduciary and reputation risks, and led to irregular/inappropriate procurement and expenditure decisions,” it said.
Without naming Jose Midas Marquez, the World Bank said “this senior official, due to the combination of his appointments and functions, was the requestor of the services, the approver of the terms of reference, the end-user of the services provided by the firm, the authorizer of contract extensions, and the authorizer of payments to the firm.”
It said this arrangement, among others, “present[ed] a conflict of interest and eliminate[d] internal checks and balances applicable to the procurement and disbursement functions.”

project components :

The World Bank approved the loan in 2003 (Loan No. 7191-PH) “to assist the borrower in developing a more effective and accessible judiciary that would foster public trust and confidence through the implementation of the Supreme Court’s Action Program for Judicial Reform (APJR).”
The JRSP is the World Bank’s term for its financial support for the APJR, the brainchild of then Chief Justice Hilario Davide Jr., who envisioned the much-needed judicial reforms to be bankrolled by combined resources from the national budget, the judiciary’s own funds and financing from development partners.
The four project components involved improving case adjudication and access to justice (i.e., mobile courts); enhancing institutional integrity (i.e., Code of Ethics and related training of judges and judicial personnel); strengthening the institutional capacity of the judiciary (i.e., e-Library); and support for the reform of the judicial system and for the high court’s PMO.
The judicial reform covered six key areas: judicial system procedures, institutional development, human resources development, integrity infrastructure development, access to justice by the poor, and reform support systems.
The World Bank has participated in all six areas; six other development partners have varying degrees of exposure to the APJR.
The loan was to expire on Dec. 31, 2009, during the incumbency of Chief Justice Reynato Puno. But the World Bank extended the closing date twice—first by 18 months (until June 30, 2011), and then by 12 months (until June 30, 2012).
But due to questions over the fiscal discipline of the tribunal in adhering to loan stipulations, the World Bank canceled the final tranche of the loan amounting to $0.5 million.

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