IT’S OFFICIAL: Banks In Europe May Now Seize Deposits To Cover Their Gambling Losses; CITI: Cyprus Set A Bad Precedent, And Is Long-Term Negative For The Euro

IT’S OFFICIAL: Banks In Europe May Now Seize Deposits To Cover Their Gambling Losses

Henry Blodget | Mar. 25, 2013, 4:38 AM | 1,761 | 12

As expected, Cyprus and the EU reached a new late-night bailout deal last night that will reduce the chance that Cyprus’s financial system and economy will completely implode. The new deal is better than the last deal in one key respect: Deposits under 100,000 euros will be protected. That’s very important. Those deposits were ostensibly “insured.” To seize them, the way the last bailout deal would have, would have been grossly unfair and would have set a truly alarming precedent. Now, small depositors in European banks can breathe more easily. At least in this case of gross malpractice on the part of reckless bank managers, their life savings have been preserved. Alas, the good news ends there.

Although deposits under 100,000 euros will be spared, deposits over 100,000 euros will be seized and subjected to an as-yet undetermined haircut–with the confiscated money going to bail out the gambling losses of the aforementioned reckless idiots who run some of Cyprus’s banks. This seizure, needless to say, will dampen the enthusiasm of rich depositors for keeping money in banks that get themselves into financial trouble. And because many, many banks in Europe have gotten themselves into financial trouble, this will create a general state of unease among rich depositors throughout the Eurozone. And it should wig out some bank lenders, as well. After all, never before in the history of this global financial crisis has a major banking system allowed depositors to lose money, no matter how reckless and stupid and greedy their bank managers have been. And only rarely have bank lenders–those who hold bank bonds–been asked to pony up. In this case, however, the depositors will lose money. Perhaps a lot of money. And if there had been big bank debtholders in Cyprus, they probably would have been socked with losses, too.

It’s possible that everyone will just laugh off Cyprus, viewing it as an exceptional one-off. After all, the Cyprus banking system was notorious for being the offshore money-laundering arm of many Russian oligarchs, so many folks will likely view this asset seizure as a case of “just desserts.”  But this optimistic view of the Cyprus horrorshow overlooks one key fact: The main reason that Cyprus depositors will lose their cash is because it has become politically difficult (impossible?) for leaders in Germany and other rich European countries to bail out their brethren in the “periphery” without taking many pounds of flesh. And it is that precedent, in addition to the fate of big depositors in Cyprus, that should spook Europe’s big bank depositors and lenders. If Germany is done bailing out countries and banks without having those countries and banks cover some of the cost, it’s not clear why Germany will relent next time Spain, Italy, Greece, and other countries in near-desperately bad financial shape come rushing to the EU with their hands out. Read more of this post

Valuation-Driven Profit Transfer Among Corporate Segments; the desire to achieve higher equity valuations induces conglomerates to manipulate their segment earnings; simple sum-of-the-parts valuation with multiples tends to overestimate the enterprise values for conglomerates

Valuation-Driven Profit Transfer Among Corporate Segments

Haifeng You Hong Kong University of Science & Technology (HKUST) – Department of Accounting

March 11, 2013

This paper investigates whether the desire to achieve higher equity valuations induces conglomerates to manipulate their segment earnings. I extend the Stein (1989) model to a multi-segment setting and show that conglomerates have incentives to transfer profits from segments operating in industries with lower valuation multiples to those with higher multiples, even if the market is not fooled in equilibrium. If companies engage in such manipulation, segments with relatively high (low) valuations should report abnormally high (low) profits. The empirical tests confirm this prediction and further show that the relation is stronger for firms with more dispersed segment valuations. Finally, this paper also demonstrates that the simple sum-of-the-parts valuation with multiples tends to overestimate the enterprise values for conglomerates, and the measurement errors increase with segment valuation dispersions.

China Will Have 300 Million Android Users by the End of 2013 (INFOGRAPHIC)

China Will Have 300 Million Android Users by the End of 2013 (INFOGRAPHIC)

Mar 25, 2013 at 09:58 AM by Steven Millward, in GamingMobile
Let’s start Monday morning with some big numbers. Now that smartphones account for73.2 percent of all mobiles sold in China, and with many locals opting for Android devices across a variety of price-points, it’s not too big a surprise that China is an Android nation. As neatly outlined in this brand-new infographic, China had 224 million Android users at the end of last year (already three times larger than the number of US fandroids), and is on course for 300 million by the end of this year.
Read more of this post

Selling-Price Estimates in Revenue Recognition and Earnings Informativeness

Selling-Price Estimates in Revenue Recognition and Earnings Informativeness

Anup Srivastava Northwestern University – Kellogg School of Management

March 15, 2013
Review of Accounting Studies, Forthcoming 

Revenue is one of the largest and most value-relevant items in firms’ financial statements. Based on the “realizable” and the “earned” criteria of SFAC No. 5 (FASB 1984), revenues should reflect both selling price and timing of delivery. Of those two aspects, selling-price estimates are required for revenue recognition when standalone selling prices for products and services are not available. In this study, I examine the effects of such selling-price estimates on the contracting and informational roles of financial statements. Particularly, I examine the setting of SOP 97-2 (AICPA 1997), which removed software firms’ flexibility to recognize revenues using selling-price estimates. I find that the extent to which firms use revenue accruals to manage earnings declined after SOP 97-2 was implemented. Yet, the overall frequency of earnings management did not decline, indicating that firms shift to alternative modes of earnings management when constrained from using revenue estimates to manage earnings. In addition, I find that the value relevant information contained in earnings declined post-SOP 97-2 implementation. Yet, this information was not entirely lost from financial statements, because the deferred-revenue accounts now contain more value-relevant information than before, and a firm’s topline performance is now better ascertained by analyzing both revenue and deferred-revenue accounts. This study shows that SOP 97-2 implementation did not improve the contracting role of earnings; however, its implementation partly shifted the informational role of financial statements from income-statement to balance-sheet components.

One lump or two? Indonesian “sugar samurai” serve foreigners sparingly

Published: Monday March 25, 2013 MYT 11:19:00 AM

One lump or two? Indonesian “sugar samurai” serve foreigners sparingly

JAKARTA: White sugar prices hit a record in Indonesia last summer and further spikes are expected this year even though the world is awash with the sweetener. The main cause, say critics, is a small group of traders known in the industry as sugar samurai.

There is no evidence the samurai are doing anything illegal but they buy most of the crop through an auction system that works in their favor, say the critics, who include industry officials, government advisers and other traders. Some of the purported samurai firms deny the auctions are unfair.

The system, which some samurai helped establish, gives them the right to buy sugar at the expense of other traders under certain conditions. The samurai also run most distribution and retail networks, giving them almost total control over the market and the retail price of sugar, the critics add.

That has made it virtually impossible for foreign commodity firms or other local players to enter one of Southeast Asia’s largest white sugar markets, said Indonesia’s commission for the supervision of business competition, an independent body that looks into unfair and monopolistic business practices. Read more of this post

Mango Mirroring Zara Challenges Europe’s Wealthiest Man; Mango’s revenue hit 1.41 billion euros in 2011; Isak Andic is the founder, chairman, and owner of almost 100 percent of Mango

Mango Mirroring Zara Challenges Europe’s Wealthiest Man

Two years ago, Spanish retailer Mango could barely convince its employees to wear its dresses, skirts, and blouses, which many workers — and customers — thought were too formal.

Today, Mango has ditched the glitz in favor of more casual attire like that from Spanish rival Inditex SA (ITX), the world’s biggest seller of apparel and owner of the Zara brand. The change has helped Mango outpace Inditex in Spain’s 16.2 billion- euro ($21 billion) clothing market.

“We had gone way too far with our focus on clothes for parties and events,” said Enric Casi, general manager of the Barcelona-based retailer. “Not even our employees wore Mango.”

The casual push wasn’t the only lesson Mango took from Arteixo, Spain-based Inditex as it sought to address a decline in profit of almost 60 percent in the two years through 2011. That year, Isak Andic, the founder, chairman, and owner of almost 100 percent of the company, stepped back into a stronger day-to-day management role to help reformulate strategy.

Since then, Mango says, the chain has cut prices by about 20 percent across the board, bringing them closer to Zara’s. And the company has stepped up expansion outside of crisis-weary Spain and placed more emphasis on the fast-fashion model that has helped Inditex prosper. Read more of this post

China’s swap market is signaling interest-rate increases for the first time since 2011 after inflation accelerated to a 10-month high and the housing market defied government cooling efforts.

Zhou on High Alert Prompts Swaps PBOC Rise Signal

China’s swap market is signaling interest-rate increases for the first time since 2011 after inflation accelerated to a 10-month high and the housing market defied government cooling efforts.

Two-year contracts that exchange the People’s Bank of China’s 3 percent savings benchmark for a fixed payment rose eight basis points this month to 3.03 percent, data compiled by Bloomberg show. The swap had been lower than the one-year PBOC deposit rate for 16 months. Of the 27 economists surveyed this month by Bloomberg, 13 predicted higher rates in 2013, with Credit Agricole CIB, Daiwa Capital Markets and Nomura Holdings Inc. forecasting two increases.

PBOC Governor Zhou Xiaochuan said on March 13 the government should be on “high alert” after consumer prices jumped a more-than-forecast 3.2 percent in February. Data last week showed new home prices last month posted the broadest advance since December 2011. China’s 10-year bond yield is 38 basis points higher than inflation, compared with a similar U.S. real yield of minus 8 basis points.

“The rising inflation trend and upward pressure on home prices will continue, forcing the central bank to tighten,” said Dariusz Kowalczyk, senior economist and strategist with Credit Agricole in Hong Kong. “Main lending rates will be hiked to reduce inflation expectations.”

Inflation will probably quicken to 4 percent in the second half, a level that will “really concern” the central bank, said Kowalczyk, who accurately predicted the February consumer- price gain. He forecasts two deposit rate increases after June to 3.5 percent to protect returns on savings. Read more of this post

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