Strange and Interesting Coincidences

An article appeared in news on July 02, 2020 in Financial Express newspaper:

SBI seeks external consultants for risk management division  article stated:

State Bank of India (SBI) is looking for consultants for its risk management division to incorporate external inputs in its risk-modelling function in areas ranging from stress testing to climate change. The country’s largest lender floated a request for proposal (RFP) for empanelment of consultants in June for a five-year period.

The plan to engage external consultants is understood to have been in the works for a few months now. “The thinking within the bank has been that when certain new and unprecedented developments happen, you need inputs from external experts. For example, the Covid outbreak may render the bank’s entire database ineffective and an entire remodelling has to be done. That’s when external inputs become important,” said a person close to the development.

Interestingly McKinsey Quarterly July 2020 issue has the following:

How the State Bank of India is learning from crisis (July 24,2020) interview with State Bank of India Chairman Mr. Rajnish Kumar. Interview starts with:

How should a leader approach a challenge as unprecedented, volatile, and globally disruptive as the COVID-19 pandemic? As a learning experience. That’s the attitude of Rajnish Kumar, chairman of the State Bank of India (SBI). The veteran banker, who joined SBI in an entry-level role four decades ago, is now tasked with leading India’s largest financial institution through an uncertainty that no organization had anticipated.

Interview covers other aspects about leadership required by SBI Chairman during these testing times and other aspects.

The interview was conducted by:

Akash Lal , Senion Partner , Mumbai

Expert in Financial Services

Joydeep Sengupta , Senior Partner , Singapore

Joydeep leads the Asia–Pacific Banking Practice and has served leading financial institutions across multiple markets in Asia and Europe. Joydeep has deep expertise in architecting and executing multiyear business transformations. His experience in digital, strategy, organization, risk, and change management allows him to counsel and work with CEOs on capturing value.

His recent work includes supporting the transformation of leading banks and insurers in Asia, with a focus on innovation and changes in business models and culture driven by the new digital economy. He is also actively involved in serving regulators and policy makers across several markets in Asia on topics related to banking-sector blueprints, digital infrastructure, payment systems, and regulations.

Rewind Year 2009 / 2010

McKinsey Quarterly April 01, 2009 under Insights section.

Remaking a government-owned giant: An interview with the chairman of the State Bank of India interview starts in the following way:

Om Prakash Bhatt discusses the transformation of one of India’s oldest banks and reveals how he managed to bring the company’s 200,000 employees on board.

Om Prakash Bhatt is intensely loyal to the State Bank of India (SBI). “This was a great bank, and it was seeing relatively bad days,” says Bhatt, who joined the bank in 1972 as a probationary officer and was named chairman in 2006. “They put me in the chairman’s seat, and it was up to me to do something. If not me, who would?” SBI—the country’s largest bank by assets—had fallen on tough times when Bhatt took charge of the state-owned institution. With roots stretching back to 1806, this stalwart of the Indian economy was losing market share to up-and-coming private banks and a growing list of foreign players reaching customers with new products and new technologies. State Bank, in which the government has a 60 percent interest, was languishing in inertia.

O P Bhatt  - from wikipedia - 

Om Prakash Bhatt (born 7 March 1951) is an Indian banker and was the Chairman of State Bank of India from June 2006 until 31 March 2011.

From Economic Times archives March 04, 2010 (last updated).

Extracts from the Economic Times archives:

State Bank of India (SBI) has now engaged McKinsey & Co to advise it for building bank's rural business and has paid a total of Rs 62.8 crore to the global consultancy firm since 2007 for various advisory services. 

The bank had paid a consultancy fee of Rs 9.99 crore to the US-based McKinsey & Co in 2006-07, the Minister said, adding, the company was engaged in 2007-08, 2008-09 and 2009-10 and was paid a total of Rs 62.71 crore. 

The most interesting part of the archived article was very very strange:

"SBI had engaged McKinsey & Co as consultants in January, 2007, for a period of four months for building bank's rural banking business. However, the engagement was temporarily put in abeyance after some time due to operational reasons," Minister of State for Finance Namo Narian Meena said in a written reply in the Rajya Sabha today. 

The bank has engaged McKinsey & Co in March 2010 for a period of 4 months to resume the engagement of 2007, he said. 

McKinsey was asked to resume a work in the year 2010 (for four months) the work which was started in the year January 2007 and temporarily halted around April 2007/May 2007. 

In short McKinsey advised then State Bank of India under Chairman O P Bhatt in the year 2007 and got paid in the year 2010. 

In other words old outstanding for the year 2007 was recovered by McKinsey from State Bank of India in the year 2010.

SBI  Chairman O P Bhatt was featured in the McKinsey Quarterly for an interview in the year 2009.

Strange Coincidences.

Back to 2020:

SBI Writes Off Rs1.23 Lakh Crore of Bad Debt, Recovers Paltry Rs8,969 Crore in 8 Years!

Source: Moneylife magazine

The article in Moneylife magazine is worth reading as it displays the recovery ratio of old outstanding of State Bank of India a Public Sector Bank.

And McKinsey recovered an outstanding after four years, it displays the recovery ratio of a private enterprise.

Learning - The Click Moment

An interesting section on ROI (Return on Investments) and how it is difficult to use as measurement tool was discussed in the book "The Click Moment: Seizing Opportunity in an Unpredictable World" by Frans Johansson.

I will reproduce section from the book:

All this really tells us is that calculating a reliable future return is a tricky thing to do. And it is becoming increasingly difficult in our hyperadaptive world.

Yet, over the past couple of decades, return on investment has become a divining rod for individuals and organizations. Many decision makers ask for an ROI analysis as a prerequisite for almost any action. It indicates that you’ve done the basic legwork to establish what an idea might be worth. And logically the metric does make quite a bit of sense. If you are going to spend a certain amount of money, you want to be sure that it is put to good use. If we still lived in a world of rules that change slowly and with well-entrenched main players, that principle of predictable returns would make sense. But it does not hold up in a world where the nature of the game changes randomly, unpredictably, and very quickly. In this world, ROI loses all value as a tool for prediction.

The bold / underlined part is directly connected to Indian company Reliance Industries Ltd.

In the last 2 months Reliance Industries have raised capital to reduce debt by issuing partial stake in Reliance Jio.

6 deals in 6 weeks: Mukesh Ambani gets Rs 87,655 cr in Reliance Jio stake sale.

Main revenue segment for Reliance Industries as per 2016 report:

Refining          : 66%

Petrochemical : 23%

In other words 89% of revenue as on 2016 was from industry which was well-entrenched, where world of rules changed slowly and principle of predictable returns can be imagined, Running Reliance Industries was easy as it was a business with one time investment and managing the company with professional managers.

What Mukesh Ambani wants?

“Our consumer businesses will contribute nearly as much to the overall earnings of the company as our energy and petrochemical businesses," he added.

The move by Asia’s richest man is the latest sign of the oil-to-petrochemicals group’s pivot toward data and digital services for future growth, as it builds an online platform to take on the likes of Amazon.com Inc. and Walmart Inc’s Flipkart Online Services Pvt. in India. Ambani, 62, told shareholders in August that the new businesses, including retail, are likely to contribute half of Reliance’s earnings in a few years, versus about 32% now.

My concern as an observer of this great company started by Mr. Dhirubhai Ambani is, Reliance is entering into a territory /  business segment where the nature of the game changes randomly, unpredictably, and very quickly.

Also, in this territory of e-commerce / technology driven segments are run by Owner Technocrats. Reliance will find it extremely difficult to run these segments in future.

What Mukesh Ambani has done to Reliance Industries till now is phenomenal but it appears this half decade will be the maximum height Reliance will reach. Post this heights, Reliance Industries will find it very difficult to reach that height / glory in coming decades. 

Indian Agricultural Reforms

Indian Finance Minister Ms Nirmala S, came out with agricultural reforms on 14th May 2020. These reforms are under the response to Covid pandemic.

To understand the implication of the key reforms introduced, it is a must to watch Prof. Ashok Gulati (Infosys Chair Professor for Agriculture, Indian Council for Research on International Economic Relations (ICRIER)) interview.

They key take away's:

1. How farmers will benefit?

2. Corruption in APMC

3. How PDS system can be used in a better way

4. Impact of removal of Essential Commodities Act

5. Impact of reforming APMC

6. Role of Food Corporation of India

Importance of Law and an Upright Leader

“The law was made for one thing alone,for the exploitation of those who don't understand it, or are prevented by naked misery from obeying it. And anyone who wants a crumb of this exploitation for himself must obey the law strictly.”

Bertolt Brecht.

If one person is not to be exploited it is a must, according to Dr. Subramanian Swamy, to study law.

Interview of Dr. Subramanian Swamy in Words of Wisdom / Gyan Ganga on Law for Empowerment and Charan Singh is a must see.

The key takeaways from the interview is:

1. Importance of studying Law

2. Introduction of Law as an elective in College

3. How lawyers manipulate / harass people who are legally illiterate

4. Importance of common language in Court, especially in a country like India

5. Introduction of Mimamsa method in Court.

6. Greatness of Chaudhary Charan Singh (Former Prime Minister of India)

Thanks Dr. Swamy for sharing key traits of Chaudhary Charan Singh, especially youngsters, who have forgotten former Prime Minister of India.

Here, Dr. Swamy spoke about Justice Ganguly and Mimamsa Principles of Interpretation, I will share portion of that case judgement which appeared in The Hindu paper:

A Bench of Justice Markandey Katju and Justice A.K. Ganguly in its order said “MIP which were our traditional principles of interpretation for over 2,500 years, but which are unfortunately ignored in our Courts of law today. It is deeply regrettable that in our Courts of law, lawyers quote Maxwell and Craies but nobody refers to the MPI. Most lawyers would not have even heard of their existence. Today our so-called educated people are largely ignorant about the great intellectual achievements of our ancestors and the intellectual treasury which they have bequeathed us.”

The Bench said “the MPI is part of that great intellectual treasury, but it is distressing to note that apart from the reference to these principles in the judgment of Sir John Edge, the then Chief Justice of Allahabad High Court in Beni Prasad vs. Hardai Bibi, a hundred years ago and in some judgments of one of us [M. Katju, J.] there has been almost no utilisation of these principles even in our own country. Most of the Mimansa Principles are rational and scientific and can be utilized in the legal field.”

The interview is a must see for all Students of Law / Indian Political System.

Source: J Gopikrishnan

Learning - Big Mistakes

Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick explains the failures of legendary investors.

Two of the individuals covered were phenomenal i.e. Mark Twain and John M Keynes. Mark Twain and his statements were hilarious covering the behavior of human beings and that of Keynes was intellectually stimulating. 

Heard new name Chris Sacca (Venture Capitalist) for first time.

Key takeaways from the book are reproduced below on as is basis:

What you learn in markets

In my nearly fifty years of experience in Wall Street I've found that I know less and less about what the stock market is going to do but I know more and more about what investors ought to do; and that's a pretty vital change in attitude. —Benjamin Graham

Who sets price and value

Graham taught his students and his readers that prices fluctuate more than value, because it is humans who set price, while businesses set value.

Mark Twain

The most famous author and his exploits in investing / business should be read in the book and reproducing select section from the books is a fool’s exploits. I don’t intend to. The words crafted by Twain is hilarious and unbelievably connected to all investors who lose. 

When IIT / IIM ‘s join investment banking

Michael Lewis, who began his career at Salomon Brothers, wrote in the New York Times, “Meriwether was like a gifted editor or a brilliant director: he had a nose for unusual people and the ability to persuade them to run with their talents…Meriwether had taken it upon himself to set up a sort of underground railroad that ran from the finest graduate finance and math programs directly onto the Salomon trading floor. Robert Merton, the economist who himself would later become a consultant to Salomon Brothers and, later still, a partner at Long-Term Capital, complained that Meriwether was stealing an entire generation of academic talent.”

LTCM Learning

Jim Cramer said, “In short, this was a seminal blowup. It struck at the heart of all of those on Wall Street who think that this racket is a science that can be measured, structured, derived and gamed.”

Key Statement

When I went to college, I was in over my head. I spent a lifetime going through the motions, so looking back, it's not surprising that I wasn't ready, because I did nothing to get ready. 

Tracking - Lobbying in COVID times

Below is the list of activities which displayed lobbying in India during COVID times:

As on 06 May 2020

1. Liquor lobby

After spate of suicides, Kerala CM says people with prescription from doctors can get liquor.

2.  Builder / Construction lobby

Karnataka cancels special trains for migrants after CM meets builders.

3. Retail shops lobby

Hard lobbying by trade bodies shuts doors on ecommerce.

Learning - Dead Companies Walking

Dead Companies Walking: How A Hedge Fund Manager Finds Opportunity in unexpected places by  Jesse Powell and Scott Fearon is a book which will explain you:

1. Shorting and what factors are considered for shorting

2. Importance of Management i.e. bet on the Jockey not the horse

3. Importance of earnings and perils of Debt

4. What not to do in Investing.

Key takeaways from the book is reproduced below:

Six Common Mistakes leaders make

·        They learned from only the recent past.

·        They relied too heavily on a formula for success.

·        They misread or alienated their customers.

·        They fell victim to a mania.

·        They failed to adapt to tectonic shifts in their industries.

·        They were physically or emotionally removed from their companies’ operations.

How to know promoters?

More than anything—more than projections and book values and price-toearnings ratios—Geoff believed human-to-human contact was the best way to gauge a company’s future performance. He valued numbers and raw data, but he knew that numbers were easy to fudge or misread. You had to study the people behind the numbers to get the full story. And reading secondhand profiles about a company’s executives didn’t count. Neither did pressing their flesh an swapping a few jokes with them at an investor conference. You had to go see them where they lived and worked—their own offices.

Best Investment Strategy

Over the years, I’ve found that doing nothing is often the soundest investment strategy.

Mistakes of following top investors

Like a zombie in an old monster movie, Idearc emerged from bankruptcy and came back from the dead in early 2010 as a newly reorganized company called Supermedia (stock symbol: SPMD). Thanks to people’s blind faith in formulas, SPMD was actually one of the hottest stocks on Wall Street for a brief period of time. You read that correctly. In 2010, a company that derived almost all of its revenues from Yellow Pages—Yellow Pages!—was one of the hottest stocks on Wall Street. I’ve still got a list of the firms that owned big interests in Supermedia. It reads like a who’s who of the investment game: Goldman Sachs, Merrill Lynch, RBS, J.P. Morgan, Fidelity, GE, Babson, Vanguard—they all owned it. Why? Because if you just looked at the numbers and ignored the minor fact that the company produced a completely outmoded product, then Supermedia was a winner.

On stock trader asking CEO

Bill gates - “People get confused because the stock price doesn’t reflect your financial performance,” he told Fortune magazine after the company’s IPO. “And to have a stock trader call up the chief executive and ask him questions is uneconomic— the ball bearings shouldn’t be asking the driver about the grease.”

Trouble with growth through acquisitions

Growth through acquisitions can be a successful strategy if it is carefully conducted. Airlines, for example, have fairly stable administrative costs, so gaining new routes by buying up competing firms often boosts revenues without adding much more overhead. In many cases, though, growth through acquisitions can be just as dangerous as the kind of expansion-on-steroids that killed off Silk Greenhouse or Value Merchants. While building out and opening a number of new facilities in a short period of time is risky, at least it’s an internally managed endeavor. A business’s existing employees can, in theory, oversee the process and ensure that it’s running smoothly. But integrating a separate business into your own is, by its nature, an outside-in process. For that reason, it’s bound to be a crapshoot. No matter how many lawyers and auditors an acquiring company hires, no matter how much due diligence it performs beforehand, the seller almost always gets a better deal than the buyer. Sellers know where the bodies are buried in their businesses, and there’s usually a good reason why they’re willing to give up ownership.

Mergers and acquisitions are definitely risky methods for growth, but one party always makes a profit on them: the banks who facilitate the deals.

What Central Bank does when rate is cut?

First came the massive injections of taxpayer cash into the financial sector. A lot has been written about that boondoggle, so I won’t go into too much detail on it other than to say that it was the largest and most brazen upward redistribution of wealth in the history of capitalism—and it was only the beginning. Next, the Fed yanked interest rates down to virtually zero. They’re still there as I write this. This move hasn’t gotten the press that the Wall Street bailouts did, but it might have been even more destructive. It punished the prudent to help the profligate. People who had done the right thing and put money into their savings lost out so that poorly managed corporations could refinance what should have been fatal debt loads. Doomed businesses were able to replace high-interest, fast-maturing bond issues with longer-term paper yielding a fraction of what they would have owed otherwise. Congress even sweetened the deal by giving some companies additional five-year tax “look-backs,” which allowed them to recalculate previous returns and claim giant retroactive refunds. It all added up to one big nationwide, taxpayer-subsidized cooking of the corporate books.

About business schools and corporates

Every year I go back to Evanston, Illinois, and give a talk to the students of Northwestern’s Kellogg School of Management, my graduate school alma mater. During a meet-and-greet event there in 2011, I found myself standing next to the new dean of the school and decided it was a perfect opportunity to bring up an idea I’d had on the plane ride out from California. Just a few weeks earlier, Citibank had agreed to pay almost $300 million for knowingly selling its clients toxic subprime mortgage bonds. The year before, Goldman Sachs had paid the largest fine in history, $550 million, for engineering similar deals. “Why don’t you ban Citi and Goldman from recruiting at Kellogg for three years?” I suggested to the new dean. She nearly spit up her drink. “Excuse me?” she asked with a nervous smile. “They blatantly scammed their own clients,” I went on. “They shouldn’t have access to your students.” After a very awkward moment of silence, the dean patted me on the shoulder and stepped away into the crowd. “Nice talking to you, Scott,” she said as she passed me by.

In retrospect, it was probably unfair of me to put the dean on the spot like that. She’d only taken the job a few months earlier. Even if she had liked my idea, I’m sure she wasn’t anxious to take such a radical step so early in her tenure. But the fact remains that Wall Street essentially owns business education now, and it continues to buy off academics and universities by hiring graduates, awarding professors lucrative consulting jobs, and sponsoring seminars. As if to hammer this point home, when I flew back to the Bay Area the day after chatting with the new dean at Kellogg, the top letter on the stack of mail waiting for me in my office was an invitation to “The First Annual Goldman Sachs Global Education Conference” down at Stanford, my undergraduate alma mater.

Book is worth reading for those operating in Stock.