GLOBAL FINANCIAL MELTDOWN:

CAUSE AND EFFECT ANALYSIS

Author: Tejas Bhatt

 Introduction:
Strategic Importance of International Marketing
• Last year’s international trade in merchandise exceeded US$10.5
trillion and services is estimated at around US$2.4 trillion.
• ‘Global Youth Culture’ – teenagers now account for 30 per cent of
the population globally.
• Global Majors like Nike, Coke, Gap and Sony Walkman, Sega,
Nintendo and the Sony Play station are aggressively targeting
Youth.
• The top 500 companies in the world now account for 70 per cent
of world trade and 80 per cent of international investment.
• The global marketplace is no longer the summation of a large
number of independent country markets but much more
multilateral and interdependent, economically, culturally and
technically.
“Bigger than the Great Depression of1929”
 The sub prime crisis: Cause & Effect
Subprime lending is the practice of making loans to borrowers who do
not qualify for market interest rates owing to low credit history,
employment income etc.

The value of U.S. subprime mortgages was estimated at US$2.5 trillion.

Boom and Bust in the housing market

Between 1997 and 2006, American home prices increased by 124%.

U.S. household debt as a percentage of income rose to 130% during

2007, versus 100%.
An estimated 8.8 million homeowners — nearly 10.8% of total
homeowners — have zero or negative equity as of March 2008.
Bankruptcy/Takeover flavor of the season
Bear Stearns was acquired in March 2008 by J.P. Morgan Chase for $1.2
billion.

Fannie Mae and Freddie Mac. would be placed into conservatorship

government control.

Merrill Lynch was acquired by Bank of America in September 2008 for

$50 billion.

Lehman Brothers declared bankruptcy on 15 September 2008.

The Fed provided an emergency loan of $85 billion to AIG, giving the US
government a 79.9% equity stake at AIG.

Washington Mutual taken over by JPMorgan Chase.

Citi Bank, GM and Chrysler on the brink of Bankruptcy.

GLOBAL ECONOMIC OUTLOOK 2009-10
Emerging Sinking
economies Economies
ASIA AND THE UNLUCKY NUMBERS

INDIA
5.1 %

SINGAPORE CHINA
-5% 6.7%

ASIA’S
GDP IN
HONG
KONG
2009-10 JAPAN
-2.6%
-2.4%

SOUTH
KOREA
-4%
INDIAN COMPANIES ON MERGERS AND
ACQUISITION SPREE
“WHAT’S THE BIG DEAL IN IT?”

TOTAL NUMBER OF M&A DEALS IN 2007 STOOD AT 676 WITH A

TOTAL VALUE OF RS 2.14 LAKH CRORE ($51.11 BILLION).

THE BIG, THE FAMOUS AND THE FAILED ACQUISITIONS

TATA MOTORS-FORD’S LAND ROVER, JAGUAR
HINDALCO-NOVELIS
SUZLON-REPOWER
RANBAXY-DAIICHI SANKYO
TATA STEEL-CORUS
TATA MOTORS-LAND ROVER & JAGUAR:

Why did Ford sell them?

Deal Size: US$ 2.3 Billion
Main Business is Light Trucks and Mini Vans
Ford reported loss of $12.6 billion in 2007
SO WHAT’S WRONG WITH THIS
DEAL?
(A)GLOBAL FINANCIAL MELTDOWN
(B)HOW DID TATA MOTORS FINANCE THIS DEAL?
1) BRIDGE LOAN
2) RIGHTS ISSUE WHICH FAILED MISERABLY.
3) BANK LOANS WHICH HAD LUKEWARM
RESPONSE.
4) FIXED DEPOSIT SCHEME WHICH TURNED FUTILE.
5) STOCK PRICE:DOWN FROM Rs.700 to Rs.140
 TATA STEEL-CORUS:
A Visionary deal or a costly blunder?
DEAL SIZE:US$12 BILLION
TATA STEEL PAID 9 X EBITDA OF CORUS WHILE MITTAL
PAID 4.5X EBITDA OF ARCELOR
HIGH DEBT IN BALANCE SHEET
COMMODITY PRICES DOWN 50%
MAJOR DEMAND DISRUPTIONS
HOW TO INTEGRATE TWO DIVERSE CULTURES?
TATA ASKED FOR A BAILOUT FROM UK GOVERNMENT
ARE INDIA’S POMPOUS CELEBRATIONS OVER?

Manufacturing is likely to
Agriculture is set to grow
expand by 4.1 % against
by 2.6 % against 4.9 %.
8.2 %.

FY 09-10

Financial, Insurance and Trade, Hotels, Transport

Real estate are set to and Communication is
grow by 8.6 % against projected to grow by
11.7 %. 10.3 % against 12.4 %.
So is India really immune?

Indian Banks
reluctant to lend

Indian Inc. The Great

forced to show Indian Retail
‘Pink Slips’ Story fizzles out

The Coveted
Rupee
MBA tag loses
Depreciation
shine.

FMCG, Pharma
to rescue
economy.
 Recommendations for Discussions,
Elaboration and action:
Regulatory Framework
Establish and rectify the loopholes present Regulatory systems
and periodically review them periodically.

Finance
Lower down the interest rates to spur housing demand and
consumer spending.

Taxation
Raise the Tax bracket for people and provide tax reliefs to
boost the purchasing power.

Public Spending and Investment

Massive infrastructure spending should be the prime objective
of the Government.
THE GAME PLAYERS WILL CHANGE:
THE SUPER POWERS IN MAKING:
 SPECIAL THANKS:
RBI REPORT

IMF REPORT 2009

McKINSEY QUARTERLY REPORT

FINANCIAL TIMES

HARVARD BUSINESS REVIEW

B SHIVARAMAN

GOLDMAN SACHS

WIKIPEDIA

CNBC TV 18
THANK YOU
TEJAS BHATT