Wednesday, January 7, 2009

Did Credit Crunch Claim Satyam?

man standing on a pile of fake coins
Satyam is imploding as I type out this blog.
The chairman of Satyam Computers has resigned. In his letter to the board of directors he has confessed that the balance sheet was inflated.
Consider this ...
In the September (Q2) 2008, the balance sheet showed an operating margin of 24% as against merely 3% of the revenues. The balance sheet shows an accrued interest of Rs 376 crores, which is non-existent.
In his letter, the chairman says "it was like riding a tiger, not knowing how to get off without being eaten."
Breaking news on all channels indicate that all major clients are washing their hands off Satyam. They are terminating their services.
So, why was this disclosure made now? Is it just because "tremendous burden I am carrying on my conscience" as stated in the letter? Or do you think this is a domino effect of the aborted Maytas deal?
Actually it is nothing of that sort. And this is my understanding ... though I cannot prove it.
Scams operate well when there is plenty of cash around; when banks are more than willing to part with cash where ever they see profit coming in. But when cash is tight and the banks are less than willing to provide loans, the bottom falls off and scams are exposed. Case in point: Madoff and his Ponzi scheme.
And I bet that if every thing was fine and there was no cash crisis this would have gone for a very long time.
Watch out for this space. If the credit crisis prolongs you will see more such skeletons tumbling out.
So in a way such crisis is good. It has a purgatory effect on a system. Rotten apples are exposed and that actually helps the system overall in long run.
And if you see an expert telling you that credit crisis was the reason behind the Satyam implosion, remember you read it here first!

Question: Who are their accountants?

Note: The picture used here belongs to Tory Byrne. To see more pictures, visit her gallery.

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Sanoop said...

Have never indulged in financial discussions, so please excuse if the viewpoints are considered illogical. Till recently Satyam was regarded as a safe bet for investors with it showing a high quarterly profit when most of the others in its domain had registered losses or near-losses, and now all hope for a Satyam revival has been squashed by this "confession". I agree Mr. RR atleast confessed blah blah but doesn't this invoke doubts in the minds of other investors who would have invested in small-time companies? Won't they be provoked to withdraw their investments? Wouldn't new investors reconsider their already "recession-affected mindset" of investing in the shares of smaller companies? Wouldn't this lead to a whole new tsunami of a recession wave again for Indian companies? Won't this cause a mistrust among prospective foreign clients? Am keeping everything crossed such that this may not happen, and I do sincerely hope that the people mentioned by RR in his "now famous" letter, manage to minimise if not stabilise the negative effects caused by this fiasco. 1 last word... Its ironic that a company named "Satyam" has resorted to such 'asatyam' techniques which has led us to believe that "There is nothing Satyam about it" :"""""-(

Patil said...

You can fool some people all the time
Tou can fool all people for some time
But you can not fool all the time all the people.
If the company is not built on ethical policies, they will soon find themselves near to hell soon.
Pity those Engineers who wanted to make a career there.

Yogeesh said...

Maytas is Satyam in reverse!

Amit Desai said...

The auditors are PWC and the news is one of the. directors of PWC has is being questioned by CID.

Yogeesh. thats an interesting observation on maytas.

my question would be.. who is the next satyam ??

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