Archive for August, 2012

Made in Kerala
August 4, 2012

Good films are good tidings in unsure places.

A harthal of the red flags welcomed me to Kerala earlier this week. Violent political battles between Communists, Muslim League and RSS have regularly added bloodbath stories to Malabar’s hoary folklore of conquests and sacrifices. The latest public strike protested the arrest of a provincial Left leader in connection with the death of a Muslim League activist.

Kerala has been an unsure place of disturbed social intellect in recent years. Education fuelled mundane well-being propelled orthodox religiosity, egoistic minds and a lacklustre public life. This conservative place quietly embraced several internal upheavals in the past fifty years because of its nurtured minds — lying unattended now.

That’s why a polemic film yesterday inspired me about the Made in Kerala life. Thattathin Marayathu isn’t a classic but a well narrated love story set in north Kerala’s Thalassery. Thecstory of one next door Muslim girl and a Hindu boy amidst the realities and oddities of a literate society. The movie, like another recent screen release Usthad Hotel, weaves Muslim lives into a redeeming mainstream and modern aesthetics.

Malayalam films and literature have done this with ease in the past when Kerala’s social fabric was less complicated and intact. Bad politics, declining leftist rigour (Communists being reduced to just oppressive heat of party machinery) and tame intellect impaired the broader society. I watched with unbridled intensity Kerala’s Muslim sensibilities dropping off the mainstream,  just as the pulling apart of Christian and Hindu sentiments.

Made in Kerala life in more about its perceiving mind space than it’s well marketed landscape of green canopy, meandering backwaters and sandy beaches. It’s been about a moving social intellect which made feudal depravations and purist religious moorings a part of the mainstream lives.

I am desperately hopeful it survives even as Vinod and Ayesha lip locked on the screen yesterday night.

Twilight Years
August 2, 2012

Two good reads in The New York Times kept me pre-occupied about the life of retirees around us — increasingly invisible in an India that boasts of its demographic dividend and a consumption economy thriving on better earning, more confident young spenders. First was a blog about job fairs meant for Bangalore’s skilled 60 plus population. It attracted crowds of aged — not just retirees but even house wives well into their twilight years, says author — exposing the vulnerabilities of our vaunted family system. This, in a city of young technology workers with better paid jobs and relatively high lifestyles.

Second, a report about Japan’s elderly who came off the baby boom years. Japanese Yen has been unprecedentedly strong (against US$) in recent quarters, eroding its famous export industries like automobiles and consumer electronics. But a stronger Yen fetched a better life for retirees living on cheaper imported goods and services. The currency was dividing generations in Japan, says the report, adding that political establishment was wary of upsetting the grey population who vote in large numbers. But it threatens the economic base of the younger Japanese.

An emerging economy drums up its younger people in search of faster progress, and one developed nation wants to reboot growth but worried about antagonizing its older population. Perfect settings in a roiled world. In public life, the politically correct carries the day. My thoughts are with India’s aged (and that’s a huge number given our size) with little or no retirement benefits. Those who pushed a lifetime, struggling relentlessly to make their children better off. They lived a typical, and sometimes wretched, Indian middle class dream.

Read here the two NYT features, starting with the job fairs for old in Bangalore

Bangalore’s Seniors Head to Work as Traditional Indian Family Dissolves

By Saritha Rai

Sheela Rao, 67, has never written a résumé, attended a job interview or used a computer in her life. She has not ever worked in an office. Yet on a recent Saturday, Ms. Rao, a sari-clad, bindi-wearing homemaker, jostled with 1,000 other elders like her, some in their 80s, at a job fair named “Jobs 60+” in Bangalore.

She can cook, sew and teach music, Ms. Rao told anybody who would give her a listen. She is healthy and can work hard, she said. “I desperately need a job and a steady income,” she pleaded with prospective employers.

A job fair for seniors is a paradox in a “young” city where multinational employers from Silicon Valley’s hottest social media firms and top Wall Street banks throng colleges to sign up those in their 20s even before they graduate.

The weekend gathering offered a glimpse into the social upheaval in Bangalore and other large cities where older Indians are buffeted by rising living and health care costs on the one side and fading support from their ambitious, globally mobile children.

Adding to the complexity, many Indians retire at the mandated age of 58 or 60, and social security covers only a sliver of the population.

This generation on the cusp of great change has not programmed their retirement finances properly, said Dr. Radha Murthy, an elder care pioneer and medical practitioner, whose nonprofit Nightingales Medical Trust organized the job fair. It is the first age band wedged between the traditional and the rapidly westernizing.

Ms. Rao has five children, all married, and lives in the home of her oldest daughter, a bank employee. There, Ms. Rao has gradually become confined to two rooms at the back of the house, she said. She cooks for herself and has very little independence. For instance, to listen to music she must wear headphones so as to not disturb the family.

Ms. Rao knows many others in the same boat. Across the street is an older neighbor who pines for the affections of her son who works in the United States.

“Young people these days are arrogant because they earn big money. They are only interested in themselves,” rued Ms. Rao.

The 3,000-rupee ($54) monthly pension she receives after her banker husband’s death is barely enough to survive on, so she makes pickles and snacks to sell in the neighborhood. The income from such exertions too is patchy, so Ms. Rao went to the job fair to look for a steady job and a regular income.

There were dozens of companies looking for accountants, administrators, teachers and insurance salesmen. But, alas, nobody had a job for an elderly homemaker.

The large Indian family has all but disappeared, and the pressures of urban living are being felt in nuclear families, says Ashok Dey, chief executive of an upscale retirement community called Suvidha in the suburbs of Bangalore.

The elderly who expected to be cared for in their old age, as in the generations preceding them, are finding that their busy children are chasing their own careers and ambitions and have no time, inclination or money for them, said Mr. Dey, who said he and his affluent neighbors in the Suvidha community were not in that situation.

Dr. Murthy said, “It is an India where kids no longer want to spend the summer with the grandparents; they would rather spend it at Disneyland.”

At the senior job fair, a dozen young employees from a large multinational bank were volunteers, and they highlighted the age and wage contrast. One of them, Krutika Kuppuraj, 23, an analyst, was overwhelmed by the tales of despair around her. The Indian value system emphasized respect for elders, but that is eroding fast, said Ms. Kuppuraj.

A few of the volunteers were all too aware that the meager monthly pension that some seniors received is the equivalent of what they routinely spend at a cafe on a casual outing.

The massive turnout at Jobs 60+ may have revealed only the tip of the problem because India’s middle class is adept at keeping up social appearances. “Many middle-class Indians will not tell on their kids or let the ‘all-is-well’ facade slip,” said Dr. Murthy.

Until he retired recently, V. Mohan, 64, worked for three decades for a single employer, a university. That day at the fair, Mr. Mohan was not looking for a white-collar job. He was willing to settle for any type of work, he said.

His 6,000-rupee rent ($108) is eating into his 10,000-rupee ($180) pension, and that has made him desperate.

Of Mr. Mohan’s two children, one daughter has recently married and lives with her husband. He is supporting the other as she finishes up her Ph.D. Mr. Mohan insists that he does not want her money when she starts working.

Another recent retiree, Chandrajayanthi Mala, 60, a former medical counselor, was at the job fair because she was already gazing into the future. Her husband is on the verge of retiring. She knows many older people have been dumped by their kids who are in “sophisticated jobs.”

“The future is scary as there is no dignity for elders in the family, no importance to their ideas,” she said.

Her son will soon be married, and she prays that he and his future wife will take care of them. Not willing to totally rely on prayers, however, she decided to join the lines at the fair.

Unfortunately, a cruel outcome awaited many elderly job seekers who did not have any computer or other marketable skills.

In Bangalore, a job market long associated with young, fickle, itinerant workers, the fair’s organizers thought they had a unique proposition: the loyalty, experience and cost effectiveness of older employees.

Yet neither Ms. Rao nor Mr. Mohan made the cut.

Strong Yen is Dividing Generations in Japan

By Martin Fackler

SHIZUOKA, Japan — As Japan has ceded dominance in industry after industry that once lifted this nation to economic greatness, there has been plenty of blame to go around. A nuclear disaster that raised energy costs. A lack of entrepreneurship. China’s relatively cheap work force.
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Increasingly, however, business leaders point to a problem that is at least partly within the government’s power to control: a high yen that has made Japanese products, from televisions to memory chips, prohibitively expensive abroad. In an echo of a debate that raged in the United States in the 1980s, the government faces growing criticism for doing almost nothing to rein in the yen, despite alarm that the record-high currency is dealing crippling blows to the country’s once all-important export machine.

One big reason, analysts and some politicians say, is simple, if generally left unsaid: A high yen benefits Japan’s rapidly expanding elderly population, even if it hurts other parts of the country.

By speeding the flood of cheaper imported products into Japan, the strong yen is contributing to deflation, a broader drop in the prices of goods and services that has helped retirees stretch their pensions and savings. The resulting inaction on the yen, according to a growing number of economists and politicians, reflects a new political reality, with already indecisive leaders loath to upset retirees from the baby boom who make up more than a quarter of the population and tend to vote in high numbers.

“Japan’s tolerance of the strong yen and deflation is rooted in a clash of generations,” said Yutaka Harada, a professor of political science and economics at Waseda University in Tokyo. “And for now, the seniors are winning.”

That victory comes at a high price, however, hastening the hollowing out of Japan’s industrial base as companies continue to move abroad, exacerbating the nation’s two-decade-long economic stagnation.

On Monday, the government released the final draft of a new economic strategy that it contends will help break what it described as a vicious cycle of a strong yen and deflation. But even though the long-awaited plan identifies the heart of the problem as Japan’s aging population and declining export prowess, analysts said the government’s modest approach fails to take on the entrenched interests, including the elderly, that have long stood in the way of fundamental change.

Japan can trace the start of the yen’s latest rise to the worldwide economic panic that began in the United States and spread to Europe. Just before the first tremors of the American housing crisis appeared in 2007, the exchange rate stood at 123 yen to the dollar, as the Bank of Japan kept interest rates low to stimulate growth, and money flowed out of Japan in search of higher returns.

After the crisis began, raising doubts about the soundness of American and European banks and the ability of governments to stand behind them, the tide of money reversed. Japan, with its huge security cushion of domestic savers, became a haven for investors, driving the yen up.

The yen hit a postwar high of about 76 to the dollar in February and today remains not far from that level, trading Wednesday around 78 to the dollar. It would not be easy to reverse the value of Japan’s currency; worldwide macroeconomic trends currently favor a strong yen. Nor are most experts suggesting that consideration of the elderly is the only cause of political paralysis over how to revitalize the economy.

But breaking that stalemate is becoming harder as the elderly’s political clout grows. Even some retirees reveling in the benefits of the government’s inaction see the long-term quandary.

Shigeru Ono, a retired oil company manager who won a small following blogging on deflation’s virtues, can tick off the strong yen’s advantages, including lower prices for shirts made in Vietnam and the Chinese flat-screen television he bought recently. He is also clear on the perils.

“The strong yen and deflation have been a boon for us baby boomers,” said Mr. Ono, 62, who is living on limited savings and a fixed monthly pension of 130,000 yen, or about $1,660. “But I also know that they cannot be good for my son’s generation.”

The office of Prime Minister Yoshihiko Noda has defended the government’s handling of the currency, not only by presenting its new plan, but also by pointing out that companies have been offered $6 billion in subsidies to help them move into higher-end products less affected by competition from other Asian exporters.

The Finance Ministry, meanwhile, has taken small steps to drive down the yen by buying a total of $200 billion worth of United States currency during the last two years. But officials said its efforts were never intended to do more than blunt surges driven by speculators.

A more effective step, economists said, would be for the Bank of Japan to essentially turn on the printing presses, encouraging the currency’s value to drop. The Federal Reserve has done just that in response to the financial crisis and the economic weakness in the United States, keeping down the dollar’s value and helping to foster a strong rise in American exports.

Critics say the central bank’s entrenched bureaucrats have resisted doing something similar in recent years out of an outdated fear of rekindling the rampant inflation in the value of real estate and other assets of the 1980s bubble economy. But the bank argues that it makes little sense to intervene without longer-range economic fixes, like deregulating protected domestic industries to spur competition.

As such debates rage on, the supercharged yen bolsters the ability of Japanese to buy foreign goods and to travel abroad, but continues to eat away at the foundations of the economy, hurting companies from mighty Toyota to small ones like Kyouwa, a manufacturer of factory automation equipment in rural Seki, west of the rust-belt city of Shizuoka.

Kyouwa’s second-generation owner, Ryuji Usuda, said he finally decided, after he lost an important Japanese customer last year to a Korean rival, that he had no choice but to move his production line to a new factory in Vietnam. He said the plant would allow him to make machines for 30 percent to 40 percent less than in Japan.

“Pretty soon, nothing will be made in Japan anymore,” said Mr. Usuda, 40, who noted that many of the Japanese factories he supplied were also moving to Southeast Asia.

Last year, the influx of products from abroad contributed to Japan’s first annual trade deficit in 31 years.

Some members of Parliament, including some from the governing party, have become worried enough to begin organizing a sort of political insurgency, proposing ways to fight the strong yen. But they have made little headway in changing the underlying political calculus.

“The strong yen robs from youth, but there is not much awareness here yet of generational inequalities,” said Keiichiro Asao of the opposition Your Party.

One way to spur such awareness, critics say, would be to allow national pension payments to drop with falling consumer prices, as the law demands. But the government ignored the law for years rather than upset elderly voters.

Last year, it finally took a baby step, slightly trimming pension payments. The loss of just a couple of dollars a month, though, was enough to start Mr. Ono, the blogger, rethinking. “Now I am starting to realize that deflation can be bad, too,” he said.

Culture of Money
August 2, 2012

There is one goldmine opportunity going awry for most banks as more conservative millionaires in Asian countries dump private bankers who messed up managing their wealth. The broader Asian millionaire story — of entrepreneurs who painstakingly built fortunes in newly independent nations — is under 50 years old and it is less than comfortable with institutionalised handling. Big private bankers haven’t made it any easier for themselves in markets like India. Poor staffing, inept research and a certain lack of engagement with money have tested patience of their rich clients. The most important though is a terrible understanding of the culture of money where it has caste, community and regional underpinnings. Managing the wealth of a millionaire in Chennai would be different from managing an infrastructure magnate in Hyderabad or a cash rich technology worker in Bangalore. Then how different it would be to make a play for the wealth of a trading family in Gujarat or a Punjabi business man? Big banks fail on cultural nuances of big money in more conservative places.

Read here a well crafted Bloomberg report

Asian Millionaires Firing Banks to Take Control of Own Wealth

Clinton Ang, the grandson of a gunny- sack seller who emigrated last century from China to Singapore, oversees a fortune valued at almost $80 million for himself and three siblings.

That makes him a target for wealth managers in Singapore, the private-banking capital of Asia. Yet the 39-year-old managing director of Hock Tong Bee Pte, which evolved from his grandfather’s sacks and foodstuff supplier into a purveyor of $6,000 Grand Cru wines, has already fired two bankers and prefers mostly to manage the money himself.

“I am very open to private banks for their propositions, but I want them to be relevant,” said Ang, who’s cut the amount of his family’s money managed by professionals to less than 5 percent from 25 percent three years ago. “We felt we could do better ourselves.”

Disillusionment with investment products and returns has made Asian millionaires such as Ang take greater control of their wealth than rich Europeans. Managers at Credit Suisse Group AG (CSGN), Citigroup Inc. and other banks in Asia have full discretion over clients’ portfolios for just 4 percent of assets under management, according to a June report from Boston Consulting Group. That’s down from 7 percent in 2006. In Europe, it’s 23 percent, rising from 18 percent six years ago.

“Asia’s wealthy lost a lot of trust in their private banks and private bankers during the 2008 financial crisis,” said Peter Damisch, a Zurich-based BCG partner and managing director who co-authored the report.

Less Profitable

For the top wealth-management firms that have made big bets on expanding in Asia, the move by millionaires to control their own assets is translating to lower profits even as the pool managed by professionals continues to grow.

HSBC Holdings Plc, whose private bank had 25 percent more assets in Asia-Pacific region in 2011 than four years earlier, earned less last year than in 2007, according to its annual reports. Net operating income for the private bank’s local operations in 2007 was $748 million on $26.7 billion in assets. In 2011, the same measure fell to $712 million even as assets managed rose to $33.5 billion.

That means, excluding expenses, the private bank earned $2.10 for every $100 of assets it managed in the Asia-Pacific region last year, a 25 percent decline from 2007. That year was historic for market performance and turnover, said Gareth Hewett, an HSBC spokesman in Hong Kong, adding that he didn’t know whether Asia’s shift away from private banking was to blame for lower earnings.

Cultural Differences

“The culture of Asia is such that clients are far more hands-on,” said Akbar Shah, head of Southeast Asia and Australia for Citigroup’s private-banking unit who cites the region’s accumulation of wealth as a reason behind the desire for control.

“Many of them have made a lot of money in the real estate markets in Asia, and these are hands-on markets,” Shah said. “Nobody can tell you — you need a feel for it.”

Asian millionaires, a large proportion of whom have made their fortunes rather than inherited wealth, demand high returns, according to Enrico Mattoli, who heads investment products and services for the richest clients of UBS (UBSN) AG’s Asia- Pacific wealth-management unit.

Affluent Asians have an “aggressive” growth target of an annual nominal rate of 12 percent for the next 10 years, Standard Chartered Plc and Scorpio Partnership said in a report in March after surveying more than 2,700 high-net-worth Asians in nine markets including China, India, Singapore and Hong Kong. The report didn’t provide a comparative number for Europeans.

High Returns

In the run-up to the global financial crisis of 2008, private bankers sold Asian clients products that earned high fees and commissions, such as derivatives with returns that soared when stock prices rose and plunged lower than the market when prices fell, said Liew Nam Soon, a Singapore-based partner at Ernst & Young LLP.

Historic annual returns to global clients at Citigroup (C)’s private bank have averaged about 8 percent to 12 percent since the mid-1980s after adjusting for inflation, Shah said. The New York-based bank and rivals UBS and Credit Suisse, both based in Zurich, don’t report private-banking revenue by geography. The three, along with HSBC, are the top four private banks in the region by assets managed, according to Private Banker International, a publication which tracks the industry.

Slumping Profits

Deutsche Bank AG, Germany’s biggest lender and among the top 10 private bankers in Asia, reported yesterday that pretax profit at its asset and wealth management division slumped 85 percent to 35 million euros ($43 million) in the second quarter. UBS’s earnings from wealth management outside the Americas fell 25 percent from a year earlier to 502 million Swiss francs ($515 million) in the second quarter as lower client activity hurt the bank’s margins, it said yesterday.

UBS reported that assets managed in the Asia-Pacific region since the end of 2008 grew 27 percent to 165 billion francs last year. Mattoli declined to answer questions about the impact of Asian millionaires pulling back their wealth on operations, revenue or profitability.

Asians’ portfolios are “heavily skewed” toward Asian markets where gains have outpaced the rest of the world, according to a February note from Shayne Nelson, chief executive officer of Standard Chartered’s private bank. In the 10 years through the end of June, the BSE India Sensitive Index (SENSEX) had average annual gains of 20 percent, compared with 26 percent for the Jakarta Composite Index. (JCI) The MSCI World Index (MXWO) climbed less than 6 percent annually in the same period.

Negotiating Fees

Banks’ profitability has declined partly because wealthy Asian clients negotiate lower fees to managers. Private bankers are under pressure to reduce them because they only provide advice to multiple customers, rather than bearing sole responsibility for the clients’ portfolios, said Charles Bok, CEO of the Singapore unit of Reyl & Cie SA, a Swiss wealth manager with 5.5 billion francs under management.

Profitability has also fallen due to a drop in commissions on equity and bond trading, which have shrunk amid the global rout in capital markets.

“At the moment, people are not very active in the markets and because of that, trading revenues are down,” said Boston Consulting Group’s Damisch.

His firm estimates that return on assets for private banks in Asia was 65 basis points last year compared with 73 basis points for European institutions. A basis point is 0.01 percentage point.

Interest Disparity

“There is a disparity between banks’ income requirements and clients’ interest,” said Easaw Thomas, another Asian millionaire who manages most of his own wealth and declined to disclose the value of his portfolio.

Thomas, an anesthesiologist who made most of his money in real estate without the help of advisers, drives a S$700,000 ($562,000) Porsche 911 Turbo, owns a wine collection that boasts rare Burgundies, and lives in a 1939 Art Deco house in one of Singapore’s most-expensive neighborhoods off Bukit Timah Road.

“My general impression, after many rounds of disappointing performance, is that private bankers cannot be your lifeline,” said the 67-year-old Indian-origin Singaporean, who has used private banks since the 1980s.

Thomas, the son of a priest in the Mar Thoma Syrian Church of Malabar who immigrated to Singapore when Thomas was a child, said he “grew up with little money in the house.” After making a fortune buying and selling property, he now keeps less than 10 percent of his money with wealth managers, he said, and doesn’t give bankers full discretion.

‘Like Secretaries’

“They are essentially like secretaries who help facilitate a trade that you may want to make,” Thomas said. “I want complete control.”

His house, surrounded by trees from his native Kerala in landscaping that won him an award from Singapore’s National Parks Board, was purchased for S$2.45 million in 1990 and is currently valued at about S$35 million, Thomas said. He bought his first house in 1976 for S$115,000 and sold it four years later for four times the cost.

High-net-worth individuals in Asia had the largest portion of their investable assets tied to property, at 31 percent, according to a March report from Citigroup’s private bank and Knight Frank LLP. In Europe and Russia, the proportion was 16 percent.

Property Affinity

Ang, the wine trader by day, also made his first $1 million from property. When he was studying at Arizona State University in the early 1990s, he purchased 50 apartments of about 950 square feet each at $17,500 a unit in the U.S. with money borrowed from his father. He sold the units for $90,000 apiece in 2000, he said.

In 2009-2010, when the MSCI Asia-Pacific Index (MXAPJ) excluding Japan gained 94 percent, Ang said private banks earned him 20 percent. Investments he made for his family’s wealth yielded 200 percent, he said. An investment in a life-insurance policy in 2008 bought him $10 million of coverage. A comparable policy purchased today would provide $7 million, he said.

“I bought it before any private banker could tell me,” he said, adding that these days every private banker extols the product to him “five times over.”

Young Millionaires

Like Ang, most Asian millionaires are younger than their European counterparts and in the wealth-generating stages of their life, said Simon Grose-Hodge, head of investment advisory in South Asia at Vaduz-based LGT Group, Liechtenstein’s largest bank.

More than 40 percent of Asian millionaires are 45 or younger, according to a report from Capgemini SA and Bank of America Corp.’s Merrill Lynch unit last year. In Europe, less than 20 percent of the millionaires belonged to that age group.

Standard Chartered said in the February note that 63 percent of private banking clients are business owners, “mostly first- or second-generation,” and that the proportion was greater than in Europe.

Asian millionaires who run their own business tend to plow back most of their gains into expansion and seek higher returns from reinvesting, Grose-Hodge said. An Asian entrepreneur typically has 60 percent of his net worth in his business, said Citigroup’s Shah. European millionaires primarily have inherited wealth, said Dominique Joye, CEO of the Singapore unit of LGT.

Shorter Period

Asia-Pacific millionaires outnumbered those in North America for the first time last year, according to a June report by Capgemini and RBC Wealth Management. The number of people with at least $1 million in investable assets in the region climbed 1.6 percent in 2011 to 3.37 million, while high-net- worth individuals in North America dropped by 1.1 percent to 3.35 million, they said.

Asia’s new millionaires also have a shorter time frame for gauging returns generated by their bankers than wealthy European families, which have watched their net worth rise and fall over generations, Citigroup’s Shah said.

“In Europe, the tradition has been to give the private banker discretion,” he said. “The longer you give a portfolio, the better the returns.”

Ang said he asks bankers whether they themselves have invested in the products they recommend.

“They need to be joint stakeholders,” he said. “Otherwise it’ll be like selling me a vitamin that you don’t take yourself.”

To contact the reporter on this story: Sanat Vallikappen in Singapore at vallikappen@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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