Bradford and Bingley

To: The Editor
Published: Asian Voice
Date: 11th October 2008
From: Nagin Khajuria FCCA

Bradford and Bingley bank nationalisation confirmed by Alistair Darling

I refer to your article “Bradford and Bingley bank nationalisation confirmed” by Alistair Darling (AV, 4 Oct 2008, p22). When banks fail, or when confidence in the banking system fails, should Governments take “quick, decisive action”?

How do you value a sinking bank with 2.7 million customers and a £21 billion deposit book? How was £612m value worked out so quickly? What is the net present value of the mortgage debt book the government took over in addition to the £612m it received? 

Is it right that both Management and Government decide within hours of panic that shareholders get nothing? £21 billion deposits could make 1% net in banking activities and £21 billion of loans in non-banking activities could make 2%. Total income could be 3% on £21 billion that is £630 million every year. So has the bank been sold off at one year’s net income? 

A temporary moratorium of three to six months could be imposed during which time the government could guarantee all deposits without any limit only for that particular bank to enable extraction of maximum value while a right price private buyer is sought. Government can also compete with the private sector in a final auction for disposal at a suitable date.

Commercial banks have ventured too far into non-banking activities. . Should not there be a cap on value of non-banking business? Say 25% instead of the current 50%+?

I reviewed this week the 2007 Annual Report of Capital One Financial Corporation, 8th largest commercial bank the USA. 

The segmental Managed Loans, related net income/(loss) and net margins respectively were: Credit Cards US$ 52.1 billion, US$ 2,116m, 4.06%; Auto Finance 25.1 billion, ( 33.8m), ( -0.12%); and Global Financial Services 29.3 billion, 299.4m, 1.02%. Total loans 106.5b, total net income 2,381.9m, and net margin 2.24%. Whereas bank deposits book 73.3 billion, net income 574.2m, a low net margin 0.78%. 

The Balance Sheet did not balance. On top of the 106.5 billion Managed Loans, there were additional Managed Loans of 49.5 billion dollars that were described as “Off-Balance Sheet Securitizations”. These involve transfer of pools of loans receivables to one or more third-party trusts and accounted for as sales, although they are not fully sales.

International finance involves global trade, Foreign Direct Investments and Foreign Institutional Investments. It is very complex. There are 77000 Multinational Companies, 770,000 affiliates, which employ 62 million people and generate US$4.5 trillion in value added.

Both Congress and the House of Representatives should not have approved the 850 billion dollar bail out. US Government should have guaranteed bank deposits without limit but only in those institutions which approach them for help while assessing their true potential over a six months moratorium period.

Strict accounting rules have been developed under Basel II, instigated by Bank of International Settlements (BIS) in Switzerland, the central bank of all central banks of key 100 countries. Under US accounting rules, they were not mandatory for Capital One Bank. 

Nagin Khajuria, FCCA
Director, Simplification Made Simple Limited
Chartered Certified Accountants & Registered Auditors
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Inspired Obama

To: The Editor
Published: Asian Voice
Date: 16th October 2008
From: Nagin Khajuria FCCA

Obama cites Mahatma Gandhi to back his call for change

Your article “Obama cites Mahatma Gandhi to back his call for change” (AV 11 Oct p35) is interesting in the sense the he appeals to the American nation as a whole “to rededicate themselves every day from 2 October 2008, Mahatma Gandhi’s birthday, to 4 November 2008, U S election day.”

For sure, these 33 days are becoming very painful days all over the globe. It was always believed that banks, at least, those which were known to be “first class banks” never, or hardly ever, fail. May be all nations should reflect deeply on change as current system is too costly for 60 to 70% of the world population.

Obama also had two other men he most admired: Abraham Lincoln and Martin Luther King Jr. He took a lot of inspiration from the civil rights movement and the way the movement brought ordinary people in extraordinary positions of leadership. It struck him that lasting change came from the bottom up and not from the top down according to “From Promise to Power” by David Mendel, pages 200-01.

On one hand, we have individuals, businesses and governments who have surplus cash and want to find suitable assets where they can invest their surpluses and make some return for a rainy day. On the other hand, there are individuals, businesses and governments who want to borrow money so that they can make better use of it because of their ability to create real wealth. Financial intermediaries connect these two groups.

Currently, because paper wealth is probably anything between 8 to 24 times the underlying asset and value of a business, an individual, a government, or a country as a whole, it is impossible to figure out where the weaknesses are and where the strengths are. 

One solution could be if competition reform laws were passed where no business could have a larger than 10% share of the market, both in the public sector and the private sector, so that at least there are 20 players competing each other. Banks should be either fully private or fully public owned.

The cost of credit needs to be reduced drastically. This cost is not only the interest rate differential but all the hidden charges and commissions that are paid to financial intermediaries to broker between the savers and the borrowers when big money is raised.

A country’s exchange rate strength is the supply of or the demand for its currency. When exports are more than imports, the demand is higher than supply. When imports are more than exports, the supply is higher than demand. In the former case, the currency becomes stronger. In the latter case, the currency becomes weaker. However, when speculators start hedging on foreign currency rates, the fundamentals are changed. Why not settle imports and exports in the currencies your countries live in rather than use a third country’s currency to avoid the need for hedging in the first place? 

Nagin Khajuria, FCCA
Director, Simplification Made Simple Limited
Chartered Certified Accountants & Registered Auditors
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India and The Global Financial Crisis

To: The Editor

Published: Asian Voice

Date: 1st October 2008

From: Nagin Khajuria FCCA

I do not agree with your headline article “World markets on roller coaster, India sits pretty” (AV, Vol 37, Issue 21, 27 Sept, p1). Indian banks and Indian business have followed herd of G8 nations for too long. They now need to expand deeper into non G8 nations economies, learn other key foreign languages and their business models. The demand from G8 nations is likely to go down for Indian exports. That happened during the Asian crisis in 1997. That was a puncture in the tyre. This is engine failure.

Current events remind me of the proverb: “You can fool some of the people all of the time, all of the people some of the time, but you cannot fool all of the people all of the time.”

Some examples are:

The word “opinion” in Audit Report is fundamentally flawed. It should be “assurance”. Annual reports run into 300+ pages and are impossible to understand by shareholders. It turns out they were useless.

During the quarter ended 30 June 2008, 120 Indian companies set aside RS 8,900 crore for currency fluctuations, exotic derivative products and mark-to-market losses to hedge their exports. Surely, historical accounting is the way forward with any changes in market values (that move up and down 100% every year) to be stated by way of a note only. IFRSs need to be restructured.

By changing interest rates too frequently, central banks and their political masters have knowingly or unknowingly given wrong signals to the market economy. A culture of minute-by-minute speculation in all these products is being nurtured all the time through advanced information technology and communications. 

The world financial crisis is blamed on sub-prime mortgages and very little has been said about the hyper activity of mergers and acquisitions, re-invented by private investment banks during the past 25 years with disproportionate level of debt finance as opposed to equity finance as publicly quoted company board of directors became poorer managers.

All these years a belief has been rammed down our throats that private sector is “efficient” and public sector is “inefficient”. 

As a shareholder of Vodafone plc, I was able to get into their official website two years before Arun Sarin became CEO. The Balance Sheet had an asset value of £100 billion pounds that included goodwill value of £30 billion. 

Based upon my understanding from the accounts, of the company’s future prospects, I sent an email to the Vodafone and the Accountancy Age Letter to the Editor, stating that the Auditor was wrong in signing off the Balance Sheet and justifying keeping the goodwill value on the Balance Sheet based on the next 10 years revenue stream forecast in Note 1.

My letter was not published. Arun Sarin became the CEO two years later and wrote off £28 billion goodwill in the following year. 

Finally, as a policy holder in Standard Life, I was strongly opposed to the concept of demutualisation. Mutual building society concept is a business model India should adopt for India’s housing boom.

Nagin Khajuria, FCCA
Director, Simplification Made Simple Limited
Chartered Certified Accountants & Registered Auditors
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Identity and Non Violence

Letter to the Editor of Asian Voice
Published: 27 September 2008, page 4.

Dear Editor

Common thread of violent deeds and instigations

In the last Asian Voice issue (20 Sept), I read several articles that had a common thread of violent behaviour in thought word or deed on the basis of religious identity: 

• Christians or Maoists killing Swami Laxmananda and his four disciples on the holy day of Janmastami on 23 August 2008 (p11);

• Indian Mujahideen claiming responsibility of 5 Delhi serial bomb blasts killing 30 innocent people last Saturday during holy Ramadan (p1);

• Fatwa issued against Salman Khan’s family for celebrating Ganeshotsav at their home (p29); 

• Yorkshire Coast College changing their college calendar from the terminology “Christmas and Easter breaks” to “End of Term breaks” ostensibly in a bid to avoid offending students from other religions (p7). 

All of us tend to identify ourselves by the society we live in, our culture, our religious and other values and beliefs, our civilisation, etc. There is nothing wrong with that. However, when good relations among different human beings are identified in this singular way to the exclusion of other ways, human beings are deeply miniaturized and deposited into little boxes.

We must realise that all of us have multiple or plural identities. For example, I was born into a Hindu/Jain family in Sudan, a Muslim country. I was educated there by Italian Catholic missionaries (age of 8 to 18). Then I worked up to age 25 at the U S Embassy in Khartoum under Jewish or Protestant bosses. For interests, I went to the British cultural centre to learn Scottish country dancing and to the British Council to watch or take part in plays, such as Dial M for Murder, Importance of Being Ernest, etc.

I never saw people only as Hindus, Muslims, Catholics, Jews, Protestants, Buddhists, etc. Again, I never saw them solely as Italian, American, Arab, Indian, etc. Rather I saw how interesting they were as friends, colleagues, fellow sports players, or other hobbies and interests. 

My best ACCA studies friend was El Hadi El Gibriel who worked at the Ministry of Finance and we studied accountancy together in the evenings. After 40 years, I visited Khartoum in February 2007 and looked him up. He still remembered me and invited me to go to his six two-bedroom block of flats residence on the Tuti Island. This island is right in the middle of the confluence of the White and Blue Nile in Khartoum. The two rivers came from Uganda and Tanzania, joined as one river near the Tuti Island. It proceeded to Egypt from there as one river called the Nile. The view from over the bridge of the confluence was magnificent: blue colour water meeting grey colour water.

He took out a photograph of mine I had gifted to him 40 years ago within 15 minutes of our meeting from about 100 photos he had kept in a Cadburys chocolate round tin box. There were tears in our eyes and we embraced each other. His two wives and six daughters live there in the six flats. The younger wife cooked fresh lunch for both of us. Our only relation was two students helping each other in their studies.

This photograph, with my own handwriting dated on the back, is attached as a living proof of this encounter. I left for UK in that same month of September 1967.

My plea to all fellow human beings is let us embrace all races and all religions and all cultures and open up our minds and enjoy the diversity rather than use it to blow each other up. All including even the Taliban have the right to live and breathe on this planet and no one, I repeat, no one, can take this right away from them. It is the Khyber Pass rather than Taliban that has been of geopolitical interest in Afghanistan since forth century BC when Alexander the Great discovered that route. Then it was Arabs in the seventh century and Jengis Khan in the thirteenth century, followed by the British, then Russians and now Americans.

We now live a global village. All of us have plural identities. Should we not see other human beings in different ways according to the circumstances?

Oscar Wilde once made the enigmatic claim “Most people are other people”. 

With suitable instigation, a fostered sense of identity with one group of people can be made into a powerful weapon to brutalise another. Actively promoted sectarian hatreds can spread like wildfire. 

All people involved in the above four incidents should read economist and Nobel Prize Laureate Amartya Sen’s recent book called “Identity and Violence – The Illusion of Destiny”: they may stop their violent actions in thought, word and deed and embrace other people.

Nagin Khajuria FCCA

Director, Simplification Made Simple Limited
Chartered Certified Accountants & Statutory Auditors
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E-mail: info@c-o-t-m.com FCCA

Tension in Darfur and It's Relevance to Oil Supply Security

Published on New York based website: https://news.glgroup.com/CM/analysis/PostDetail.aspx?pid=16044 on 4 September 2007

“Tension in Darfur and its relevance to oil supply security”

Implications

There is some truth in the fact that the Arab North looked down upon the Black South in the 1950s and 1960s when I grew up in Sudan. Then there was civil war and thousands of lives were lost and there were thousands of refugees. 

But then USA, Europe or United Nations was not all that concerned. Now there is oil in Sudan. Now China is in Sudan. Partly, there is a perception that the current media and European leaders hyper concern about the plight of Darfurians is “crocodile tears”. 

Where were these leaders when the same atrocities happened in the 1950s and 1960s?

Where Black Africans not important then?

The efforts to secure oil supplies should not tarnish the West’s image of fair play by harping too much on the crisis in Darfur. Yes there is some crisis. But it is not brought about by deliberate wrong doing. It is mainly brought about by scarcity of land and resources and poor people fighting with each other for share of a small pie, lack of rain and draught, poor cultivation skills. 

Analysis

If USA and Europe are not extremely truthful in the words and deeds in Darfur, then their efforts will be discredited and they will not achieve the objectives they are hoping to achieve. It will be another Iraq and it will bring discredit to US and Europe.

Nagin Khajuria FCCA

Director, Simplification Made Simple Limited

Chartered Certified Accountants & Statutory Auditors
Co. Reg. No. 03446745
T: +44 (0) 20 8346 3033
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Congratulations to Asian Voice

Editor: Asian Voice

From: Nagin Khajuria

I want to congratulate the Asian Voice editorial team on the amazing variety of topics covered every week for a £30 yearly subscription. It must be the best value for money of any weekly newspaper in the UK by far.

The two articles (p20-21 & p24-25, Careers in Accountancy July 2008, AV 2 Aug) on non-domiciled persons in the UK and tax guidelines on how to cope with the new annual flat rate of £30,000 tax levy to continue having the privilege in living in the UK without declaring their worldwide income makes useful reading.

By sheer coincidence, the above Asian Voice articles published on 2 August were preceded by Accountancy Age weekly magazine leader article “Hartnett gunning for tax haven advisers” on 31 July. The outgoing chairman of H M Revenue & Customs warned there that HMRC would launch criminal prosecutions against accountants who have slashed clients’ money in offshore tax havens to duck paying UK taxes. 

These new rules after 90 years of tax holiday may have indirectly influenced both doms and non-doms, to re-consider their rights and responsibilities in the overseas countries and/or their use of tax havens. It may be fairer to pay their due taxes in the foreign land that is bestowing upon them that income and/or capital gains.

After all, if they pay their taxes overseas, then the foreign tax would be available globally as a credit or offset against UK tax liabilities. Even a U K tax refund is feasible under these circumstances.

£30,000 flat rate grossed up at 40% works out at £75,000 income or capital gain. Up until now, the non-dom has not paid any tax in the foreign country. Suppose the tax is 20% on this £75,000 overseas. The taxpayer pays this £15,000 overseas. 

As a dom, his gross income in UK is, let us say, also £75,000; he adds another £75,000 as his foreign income. He claims £5,000 personal tax allowance, pays 20% on the first £40,000, and 40% on the next £105,000. Total tax payable in the UK is £8,000 plus £42000 that is £50,000, less foreign tax credit of £15,000; he pays £35,000 in the UK and £15,000 overseas.

As a non-dom, the same individual would not declare his income overseas, and pays on UK income of only £75,000. This works out at £5,000 tax free, 20% on the next £40,000 and 40% on £30,000. He pays a total of £20,000 plus a non-dom flat rate tax of £30,000. He ends up again paying £50,000, but with the additional possibility of tax, penalties and interest overseas when he gets found out overseas.

In any case, now is the time to urgently open four separate bank accounts overseas and four separate bank accounts in the UK: 1. Accumulated trading Income overseas up to 5 April 2008; 2. Accumulated capital gains overseas up to 5 April 2008; Accumulated Interest Income overseas up to 5 April 2008; 4. accumulated other savings etc. overseas that cannot be clearly classified for the time being. Same corresponding accounts should be opened in the UK. Movements in subsequent years should strictly follow the above four mirror bank accounts in the UK in future tax years.

Consideration should be given to equalisation of all income, savings and capital overseas among all family members up to 5 April 2008 and a decision taken that the entire family members no longer wishes to consider themselves non-doms. Their next tax returns would confirm that they no longer wish to be in the non-dom category. As income and capital gains are spread over several persons, and as full advantage is taken of personal allowances as well as annul capital gains tax exemption for each family member, the family as a whole may end up paying far less tax than ever before even if they declare all their worldwide income and assets.

Finally, there is a distinction between adults who are under 18 and those over 18. Those under 18 lose personal allowance and capital gains tax exemption but do not have to pay the £30,000 flat rate if a decision is taken to pay the £30,000 for those who are over 18.

Each tax payer or each nuclear or extended family circumstance is unique but the above are at least some useful tax planning guidelines.

Nagin Khajuria, FCCA
Director, Simplification Made Simple Limited
Chartered Certified Accountants & Statutory Auditors
Co. Reg. No. 03446745
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"Deal" Wins

Letter to the Editor Asian Voice

Published on 2 August 2008 on Page 5.

by Nagin Khajuria

‘Deal’ wins

I am really glad that the United Progress Alliance under Manmohan Singh has won over the Bhartiya Janata Party and Communist Party Alliance to get the Indo-US Nuclear Accord ratified by the Indian Parliament.

Originally I was against this Accord. On reflection, I am now in favour. My reasons are as follows:

• India has never been part of the Club of powerful nations. It can now use its influence by being an insider rather than an outsider.

• There are 8 to 9 countries that have nuclear weapons. Other 20 nations could develop such weapons if they wanted to. By agreeing to have India’s nuclear facilities to be inspected by the international community, India is effectively discouraging nuclear weapons proliferation, which is a good thing.

• India knows the damage it can inflict upon itself if it does not realise that there will always be nations who will try to break it by the well known method of divide and rule. Recent bombings in Ahmadabad and Banglore remind us of that. May be we should have a few states in India where meat is prohibited a) to encourage other nations to follow India and b) to discourage violence to animals in addition to humans.

• That is ALSO why the inquiry into vote rigging, bribery of MPs, bullying tactics, should be dropped otherwise those who may have tried to divide and rule India may have succeed sooner than later. 

• The bribery charges against MPs in this voting reminds me of the joke that when other countries complained to God why He had bestowed so much upon India, God responded and told them: “Do not worry; I shall put more corrupt people there.”

• All parties should now stand united about this historic decision and make the most it by expanding its power generation capacity through nuclear reactors.

• The important aspect they should remember is health and safety. The explosion in Chernobyl story is not over yet. Currently they are building a huge aircraft hanger like construction costing 800 million dollars to cover reactor number 4 remains that had exploded 20 years ago. No 1, 2 and 3 were decommissioned in year 2000.

• India must now also concentrate on all other sources of power generation.

• It should get on with power generation through more advanced capture of biomass (plant and animal waste).

• Sea based and lands based wind farms can generate a fair amount of electric power. In Denmark, wind generates about 20% of all its electricity.

• Panels covered with photovoltaic cell capture the sun at a solar park near Leipzig, Germany. With 33,500 panels, it is one of the planet’s largest arrays.

• Solar energy costs have gone down a lot over the past 30 years and further reductions are likely. Some countries have laws requiring new building to have solar energy. 

• When we drove extensively in Andalucía, Spain, a couple of years ago, we so hundreds of wind mills generating electricity for people and/or mass production of tomatoes in hundreds of small green houses, one after another for miles and miles.

• Readers of Asian Voice need to study three very interesting articles I recently came across that argue some of the above points in more depth that I can do here. 

• “Powering the Future: where on earth our energy-hungry society can turn to replace oil, coal, and natural gas? By Michael Parfit; and

• “Living with the Bomb: it has been 60 years since Hiroshima and Nagasaki. Today nuclear weapons stoke nations’ dreams of power and give their citizens nightmares” by Richard Rhodes; (National Geographic August 2005)

• “Inside Chernobyl plus Nuclear Power Reconsidered” by Richard Stone (National Geographic April 2006).

• They all make a lot of sense and we should learn from them.

Nagin Khajuria, FCCA

Director, Simplification Made Simple Limited
Chartered Certified Accountants & Statutory Auditors
Reg. Off. 54a Granville Road, London N12 0HJ
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Rethink Merger Approval

Letter to the Editor of Accountancy Age

Published on 10 July 2008 on page 12:

Rethink merger approval

I fully agree that the 10th anniversary of the merger between Price Waterhouse and Coopers and Lybrand should make us rethink how such mergers are approved (26 June page 1).

At that time I felt very strongly that those from small audit firms should be allowed to also review the 700-page justification document sent to the EU Competition Commission and the fact that Financial Reporting Standards were not fully in place to address global issues and these FRSs should be addressed before merger could be considered.

The recent credit crunch where banks have written off more than US$ 400 billion on long term loans in the past six months indicates that the Big Four, because of their size, have not been able to discover all these weaknesses over the past ten years.

It is not a healthy audit environment. We need about ten big audit firms, especially as the Big Four audit 97% of the world’s major companies.

Nagin Khajuria FCCA

The Shorter and Simpler the Better

Letter to the Editor of Financial Times

Published on 24 January 2008

From Nagin Khajuria

The letter from D. R. Myddelson, emeritus professor of finance and accounting (January 21), calling for much shorter annual accounts and reports makes a lot of sense. Apart making them shorter and including only historical data, companies should use percentages instead of absolute numbers so that ordinary shareholders understand them better.

Nagin Khajuria FCCA

Director

Simplification Made Simple

London N12 0HJ
www.c-o-t-m.com

PWC merger

From: Nagindas Khajuria

Sent: 01 July 2008 13:54

To: 'Accountancy Age Editor'

Subject: Boyle brands PwC merger 'unfortunate'

Sir

I fully agree with Mr Boyle, CE of Financial Reporting Council, that the 10th anniversary of the merger between Price Waterhouse and Coopers and Lybrand should make us re-think how such mergers are approved. At that time, I felt very strongly that outsiders like myself who are from smaller audit firms should be allowed to also review the 700-page justification document that was sent to the EU Competition Commission.

I then argued that the Financial Reporting Standards then were not fully in place to address the global issues, etc. and those should be addressed first and the mergers could be considered a few years later. KPMG and Ernst & Young had also applied at the same time.

The recent credit crunch in the banking sector where hundreds of banks have written off over 400 billion U S Dollars on long term loans, just in the past six months, indicates that the Big Four, because of their size, have not been able to discover all these weaknesses over the past 10 years. It is not a healthy audit environment. We need about 10 big audit firms, esp. as the Big Four audit 97% of the entire world’s major firms.

Your paper may wish to publish my letter dated 7 February 1998 and the EU Competition Commission reply dated 12 March 1998 verbatim in your newspaper. It may make interesting reading for all. Both are attached in PDF format.

Regards

Nagin Khajuria, FCCA

Director, Simplification Made Simple Limited

Chartered Certified Accountants & Statutory Auditors

Reg. Off. 54a Granville Road, London N12 0HJ

Co. Reg. No. 03446745

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