Market Outlook 27th Nov 2009

 

NIFTY FUTURE LEVELS
RESISTANCE
5022
5077
5130
5218
5271
SUPPORT
4983
4967
4912
4859

 

Strong & Weak  futures

This is list of 10 strong futures:

Hind Zinc, Jindal Steel, Sesa Goa, Jindal Saw Steel, Gail, PFC, McDowell-N, BPCL, Dena Bank & Orchid Chem.  

And this is list of 10 Weak futures:

RCom, Unitech, Purva, Rel Infra, HDIL, DLF, Bharti Airtel, TTML, RNRL & EKC.

Nifty is in Up trend  

 

NIFTY FUTURES (F & O):  

Above 5022 level, expect short covering up to 5075-5077 zone and thereafter expect a jump up to 5128-5130 zone by non-stop.

 

Support at 4983 level. Below this level, selling may continue up to 4967 level by non-stop.

 

 

Below 4912-4914 zone, expect panic up to 4859-4861 zone by non-stop.

 

 

On Positive Side, cross above 5216-5218 zone can take it up to 5269-5271 zone by non-stop. Supply expected at around this zone and have caution.

 

Short-Term Investors:

Bearish Trend. Stop Loss at 5090.90.

Down Side Target at 4854.40.

 

Today's Expectation:

SGX NIFTY now trading at 4902.00 (07.55 AM IST).

 

This trend is on expected lines. If this downtrend continues, then it can continue for 1 (or) 2 days. Do remember that, it should not cross & sustain at above 4992.65 (NF).

 

If short covering starts, then it can continue up to 1 Day, 1 Month (or) even 1 Year.

 

BSE SENSEX:

Yesterday's fall was surprising. Expected to recover, as per technicals.  

 

Short-Term Investors:

Bullish Trend. Target at 17499.70.

Stop Loss can be placed at around 16666.70.

 

POSITIONAL BUY:
Buy ASSOSC ALCOHOL (BSE Cash & BSE Code 507526) 
Buy with a Stop Loss of 24.65. Above 33.10, it will zoom.
 

Today: Yesterday's rally was a surprise. Bullish, as per current market conditions.

1 Week: Bullish, as per current market conditions.

1 Month: Bearish, surprisingly going up.

3 Months: Bearish, surprisingly going up.

1 Year: Bullish, as per current market conditions.
 
Buy TCFC FINANCE (BSE Cash & BSE Code: 532284) 
Buy with a Stop Loss of 28.50. Above 31.00, it will zoom.
 

Today: Expect Profit Booking.

1 Week: Bullish, as per current market conditions.

1 Month: Bullish, as per current market conditions.

3 Months: Bearish, surprisingly going up.

1 Year: Bullish, as per current market conditions.
 
Buy SATYAM COMPUTER (NSE Cash) 
Uptrend is surprising & Expect Profit Booking.  Buy with a SL of 89.50. Above 97.80, it will zoom.
 

1 Week: Bullish, surprisingly in downtrend.

1 Month: Bearish, as per current market conditions.

3 Months: Bullish, surprisingly in downtrend.

1 Year: Bullish, surprisingly in downtrend.
 
Buy HERO HONDA (NSE Cash) 
Expect Profit Booking. Buy with a SL of 1733.00. Above 1813.00, it will zoom.
 

1 Week: Bullish, as per current market conditions.

1 Month: Bullish, as per current market conditions.

3 Months: Bullish, as per current market conditions.

1 Year: Bullish, as per current market conditions.
 
 
Buy ATLANTA LTD (NSE Cash)

Risk is that, it should not trade & sustain below 165.30 level.

Buy MASTEK LTD (NSE Cash)

Risk is that, it should not trade & sustain below 389.45 level.

 

SPOT INDEX LEVELS

	5005.55	( -2.01 %)	-102.60
		1	2	3
Resistance		5085.98	5166.42	5216.38
Support		4955.58	4905.62	4825.18

	16854.93		( -2.00 %)	-344.02
			1	2	3
Resistance			17102.00	17349.08	17495.64
Support			16708.36	16561.80	16314.72

FUNDS DATA

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	26-Nov-2009	2857.74	2927.94	-70.2

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	26-Nov-2009	1929.59	1779.04	150.55

 

Interesting findings on web:
Source: Bloomberg.

Nov. 26 (Bloomberg) -- India's benchmark stock index fell the most in almost a month after investors judged gains this year as excessive.

Reliance Industries Ltd., the nation's most valuable company, fell 3.1 percent. ICICI Bank Ltd., India's second- largest lender, slid 4 percent.

"A correction was very much warranted after the sharp rally we have witnessed this year," said Navneet Munot, who oversees about $5.5 billion of assets as chief investment officer at SBI Asset Management Co. in Mumbai.

The Bombay Stock Exchange's Sensitive Index, or Sensex, has gained 75 percent this year, set for its best annual performance since 1991.

The Sensex dropped 344.02, or 2 percent, to 16,854.93, the steepest decline since Nov. 3. More than six stocks fell for every one that rose in the index. The S&P CNX Nifty Index on the National Stock Exchange fell 2 percent to 5,005.55. The BSE 200 Index declined 1.8 percent to 2,095.39.

Reliance dropped 3.1 percent to 1,063.75 rupees. ICICI Bank declined 4 percent to 865.50 rupees.

Tata Steel Ltd., India's biggest producer, dropped 3.5 percent to 543.70 rupees after the steelmaker turned to a bigger-than-expected second-quarter loss because of lower prices and production at its European unit Corus Group Ltd. The group net loss was 27.1 billion rupees ($584 million) in the three months ended Sept. 30, compared with a profit of 47.7 billion rupees a year earlier. The average estimate of six analysts surveyed by Bloomberg News was a loss of 12 billion rupees.

State-Run Banks

State-run banks including Dena Bank fell after Reserve Bank of India Deputy Governor K.C. Chakrabarty said yesterday the time isn't right to focus on bank consolidation.

Dena Bank dropped 6.6 percent to 77.8 rupees. State Bank of India slid 2.9 percent to 2,254.65 rupees. Federal Bank Ltd. declined 2.7 percent to 236.65 rupees.

EIH Ltd., which runs the Oberoi brand of hotels in India, rose 4.8 percent to 138.25 rupees after ITC Ltd.'s chairman Y.C. Deveshwar said it may rethink its approach on hostile takeovers if there is a new development in EIH, in which it owns a stake. Max India Ltd.'s founder Analjit Singh last month said he may buy a stake in EIH.

Overseas funds bought a net 3.03 billion rupees of Indian stocks on Nov. 24, the Securities & Exchange Board of India said yesterday. The funds have bought 735.5 billion rupees of stocks since Jan. 1 after withdrawing a record 530 billion rupees in 2008. 

Source: Reuters.

* Dubai debt worries weigh down world markets * BSE index drops 2 pct; ICICI Bank falls 3.7 pct * Tata Steel trims losses on better 2nd half hopes

Indian shares fell 2 percent on Thursday, the most in more than three weeks, led by losses in banks as investors unwound positions on the last day of monthly

derivatives taking cues from lower world markets. Debt problems in Dubai raised fresh concerns about the global financial system and send banks sliding in Europe.

"Our market was pulled down as global markets were in the red," said Kunal Sukhani, manager of institutional equities at Asian Markets Securities. "Investors were unwinding their long positions in banking

and metal stocks on expiry," he said.

Private-sector ICICI Bank (ICBK.BO: Quote, Profile, Research) shed 3.7 percent to 865.50 rupees while larger rival State Bank of India (SBI.BO: Quote, Profile, Research)

fell 3 percent to 2,252.95 rupees. The 30-share BSE index .BSESN dropped 344.02 points to 16,854.93, its lowest close in a week. Twenty-six components lost ground. "The rally in Indian market this year was mostly driven by

gush of liquidity," said Ved Prakash Chaturvedi, managing director of Tata Asset Management. "So if there is a trend reversal in global liquidity, we could see trouble." The BSE index has risen three-quarters this year on the

back of foreign portfolio inflows of more than $15 billion. Reliance Industries (RELI.BO: Quote, Profile, Research), which has the most weight in the index, fell 2.9 percent to 1,064.60 rupees as the energy major began trading ex-bonus. The company had set one bonus

share for every held. Tata Steel (TISC.BO: Quote, Profile, Research) trimmed losses to 3.3 percent at 543.45 rupees after the world's No. 8 steel maker said, said it expects a sharply better performance in the second half of the

financial year.  The stock had fallen as much as 5.9 percent during trade after the company reported a consolidated quarterly net loss, hurt by the weak performance of its European unit Corus.

Outsourcer Infosys Technologies (INFY.BO: Quote, Profile, Research) shed 1.9 percent to 2,386.85 rupees as investors took profits after the bellwether touched an all-time high on Wednesday. Mahindra Satyam (SATY.BO: Quote, Profile, Research) fell to a four-month low, beforerecovering, on concerns over its outlook after investigators filed new charges over accounting fraud that hit Satyam earlier this year.  Cigarette-to-hotel group ITC (ITC.BO: Quote, Profile, Research) lost 2.9 percent to 261.10 rupees, after 259,923 shares changed hands in blockdeals on the National Stock Exchange at 266.35 rupees. ITC is open to raising its holding in EIH (EIHO.BO: Quote, Profile, Research), whichruns the Oberoi hotel chain, newspapers reported on Thursday, citing ITC's chairman.  EIH closed 4.5 percent higher at 138.60 rupees.

In the broader market, losers were more than double the number of gainers on relatively lower volume of 349 millionshares. The 50-share NSE index .NSEI fell 2 percent to 5,005.55. STOCKS THAT MOVED * Drug makers Sun Pharmaceuticals (SUN.BO: Quote, Profile, Research), Dr. Reddy's(REDY.BO: Quote, Profile, Research) and Ranbaxy (RANB.BO: Quote, Profile, Research) rose 0.8-1.8 percent on defensive buying, dealers said.

* Dena Bank (DENA.BO: Quote, Profile, Research) fell 6.5 percent to 77.75 rupees after a central bank deputy governor said on Wednesday the time had not come for consolidation of banks.

MAIN TOP 3 BY VOLUME * Mahindra Satyam on 30.1 million shares * IFCI (IFCI.BO: Quote, Profile, Research) on 12.1 million shares * Suzlon Energy (SUZL.BO: Quote, Profile, Research) on 9.1 million shares.

Source: India Infoline.

It seems like fatigue and F&O expiry took its toll on the bulls today. The key indices were attempting to break out of a range where the correction had set-in last month. Lack of any events in the near term, which could trigger a big push towards new highs brought the indices lower.

Also, weakness in European markets following a sharp decline in Chinese stocks triggered a sell-off on Dalal Street in the afternoon trades.

The BSE Sensex lost 344 points to end at 16,854 after touching a high of 17,202.51. The NSE Nifty lost 103 points to close at 5,006.

Among the BSE sectoral indices, banking (2.64%), oil&gas (2.3%), consumer goods (2.24%), realty (2.11%) and IT (1.97%) stocks were the major losers respectively.

The BSE Mid-Cap index ended lower by 1.45% while the BSE Small-Cap index was down by 0.98%. Among the 30-components of Sensex, Hindustan Unilever, Sun Pharma, ACC, Hero Honda were among the top gainers.  Top losers in Sensex were Reliance Industries, ICICI Bank, Tata Steel, M&M and SBI.

Indian stock market breadth was extremely negative and pared early morning gains as traders squared off positions on the settlement day of November series.

Private banking stocks declined sharply despite of government planning to move a bill early next year to amend a banking law for allowing foreign investors in private banks to have voting rights in proportion to their shareholdings. ICICI Bank dropped by 4%. HDFC Bank slipped by 2% and Axis Bank slipped by 2% to Rs997. 

Tata Steel lost over 3% after it reported a consolidated net loss of Rs2,707cr in Q2 September 2009. Net sales fell 42.8% to Rs2,5270cr in Q2 September 2009.

Auto stocks fell on account of profit booking. Maruti, Mahindra & Mahindra and Tata Motosr were among the top losers.

Profit booking was seen in shares of Uttar Pradesh-based sugar companies, which  rose on Wednesday. State's sugar mill association signed an agreement with the sugarcane farmers on the price for the ongoing season (October-September 2009-10). Balrampur Chini, Bajaj Hind and Dhampur Sugar have lost in the range of 2-3%.

Source: Kotak Securities.

Among the Sensex pack 26 stocks ended in red territory and 4 in green. The market breadth indicating the overall health of the market remained negative as 1877 stocks closed in red while 864 stocks closed in green and 76 stocks remained unchanged in BSE.

The BSE Sensex closed lower by 344.02 points or (2%) at 16,854.93 and NSE Nifty ended down by 109.65 points or (2.15%) at 4,998.50. BSE Mid Caps and Small Caps closed with losses of 94.13 and 74.77 points at 6,399.03 and 7,530.49 respectively. The BSE Sensex touched intraday high of 17,202.51 and intraday low of 16,808.87.

India''s food inflation increased to 15.58% for the second week of November from 14.55% in the previous week. The rise is mainly due to potato prices, which have more than doubled in the past one year. The prices of potato more than doubled, pulses became expensive by over 35%, while onions rose by 27% on an annual basis.

Losers from the BSE Sensex pack are Reliance Industries (51.47%), ICICI Bank (3.74%), Tata Steel (3.34%), M&M Ltd (3.10%), SBI (3.01%), ITC Ltd (2.85%), Maruti Suzuki (2.54%), Reliance Infra (2.47%), HDFC Bank (2.41%), Wipro (2.22%), TCS (2.20%), DLF Ltd (2.18%), NTPC Ltd (2.09%), JP Associates (2.02%), Infosys Tech (1.92%), HDFC (1.85%), Hindalco (1.59%), Tata Motors (1.37%), L&T Ltd (1.20%) and RCom (1.20%).

Gainers from the BSE Sensex pack are HUL (0.81%), Sun Pharma (0.78%), ACC (0.72%) and Herohonda (0.61%).

The BSE Bank index was at 2,928.47 up by 41.60 points or by (1.44%) The main gainers were IC up by (1.93%) at Rs.268.75, Nestle India up by (1.88%) at Rs.2588.05, Hindustan Unilever up by (1.75%) at Rs.284.35, Colgate Palmolive up by (1.43%) at Rs.682.45, Godrej Cons up by (1.29%) at Rs.286.4.

The BSE BANKEX index was at 10,061.72 down by 273.1 points or by (2.64%) The main losers were Icici Bank down by (3.74%) at Rs.865.5, Union Bank down by (3.47%) at Rs.271.25, Idbi Bank down by (3.23%) at Rs.121.3, Sbi down by (3.01%) at Rs.2252.95, Oriental Bank down by (2.66%) at Rs.274.05.

The BSE CD index was at 3,442.59 down by 78.87 points or by (2.24%) The main losers were Titan Inds down by (3.71%) at Rs.1280.7, Blue Star down by (2.16%) at Rs.338.15, Rajesh Exports down by (1.33%) at Rs.77.75, Videocon Inds down by (1.3%) at Rs.235.1, Gitanjali Gems down by (0.43%) at Rs.115.6.

The BSE REALTY index was at 3,634.22 down by 78.3 points or by (2.11%) The main losers were Indiabulls Real down by (4.29%) at Rs.201.7, Phoenix Mills down by (3.96%) at Rs.179.3, Mahindra Life down by (3.42%) at Rs.336.15, Anant Raj Inds down by (2.95%) at Rs.135, Dlf down by (2.18%) at Rs.354.25.

The BSE IT index was at 3,712.52 down by 112.24 points or by (2.93%) The main losers were Indiabulls Real down by (5%) at Rs.210.75, Hdil down by (4.55%) at Rs.320.15, Phoenix Mills down by (3.16%) at Rs.186.7, Dlf down by (2.91%) at Rs.362.15, Ansal Prop down by (2.73%) at Rs.65.9.

The BSE IT index was at 4,764.38 down by 95.91 points or by (1.97%) The main losers were Patni Computer down by (2.99%) at Rs.442.45, Oracle Fin down by (2.84%) at Rs.2112, Wipro down by (2.22%) at Rs.632.1, Tcs down by (2.2%) at Rs.688.1, Moser Baer down by (2.06%) at Rs.78.35.

NTPC fell 2.09%. As per reports, the government is considering cancelling the power PSU''s Rs 2,000-crore contract with a Russian equipment firm Technopromexports (TPE).

Hindalco Industries Ltd dropped by 1.59% regardless of the company raised about Rs. 2,900 crore through private placement of shares to qualified buyers.

Infotech Enterprises Ltd slipped 2.81% % despite reports the company is set to acquire at least two companies in the US.

EIH Ltd zoomed 4.52% on reports buzz that cigarette maker ITC is open to raising its stake in the company after media reported that investor Analjit Singh plans to buy another 17% in EIH.

SREI Infrastructure Finance Ltd lost 4.45%. A joint venture of the company is planning to set up a 400 megawatt power plant in Haldia, West Bengal, for an estimated cost of Rs. 1,800 to Rs. 2,000 crore.
 
Dubai's debt problem

Dubai World said it would seek a "standstill" agreement to delay repayment on much of its $59 billion of debt. 

Dubai World, controlled by the emirate's ruler, Sheikh Ahmed Bin Saeed Al-Maktoum, borrowed from more than 70 lenders to buy assets ranging from stakes in Las Vegas casino company MGM Mirage to London-traded bank Standard Chartered Plc through Istithmar PJSC. The request for a postponement includes $3.52 billion of bonds due Dec. 14 from property unit Nakheel PJSC.

(Source: Bloomberg)
 

INVESTMENT VIEW
Infotech Enterprises-Growth Plans
 

GIS solutions mid-cap Indian IT concern Infotech Enterprises is likely to acquire to two companies in the US during the current financial year.

- The buyouts could be in the range of USD 10 - 20 million each; this would be funded from the cash surplus of the Company.

- The Company is looking to acquire candidates that could complement its domain knowledge and add to its present strengths.

- The Company's focus inspite of the on-going recession remains on improving its presence in the US.

- The growth excercise would involve an addition of another 500 engineers during the current financial year to it's bench strength.
 

(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)
 
 
Real Estate-Unreal World

Looking at the US, Indian Investors piling on money into fancy homes and commercial property, must realise they are feeding the seeds of an on-coming massive bust-up which will pull down stocks and Banks.

 

When Goldman Sachs (GS) sold complex bonds backed by the Arizona Grand Resort and other commercial properties in 2006, it suggested the returns would be strong. The 164-acre luxury Arizona Grand, set against the Sonoran Desert in Phoenix, boasted an award-winning golf course, deluxe spa, and several swank restaurants.

 

The on-site water park was named one of the best in the country by the Travel Channel. With the resort's new owners planning to refurbish hotel rooms and common areas, Goldman told investors that the renovations would help boost cash flow.

 

As was so often the case during the real estate boom, the lofty projections didn't pan out. When the economy softened and business travel slumped, Arizona Grand's bookings slipped to 67%, from 80%. The resort defaulted on the $190 million underlying loan in 2009—a hit that alone could largely wipe out investors who bought the riskier pieces of the Goldman mortgage-backed securities deal.

 

"It's one of the largest losses we have forecasted for an individual loan," says Steve Kuritz, a senior vice-president at Realpoint, an independent credit-rating agency. The property, once valued at $246 million, is now worth just $93 million. A spokesman for Goldman says the pricing on the bonds was in line with market levels at the time and not above what investors could get on similar securities. Grossman Co. Properties, which owns Arizona Grand, didn't return calls for comment.

 

It would be easy to write off this blowup as just another casualty in the regular boom-and-bust cycle of the $6.4 trillion commercial real estate market. But the Goldman deal, with its unrealistic assumptions, multiple layers of investors, and stratospheric prices, helps illustrate why this downturn is more complicated than previous ones—and will turn out to be far costlier.

 

Already, prices have plunged 41% from the peak in 2007, according to Moody's/REAL Commercial Property Price Index—worse than the 30.5% fall in the housing market from its 2006 apex. "We've never seen this extreme a correction as far back as the data go, which is the late 1960s," says Neal Elkin, president of Real Estate Analytics, the research firm that created the index. Adds billionaire investor Wilbur Ross: "Commercial real estate has gone from being highly liquid at sky-high prices to being extremely illiquid at distressed prices."

 

To appreciate why this bust is like no other, first consider the typical commercial real estate downturns that used to crop up every 5 or 10 years. The pattern was predictable: When prices for apartment complexes, office buildings, shopping malls, and other properties began to rise, developers sped up their projects to cash in on the bull market.

 

Eventually, some of those developers, unable to fill all the new space, began to default on their loans, and lenders were stuck with the buildings they'd financed. The slump lasted no longer than the time it took for the property glut to be worked down. 

TURNING A BLIND EYE

But overbuilding isn't the culprit in this bust. An oversupply of money is what pushed commercial real estate over the edge.

 

It turns out the same excesses that drove the housing market's crazy rise and fall were present in commercial real estate, too—but they have largely gone unnoticed until now. Bankers, in their haste to make more and bigger loans, blindly accepted borrowers' wildest growth assumptions and readily overlooked other shortcomings on loan applications.

 

They did so in part because they could easily sell their dubious loans to investors in the form of commercial mortgage-backed securities. As the market overheated, it became a breeding ground for fraud: A flurry of new court cases reveals the disturbing extent to which commercial mortgage borrowers may have doctored loan documents.

 

While the housing crisis seems to be easing, the commercial storm is still gathering strength. Between now and 2012, more than $1.4 trillion worth of commercial real estate loans will come due, according to real estate investment firm ING Clarion Partners.

 

Analysts at Deutsche Bank (DB) estimate that borrowers will have trouble rolling over as many as three-quarters of the loans they took out in 2007, the most toxic vintage. For the banks and investors whose money fuels the economy, this presents major problems.

 

Their losses will likely cast a shadow over lending—and, by extension, the overall economy—for years. The market won't fully recover until 2020, says Kenneth P. Riggs Jr., CEO of Real Estate Research, and in cases where "values were over the top...maybe never."

 

In the short term, toxic securities are creating a new problem weighing on the market: a tangle of interconnected investors fighting over the remains of the properties they own. In the past the damage was limited to a handful of lenders who invested directly in any given project.

 

Now there can be dozens of groups of investors, each with its own agenda. The April bankruptcy of shopping mall owner General Growth, one of the largest real-estate-related bankruptcies ever, affected hundreds of parties—an unprecedented slicing and dicing of assets. These investors won't soon forget the bust and aren't likely to dive back into the market as aggressively as they once did.

 

And yet the securities are only a secondary problem. The main driver of the commercial real estate bust is the underlying loans. How frothy did the market get? In one notable example, New York investment fund Sterling American Property and real estate company Hines paid $281 million in 2007 for the 42-floor office building at 333 Bush St. in San Francisco.

 

That worked out to $518 a square foot, far higher than today's price, according to Real Capital Analytics, a research firm. Less than two years later, the building's primary tenant, law firm Heller Ehrman, filed for bankruptcy and stopped making rent payments. According to Real Capital Analytics, the building's owners did not make a recent loan payment, and the lender is expected to begin foreclosure proceedings. Says a spokesman for Sterling and Hines: "[We] continue to own and operate the property."

 

What's striking is how quickly some big commercial deals have gone south. In April 2007, Charney FPG, a New York real estate partnership, paid about $180 million to buy a 22-story office building in Manhattan's Times Square district. It borrowed $202 million to pay for the purchase, renovations, and incidentals—111% financing.

 

Because the rental income didn't cover the debt payments, Comfort's lenders, Wachovia and RBS Greenwich Capital, required the firm to set aside $10 million in reserves to keep the project afloat until it got more paying tenants. Those occupants never materialized, and by July the owners had exhausted 95% of their reserves. The building is now in jeopardy of being seized by the bankers, says Real Capital Analytics' head of research, Dan Fasulo. "Everyone knows Judgment Day is coming." Says a Charney spokesman: "The owners are in the midst of restructuring the debt." Wachovia and RBS declined to comment.

 

Commercial lending mirrored mortgage lending in another way: Loans were made based on an unshakable belief that the market would never go down. An analysis by research firm REIS of mortgage securities created between 2005 and 2008 found that income projections for properties exceeded their historical performances by an average of 15%. "It was all based on assumption of cash flow," says Howard S. Landsberg of New York-based consultant Weiser Realty Advisors.

 

"If you couldn't afford to pay the bank back now, in three years you could count on another $20 a square foot" in rent. When the numbers didn't add up, some lenders got imaginative. Says a banker at a large Wall Street firm: "If the cash flow wasn't there, you had to ignore it or find ways to create it."

 

Some lenders may have drummed up business for themselves, enticing borrowers with more money than they needed. Consider Credit Suisse's (CS) $375 million loan to the Yellowstone Club in Big Sky, Mont., one of the starkest examples of poor underwriting in recent memory. Opened in 1999 by Timothy L. Blixseth, a welfare kid turned timber magnate, the private ski and golf club catered to the ultra-wealthy crowd.

 

Microsoft (MSFT) founder Bill Gates and Tour de France champion Greg LeMond built multimillion-dollar vacation homes there. In 2005 a Credit Suisse banker approached Blixseth about a loan, which the banker compared to "a home equity loan," according to bankruptcy court documents. Blixseth initially turned down the offer. But after several calls and a personal visit to Blixseth's home near Palm Springs, Calif., the banker persuaded Blixseth to borrow $375 million in the name of the club. According to court papers, the two decided the transaction fee by coin flip; Blixseth won, agreeing to pay 2%. 

"WILD, OUT-OF-CONTROL SPENDING"

But not all of the funds were earmarked for the club. The deal allowed Blixseth to use up to $209 million of the proceeds "for his own personal benefit," according to the bankruptcy court papers. In a civil lawsuit filed by Yellowstone investors and homeowners, the plaintiffs say Blixseth used some of that money to fund a lavish lifestyle, including the purchases of a 20-seat Gulfstream corporate jet, two Rolls-Royce Phantoms, and three Land Rovers.

 

His ex-wife, Edra Denise Blixseth, may have benefited from Credit Suisse's largesse, too. In a legal declaration filed in a Montana court, Timothy Blixseth notes her "wild, out-of-control spending." Among her extravagances, he alleges, was a "divorce celebration party" with "a voodoo doll game whereby the guests could poke pins in a life-size doll in my image to inflict pain on my various body parts."

 

Timothy Blixseth's attorney says his client used the "vast majority" of the funds for business purposes. Blixseth, the attorney says, plowed money into an international expansion plan, including the purchase of "golf and resort properties in Mexico, the Caribbean, and elsewhere," as well as the Gulfstream jet. Edra Blixseth could not be reached for comment.

 

While Blixseth was busy spending the money, Yellowstone was struggling under the weight of its debt. Vendors often went unpaid for three months or longer, according to bankruptcy court testimony. In November 2008, Yellowstone filed for bankruptcy protection.

 

"The only plausible explanation for Credit Suisse's action is that it was simply driven by the fees it was extracting from the loans it was selling and letting the chips fall where they may," said Ralph B. Kirscher, a federal bankruptcy judge in Helena, in a May court decision. Timothy Blixseth's attorney says the bankruptcy was prompted by his client's divorce proceedings. A spokesman for Credit Suisse says: "We worked on behalf of the institutions that held this loan." (The judge vacated his decision after the bank agreed to settle with Yellowstone's new owners, which include money manager Cross Harbor Capital Partners.) 

RED FLAGS GALORE

The banks were hardly the only freewheeling players during the credit boom. The fast-and-easy lending environment was fertile territory for alleged fraudsters. In 2007 Prudential Financial lent $13.9 million to Namir A. Faidi, a Houston developer who planned to use the money to pay off construction loans on Piazza Blanca, a Mediterranean-themed shopping complex in Galveston, Tex. Faidi dipped into the project's reserve fund to make the first loan payment but failed to make any more.

 

After that, Prudential concluded that some of the leases he'd submitted weren't legitimate. According to a civil suit filed in federal court by Prudential, Faidi's loan papers included a signed lease from time-share giant Bluegreen, a purported tenant that would occupy 26% of the space. But when Prudential contacted Bluegreen after the default, it learned it had backed out of talks and never signed a rental agreement.

 

In court proceedings, a Bluegreen employee said the signatures on the documents weren't his. Another supposed tenant, Mia Group, said in court filings that the lease on file for the restaurant company was invalid because it was signed by a business associate who didn't have authority to do so.

 

"He was a few leases short of what he needed to get the loan," says Andrew F. Spalding, a Houston attorney who is representing Prudential. "I'm sure his thinking was just like that of most other developers: Even if the tenants were fake, he figured he could still fill that space in no time with someone else."

 

An attorney for Faidi, Robert A. Axelrad, says the disputed lease for Bluegreen was arranged by an outside broker. He acknowledges that the loan application included future rent payments from Bluegreen, but he says the figures were meant to be "pro forma" estimates based on the possibility of Bluegreen occupying the space. "My client says he never saw the lease and never represented there was a lease," says Axelrad. Faidi filed for personal bankruptcy in September. The civil case is ongoing.

 

Glaring problems that normally would have raised red flags seemed to be in plain sight of loan officers during the credit boom. Phoenix entrepreneur John J. Wanek appeared to have the right credentials when he applied for a $6.5 million loan from Merrill Lynch to buy the Ashberry Village Apartments in 2002.

 

The sprawling ranch-style complex in Columbus, Ohio, would be the latest addition to his small, Midwestern real estate empire. He had never missed a payment on a half-dozen similar properties. And the rent rolls Wanek provided showed that more than 90% of Ashberry's units were occupied. After Wanek defaulted within six months, Merrill concluded that it had been duped.

 

It claimed in a civil suit filed in a Franklin County (Ohio) court that Wanek had altered the rent-roll numbers to make the complex look more profitable. Merrill, which is now owned by Bank of America (BAC), contends that the complex was nearly one-third vacant at the time, and that Wanek had "grossly understated" the operating expenses. According to the suit, Wanek had inflated the numbers to get a bigger-than-necessary loan and used the extra money to cover back payments on other apartment buildings. 

Even if the allegations are true, Merrill should have seen the warning signs. According to the suit, after applying for the loan, Wanek told Merrill he would transcribe data from the previous owner's supposedly illegible rent rolls into easier-to-read spreadsheets. In the process, he boosted many figures to suspiciously round numbers. Wanek also overstated his equity in the real estate he posted as collateral and listed some of his parents' assets as his own. 

An attorney for Wanek, Mark C. Collins, says his client recreated the rent rolls—with Merrill's approval—only because his office had been burglarized and many records stolen 10 days before closing. "He prepared those numbers as best he could off the top of his memory," says Collins. "The proper due diligence wasn't done by anyone, but they want to make the buyer the scapegoat." Wanek, who filed for bankruptcy shortly before he lost the civil case in January 2006, now faces criminal fraud charges from the Franklin County prosecutor.

 

All told, Merrill and the lenders on Wanek's other properties have lost $38 million. His parents, two retired schoolteachers, had to file for bankruptcy as well. "Lenders were willing to underwrite on his record and the revenue stream of the property," says David D. Ferguson, an attorney who represented Merrill. "But it was a scheme doomed for failure.

(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)
 

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Arvind Parekh

+ 91 98432 32381