Dear colleagues,
As you know, we are experiencing turbulent times in the financial markets… But I am confident that this should be an opportunity for Citi, as it has been in our past.
— Vikram Pandit, CEO,
Citi Group
AIG's asset management business in India is well-capitalised. We continue to be fully dedicated in discharging our fiduciary responsibility towards our unit holders
— Ravi Mehrotra,
Head of Asia Management Companies, AIG Investments.
There is no change in the status of the debentures issued by DSP Merrill Lynch (DSPML) Capital. The principal protection features as well as all the other terms of the debentures have not changed.
— DSP Merrill Lynch's official communication to asset management companies.
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Last week saw Wall Street face its biggest crisis since the Great Depression of 1929. The 158-year-old Lehman Brothers collapsed, Merrill Lynch was taken over by Bank of America and the Federal Reserve injected $85 billion in AIG to help it survive. Today, both Morgan Stanley and Goldman Sachs have given up their investment banking status and been allowed to undertake commercial banking, bringing them under purview of the Federal Reserve.
In times like these, when the financial industry is reeling under the pressure of scepticism, communication has become the most important tool for financial services providers. Hence the flood of emails to associates, employees and investors.
The mutual fund industry has been especially proactive. With over Rs 5.4 lakh crore (August 2008) of investor wealth at stake, all asset management companies (AMCs) want to play it safe.
Last Tuesday, when Merrill Lynch was taken over by Bank of America, mutual fund distributors were flooded with phone calls about the safety of their money in DSP Merrill Lynch Mutual Fund. And DSPML Mutual issued a communication to distributors declaring that the Merrill Lynch stake was sold to Blackrock earlier this year. After all, its assets under management (AMC) in India are almost Rs 20,000 crore.
Other companies with foreign tie-ups that have not been impacted by the crisis (at least so far) have also got into the act. Sample this: Birla Sun Life, which manages over Rs 37,000 crore, has issued a letter from Chief Investment Officer A Balakrishnan clarifying that their portfolios contains only highly-rated papers all across their schemes, including the latest hit in the industry – fixed maturity plans (FMPs). The letter goes on to state that Birla Sun Life does not have any exposure to Lehman Brothers, including derivatives exposure.
ICICI Prudential's Chief Executive Officer Nilesh Shah has issued a note declaring their safety of investor’s wealth. The company's portfolio management services (PMS) has a couple of products where the gap risk is being guaranteed by Lehman Brothers' Indian subsidiary.
The fear has spread among Indian AMCs as well. Reliance Mutual Fund, which manages Rs 88,000 crore, has also issued a note to its PMS clients because it holds debentures issued by Merrill Lynch. The letter explains that the debentures are not under any threat from Merrill's takeover.